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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to .
Commission file number: 0-26518
FITZGERALDS GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0329170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 FREMONT STREET, LAS VEGAS NV 89101
(Address of principal executive offices) (Zip Code)
(702) 388-2224
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Cumulative Redeemable Preferred Stock, $.01 par value
Common Stock Purchase Warrants
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period than the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 15, 1998, there was no voting stock held by
non-affiliates of the Registrant. As of March 15, 1998, the number of
outstanding shares of the Registrant's Common Stock was 4,012,846.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index located on Page 48
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FITZGERALDS GAMING CORPORATION
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
PART I............................................................................................................2
ITEM 1. BUSINESS..................................................................................................2
General........................................................................................................2
Operating Strategy.............................................................................................3
Historical Development.........................................................................................4
Properties.....................................................................................................4
Other Gaming Assets............................................................................................8
Competition....................................................................................................8
Employees.....................................................................................................10
Trade Names, Trademarks and Service Marks.....................................................................11
Governmental Regulation.......................................................................................11
ITEM 2. PROPERTIES...............................................................................................17
ITEM 3. LEGAL PROCEEDINGS........................................................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................19
PART II..........................................................................................................19
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................................19
ITEM 6. SELECTED FINANCIAL DATA..................................................................................21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................................................33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................34
PART III.........................................................................................................35
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT..........................................................35
ITEM 11. EXECUTIVE COMPENSATION..................................................................................39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................44
PART IV..........................................................................................................45
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.........................................45
SIGNATURES.......................................................................................................46
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Fitzgeralds Gaming Corporation (the "Company") is a diversified
multi-jurisdictional gaming holding company that owns and operates four
Fitzgeralds-brand casino-hotels, located in downtown Las Vegas, Nevada
("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica,
Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds Black
Hawk"). In addition, the Company has an exclusive agreement through May 2000 to
manage the Cliff Castle Casino, ("Cliff Castle"), a gaming facility in Camp
Verde, Arizona, owned and operated by the Yavapai-Apache Indian Nation. The
Company markets its properties primarily to middle-market customers, emphasizing
its Fitzgeralds brand and its "Fitzgeralds Irish Luck" theme. As of December 31,
1997 the Company operated a total of 4,114 slot machines, 118 table games and
approximately 1,500 hotel rooms in its Fitzgeralds-brand properties.
In August 1997, 101 Main Street Limited Liability Company ("101 Main") issued
$38.0 million 13% First Mortgage Notes due 2000 (the "101 Main Notes"). Of the
net proceeds, 101 Main loaned $27.3 million to Fitzgeralds Black Hawk II, Inc.
("FBHI-II"), a wholly owned subsidiary of Fitzgeralds Black Hawk Inc. ("FBHI"),
to acquire the remaining 78% membership interest in 101 Main. The remainder of
the proceeds was used to retire certain existing indebtedness secured by assets
of 101 Main and for general corporate purposes. The Company, through FBHI, had
owned a 22% membership interest in 101 Main since February 1996 and had managed
Fitzgeralds Black Hawk since its opening in May 1995.
In December 1997, the Company issued $205.0 million 12 1/4% Senior Secured Notes
due 2004 (the "Senior Secured Notes"). Of the $202.6 million net proceeds, the
Company used $123.0 million to retire its 13% Senior Secured Notes due 2002 (the
"Retired Senior Secured Notes"), $5.4 million to retire its 13% Priority Secured
Notes due 1998 (the "Priority Notes"), $39.7 million to retire the 101 Main
Notes; and approximately $20.1 million to retire other secured indebtedness. Of
the remaining proceeds, $8.7 million was used for expenses of the offering and
$5.7 million was applied to accrued interest totaling approximately $10.6
million at December 30, 1997.
The Company currently conducts substantially all of its business through wholly
owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds South, Inc.
("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly owns and operates
Fitzgeralds Reno; FSI owns and operates Fitzgeralds Las Vegas and Fitzgeralds
Tunica through wholly owned subsidiaries; and FI owns and operates Fitzgeralds
Black Hawk through wholly-owned subsidiaries, including 101 Main. FI also
manages Cliff Castle through its 85%-owned subsidiary Fitzgeralds Arizona
Management, Inc. ("FAMI"). In addition, through its 85%-owned subsidiary
Fitzgeralds New York, Inc. ("FNYI"), FI is receiving a fee in consideration of
work performed prior and subsequent to the opening of the Turning Stone Casino
in Verona (near Syracuse), New York, owned by the Oneida Indian Nation.
The Company has received an offer to purchase the Nevada Club Casino, located in
Reno, Nevada, from an unaffiliated party and closed the property in December
1997 in anticipation of the pending sale.
Unless the context otherwise requires, the "Company" refers to Fitzgeralds
Gaming Corporation and its subsidiaries. The Company was incorporated in Nevada
in 1994 to serve as a holding company. The
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executive offices of the Company are located at 301 Fremont Street, Las Vegas,
Nevada 89101; telephone (702) 388-2224; facsimile (702) 382-5562.
OPERATING STRATEGY
The Company's ongoing operating strategy is to increase profitability by
utilizing its national gaming brand and fully integrated player tracking system
to further penetrate the middle-market customer base and by capitalizing on the
competitive strengths of its four Fitzgeralds-brand properties. The Company's
operating strategy is characterized by several principal elements including:
Development of National Gaming Brand
The Company has developed a national gaming brand by using a consistent Irish
Luck theme throughout the casinos, hotels, restaurants and bars at all of its
Fitzgeralds-brand properties. The Irish Luck theme incorporates various aspects
of Irish folklore, such as leprechauns, horseshoes, four-leaf clovers, the
Blarney Stone and a pot of gold at the end of a rainbow, as well as Irish music.
The Company believes that its theme creates an exciting and comfortable
environment together with a distinctive brand identity for customers. The Irish
Luck theme allows the Company to capitalize on its belief that every casino
guest wants to feel lucky and, by associating luck with the Fitzgeralds name,
"Fitzgeralds Irish Luck" becomes unique.
Middle Market Customer Focus
The Company provides a high-quality casino entertainment experience at an
affordable price to attract the middle market guests which it believes
constitute the largest segment of potential gaming customers whom the Company
can then identify, qualify and target for direct marketing activities. The
importance of friendly and efficient service is stressed continuously through
extensive employee training. The Company's approach to business includes
personal contact with trained hosts, moderately priced food, beverages, and
lodging and the use of the Fitzgeralds Card as part of a frequent player
recognition program. The Company believes that such an approach to business
provides a comfortable, "Lucky" environment designed to promote customer
loyalty, a high rate of repeat business and the basis for the further
development of its national brand.
Emphasis on Slot Play
The Company emphasizes slot machine play, which it believes to be the fastest
growing and most profitable segment of the casino entertainment business. The
increasing popularity of slot machines is due, in part, to the continuing rapid
technological development that is resulting in the replacement of mechanical
devices with advanced interactive electronic games. These newer games offer
greater variety, higher payouts and
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longer periods of play for the casino entertainment dollar relative to simple
mechanical devices. Subject to the availability of financing, as to which there
can be no assurance, the Company intends to continue investing in
state-of-the-art machines and related equipment and systems, such as bill
acceptors, player tracking, and continue replacing older models with the most
current product offerings in an effort to maximize revenue.
HISTORICAL DEVELOPMENT
The Company and its senior management have been active in the development of
facilities in new gaming jurisdictions. The Company's senior management team has
an aggregate of over 50 years of diversified multi-jurisdictional gaming
experience in competitive markets.
The Company's ability to expand in the future will depend upon a number of
factors including, but not limited to: (i) the identification and availability
of suitable locations, and the negotiation of acceptable purchase, lease, joint
venture or other terms; (ii) the securing of required state and local licenses,
permits and approvals, which in some jurisdictions may be limited in number,
(iii) political factors; (iv) the risks typically associated with any new
construction; and (v) the availability of adequate financing on acceptable
terms, particularly in light of restrictive covenants in certain debt
instruments (relating to the Senior Secured Notes) which may limit the Company's
ability to obtain such financing. As a result, there can be no assurance that
the Company will be able to expand to any additional locations or, if such
expansion occurs, that it will be successful.
PROPERTIES
The Company currently owns and operates two Nevada properties (Fitzgeralds Las
Vegas and Fitzgeralds Reno), one Mississippi property (Fitzgeralds Tunica) and
one Colorado property (Fitzgeralds Black Hawk). In addition, the Company
manages, under a contract expiring in May 2000, an Indian-owned gaming facility
in Camp Verde, Arizona (Cliff Castle).
Fitzgeralds Las Vegas
Fitzgeralds Las Vegas is located on the city block bounded by Fremont, Carson,
Third and Fourth Streets at the Fremont Street Experience in downtown Las Vegas.
The property is accessible via Interstate 15 and US 95 and markets to Las Vegas
tourists, numbering approximately 30.4 million in 1997 and, to a lesser extent,
to the approximately 1.1 million residents of the Las Vegas valley. The 34-story
building recently underwent an approximately $19.4 million refurbishment of the
hotel and remodeling and expansion of the casino which was substantially
completed in December 1996. At December 31, 1997, the facility contained a
638-room hotel (including 14 suites) and a casino offering 1,067 slot machines,
28 table games, a 48-seat keno lounge and a sports book (operated by a third
party). Fitzgeralds Las Vegas amenities include four restaurants, three bars, an
ice cream parlor, a special events center, a gift shop and an entertainment
area. Fitzgeralds Las Vegas includes a 323-space parking structure and an
adjacent surface area parking with an additional 76 spaces.
In September 1995, the Company entered into a 13-year franchise license
agreement with Holiday Hospitality Franchising, Inc., ("HHFI") to operate the
Fitzgeralds Las Vegas hotel as a Holiday Inn commencing in July 1996. Subject to
the terms and conditions of the agreement, the Fitzgeralds Las Vegas hotel has
been included in the Holiday Inn Worldwide Reservation System and has use of
Holiday Inn copyrights, trademarks and similar proprietary rights used by other
Holiday Inn licensees. The Company is the exclusive licensee of Holiday
Inn-branded hotels within the defined territory encompassing downtown Las Vegas.
The Company pays a monthly royalty based on a percentage of Fitzgeralds Las
Vegas revenues
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from room rentals after deduction of sales and room taxes and a portion of
complimentary rooms. The Company also pays marketing, reservation and similar
fees based on such revenues or the number of rooms.
Las Vegas continues to grow rapidly and is one of the world's largest tourist
destinations. In order to more fully participate in that growth, eight downtown
gaming companies, including the Company, opened the Fremont Street Experience in
November 1995 to revitalize the central core of the downtown Las Vegas gaming
district. The Fremont Street Experience converted five blocks of Fremont Street
into a "must see" attraction that restores and enhances the intimacy and visual
excitement of downtown Las Vegas. The Fremont Street Experience includes a
pedestrian mall, shops, restaurants and entertainment beneath an approximately
1,500-foot long, 90-foot high Space Frame, which incorporates approximately 2.1
million lights to offer a number of "Sky Parade Light Shows," as well as a
number of special events and festivals. In addition, there have been extensive
sidewalk and street improvements and the construction of an approximately
1,400-space parking structure. An adjacent retail shopping block is expected to
open by the end of 1999. With its appeal to adults, together with its location
on Fremont Street, the Fremont Street Experience is distinguishable form other
Las Vegas attractions and draws both locals and tourists who might not otherwise
visit the downtown area.
Fitzgeralds Tunica
Fitzgeralds Tunica is located in north Tunica County, Mississippi, approximately
30 miles from downtown Memphis, Tennessee. Fitzgeralds Tunica is designed as an
Irish castle and is the focal point of a heavily wooded 121-acre Company-owned
site situated by the Mississippi River. The Fitzgeralds Tunica casino opened in
June 1994 at a cost of approximately $46 million. In 1996, the facility was
expanded to include a hotel and related amenities, which improvements were
substantially completed in October 1996 at a cost of approximately $34 million.
At December 31, 1997, the facility included a 507-room hotel, special events
center, indoor swimming pool and a casino offering 1,208 slot machines and 41
table games, two bars, three restaurants and a gift shop.
The Company has developed Fitzgeralds Tunica into a full-service entertainment
destination and has been able to increase and diversify its customer base by
attracting, in addition to its local customers, independent travelers,
tour-and-travel customers and guests for special events and conventions. The
Company expects that a new casino trolley system, which commenced operation in
December 1997, and a new-inter-casino connector road anticipated to open by June
1998, will increase exposure and customer traffic to Fitzgeralds Tunica by
increasing accessibility. Subject to the availability of financing or adequate
cash flow, as to which there can be no assurance, the Company also plans to
expand and improve the restaurants and casino in 1998, including the addition of
approximately 100 slot machines to meet increased weekend demand, as well as the
installation of its fully integrated player tracking system.
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Fitzgeralds Reno
Fitzgeralds Reno is located in downtown Reno on the corner of Virginia Street
and Commercial Row next to the landmark Reno Arch. Fitzgeralds Reno recently
renovated its front entrance and continues to renovate and upgrade its hotel
rooms. At December 31, 1997, the facility consisted of a 16-story, 351-room
hotel and a casino offering 863 slot machines, 32 table games, a 100 seat keno
lounge and a sports book (operated by a third party). Fitzgeralds Reno amenities
include three restaurants, three bars, an entertainment lounge and a gift shop.
Fitzgeralds Reno leases a portion of a nearby 850-space parking garage to
provide 345 parking spaces for guests. The lease expires on December 31, 1998.
Although the Company has historically been able to renew the lease on an annual
basis, the loss of the use of such parking facilities would put Fitzgeralds Reno
at a disadvantage with its competitors who have parking facilities.
The Fitzgeralds marketing strategy is to capitalize on the high level of
pedestrian traffic surrounding the facility, which is located in the heart of
downtown Reno adjacent to the landmark Reno Arch. Fitzgeralds Reno maintains
active sidewalk marketing programs aimed at attracting pedestrians into the
casino. To further increase Fitzgeralds Reno's appeal and convenience, the
Company completed construction of an enclosed temperature-controlled, themed
pedestrian bridge (the "Rainbow Skyway"), which connects the sidewalk located
across the railroad tracks near the entrance to the Eldorado Hotel and Casino to
the upgraded second floor casino of Fitzgeralds Reno. Fitzgeralds Reno guests
entering via the Rainbow Skyway step into a themed "Lucky Forest" and are
greeted at the Fitzgeralds Card Center. The second floor of the casino has been
further upgraded with the addition of new slot machines and specialty table
gaming products and a renovated restaurant in anticipation of increased traffic
flow from the Rainbow Skyway. The cost of the Rainbow Skyway was approximately
$2.3 million, of which $1.0 million was funded by the Union Pacific Railroad
with the balance being borne by the Company. The Rainbow Skyway was opened to
the public on February 7, 1998. The Rainbow Skyway was constructed over air
rights which were acquired by the Company from the Southern Pacific Railroad.
Such air rights may be subject to a claim of ownership (or claim of an ownership
interest) by the United States of America. Although the Company believes it is
unlikely that the United States of America would, in a manner adverse to the
Company, exercise any right, title, or interest it may hold or obtain in the air
rights parcel, no assurance can be made that such an exercise will not occur.
Fitzgeralds Reno is planning to continue refurbishing and upgrading the rooms
and the hotel exterior. The renovation program is expected to be funded by
internal cash flow or will be funded by a variety of lending sources. Subject to
the availability of sufficient cash flow and financing, of which there can be no
assurance, the renovation program is expected to be completed by the summer of
1998. The Company believes that the recent renovation of the front entrance and
hotel rooms will further increase visibility and improve operations. In
addition, the Company continues to upgrade its slot and specialty table game
products in conjunction with its currently installed fully integrated player
tracking system.
Fitzgeralds Black Hawk
Fitzgeralds Black Hawk is located adjacent to the entrance to the gaming area of
Black Hawk, Colorado, next to the Gilpin Casino and across the street from
Bullwhackers. Fitzgeralds Black Hawk consists of a two-story building, the
interior of which features high ceilings and other architectural details which
sets it apart visually from other Black Hawk casinos. At December 31, 1997, the
main floor casino offered 518 slot machines, 12 table games, a restaurant, a bar
and an entertainment area. The second floor is mostly unfinished and is being
partially used for offices and storage. Fitzgeralds Black Hawk also has a
400-space, all valet parking garage, adjacent to the casino, which is currently
the only covered parking in Black Hawk and which differentiates the property
from its competitors. According to the Rocky Mountain News, Denver metro
residents voted Fitzgeralds Black Hawk as having the "Best $1 Slots" and "Best
$5 Slots" and
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its restaurant as having the "best" variety, kitchen, desserts and full service
dining among the casinos located in Colorado, which allows Fitzgeralds Black
Hawk to advertise these awards and further differentiate itself from its
competitors.
The Company is currently in the process of designing a two-phased addition to
the existing Fitzgeralds Black Hawk facility. The first phase would include
expanding the existing casino and related areas, including the installation of
elevators and escalators, and building two additional floors of parking over the
existing garage ("Phase I"). The new building would occupy the adjoining empty
lot and replace two existing office buildings owned by the Company, a portion of
which is subject to leases which run through August 1998. Construction on the
Phase I expansion is expected to start in May 1998, subject to receipt of all
requisite permits and approvals, of which there can be no assurance. Although
final plans and specifications and a detailed budget for Phase I are not
currently available, constructions costs are estimated at approximately $6
million for the casino expansion, parking expansion of approximately $1.0
million, plus an additional approximately $1.5 million for gaming equipment. The
second phase would include adding approximately 70-80 hotel rooms over the
expanded garage and additional utilization of the second floor gaming area
("Phase II"). No plans or budgets for Phase II have yet been developed. The
Company has no commitments for any financing or the requisite permits, licenses
and approvals necessary for such an expansion. No assurance can be given that
such financing and approvals will be sought or received.
Cliff Castle Casino
Cliff Castle, which opened in May 1995, is a Class II and Class III gaming
facility owned by the Yavapai-Apache Indian Nation ("Yavapai Nation") on tribal
land in Camp Verde, Arizona. Camp Verde is located approximately 75 miles north
of Phoenix, 45 miles south of Flagstaff, and 25 miles southeast of Sedona,
Arizona. The 75-acre site is adjacent to Interstate 17, a major business and
tourist route linking Phoenix to Flagstaff and the Grand Canyon. At December 31,
1997, Cliff Castle offered 458 slot machines, 5 poker tables, a bar and a
restaurant.
The Company, through an 85% owned subsidiary, FAMI, currently has a management
agreement through May 2000 (subject to earlier termination under certain
circumstances) pursuant to which it manages Cliff Castle. Under the terms of the
FAMI Management Agreement, FAMI is entitled to receive a management fee based on
a percentage of Net Revenues (as defined, a figure which approximates pre-tax
income) of the casino ranging from 10% to 19%, provided that the Yavapai Nation
is entitled to receive a minimum payment of $500,000 per month ("Minimum
Payment"), which payment is guaranteed by FI. However, the FAMI Management
Agreement may be terminated by FAMI if such payment guarantee is required to be
made from a source other than the gross receipts of the casino for more than
three consecutive months. Since the opening of Cliff Castle, the Yavapai Nation
has received more than the Minimum Payment each month. The Company received
approximately $2.6 million and $3.6 million in management fees from Cliff Castle
for 1996 and 1997, respectively.
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Certain Hotel Operating Information
The following table on Fitzgeralds hotel operations is provided as additional
supplemental information:
As of December 31, 1997
<TABLE>
<CAPTION>
Room
Average Revenue/
Date Number of Renovation Renovation Occupancy Average Available
Hotel Year Built Acquired Rooms Year Amount Rate Room Rate Rooms
----- ---------- -------- ----- ---- ------ ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Las Vegas 1979 Nov. 1987 638 1996 $3,475,835 89.7% $38.37 $34.40
Tunica 1996 N/A 507 N/A -- 89.3% $48.65 $43.12
Reno 1978 Dec. 1986 351 1998/99 $2,240,000 90.2% $46.56 $42.02
</TABLE>
OTHER GAMING ASSETS
Nevada Club
The Nevada Club is located on Virginia Street across the street from Fitzgeralds
Reno. The Company has owned and operated the Nevada Club since 1988. Due to the
Company's desire to focus its Reno activities on its Fitzgeralds-brand property,
the Company has actively sought a buyer for the Nevada Club since early 1995. In
the fall of 1997, the Company received an offer to purchase the Nevada Club from
an unaffiliated party and closed the casino in December 1997 in anticipation of
the pending sale. Although it is currently anticipated that the sale will close
by June 1998, no assurance can be given that the sale will be completed.
Verona, New York
In April 1993, the Company entered into a Technical Assistance and Management
Agreement with the Oneida Indian Nation of New York to provide loans and
technical and consulting services to develop, open and manage, for five years,
Turning Stone Casino, a Class III casino in Verona (near Syracuse), New York.
The casino was opened in July 1993 under a consulting agreement with FNYI, an
85% owned subsidiary, and Mr. Philip D. Griffith, the Company's President and
Chief Executive Officer. However, prior to final approval of the Technical
Assistance and Management Agreement by the NIGC, the Oneida Nation elected in
early 1994 to self-manage the facility. In consideration of the work performed
by the Company prior and subsequent to the opening of the casino, FNYI entered
into a settlement agreement, dated as of March 30, 1995, pursuant to which FNYI
is receiving from the Oneida Indian Nation 48 monthly payments of $133,333 ($6.4
million in the aggregate), commencing retroactively as of August 1, 1994. Such
payments will cease in August 1998.
COMPETITION
There is intense competition among companies in the gaming industry, many of
which have greater name recognition and financial and marketing resources than
the Company. In addition to the regional competitors described below, the
Company competes with gaming facilities nationwide, including land-based casinos
in Nevada and Atlantic City, not only for customers but also for employees and
potential future gaming sites. The Company also competes, to some extent, with
other forms of gaming on both a local and national level, including
state-sponsored lotteries, on and off-track wagering and card parlors, among
others. The recent and continuing expansion of legalized casino gaming to new
jurisdictions throughout the United States has affected competitive conditions
faced by the Company and will continue to do so in the future.
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Nevada Operations
Fitzgeralds Las Vegas competes primarily with other downtown casino properties,
casino properties located near the Nevada/California state line and certain
facilities located on the Las Vegas Strip. The Company also believes that it
competes, to a lesser extent, with the local neighborhood casinos and
casino-hotels on the Boulder Strip and in the Laughlin market.
The Las Vegas market is highly competitive. The Company has experienced
competition from new and existing Las Vegas casino-hotels which have sought to
attract some of the same "middle-market" players and tour and travel visitors
targeted by Fitzgeralds Las Vegas. The Company anticipates continuing increased
competition for these customers. Moreover, two substantial new properties have
opened on the Las Vegas Strip within the past two years and several additional
major new projects have been announced or are under construction on or near the
Las Vegas Strip, in addition to several casinos catering to local residents.
These new properties, as well as any other major additions, expansions or
enhancements to existing properties by the Company's competitors, could have a
material adverse impact on the Company's business.
Fitzgeralds Reno encounters strong competition from other hotel and casino
facilities in the Reno area, as well as competition from gaming establishments
in other areas of Nevada and, to a lesser extent, other jurisdictions in the
United States where gaming has been legalized (including Indian gaming
establishments). Fitzgeralds Reno competes with other properties principally on
the basis of location and direct marketing.
Additional competition may come from the expansion or construction of other
hotel and casino properties or the upgrading of other existing facilities in the
Reno area. There can be no assurance that such growth will not adversely affect
the pricing policies at Fitzgeralds Reno, including the room pricing policies.
In addition, management believes that the introduction of casino gaming, or the
expansion of presently conducted gaming activities (particularly at Indian
establishments) in areas in or close to Nevada, such as California, Oregon,
Washington, Arizona or western Canada could have an adverse impact on operations
at the Company's Las Vegas and Reno properties and, depending on the nature,
location and extent of such operations, such impact could be material.
The Company's ability to maintain its competitive position in Las Vegas and Reno
will require the expenditure of sufficient funds for such items as updating slot
machines to reflect changing technology, periodic refurbishing of rooms and
public service areas and replacing obsolete equipment on an ongoing basis. There
can be no assurance that the Company will generate sufficient internal funds or
obtain sufficient additional financing to fund such expenditures.
Mississippi Operations
Fitzgeralds Tunica competes primarily with eight other dockside gaming
facilities in the Tunica area, five of which are approximately one mile north of
Fitzgeralds Tunica and three of which are approximately four miles south of
Fitzgeralds Tunica. At this time, the Company is not aware of any new entrants
to the market.
In addition to the substantial competition in the immediate vicinity of
Fitzgeralds Tunica, the Company competes with other Mississippi operations.
Additionally, the Company could face competition for Memphis, Tennessee and
Little Rock, Arkansas customers from surrounding areas. There can be no
assurance that the State of Tennessee or the State of Arkansas will not in the
future legalize casino gaming.
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In November 1992, and again in November 1996, De Soto County, the
northwestern-most Mississippi county and the nearest to Memphis, Tennessee,
voted against authorizing gaming activities. Arkansas voters also voted against
gaming in the November 1996 election. Because Fitzgeralds Tunica is heavily
dependent upon the patronage of Memphis residents and tourists, the opening of
gaming casinos in Tennessee or in other locations closer to Memphis could
materially and adversely affect the Company's operations.
Colorado Operations
Competition is intensifying in Black Hawk. Various published reports detailing a
number of new gaming projects have been announced for Black Hawk, with
completion of one such significant project anticipated in 1998 and another in
1999. Some of these projects will be larger than Fitzgeralds Black Hawk, will be
operated by companies with greater resources and will be located at the eastern
(closest to Denver) end of Black Hawk at the first major intersection off State
Highway 119, which may give such projects a competitive advantage over
Fitzgeralds Black Hawk since they will have the initial opportunity to capture
visitors to Black Hawk and Central City from the Denver metropolitan area. The
increased competition may materially and adversely affect Fitzgeralds Black
Hawk.
Although initiatives to expand gaming venues in Colorado have thus far been
unsuccessful, initiatives, legislation or regulations could be introduced in the
future. The enactment of any initiative, legislation or regulation legalizing
gaming elsewhere in Colorado could, and if such legalized gaming was closer to
Denver would, have a material adverse effect on Fitzgeralds Black Hawk.
Indian Gaming Operations
Cliff Castle casino in Camp Verde, Arizona competes with another Indian casino
in Prescott, Arizona, approximately 30 miles away, and with other casinos
located on Indian lands around the Phoenix, Arizona area and elsewhere in the
State of Arizona, as well as with casinos in Nevada, including Laughlin and Las
Vegas. The spread of casinos on Indian lands in Arizona could result in the
approval by Arizona voters of full-scale gaming in Arizona, which would
adversely impact operations at Cliff Castle.
EMPLOYEES
As of December 31, 1997, the Company indirectly employed approximately 3,314
persons. Fitzgeralds Las Vegas employed approximately 1,000 people,
approximately 445 of whom are represented by the Culinary Workers Union, Local
No. 226 and the Bartenders Union, Local No. 165 (the "Culinary and Bartenders
Union") under a three-year contract which expired on May 31, 1997. In March
1997, the Culinary and Bartenders Union notified the Company of its intent to
seek changes and modifications in the terms and conditions of its agreement. The
Company anticipates that negotiations relating thereto will likely commence
early in 1998. In addition, three employees are represented by the United
Brotherhood of Carpenters and Joiners of America, Silver State District Council
of Carpenters, Local No. 1780, under a
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contract which expires on July 31, 1998. Fitzgeralds Tunica, Fitzgeralds Reno
and Fitzgeralds Black Hawk employed approximately 1,043, 902 and 333 people,
respectively. None of the employees of Fitzgeralds Tunica, Fitzgeralds Reno,
Fitzgeralds Black Hawk or Cliff Castle are represented by a union. In addition,
the Company also directly employed approximately 36 people in its corporate
offices. Cliff Castle, which is managed by the Company, directly employed
approximately 302 people.
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
The Company believes that its distinctive trade names, trademarks and service
marks are important to its efforts to develop a distinctive national brand
identity. Because of their importance, the Company expends considerable effort
to conceptualize, obtain, utilize and protect its trade names, trademarks and
service marks. The Company has proprietary rights in approximately 80 registered
trade names, trademarks and service marks used in connection with its businesses
and created to enhance its Irish luck theme, its gaming activities and its
association with the Fremont Street Experience, including the marks
"Fitzgeralds," "Fitz" and the "Mr. O'Lucky" character design. Registered marks
usually have perpetual life, provided that they are renewed on a timely basis
and continue to be used properly as marks. The Company also has several
non-exclusive licenses and supply agreements permitting it to utilize and offer
at its facilities a variety of casino games, gaming devices and related software
and technology which are subject to certain third-party patent, trademark and
copyright rights.
GOVERNMENTAL REGULATION
General
The ownership and operation of the Company's casino gaming facilities are
subject to various state and local regulations in the jurisdictions where they
are located. In Nevada, the Company's gaming operations are subject to the
Nevada Gaming Control Act and to the licensing and regulatory control of the
Nevada Gaming Commission, the Nevada State Gaming Control Board and various
local ordinances and regulations, including, without limitation, applicable city
and county gaming and liquor licensing authorities. In Mississippi, the Company
must register under the Mississippi Gaming Control Act and its gaming operations
are subject primarily to the licensing and regulatory control of the Mississippi
Gaming Commission and the Mississippi State Tax Commission and various local,
city and county regulatory agencies. In Colorado, the Company's gaming
operations are subject to the Limited Gaming Act of 1991, which created the
Division of Gaming within the Colorado Department of Revenue and the Colorado
Limited Gaming Control Commission to license, implement, regulate and supervise
the conduct of limited gaming. The Company's operations are also subject to the
Colorado Liquor Code, the state liquor licensing authority, and local liquor
licensing authorities. In 1996, the Colorado General Assembly enacted
legislation which abolishes the current regulatory scheme effective July 1,
2003, unless continued by subsequent enactment. If the repeal takes effect,
Colorado law provides a procedure for winding up the affairs of the Division,
public hearings, analysis and evaluation, and for determining claims by or
against the Division. The potential effect of the possible repeal is unknown,
and no replacement for the regulatory scheme has been proposed. In Arizona, as
manager of Cliff Castle, the Company's gaming operations are subject to the
jurisdiction of the National Indian Gaming Commission ("NIGC"), the Arizona
State Department of Gaming and the Yavapai-Apache Tribal Gaming Commission.
Nevada Gaming Regulation
The ownership and operation of casino gaming facilities in Nevada are subject to
the Nevada Gaming Control Act and the regulations promulgated thereunder (the
"Nevada Act") and to the licensing and regulatory control of the Nevada Gaming
Commission (the "Nevada Commission"), the Nevada State
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Gaming Control Board (the "Nevada Board") and various local ordinances and
regulations, including, without limitation, applicable city and county gaming
and liquor licensing authorities (collectively, the "Nevada Gaming
Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and filing periodic reports with the
Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent
practices; and (v) providing a source of state and local revenues through
taxation and licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations.
The Company's direct and indirect subsidiaries that conduct gaming operations
are required to be licensed by the Nevada Gaming Authorities. The gaming
licenses require the periodic payment of fees and taxes and are not
transferable. The Company is registered by the Nevada Commission as a publicly
traded corporation (a "Registered Corporation") and has been found suitable to
own the stock of FSI, FRI and Nevada Club, Inc. ("NCI"). FSI is registered as an
intermediary company (an "Intermediary Company") and has been found suitable to
own the stock of FLVI, which has been licensed as a manufacturer and distributor
of gaming devices and to conduct nonrestricted gaming operations at Fitzgeralds
Las Vegas. FRI and NCI have each been licensed as a manufacturer and distributor
of gaming devices and to conduct nonrestricted gaming operations at Fitzgeralds
Reno and Nevada Club, respectively. FRI, FLVI and NCI are each a corporate
gaming licensee (a "Corporate Licensee" or individually a "Nevada Gaming
Subsidiary" and collectively the "Nevada Gaming Subsidiaries") under the terms
of the Nevada Act. No person may become a stockholder of, or receive any
percentage of profits from an Intermediary Company or a Nevada Gaming Subsidiary
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, FSI and the Nevada Gaming Subsidiaries have obtained
from the Nevada Gaming Authorities the various registrations, findings of
suitability, approvals, permits and licenses required in order to engage in
gaming activities in Nevada. The following regulatory requirements are currently
applicable to the Company, FSI and the Nevada Gaming Subsidiaries, including
requirements applicable to the Company as a Registered Corporation.
The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company, FSI or the Nevada
Gaming Subsidiaries in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of the Nevada Gaming Subsidiaries must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of the Company or FSI who are actively and directly involved
in gaming activities of the Nevada Gaming Subsidiaries may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and, in addition to their authority
to deny an application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a corporate
position.
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<PAGE> 14
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, FSI or the Nevada Gaming Subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company, FSI or the Nevada
Gaming Subsidiaries to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company, FSI and the Nevada Gaming Subsidiaries are required periodically to
submit detailed financial and operating reports to the Nevada Commission and
furnish any other information which the Nevada Commission may require.
Substantially all material loans, leases, sales of securities and similar
financing transactions by the Nevada Gaming Subsidiaries must be reported to or
approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by FSI or any Nevada
Gaming Subsidiary, the registration or gaming licenses they hold could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, FSI, the Nevada
Gaming Subsidiaries and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the discretion of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate Fitzgeralds Las Vegas, Fitzgeralds Reno and Nevada Club
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for reasonable rental value of the casino) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of the
gaming licenses of the Nevada Gaming Subsidiaries or the appointment of a
supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's gaming operations.
Any beneficial holder of a Registered Corporation's voting securities (or rights
to acquire such securities), regardless of the number of shares owned, may be
required to file an application, be investigated and have his suitability as a
beneficial holder of the Registered Corporation's voting securities determined
if the Nevada Commission has reason to believe that such ownership would
otherwise be inconsistent with the declared policies of the State of Nevada. The
applicant must pay all costs of investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a voting securities apply to the Nevada Commission
for a finding of suitability within thirty days after the Chairman of the Nevada
Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii)
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<PAGE> 15
such other activities as the Nevada Commission may determine to be consistent
with such investment intent. If the beneficial holder of voting securities who
must be found suitable is a corporation, partnership or trust, it must submit
detailed business and financial information, including a list of beneficial
owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Company will be subject to disciplinary action if, after
it receives notice that a person is unsuitable to be a stockholder or to have
any other relationship with the Company or the Nevada Gaming Subsidiaries, the
Company (i) pays that person any dividend or interest upon voting securities of
the Company, (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the City
of Las Vegas and the City of Reno have the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming
licensee.
The Nevada Commission may, in its discretion, require the holder of any debt or
similar security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation. If the Nevada Commission determines that a person is unsuitable to
own such security, then pursuant to the Nevada Act, the Registered Corporation
can be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which may
be examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company will also be required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates to bear a legend indicating
that the securities are subject to the Nevada Act. To date, the Nevada
Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.
Changes in control of a Registered Corporation through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to
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<PAGE> 16
acquire control of a Registered Corporation must satisfy the Nevada Board and
Nevada Commission in a variety of stringent standards prior to assuming control
of such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of gaming
or activity involved, are payable to the State of Nevada and to the counties and
cities in which the Nevada licensee's respective operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon either: (i) a
percentage of the gross revenues received; (ii) the number of gaming devices
operated; or (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is furnished in
connection with the selling or serving of food or refreshments or the selling of
merchandise. Nevada licensees that hold a manufacturer's license or a
distributor's license, such as the Nevada Gaming Subsidiaries, also pay certain
fees and taxes to the state of Nevada.
Any person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, foreign Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Such licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operation who has been
denied a license or finding of suitability in Nevada on the ground of personal
unsuitability.
The sale of alcoholic beverages at Fitzgeralds Las Vegas, and the sale of
alcoholic beverages at Fitzgeralds Reno and Nevada Club, are subject to
licensing, control and regulation by the City of Las Vegas and the City of Reno,
respectively. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend or revoke any such
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<PAGE> 17
license, and any such disciplinary action could (and revocation would) have a
material adverse effect on the operations of the Nevada Gaming Subsidiaries.
Arizona Gaming Regulation
In connection with its regulatory powers granted pursuant to the Tribal-State
compact, the Arizona Department of Gaming has certain enforcement powers over
the tribal casinos. The State of Arizona and the Tribes have several pending
disputes over the interpretation of certain compact provisions. In August of
1997, the Arizona Department of Gaming obtained an Opinion from the Arizona
Attorney General regarding gambling upon card games. The Arizona Department of
Gaming interpreted the Opinion to conclude that card games in Arizona are
illegal. Based on this conclusion, the Arizona Department of Gaming ordered that
the tribal casinos offering card games, with included the Cliff Castle Casino,
immediately cease the operation of all card games. The Tribes, including the
Camp Verde Yavapai-Apache Tribe, disagreed with the Arizona Department of
Gaming's interpretation of the Opinion and defied compliance with the cease and
desist order. The Tribes contend that the card games at issue constitute Class
II gaming and, therefore, are not within the State's regulatory jurisdiction and
need not be compacted pursuant to the IGRA. The Arizona Department of Gaming
served the Gila River Indian Community with a notice of its intent to invoke the
arbitration provisions of the Tribal-State compact in an effort to resolve the
dispute. The arbitration proceedings are currently pending. Until the issue is
resolved, the Arizona Department of Gaming of Gaming has advised that no
enforcement action will be taken against nay management company of a tribal
casino, including FAMI, in connection with this issue without first giving
notice to that company. At present, FAMI is deemed to be in compliance with its
obligations as a licensee.
In addition to the pending card game dispute, the Arizona Department of Gaming
is involved in litigation with two Tribes over the use of multi-player gaming
machines. The State had previously taken the position that these machines
counted as a single unit. Under the Tribal-State compacts, the Tribes are
permitted a certain number of gaming machines based upon their tribal
membership. Under this allocation system, the Camp Verde Yavapai-Apache Tribe is
permitted up to 475 machines. When a new Director assumed control of the Arizona
Department of Gaming, this position on the multi-player machines was changed.
The new Director has taken the position that the multi-player machines count as
more than one machine, depending on how many players can play the machine at the
same time. Two Arizona tribes have filed suit in Federal Court in Arizona,
contending that the machines should only count as one unit. The Cliff Castle
Casino has several multi-player machines in operation. As a result of the
State's new position on this issue, the State has advised the Camp Verde
Yavapai-Apache Tribe that it exceeded its 475-machine allotment with the
certification of several new machines. The Tribe disagrees with the State's
position and believes that, even with the new machines in operation, it is still
under the 475-machine allotment. The State has advised the Tribe that it intends
to take no enforcement action until the pending litigation involving these two
other Tribes is resolved. It is uncertain as to the outcome of this issue and
what impact, if any, it will have upon the Company.
Another lawsuit involving another Arizona Tribe (Salt River Pima-Maricopa Indian
Community) may have some impact on future tribal gaming in the State. In a
lawsuit filed in State Court by private citizens, the State Court judge ruled
that the Arizona Governor had no authority to enter into a compact with the
Tribe for certain Class III games (gaming machines and keno). The judge also
implicitly questioned the legality of the ongoing Class III gaming operations at
the various tribal casinos in Arizona. That lawsuit is currently on appeal to
the Arizona Supreme Court. At present, the decision has no effect upon the Camp
Verde Yavapai-Apache Tribe since the compact between the Tribe and the State is
deemed valid and enforceable unless or until it is held to be invalid in a final
non-appealable judgment or order of a court of competent jurisdiction. The
resolution of that lawsuit is uncertain and what impact, if any, upon the
Company is equally uncertain.
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In August 1996, President Clinton signed a bill creating the National Gambling
Impact Study Commission ("NGISC"), composed of individuals with ties to the
gaming industry as well as individuals who are openly opposed to legalized
gaming, to examine the economic and social impact of gaming. The NGISC began a
series of hearings on June 20, 1997 and is scheduled to release a report on its
findings, together with recommended legislation and administrative action, on or
before August 3, 1998. Any additional regulation of the gaming industry
resulting from the NGISC's recommendations could have a material adverse impact
on the gaming industry, including the Company.
The Company holds all licenses and permits it needs to operate its owned and
managed facilities. Directors, officers and key employees of the Company are
required to hold individual licenses, which requirements vary from jurisdiction
to jurisdiction. Licenses and permits of gaming operations and of individual
licensees are subject to revocation or non-renewal for cause. Holders of the
Company's securities are required to secure independent licenses and permits
under certain circumstances.
ITEM 2. PROPERTIES
Reference is made to the information contained under Item 1. Business -
Properties of Part I of this Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
Matters Relating to Harolds Club, Reno, Nevada. On May 31, 1995, FRI sold the
closed Harolds Club in Reno to an unrelated publicly-traded company which
subsequently sold Harolds Club to a company, the assets of which are now under
control of the United States Bankruptcy Court for the Northern District of New
York. Pursuant to the terms of certain indemnification, assignment and
assumption and guarantee agreements executed by FRI in connection with FRI's
purchase and subsequent sale of Harolds Club, FRI is contingently obligated for
certain land lease payments in the amount of approximately $580,000 annually
plus certain property-related costs, such as taxes and insurance.
The current owner of Harolds Club has not met its obligations with respect to
the land leases, and in August 1996 each of the five land lessors filed separate
actions in the Second Judicial District Court, Washoe County, State of Nevada,
against the current owner, FRI and other non-related prior lessees under the
land leases, seeking past due rent, taxes and other property-related expenses,
as well as attorneys' fees and costs. Cross-claims for indemnification have been
asserted against FRI by the entity from which it assumed the land leases, and
FRI has asserted cross-claims against the entities that are obligated to
indemnify FRI under the various indemnification, assignment and assumption, and
guarantee agreements.
Orders granting summary judgment against FRI have been entered in four of the
actions for the aggregate sum of $1,243,220. Two orders have been reduced to
judgments in the aggregate amount of $836,150. In anticipation of the sale of
Harolds Club, the parties to each of the five land lessor actions are currently
negotiating a settlement agreement, the details of which are set forth below.
Pending the sale of Harolds Club, and subject to certain other terms and
conditions, FRI has agreed to pay monthly lease payments on two of the land
leases in the total amount of $28,977.
The current owner of Harolds Club and the five land lessors have received an
offer to purchase their respective interests in Harolds Club. The same unrelated
party has made an offer to purchase the Nevada Club for a purchase price of
$4,000,000, and in anticipation of completing the sale, the Company closed the
Nevada Club in December 1997. To facilitate the sale of both properties and
subject to terms and
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<PAGE> 19
conditions to be agreed upon between the potential purchaser and FRI, FRI has
agreed to pay the land lessors $2,125,000 in exchange for a dismissal with
prejudice of all claims against FRI arising out of FRI's purchase and subsequent
sale of Harolds Club. FRI anticipates paying $600,000 of the $2,125,000
settlement in cash, less the cumulative amount of interim monthly rental
payments ($28,977 per month), concurrently with the closing of the Harolds Club
transaction and executing five separate promissory notes totaling $1,525,000 for
the balance. The notes will be amortized over five years with interest fixed at
the prime rate in effect at the largest financial institution in Nevada on the
date the notes are executed and will be secured by the personal guarantee of the
Chairman and Chief Executive Officer of the Company. In addition to such
guarantee, and subject to certain conditions, a prior owner of Harolds Club
named in four of the five land lessor actions has agreed to reimburse FRI
$300,000, and to provide a payment guarantee for one of the five notes as its
contribution to the settlement of the actions. Each of the notes will be
permitted to be prepaid at any time together with interest accrued to the date
of payment. The closing of the Harolds Club transaction is subject to the
receipt by FRI of the $300,000 reimbursement and the closing of the Nevada Club
sale.
Treasure Bay Bankruptcy and Road Right-of-Way. In October 1993, Fitzgeralds
Mississippi, Inc. "(FMI"), a wholly owned subsidiary of the Company and manager
of Fitzgeralds Tunica, executed a road contract (the "Contract") with Treasure
Bay Gaming and Resorts, Inc. ("Treasure Bay") to share equally the cost of
developing a road leading to the two properties (the "Roadway") and of the
acquisition of a 3.67-acre tract of land (the "Tract"). The Company believes
that it has paid its portion of such costs, although documents filed by Treasure
Bay in the Treasure Bay bankruptcy proceeding referred to below reflect its
claim that approximately $300,000 remains outstanding. Pursuant to the Contract,
the Roadway and Tract were acquired by Treasure Bay and the Roadway was
constructed providing access from Commerce Road to the Fitzgeralds Tunica and
Treasure Bay casinos. Pursuant to Treasure Bay's acquisition contract and deed,
Treasure Bay was also obligated to convey the Roadway to Tunica County within a
reasonable time after its development, and adjacent land owners and utility
companies were to be entitled to full rights of access.
Treasure Bay is currently subject to a bankruptcy proceeding pursuant to Title
11 of the United States Code (the "Bankruptcy Code"). Preliminary title reports
on the Roadway and Tract indicate that a deed of trust securing $115 million in
Treasure Bay bonds and approximately $8 million in mechanics' and materialmen's
liens are recorded against such properties. In addition, the lien of the deed of
trust is prior to the Company's easement rights over two additional tracts that
are necessary for access to the Fitzgeralds Tunica property. The holder of the
deed of trust was aware of the rights of Fitzgeralds Mississippi, Inc. ("FMI")
at the time the deed of trust was recorded. To quiet title in the Roadway and
the Tract, FMI filed an adversary proceeding against Treasure Bay and others
claiming an interest in the Roadway and the Tract. FMI's complaint seeks, among
other relief, a declaratory judgment that FMI owns an unencumbered, undivided
one-half interest in the Roadway and Tract and the avoidance of all liens on the
Roadway and Tract. In an effort to compromise and settle its tax liability on
the Roadway, Tract, and other real property it owns, in September 1996, Treasure
Bay executed a Quitclaim Deed in favor of Tunica County to convey a one-half
interest in the Tract. Prior to this conveyance, all lien-holders released their
liens against the Tract.
A Chapter 11 Plan of Reorganization (the "Plan") has been confirmed in the
Treasure Bay bankruptcy proceeding. All assets of Treasure Bay re-vested in
Treasure Bay upon confirmation of the Plan. To the best of the Company's
knowledge, with the exception of certain excluded assets (as defined in the new
indenture which is attached to the Plan), the Plan grants Treasure Bay's new
indenture trustee (as defined in the Plan) a replacement lien on substantially
all assets which it previously held as collateral. The Tract was specifically
released from the new indenture trustee's collateral as part of the compromise
of Tunica County's priority tax claim whereby Treasure Bay's one-half interest
in the Tract was conveyed to Tunica County free and clear of all liens and
security interests. To the extent Treasure Bay owns the Roadway, it appears to
be part of the collateral which re-vested in favor of its bondholders. The Plan
- --------------------------------------------------------------------------------
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<PAGE> 20
also grants a permanent easement free and clear of all liens and encumbrances on
the Roadway to a land lessor under the real property lease for the Treasure Bay
Tunica casino. With respect to the above-mentioned mechanics' and materialmen's
liens, the Plan provides that such liens, if they are deemed to be valid,
attached to the proceeds from the sale of the Treasure Bay barge and
consequently no longer constitute encumbrances on the Roadway or the Tract.
The quiet title proceeding filed by FMI against Treasure Bay and Treasure Bay's
adversarial proceeding against FMI to recover approximately $300,000 for the
cost of developing the Roadway and the Tract are still pending, and it not
possible at the present time to predict the outcome. Furthermore, there can be
no assurance that Tunica County would be prepared to accept the conveyance of
the Roadway at this time in which case FMI would continue to undertake
maintenance of the Roadway. FMI is in physical possession of and utilizing the
Roadway and Tract. The loss of access to the Roadway would require the Company
to construct a new road to its property. However, both the Bankruptcy Code and
the Mississippi law offer protection to FMI, as a purchaser in possession, in
spite of there being no recorded deeds in favor of FMI. In addition, both the
Bankruptcy Code and Mississippi law offer protection to FMI with regard to deeds
of trust recorded at a time when the holder thereof had knowledge of FMI's
claim. Accordingly, the Company believes that FMI will continue to have full
access and use of the Roadway and the Tract.
The Company is a party to various lawsuits relating to routine matters
incidental to its business. The Company does not believe that the outcome of
such litigation, individually or in the aggregate, will have any material
adverse effect on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the issuance of the Senior Secured Notes in December 1997,
the Company solicited and received waivers under the terms of indentures and
related documents governing (i) its Retired Senior Secured Notes; (ii) its
Priority Notes; and (iii) the 101 Main Notes. The waivers enabled the Company to
redeem each issue at the specified redemption price without advance notice. In
addition, with the consent of a majority in interest of the holders of the
Company's Common Stock Purchase Warrants, the related warrant agreement, dated
as of December 19, 1995 (the "Warrant Agreement"), between the Company and The
Bank of New York (as successor in interest to First Interstate Bank of Nevada,
N.A. and Wells Fargo Bank, N.A.) was amended to provide that the Final
Separation Date for the Restricted Note Warrants (all as defined in the Warrant
Agreement) would be December 31, 1997. As a result of the amendment to the
Warrant Agreement, on December 30, 1997 a total of 703,402 Restricted Note
Warrants were redeemed by the Company in connection with the redemption of the
Retired Senior Secured Notes.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is not listed or traded on any exchange. At December
31, 1997, there were approximately 28 holders of the Company's Common Stock.
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<PAGE> 21
The Company has not paid any cash dividends on its Common Stock to date. The
Company intends to retain all future earnings for use in the development of its
business and does not anticipate paying cash dividends (including with respect
to its Preferred Stock) in the foreseeable future. The payment of all dividends
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements, the
general financial condition of the Company and general business conditions. The
ability of the Company or its subsidiaries to pay dividends is restricted by the
indenture governing the Senior Secured Notes and, with respect to the Common
Stock, the Certificate of Designation for the Preferred Stock. If a holder of
securities is disqualified by any gaming authorities from owning such
securities, such holder will not be permitted to receive any dividends if, and
when declared by the Company's Board of Directors with respect to such
securities. See Item 1 - Business - Governmental Regulation.
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<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
FITZGERALDS GAMING CORPORATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Operating Revenues $ 179,702 $ 140,530 $ 141,397 $ 131,834 $ 110,057
Income from Operations(1) 13,622 3,871 13,768 1,997 10,174
Interest Expense, Net 25,033 18,187 14,706 10,256 6,343
Net Income (Loss) (31,542) (13,494) (4,255) (5,979) 4,186
OTHER DATA:
EBITDA:(2)
Fitzgeralds Las Vegas $ 2,651 $ 1,656 $ 4,084 $ 4,926 $ 6,946
Fitzgeralds Tunica 11,744 3,790 9,934 1,505 --
Fitzgeralds Reno 5,462 4,596 7,009 8,345 10,500
Fitzgeralds Black Hawk 4,842 -- -- -- --
Other(3) 4,111 2,874 1,667 (1,526) (1,080)
--------- --------- --------- --------- ---------
Total Properties 28,810 12,916 22,694 13,250 16,366
Nevada Club (1,282) (148) 392 506 1,384
Harolds Club (1,853) -- (1,307) (3,489) (805)
--------- --------- --------- --------- ---------
Total EBITDA 25,675 12,768 21,779 10,267 16,945
Adjustments to EBITDA(4) 4,924 742 1,337 8,304 (82)
--------- --------- --------- --------- ---------
Adjusted EBITDA $ 30,599 $ 13,510 $ 23,116 $ 18,571 $ 16,863
========= ========= ========= ========= =========
EARNINGS TO FIXED CHARGES:(5) -- -- -- -- 1.5x
NET CASH PROVIDED BY (USED IN):
Operating Activities $ 1,287 $ 759 $ 8,468 $ 7,738 $ 8,381
Investing Activities (24,657) (6,368) (50,404) (34,736) (7,655)
Financing Activities 24,830 (885) 49,894 30,302 944
DEPRECIATION AND AMORTIZATION 12,054 8,897 8,010 8,271 6,772
CAPITAL EXPENDITURES 3,944 57,026 14,957 46,046 6,913
BALANCE SHEET DATA:
Cash $ 14,810 $ 13,349 $ 19,844 $ 11,886 $ 8,582
Total Assets 215,695 191,179 197,213 137,660 93,598
Short-Term Debt 7,591 27,750 11,226 11,619 17,065
Long-Term Debt 206,191 127,882 139,467 100,849 53,772
Preferred stock, Net of Offering Costs
and Discount 19,631 15,489 11,953 -- --
Stockholders' Equity (Deficiency) (37,863) (2,043) 16,061 11,087 14,113
</TABLE>
- ------------------
1 In 1997 the Company recorded an allowance of $2.2 million against the book
value of Nevada Club assets held for sale to write such assets down to
estimated net realizable value, and has recorded an expense of $1.9 million
for the anticipated net settlement obligation relating to certain land
lease payments and property-related costs arising out of the Company's
purchase and subsequent sale in 1995 of Harolds Club. The Company sold
Harolds Club on May 31, 1995 and, accordingly, at December 31, 1994,
recorded an allowance of $1.4 million against the book value of assets sold
to write such assets down to estimated realized value.
2 EBITDA, or "earnings before interest, taxes on income, depreciation, and
amortization," is a supplemental financial measurement used by the Company
in the evaluation of its gaming business and by many gaming industry
analysts. EBITDA is calculated by adding depreciation and amortization
expense to income from operations. At any property, EBITDA is calculated
after the allocation of corporate costs. However, EBITDA should only be
read in conjunction with all of the Company's financial data summarized
above and its financial statements prepared in accordance with GAAP
appearing elsewhere herein, and should not be construed as an alternative
either to income from operations (as determined in accordance with GAAP) as
an indication of the Company's operating performance or to cash flows from
operating activities (as determined in accordance with GAAP) as a measure
of liquidity. This presentation of EBITDA may not be comparable to
similarly titled measures reported by other companies.
3 Other includes results for management fees and corporate costs not
allocated to the core properties.
4 Adjustments to EBITDA include (i) exclusion of EBITDA for Harolds Club and
Nevada Club for all periods presented; (ii) exclusion of business
development expenses of Sugar Creek, Missouri of $0.4 million for 1995,
$0.5 million for 1994 and $0.5 million for 1993; (iii) exclusion of
pre-opening expenses of Fitzgeralds Tunica of $4.9 million for 1994; (iv)
exclusion of write down of Nevada Club assets of
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<PAGE> 23
$2.2 million for 1997; (v) exclusion of Harolds Club lease settlement of
$1.9 million for 1997; and (vi) inclusion of $1.0 million for 1997 and $0.6
million for 1996 in cash received by the Company as a result of its 22%
membership in 101 Main.
5 For the Ratio of Earnings to Fixed Charges, earnings are defined as
earnings before income taxes, interest on indebtedness, imputed interest on
capital lease obligations and the portion of rent expense deemed to
represent interest. Fixed charges consist of interest on indebtedness,
imputed interest on capital lease obligations, and the portion of rent
expense deemed to represent interest. Earnings were insufficient to cover
fixed charges by $10.6 million, $15.5 million, $0.6 million, and $8.2
million for the years ended December 31, 1997, 1996, 1995, and 1994
respectively.
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<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Company's Consolidated Financial Statements, including the
notes thereto, listed in Item 14(a).
OVERVIEW
Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Reno have been owned
and operated by the Company or its affiliates since 1987, 1994 and 1985,
respectively. Between December 1994 and February 1995, a business combination
was effected, resulting in the existing single ownership structure for the
companies operating Fitzgeralds-brand casinos. In May 1995, the Company, under
exclusive management contracts, opened two properties outside of Nevada --
Fitzgeralds Black Hawk and Cliff Castle, and in December 1995, the Company
acquired those portions of Fitzgeralds Tunica (20%) and Fitzgeralds Inc. (2%)
which it did not own. During 1996, the Company expended approximately $52.0
million to significantly renovate and expand Fitzgeralds Las Vegas and
Fitzgeralds Tunica. In August 1997, the Company acquired the 78% membership
interest in 101 Main not previously owned.
On a consolidated basis, net operating revenues (excluding Nevada Club)
increased to $173.5 million in 1997 from $134.1 million in 1996 principally as a
result of increased casino and room revenues due to the completion of the Tunica
Hotel which became fully operational in the 4th quarter of 1996, and due to the
inclusion of Fitzgeralds Black Hawk operating revenues in the Company's
consolidated results subsequent to the acquisition in August 1997 of the 78%
membership interest in 101 Main not previously owned.
In 1997 and 1996, casino operations (excluding Nevada Club) provided an average
of approximately 78.3% and 78.9% of the Company's net revenues, respectively,
and substantially all of its income from operations. Slot machine income has
been the primary component of the Company's gaming revenues, providing an
average of approximately 79.6% and 76.5% of such revenues (excluding Nevada
Club) during 1997 and 1996, respectively.
Unless otherwise noted, the narrative discussion below is focused on the
principal ongoing operating properties of the Company which include Fitzgeralds
Las Vegas, Fitzgeralds Tunica, Fitzgeralds Reno and, commencing August 15, 1997,
Fitzgeralds Black Hawk, and management fees received by FI (the "Properties").
RECENT EVENTS
On December 19, 1997 the Company issued $205 million in 12 1/4% Senior Secured
Notes. Net proceeds of the issuance of $202.6 million were used to repay
substantially all of the Company's indebtedness, including the 101 Main Notes
discussed below. An extraordinary loss of $19.2 million was recorded in
connection with the early retirement of this debt.
On August 15, 1997, the Company acquired the 78% membership interest in 101 Main
not previously owned at a purchase price of approximately $27.3 million. As a
result, the operations of Fitzgeralds Black Hawk, wholly-owned by 101 Main, are
included in the consolidated financial results of the Company commencing August
15, 1997. This purchase was financed through the issuance of the $38 million 101
Main Notes. The proceeds from the 101 Main Notes in excess of the $27.3 million
used to purchase the 78% membership interest were used to retire certain
existing indebtedness secured by assets of 101 Main
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<PAGE> 25
and for general corporate purposes. The 101 Main Notes were retired as part of
the December 1997 financing discussed above.
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<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain Statement of
Operations Data and Other Data for the Company's properties.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
STATEMENT OF OPERATIONS DATA 1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET REVENUES:
Fitzgeralds Las Vegas $ 46,540 $ 43,483 $ 42,653
Fitzgeralds Tunica 68,734 48,748 46,466
Fitzgeralds Reno 39,803 37,076 40,212
Fitzgeralds Black Hawk(1) 12,692 -- --
Other(2) 5,695 4,791 3,509
--------- --------- ---------
Total Properties 173,464 134,098 132,840
Nevada Club 6,238 6,432 7,037
Harolds Club -- -- 1,520
--------- --------- ---------
Total $ 179,702 $ 140,530 $ 141,397
========= ========= =========
INCOME (LOSS) FROM OPERATIONS:
Fitzgeralds Las Vegas $ (498) $ (330) $ 2,403
Fitzgeralds Tunica 6,013 (597) 6,230
Fitzgeralds Reno 3,211 2,318 4,997
Fitzgeralds Black Hawk(1) 4,215 -- --
Other 4,011 2,861 1,667
--------- --------- ---------
Total Properties 16,952 4,252 15,297
Nevada Club (1,477) (381) 97
Harolds Club (1,853) -- (1,626)
--------- --------- ---------
Total $ 13,622 $ 3,871 $ 13,768
========= ========= =========
OTHER DATA
EBITDA(3):
Fitzgeralds Las Vegas $ 2,651 $ 1,656 $ 4,084
Fitzgeralds Tunica 11,744 3,790 9,934
Fitzgeralds Reno 5,462 4,596 7,009
Fitzgeralds Black Hawk(1) 4,842 -- --
Other(4) 4,111 2,874 1,667
--------- --------- ---------
Total Properties 28,810 12,916 22,694
Nevada Club (1,282) (148) 392
Harolds Club (1,853) -- (1,307)
--------- --------- ---------
Total EBITDA 25,675 12,768 21,779
Adjustments to EBITDA 4,924 742 1,337
--------- --------- ---------
Adjusted EBITDA $ 30,599 $ 13,510 $ 23,116
========= ========= =========
NET CASH PROVIDED BY (USED IN):
Operating Activities $ 1,287 $ 759 $ 8,468
Investing Activities (24,657) (6,368) (50,404)
Financing Activities 24,830 (885) 49,894
DEPRECIATION AND AMORTIZATION 12,054 8,897 8,010
CAPITAL EXPENDITURES 3,944 57,026 14,957
EARNINGS TO FIXED CHARGES(5) -- -- --
</TABLE>
- --------------
1 Includes operating results of Fitzgeralds Black Hawk commencing August 15,
1997.
2 Includes fees from management agreement from Fitzgeralds Black Hawk prior
to August 15, 1997, Cliff Castle and Turning Stone.
3 For a definition of EBITDA and Adjusted EBITDA, see Notes 2 and 4 of Notes
to "Selected Financial Data."
4 Includes fees from management agreement from Fitzgeralds Black Hawk prior
to August 15, 1997, Cliff Castle and Turning Stone, net of corporate
expenses and expenses of FI.
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<PAGE> 27
5 For the Ratio of Earnings to Fixed Charges, earnings are defined as
earnings before income taxes, interest on indebtedness, imputed interest on
capital lease obligations, and the portion of rent expense deemed to
represent interest. Fixed charges consist of interest on indebtedness,
imputed interest on capital lease obligations, and the portion of rent
expense deemed to represent interest. Earnings were insufficient to cover
fixed charges by $10.6 million, $15.5 million, and $0.6 million for the
years ended December 31, 1997, 1996, and 1995, respectively.
FISCAL 1997 COMPARISON TO FISCAL 1996
Operating Revenues
Total revenues for the Properties were $188.2 million and net operating revenues
for the Properties were $173.5 million for 1997, representing, respectively,
28.9% and 29.4% increases over the Properties' total revenues of $146.0 million
and net operating revenues of $134.1 million for 1996. Such increases were
largely the result of the consolidation of operating results of Fitzgeralds
Black Hawk commencing August 15, 1997, as well as the fact that the 507-room
hotel tower at Fitzgeralds Tunica (the "Tunica Hotel") did not commence
operations until August 1996 and was not fully operational until October 1996.
Therefore, 1997 results include the full year benefit of hotel revenue and
subsequent improved casino revenue at Fitzgeralds Tunica.
The Company's business can be separated into four operating departments: casino,
food and beverage, rooms and other. Casino revenues for the Properties (of which
approximately 79.6% and 76.5% of which are derived from slot machine revenues
for 1997 and 1996, respectively) increased 28.5% to $135.9 million for 1997 from
the $105.8 million recorded for 1996, due principally to the consolidation of
operating results of Fitzgeralds Black Hawk and to the opening of the Tunica
Hotel which occurred in phases from August to October 1996. Casino revenues
increased 32.0% at Fitzgeralds Tunica, due to the opening of the Tunica Hotel,
and 4.8% at Fitzgeralds Reno, due primarily to increased traffic from the
Women's International Bowling Congress (the "Bowling Tournament") held in Reno
during the first and second quarters of 1997. Casino revenue increased 6.8% at
Fitzgeralds Las Vegas due mostly to the fact that Fitzgeralds Las Vegas was
largely under construction from May through November of 1996. Casino revenue for
the Properties represented 72.2% and 72.4% of total revenues for the Properties
for 1997 and 1996, respectively. This decrease in casino revenues as a
percentage of total revenues is largely attributed to greater increases in rooms
and food and beverage revenues due to the opening of the Tunica Hotel.
Room revenues for the Properties (at 11.3% and 10.9% of total revenues for the
Properties for 1997 and 1996, respectively) increased 34.3% from 1996 due
primarily to the opening of the Tunica Hotel. Room revenues at Fitzgeralds
Tunica, at $7.8 million for 1997 are not comparable to 1996 since the Tunica
Hotel did not commence operations until August 1996 and was not fully
operational until October 1996. The Tunica Hotel operated at an average
occupancy rate of 89.3% and 81.3% for 1997 and 1996, respectively. Room revenues
increased by 2.6% at Fitzgeralds Las Vegas due to a decrease in tour-and-travel
customers who were replaced by free independent travelers typically paying a
higher average daily room rate, partially offset by lower occupancy rates, at
89.7% and 93.9% for 1997 and 1996, respectively. At Fitzgeralds Reno, room
revenues increased 7.2% due to a combination of higher daily room rates and an
increase in average occupancy rates, at 90.2% and 88.8% for 1997 and 1996,
respectively. These increases were largely due to the Bowling Tournament, and
the fully integrated player tracking system.
Food and beverage revenues for the Properties (at 11.2% and 11.7% of total
revenues for the Properties for 1997 and 1996, respectively) increased $4.1
million or 23.8% from 1996 to 1997. This increase was the result of the
inclusion of Fitzgeralds Black Hawk results of approximately $923,000, as well
as the additional food venues at Fitzgeralds Las Vegas and Fitzgeralds Tunica,
which posted gains of 16.6% and 37.9%, respectively. Food and beverage revenues
at Fitzgeralds Reno were essentially unchanged.
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<PAGE> 28
Other revenues for the Properties increased 34.7% for the year, primarily due to
the opening of the Tunica Hotel, which also resulted in increases in TV movie,
telephone and gift shop revenues and credit card commissions, and to increases
in operating performance at Cliff Castle.
Promotional allowances for the Properties increased 23.6% for the year, as a
result of increases in volumes, partially offset by improved methods to award
complimentary goods and services.
Operating Costs and Expenses
Total operating costs and expenses for the Properties increased 20.5%, to $156.5
million for 1997 from $129.8 million for 1996, primarily due to the inclusion of
operating expenses of Fitzgeralds Black Hawk of approximately $8.5 million,
increases in volume, increases in payroll costs related to the start of
operations of the Tunica Hotel and additional food venues at Fitzgeralds Las
Vegas and Fitzgeralds Tunica. Total operating expenses for the Properties were
also affected by a 36.9% increase in depreciation and amortization expense for
the Properties as renovated and expanded facilities at Fitzgeralds Las Vegas and
Fitzgeralds Tunica were put into service and a $755,000 non-recurring write down
of Nevada Club, Inc. ("NCI") assets held for sale to estimated realizable value.
Casino expenses for the Properties were $66.0 million for 1997, a 21.4% increase
from the $54.4 million for 1996 primarily as a result of increased volume and
increased personnel as well as the inclusion of expenses from Fitzgeralds Black
Hawk during 1997. Food and beverage expenses for the Properties increased 32.0%,
to $16.2 million for 1997 from $12.3 million for 1996, primarily as the result
of additional restaurants at Fitzgeralds Las Vegas and Fitzgeralds Tunica. Room
expenses for the Properties increased 29.7%, to $12.5 million for 1997 from $9.6
million for 1996, primarily as the result of the start of operations at the
Tunica Hotel. Room expense increased a modest 1.4% at Fitzgeralds Las Vegas and
decreased by 0.7% at Fitzgeralds Reno. Selling, general and administrative
expense for the Properties increased 9.6%, to $47.5 million for 1997 from $43.3
million for 1996 due mostly to increases in personnel and marketing expenses, as
explained further below.
Personnel expenses for the Properties increased 15.4%, to approximately $67.8
million for 1997 from approximately $58.8 million for 1996. This increase
resulted from the start of operations at the Tunica Hotel, as well as the need
for larger staff at the expanded Las Vegas and Tunica facilities and the
inclusion of Fitzgeralds Black Hawk personnel expenses in 1997.
Marketing expenses for the Properties, which includes advertising, promotional
material, special events and the operations of the Fitzgeralds Card, increased
11.8% for the year. The increase reflects more intensive marketing efforts at
each property undertaken in response to increasing competitive activity in each
of the markets in which the Company operates, particularly in Tunica,
Mississippi, and the inclusion of Fitzgeralds Black Hawk marketing expenses in
1997. The Company's strategy is to utilize its expanded and renovated
facilities as additional marketing elements and to continue to adjust marketing
expense levels as needed to respond to competition.
Depreciation and amortization expense of the Properties increased 36.9%, to
$11.9 million for 1997 from $8.7 million for 1996. The increase was primarily
the result of the start of depreciation of the expanded and renovated facilities
at Fitzgeralds Las Vegas and Fitzgeralds Tunica, as well as the addition of
Fitzgeralds Black Hawk depreciation and amortization.
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<PAGE> 29
Income from Operations
As a result of the foregoing, income from operations for the Properties
increased 298.7%, to $17.0 million for 1997 from $4.3 million for 1996.
Net Interest Expense
Interest expense for the Properties (net of interest income), increased 39.6%,
to $24.7 million for 1997 from $17.7 million for 1996, due in part to an
increase in interest expense resulting from the issuance in December 1996 of
$5.9 million aggregate principal amount of Priority Notes, as well as the
issuance in August 1997 of $38.0 million aggregate principal amount of 101 Main
Notes by 101 Main. During 1996, interest of $1.8 million was capitalized on the
construction of Fitzgeralds Las Vegas and Fitzgeralds Tunica. No interest was
capitalized during 1997.
Loss Before Income Taxes and Extraordinary Item
For the reasons described above, the Properties recorded a loss before income
taxes and extraordinary item of $8.4 million in 1997, compared to $14.1 million
loss before taxes recorded for 1996. Loss before income taxes and extraordinary
item increased at each property other than Fitzgeralds Tunica, which recorded a
$4.8 million improvement due to the benefits from the hotel becoming fully
operation in the 4th quarter of 1996.
While the Properties recorded $1.5 million in income tax benefit for 1996, no
income tax benefit or provision was recorded for 1997.
Loss Before Extraordinary Item
Loss before extraordinary item for the Properties improved to $8.4 million for
1997 from $12.7 million for 1996. This reflects a substantial improvement in
operating income at the Properties, especially Fitzgeralds Tunica, offset by an
increase in interest expense, the non-recurring write down of NCI assets held
for sale, and the absence of an income tax benefit for 1997.
Extraordinary Item and Net Loss
In connection with the Company's issuance of the Senior Secured Notes in
December 1997, an extraordinary loss of $19.2 million was recorded to reflect
the cost associated with the early retirement of certain debt of the Company.
Net loss for the properties increased to $27.6 million in 1997 as compared to
$12.7 million in 1996 reflecting the impact of the extraordinary item.
FISCAL 1996 COMPARISON TO FISCAL 1995
Operating Revenues
Total revenues for the properties increased to $146.1 million in 1996, a 1.5%
increase from the $143.9 million in 1995. Net operating revenues for the
Properties increased 1.0% to $134.1 million for 1996 from $132.8 million
recorded in 1995.
Casino revenues for the Properties decreased 1.7% to $105.8 million in 1996 from
$107.5 million in 1995. Casino revenues were nominally higher at Fitzgeralds Las
Vegas, increasing to $30.6 million in 1996 from
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<PAGE> 30
$30.4 million recorded for 1995, nominally lower at Fitzgeralds Tunica,
decreasing to $44.8 million in 1996 from $44.9 million recorded for 1995, and
were $1.9 million lower at Fitzgeralds Reno.
Food and beverage revenues for the Properties increased 3.5% to $17.0 million in
1996 from $16.5 million in 1995, principally as the result of a 25.0% increase
at Fitzgeralds Tunica, reflecting an increase in the number of food outlets
during 1996. Food and beverage revenues increased 2.3% at Fitzgeralds Las Vegas
despite suffering from significant construction-related disruptions from May
through November 1996. Fitzgeralds Reno's operations were adversely impacted by
a softer market and an increase in food and beverage capacity in the market,
resulting in a 9.4% decline in food and beverage revenue.
Room revenues increased 21.0% to $15.9 million in 1996 from $13.1 million in
1995, due to the opening of the hotel at Fitzgeralds Tunica and a 13.4% increase
in room revenues at Fitzgeralds Las Vegas partially offset by an 18.0% decline
at Fitzgeralds Reno. Fitzgeralds Tunica's hotel opened with approximately 100
rooms in July 1996 and the balance of its 507 rooms were available by October
1996. Increased revenues at Fitzgeralds Las Vegas resulted from the completion
of the renovation of all of its rooms in September 1996 and an increase in
average daily room rates throughout the year. The decline at Fitzgeralds Reno
was the result of market saturation and more intense competition for hotel
guests.
Other revenues for the Properties increased 8.2% to $7.4 million in 1996 from
$6.8 million in 1995 primarily as a result of a 36.5% increase in management
fees from Fitzgeralds Black Hawk and Cliff Castle. This was offset in part by
decreases in gift shop and miscellaneous revenues of 17.4%, 15.4% and 40.4% at
Fitzgeralds Las Vegas, Fitzgeralds Tunica, and Fitzgeralds Reno, respectively.
Promotional allowances for the Properties increased 7.7% to $12.0 million for
1996 from the $11.1 million recorded for 1995 due mostly to a 46.9% increase at
Fitzgeralds Tunica, an indication of the level of competitiveness in that
market, partially offset by a 14.3% decrease at Fitzgeralds Reno.
Operating Costs and Expenses
Operating costs and expenses for the Properties increased 10.5% to $129.8
million in 1996 from $117.5 million in 1995. Increases of 8.9% and 22.6% were
recorded at Fitzgeralds Las Vegas and Fitzgeralds Tunica, respectively, while
operating costs at Fitzgeralds Reno decreased by 1.3%.
Casino expenses for the Properties increased 4.7% to $54.4 million in 1996 from
$52.0 million in 1995. Fitzgeralds Las Vegas recorded a 4.5% increase in casino
costs, due primarily to union-mandated payroll increases, and increases in
security department payroll which is allocated in part to the casino.
Fitzgeralds Tunica recorded a 12.5% increase due to increases in volume.
Expenses at Fitzgeralds Reno declined 5.7% resulting primarily from cost control
efforts, especially in payroll.
Food and beverage expenses at the Properties increased 8.8% to $12.3 million in
1996 from $11.3 million in 1995. Fitzgeralds Las Vegas recorded a 16.0% increase
year-to-year due to union-mandated increases in compensation and early hiring of
staff for its three new restaurants. Fitzgeralds Tunica recorded a 29.2%
increase in food and beverage costs due to increases in volume and increases in
staff levels to accommodate the two additional restaurants. These were offset in
part by a 10% decline at Fitzgeralds Reno, due to lower revenues and better
controls over cost of sales.
Rooms expenses for the Properties increased 35.4% to $9.6 million in 1996 from
$7.1 million in 1995. The increase is attributable to the addition of the hotel
at Fitzgeralds Tunica, which for 1996 represented nearly 74.9% of the total
increase in costs. Union- and market-related factors at Fitzgeralds Las Vegas
increased costs 11.9% for the year. Costs at Fitzgeralds Reno were essentially
unchanged.
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<PAGE> 31
Selling, general and administrative expenses for the Properties increased 14.0%
to $43.3 million in 1996 from $38.0 million in 1995. The increase was primarily
attributable to greater marketing and special events expense at all properties,
resulting from expenditures made to increase casino traffic. Fitzgeralds Tunica
increased 25.0% from 1995 to 1996, while Fitzgeralds Las Vegas and Fitzgeralds
Reno increased of 10.7% and 5.7%, respectively.
Depreciation and amortization expense of the Properties was $8.7 million in 1996
compared to $7.4 million for 1995, an increase of 17.1%. The largest increase in
depreciation expense is accounted for by Fitzgeralds Tunica, which recorded $4.4
million in 1996 compared with $3.7 million in 1995, due to the start of
operations of the hotel in the last quarter of 1996.
Income from Operations
Income from operations for the Properties decreased 72.4%, to $4.3 million for
1996 from $15.3 million for 1995. For the various reasons described above,
income from operations for Fitzgeralds Las Vegas decreased 113.7% (from $2.4
million in 1995 to a loss of $330,000 in 1996), income from operations for
Fitzgeralds Tunica decreased 109.6% (from $6.2 million in 1995 to a loss of
$597,000 in 1996) and income from operations for Fitzgeralds Reno decreased from
$5.0 million in 1995 to $2.3 million in 1996, a 53.6% decrease. These decreases
were slightly offset by an approximately $1.1 million increase in income from
operations due to increased management fees from both Cliff Castle and
Fitzgeralds Black Hawk.
Net Interest Expense
Net interest expense for the Properties (interest expense less interest income)
rose 28.0% to $17.7 million for 1996 from the $13.8 million recorded for 1995,
due to the issuance in December 1995 of the Senior Secured Notes.
Income Before Income Taxes and Income Tax Provision
For the reasons described above, the Properties recorded loss before taxes of
$14.1 million in 1996, compared to the $811,000 in income before taxes recorded
in 1995. Income before taxes declined at each property. This was offset in part
by a $2.1 million increase in management fees at Fitzgeralds Black Hawk and
Cliff Castle due to their inclusion for the entire year in 1996 compared to only
seven months in 1995, as well as improved performance for comparable months.
Reflecting the Company's overall loss before income taxes, a tax benefit of $1.5
million was recorded in 1996, compared to a tax provision of $2.8 million in
1995. The provision in 1995 was required due to the 1995 business combination,
in which certain subsidiaries converted from S corporation status to C
corporation status. This conversion resulted in the recording of deferred tax
liabilities resulting from temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997 the Company had unrestricted cash of $14.8 million,
compared to $13.3 million at December 31, 1996. In addition, cash set aside for
construction contingencies totaled $0.4 million. The Company's primary sources
of liquidity and cash flow in 1997 were operations, $1,287,000, distributions
from 101 Main of
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<PAGE> 32
$1 million, and issuance of debt (net of redemptions and issuance costs) of
$27.0 million. Uses of liquidity in 1997 included the purchase of the 78%
membership interest in 101 Main of $25.7 million, acquisition of property and
equipment of $3.6 million, and investment in Fremont Street Experience of
$800,000.
1997 included two major financing and investing activities. The issuance in
August 1997 of $38.0 million 101 Main Notes and subsequent purchase of the 78%
membership interest in 101 Main not previously owned, and the issuance in
December 1997 of $205 million Senior Secured Notes, the proceeds of which
were used to repay substantially all of the Company's outstanding indebtedness.
The proceeds of the 101 Main Notes totaled approximately $36 million after
issuance costs. Of this amount, $27.3 million was used to purchase the remaining
78% membership interest in 101 Main ($25.7 million net of cash acquired), and
the balance of the offering proceeds was used to repay certain existing
indebtedness secured by assets of 101 Main and for general corporate purposes.
The issuance in December 1997 of the $205 million in Notes resulted in net
proceeds to the Company of $202.6 million. These proceeds were used to repay
substantially all of the Company's outstanding indebtedness, including the
Senior Secured Notes of $123.0 million, 101 Main Notes of $39.7 million,
indebtedness secured by Fitzgeralds Reno of $20.1 million, and Priority Notes of
$5.4 million. The remainder of the proceeds was used to pay accrued interest of
$5.7 million and issuance expenses of $8.7 million. The issuance of the Notes
enabled the Company to consolidate it's various debt agreements, and to
eliminate otherwise unfavorable restrictions contained in covenants of certain
of the previously outstanding debt agreements. With certain limited exceptions,
the Company's obligations under the Notes are fully and unconditionally
guaranteed by all subsidiaries of the Company by a first priority lien on
substantially all assets of the guarantor subsidiaries. See Note 15 of Notes to
Consolidated Financial Statements for a more detailed discussion of these
guarantees.
Net cash used in investing activities was $24.7 million for the year ended
December 31, 1997 as compared to $6.4 million for 1996. In 1997, in addition to
the $27.3 million acquisition of the 78% membership interest in 101 Main
discussed above, investing activities included the purchase of property and
equipment of $3.6 million, additional investments in Fremont Street Experience
of $800,000, offset by distributions from 101 Main (prior to the acquisition of
the remaining 78% membership interest) of $1 million. This compares with 1996 in
which property and equipment acquisitions (primarily construction of the Tunica
Hotel) totaled $53.3 million, funded largely by a $46.8 million decline in
restricted cash balances. Additionally, 1996 investing activities included a $1
million investment in Fremont Street Experience offset by a $594,000
distribution from 101 Main.
Net cash provided by financing activities was $24.8 million for the year ended
December 31, 1997 compared with net cash used of $885,000 in 1996. The primary
components in 1997 were the issuance of the $205 million Senior Secured Notes
(net proceeds of $202.6 million), the issuance of the 101 Main Notes (net
proceeds of $38 million) and other issuances of $0.2 million offset by early
retirement of outstanding debt of $202.6 million and issuance costs of $11.3
million. Financing activities in 1996 consisted of primarily the issuance of
$9.6 million in debt (including $5.9 million in Priority Notes) offset by debt
repayment of $10.2 million.
Under the terms of certain indemnification, assignment and assumption and
guarantee agreements executed by FRI in connection with the purchase and
subsequent sale of Harolds Club, FRI is contingently obligated for certain land
lease payments to five lessors in the amount of approximately $580,000 annually
plus certain property-related costs, such as taxes and insurance if said lease
payments and costs are not paid by the current owner of Harolds Club. As of
December 31, 1997, the current owner of Harolds Club was approximately
$1,106,000 in arrears in land lease payments and approximately $259,000 in
arrears in property taxes and assessments. The current owner of Harolds
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<PAGE> 33
Club and the five land lessors have received an offer to purchase their
respective interests in Harolds Club. The same unrelated party has made an offer
to purchase the Nevada Club for $4.0 million. Subject to certain terms and
conditions, FRI has agreed to pay the land lessors approximately $2.1 million in
exchange for a dismissal with prejudice of all claims against FRI arising out of
FRI's purchase and subsequent sale of Harolds Club (the "Settlement").
Concurrent with the closing of the Harolds Club transaction FRI anticipates
payment of $600,000 of the Settlement in cash, less the cumulative amount of
interim monthly rental payments ($28,977 per month), and the remainder in the
form of five promissory notes payable in equal monthly installments over five
years, plus interest at the prime rate in effect at the largest financial
institution in Nevada on the date the notes are executed. The notes will be
secured by the personal guarantee of the Chairman and Chief Executive Officer of
the Company. Subject to specified terms and conditions, a prior owner of Harolds
Club named in four of the five actions has agreed to reimburse $300,000 to FRI
as its contribution to the settlement of these actions and has agreed to provide
a payment guarantee for one of the five notes. The closing of the Harolds Club
transaction is subject to the receipt by FRI of the $300,000 reimbursement and
the closing of the Nevada Club sale. During 1997 the Company recorded an expense
of $1.9 million for the anticipated net settlement obligation, including related
legal fees. In anticipation of the Nevada Club transaction, the Company
reclassified $6.2 million from Property and Equipment to Estimated Realizable
Value of Nevada Club Assets Held for Sale in the consolidated balance sheet as
of December 31, 1997 and recorded an allowance of $2.2 million against the book
value of the assets held for sale to write such assets down to the estimated net
realizable value in the consolidated statement of operations for year ended
December 31, 1997.
In December 1997, the Company closed the Nevada Club in anticipation of the
aforementioned sale. Upon the sale, notes payable by NCI to a bank, which are
secured by Nevada Club assets and guaranteed by the Chairman and Chief Executive
Officer of the Company, will be retired. Such notes payable totaled $2.7 million
in principal amount as of December 31, 1997, and have covenants placing certain
restrictions on NCI and requiring that certain financial ratios be maintained.
As of December 31, 1997, Nevada Club was not in compliance with the following
covenants: Tangible Net Worth of $800,000, Funded Debt to EBITDA Ratio of 3.5 to
1.0, Debt Service Coverage Ratio of 1.2 to 1.0 and a Fixed Charge Coverage Ratio
of 1.0 to 1.0. NCI continues to make scheduled principal and interest payments
on the notes. See Note 7 of Notes to Consolidated Financial Statements. There
can be no assurance, however, that Nevada Club will be sold or that the
Settlement will be consummated.
The Company's principal sources of capital will consist of cash from operations
and vendor and lease financing of gaming and other equipment. Additionally, the
indenture under which the Senior Secured Notes were issued allows the Company,
under certain circumstances, to establish a secured $15.0 million line of
credit, of which up to $5.0 million could be used for capital projects at
Fitzgeralds Black Hawk. As of December 31, 1997, the Company has not established
such line of credit. Based upon anticipated levels of operations, the Company
currently expects its cash flows will be sufficient to enable the Company to
satisfy its anticipated operating cash requirements including debt service
requirements, working capital and other fixed charges through 1998, as well as
anticipated maintenance capital expenditures of approximately $6.0 million
during 1998. There can be no assurance as to the actual level of operating cash
requirements or of the amount of cash flows from operations or their sufficiency
to meet such requirements.
EBITDA AND ADJUSTED EBITDA
The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") was $25.7 million for 1997 and $12.8 million in 1996.
EBITDA is calculated by adding depreciation and amortization expenses to income
from operations. The Company's Adjusted EBITDA was $30.6 million in 1997 and
$13.5 million in 1996. Adjusted EBITDA is determined based on the adjustments
described in Note 4 to "Selected Financial Data." However, EBITDA should only be
read in conjunction with all of the Company's financial data summarized above
and its financial statements prepared in accordance with GAAP appearing
elsewhere herein, and should not be construed as an alternative either to income
from operations (as determined in accordance with GAAP) as an indication of the
Company's operating performance or to cash flows from operating activities (as
determined in accordance with GAAP) as a
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<PAGE> 34
measure of liquidity. This presentation of EBITDA may not be comparable to
similarly titled measures reported by other companies.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges measures the extent by which earnings, as
defined, exceed certain fixed charges. Earnings are defined as earnings before
income taxes, interest on indebtedness, imputed interest on capital lease
obligations and the portion of rent expense deemed to represent interest. Fixed
charges consist of interest on indebtedness, imputed interest on capital lease
obligations, and the portion of rent expense deemed to represent interest.
Earnings were insufficient to cover fixed charges by $10.6 million and $15.5
million for the years ended December 31, 1997 and 1996, respectively.
BUSINESS SEASONALITY
The Company's business is subject to the seasonality of the gaming business,
which varies slightly geographically. At Fitzgeralds Las Vegas, business levels
are generally weaker from Thanksgiving through the middle of January (except
during the week between Christmas and New Year's) and throughout the summer, and
generally stronger from mid-January through Easter and from mid-September
through Thanksgiving. At each of the three other Fitzgeralds-brand properties,
business levels are typically weaker from Thanksgiving through the end of the
spring and typically stronger from mid-June to mid-November.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
from the inability of current technology to process properly the change from the
year 1999 to 2000. The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
In 1997 the Company initiated an investigation to identify and ensure that all
significant applications will be Year 2000 compliant. The Company is conducting
its investigation and is in the process of obtaining assurances from its vendors
that timely updates will be made available to ensure that all purchased
applications are Year 2000 compliant. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
The Company will utilize both internal and external resources to test, program
and/or replace applications to ensure that they are Year 2000 compliant.
Completion of this project is anticipated not later than October 31, 1999.
Although the costs associated with the Year 2000 project are not expected to be
material in nature, the Company has not finalized its investigation and is
unable to provide an estimate of such costs at this time. Such costs are
expected to be funded through operating cash flows. Costs of hardware and
software required to be purchased as a result of the Year 2000 Issue will be
capitalized in accordance with normal policy. Personnel and all other costs
related to the project will be expensed as incurred. The conversion of most
purchased applications will be completed under the terms of maintenance
agreements which provide for the conversion of such applications at no
additional cost. All equipment and other operating systems are currently being
evaluated to determine if Year 2000 issues have an effect on their ability to
perform their respective functions.
Although, based on its investigation to date the Company does not believe that
it will experience any significant adverse effects or material unbudgeted costs
associated with the Year 2000 project, the Company cannot provide any assurance
in this regard, and any such cause or effect could materially and adversely
affect the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Information required by this item is listed under Item 14 of Part IV of this
Report on Form 10-K.
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<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
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<PAGE> 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following tables set forth certain information with respect to the officers,
directors and significant employees of the Company as of December 31, 1997:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ---- --- ----------------
<S> <C> <C>
Philip D. Griffith 52 Chairman, President, Chief Executive Officer and Director
Michael A. Ficaro 50 Director
Patricia W. Becker 45 Director
Michael E. McPherson 46 Senior Vice President, Chief Financial Officer, Treasurer and Secretary
</TABLE>
SIGNIFICANT EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ---- --- ----------------
<S> <C> <C>
Paul H. Manske 57 Senior Vice President of Marketing of the Company
Cara L. Brown 35 Vice President and General Counsel of the Company
Max L. Page 48 Executive Vice President and a director of FRI and General Manager of
Fitzgeralds Reno
William J. Noonan, III 46 Vice President and a director of FLVI and General Manager of Fitzgeralds
Las Vegas
James O. Buchanan 48 Vice President and a director of FMI and General Manager of Fitzgeralds
Tunica
Joe C. Collins 58 Vice President and a director of FBHI and FBHI-II, and General Manager of
Fitzgeralds Black Hawk
</TABLE>
PHILIP D. GRIFFITH, one of the Company's founders, has been President, Chief
Executive Officer and a Director of the Company since its inception in 1984, an
officer and director of certain of its subsidiaries since 1984 and has been
Chairman of the Company since August 1997. Mr. Griffith serves as President and
Chief Executive Officer of each significant subsidiary of the Company. Prior to
his involvement with the Fitzgeralds group of companies, Mr. Griffith was active
in the gaming industry in a variety of positions, serving as Chief Financial
Officer and then President of Harolds Club in Reno from 1973 to 1984 and
president of the Sands Hotel and Casino in Las Vegas from 1982 to 1984. From
1968 to 1973, Mr. Griffith
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<PAGE> 37
was a Certified Public Accountant with the St. Louis, Missouri and Las Vegas
offices of Deloitte Haskins & Sells.
MICHAEL A. FICARO joined the Company as a Director in December 1995. Mr. Ficaro
has been a partner in the Chicago law firm of Hopkins & Sutter since 1989. Mr.
Ficaro has been an adjunct faculty member at John Marshall Law School since 1986
and the National College of District Attorneys since 1978. From 1990 to 1992,
Mr. Ficaro was appointed to the position of Special States Attorney of Cook
County, Illinois. From 1981 to 1989, Mr. Ficaro served in the office of the
Attorney General of Illinois as First Assistant Attorney General (1988-1989),
Charitable Trust Division Chief (1987-1989) and Director of Enforcement
(1986-1989). From 1982 to 1984, he was appointed Special Assistant United States
Attorney. From 1978 to 1981, Mr. Ficaro was Deputy States Attorney of Cook
County, after serving since 1972 as Assistant States Attorney of Cook County.
PATRICIA W. BECKER joined the Company then as a Director in December 1995. Ms.
Becker is a self-employed consultant and served as Chief of Staff to Nevada
Governor Bob Miller from October 1993 to January 1995. From September 1984 to
October 1993, Ms. Becker was a Senior Vice President, General Counsel and
Secretary for Harrah's Casino Hotels., where she was responsible for all legal
affairs and was a member of the senior strategic management group. From January
1983 to September 1984, Ms. Becker was a member of the Nevada State Gaming
Control Board. From July 1979 to January 1983, Ms. Becker was a Deputy and Chief
Deputy Attorney General assigned to the Nevada Gaming Division. Ms. Becker is a
Vice Chair for the Gaming Law Section of the American Bar Association, a past
President of the Nevada Trial Lawyers Association of Gaming Attorneys and a
Director of VLT, Inc.
MICHAEL E. MCPHERSON was named Senior Vice President, Chief Financial Officer
and Treasurer in August 1997, was appointed Secretary in September 1997, and
serves as Senior Vice President, Chief Financial Officer, Treasurer and
Secretary of each significant subsidiary of the Company. Mr. McPherson joined
the Company in March 1985 and has served in various executive positions in the
Company, including Senior Vice President of Operations from September 1995 to
July 1997, Vice President of Finance from November 1994 to September 1995, as
well as Vice President and Treasurer for certain subsidiaries of the Company and
Director of Finance for Fitzgeralds Reno. Mr. McPherson holds a degree in
Business Administration from the University of Nevada Reno and is an associate
member of the Nevada Society of Certified Public Accountants.
PAUL H. MANSKE, one of the Company's founders, has served as Executive Vice
President of a subsidiary of the Company since September 1988 and was appointed
Senior Vice President of Marketing for the Company in January 1997. Prior to
joining the Company, Mr. Manske served as Vice President of Marketing for
Harolds Club and the Sands Hotel/Casino with the Howard Hughes organization from
1978 to 1984, and prior to that as a marketing executive with the Ford Motor
Company from 1964 to 1978. Mr. Manske holds a degree in Business Administration
from Jacksonville University.
CARA L. BROWN joined the Company as Vice President and General Counsel in May
1996. For the three years prior to May 1996, she was an associate counsel at
Harrah's Las Vegas and for the three years prior thereto, she was a staff
attorney at Jones, Jones, Close & Brown in Las Vegas. Ms. Brown has a degree
from the University of North Carolina at Chapel Hill and holds a law degree from
the Marshall-Wythe School of Law at the College of William and Mary in
Williamsburg, Virginia.
MAX L. PAGE, one of the Company's founders, has served as Executive Vice
President and a director of certain subsidiaries of the Company since September,
1986 and as General Manager of Fitzgeralds Reno since November 1994. Mr. Page
was elected a Director of the Company in January 1998. Mr. Page holds a degree
in Political Science and a Masters degree in Public Administration from Brigham
Young University.
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<PAGE> 38
WILLIAM J. NOONAN, III was named Vice President and a director of a subsidiary
of the Company and General Manager of Fitzgeralds Las Vegas in May 1994. He was
first employed by a subsidiary of the Company in January 1994 as Vice President
of that subsidiary. Prior to joining the Company, Mr. Noonan served over 11
years as a city manager: in Perry, Florida from 1982 to September 1987; in Cape
Coral, Florida from September 1987 to January 1991; and in Las Vegas, Nevada
from February 1991 to July 1993. Mr. Noonan was also engaged in business and
gaming consulting services from August 1993 to February 1994. Mr. Noonan holds a
Master's degree in Public Administration from the University of Kansas and a
degree in Public Administration/Economics from Southwest Missouri State
University.
JAMES O. BUCHANAN was named Vice President and a director of a subsidiary of the
Company and General Manager of Fitzgeralds Tunica in January 1995, after serving
first as Senior Director of Gaming, then as Senior Director of Operations and
then as Acting General Manager of Fitzgeralds Tunica from its opening. Prior to
moving to Fitzgeralds Tunica, Mr. Buchanan was employed at Fitzgeralds Reno as
corporate director of slot products from July 1987 to August 1990 and director
of slot operations from August 1990 to December 1993. Prior to joining the
Company, Mr. Buchanan was employed by Harveys Resort Hotel and Casino from 1972
to 1987, during which time he served in numerous positions including director of
slot operations and keno operations.
JOE C. COLLINS was named Vice President and a director of a subsidiary of the
Company and General Manager of Fitzgeralds Black Hawk in January 1995 and was
named Vice President and a director of a second subsidiary of the Company
related to the Fitzgeralds Black Hawk operations in 1997. Prior to that time,
Mr. Collins had been hotel director at Fitzgeralds Reno from April 1985 to
December 1994. Mr. Collins currently serves on the executive board of the Black
Hawk Casino Owners Association and on the board of the Black Hawk Business
Improvement District.
BOARD OF DIRECTORS
Directors are elected at the annual meeting of stockholders and each director is
elected to serve until a successor is elected and qualified. The number of
directors which constitutes the whole Board may not be less than three or more
than nine, except that in cases where all the shares of the Company are owned
beneficially and of record by either one or two stockholders, the number may be
less than three but not less than the number of stockholders. The Company held
the first annual meeting of stockholders on August 1, 1997.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee is charged with reviewing the audited financial
statements of the Company and making recommendations to the full Board on
matters concerning the Company's audits and the selection of independent public
accountants. The Audit Committee is comprised of Patricia W. Becker and Michael
A. Ficaro, as chairperson. The Compensation Committee is responsible for
establishing, bonuses and other compensation for the Company's executive
officers. The Compensation Committee is comprised of Michael A. Ficaro and
Patricia W. Becker, as chairperson.
Directors who are also employees of the Company do not receive any compensation
for their services as directors. Non-employee directors are paid fees of $40,000
per year and $1,000 per Board meeting attended in person or telephonically. The
two non-employee directors of the Company have each received five-year options
to purchase 14,000 shares of the Common Stock, exercisable at a price equal to
the fair market price of the Common Stock on the date of grant. No fee is
payable for participation in Board committee meetings. However, Ms. Becker, as
chairperson of the Company's Gaming Compliance Committee (a non-Board
committee), is paid an additional fee of $30,000 per year and participates in
all health insurance plans available to the Company's employees generally. The
Company reimburses each director for reasonable
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<PAGE> 39
out-of-pocket expenses incurred in his or her capacity as a member of the Board
of Directors. No payments are made for actions taken in writing. Each director
attended at least 75% of the total number of meetings of the Board of Directors
and committees, of which he or she was a member, held during the fiscal year
ended December 31, 1997.
The Company has no nominating committee or committee performing similar
functions.
OTHER COMMITTEES
The Company has formed an Executive Committee (a non-Board committee) to provide
a forum for interaction and discussion among its senior executives. The
Executive Committee is comprised of Michael E. McPherson and Philip D. Griffith,
as chairperson.
In 1995, the Company established a Gaming Compliance Committee (a non-Board
Committee) which is responsible for establishing procedures for and monitoring
compliance with gaming regulations. The Gaming Compliance Committee is comprised
of Cara L. Brown, Kathleen Bryant, Michael E. McPherson and Patricia W. Becker,
as chairperson.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more that 10% of a registered class
of the Company's equity securities, to file an initial report of ownership on
Form 3 and changes in ownership on Forms 4 or 5 with the Securities and Exchange
Commission (the "Commission"). Such officers, directors and 10% stockholders are
also required by the Commission rules to furnish the Company with copies of all
Section 16 (a) forms they file. Based solely on its review of the copies of such
forms received by it, or written representation from certain reporting persons
that no Forms 4 or 5 were required for such persons, the Company has determined
that the following persons filed late reports.
Mr. Griffith filed a late Form 5, reporting three transactions which
should have been reported on Form 4 and two additional transactions. Mr.
McPherson filed a late Form 5, reflecting a late Form 3 filing (which would
have shown the existence of three grants of options to Mr. McPherson prior to
Mr. McPherson becoming an officer) and two additional transactions. Mr. Page
filed a late Form 3 relating to his election as a director in January 1998.
Mr. Ficaro and Ms. Becker each filed a late Form 5 reporting two transactions.
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<PAGE> 40
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by the Company
in the three fiscal years ended December 31, 1995, 1996 and 1997 to the
Company's Chief Executive Officer and each of its other most highly compensated
executive officers (collectively "named executive officers"). The named
executive officers include (i) each person who served as Chief Executive Officer
during 1997 (one person), (ii) each person who (a) served as an executive
officer at December 31, 1997, (b) was among the four most highly paid executive
officers of the Company, not including the Chief Executive Officer, during 1997
and (c) received over $100,000 in compensation in 1997 (one person), (iii) up to
two persons who would be included under clause (ii) above had they served as an
executive officer at December 31, 1997 (two) and (iv) certain persons who served
as executive officers of a subsidiary of the Company (one person).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------------------------------------- -----------------
OTHER SECURITIES ALL OTHER
FISCAL ANNUAL UNDERLYING COMPENSATION
NAME & POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(2) OPTIONS/SARS(#) ($)(3)
---------------
-------- ----------- ----------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Philip D. Griffith 1997 510,008 - - 100,000 114,448
Chairman, President & 1996 465,000 - - - 69,292
Chief Executive Officer 1995 507,500 - - 75,000 10,154
Michael E. McPherson(4) 1997 169,327 7,500 - 19,000 3,207
Senior Vice President, 1996 128,077 15,000 - - 1,714
Chief Financial Officer, 1995 125,000 - - 21,854 1,424
Treasurer & Secretary
Paul H. Manske 1997 224,192 - - 19,000 10,701
Senior Vice President 1996 195,000 2,500 - - 10,938
Marketing 1995 195,000 - - 7,500 7,513
Max Page 1997 207,308 - - 9,000 9,976
Executive Vice President 1996 200,000 5,000 - - 7,009
of FRI & General Manager of 1995 200,000 - - 10,000 8,884
Fitzgeralds Reno
Fernando Bensuaski(5) 1997 200,353 - - -- 20,834
1996 257,200 - - -- -
1995 73,315 - - 50,000 -
</TABLE>
1 Amounts shown include cash compensation earned for the periods reported
whether paid or accrued in such periods.
2 During 1997, 1996 and 1995, the named executive officers received personal
benefits, the aggregate amounts of which for each named executive officer
did not exceed the lesser of $50,000 or 10% of the total of the annual
salary and bonus reported for such named executive officer in such years.
3 Amounts represent premiums for life insurance and long-term disability
policies, medical benefits and the Company's Profit Sharing and 401(k)
contributions. In fiscal 1997, the Company's Profit Sharing and 401(k)
contributions were $2,375, $1,862, $2,375 and $2,275 for Messrs. Griffith,
McPherson, Manske and Page, respectively. During 1997, the Company paid
$2,524, $2,829, $5,319 and $20,381 in medical benefits for Messrs.
Griffith, Manske, Page and Bensuaski, respectively. During 1997, the
Company paid $109,549 in premiums for split dollar, life insurance and long
term disability policies for Mr. Griffith, and $1,344, $5,497, $2,381 and
$453 in premiums for life insurance and long disability policies for
Messrs. McPherson, Manske, Page and Bensuaski, respectively. See
Employment Agreements with Executive Officers and Key Employees.
4 Mr. McPherson was elected Senior Vice President, Chief Financial Officer
and Treasurer of the Company on August 1, 1997, and Secretary on September
7, 1997.
5 Mr. Bensuaski, formerly Executive Vice President and Chief Financial
Officer of the Company, resigned as an officer of the Company effective
September 7, 1997. 16,688 of Mr. Bensuaski's options expired unexercised on
September 7, 1997.
- --------------------------------------------------------------------------------
Page 39 of 52
<PAGE> 41
OPTION /SAR GRANTS TABLE
The following table sets forth, with respect to the named executive officers,
the information concerning the grant of stock options during the fiscal year
ended December 31, 1997. During fiscal year 1997, there was a total of 321,000
new stock options granted, of which 147,000 stock options were granted to named
executive officers. The Company has never granted stock appreciation rights
("SARs").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------
Potential Realizable
Number of Percent of Value at Assumed
Securities Total Annual Rate of Stock
Options/SARs Exercise
Underlying Granted to or Base Price Appreciation
Options/SARs Employees Price Expiration for Option Term(1)
Name Granted # in Fiscal Year ($/Sh) Date 5% 10%
--------------------- -------------- --------------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Philip D. Griffith 100,000 33.0% 1.10 12/31/00 $127,339 $146,410
Michael E. McPherson 19,000 6.3% 1.00 12/31/00 21,995 25,289
Paul H. Manske 19,000 6.3% 1.00 12/31/00 21,995 25,289
Max L. Page 9,000 3.0% 1.00 12/31/00 10,419 11,979
Fernando Bensuaski* 0 0 0 --
</TABLE>
1 The Company's Common Stock is not publicly traded.
* Mr. Bensuaski, formerly Executive Vice President and Chief Financial
Officer of the Company, resigned as an officer of the Company effective
September 7, 1997.
OPTION/SAR EXERCISES TABLE
The following table sets forth, with respect to the named executive officers,
information concerning the exercise of stock options during the fiscal year
ended December 31, 1997 and unexercised stock options held as of December 31,
1997.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-
Shares Options/SARs at Fiscal The-Money Options/SARs
Acquired on Value Year End (#) at Fiscal Year End
Name Exercised # Realized Exercisable Unexercisable ($)(1)
---------------------- ------------- --------- ------------ -------------- --------------------------
<S> <C> <C> <C> <C> <C>
Philip D. Griffith 0 0 83,333 91,667 0/0
Michael E. McPherson 0 0 24,853 16,001 0/0
Paul H. Manske 0 0 11,333 15,167 0/0
Max L. Page 0 0 9,666 9,334 0/0
Fernando Bensuaski* 0 0 33,332 0 0/0
</TABLE>
1 The exercise price of the unexercised options exceeds the assigned value of
the Common Stock. The Company's Common Stock is not publicly traded.
* Mr. Bensuaski, formerly Executive Vice President and Chief Financial
Officer of the Company, resigned as an officer of the Company effective
September 7, 1997.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company has entered into employment agreements with each of Messrs.
Griffith, Manske and McPherson and with Ms. Brown, to serve in their present
offices for terms expiring June 30, 1998, December 31, 1999, February 28, 1999
and April 30, 1999, respectively. Messrs. Griffith, Manske, and McPherson and
Ms. Brown, as of February 27, 1998, have salaries of $496,125, $250,000,
$210,000 and
- --------------------------------------------------------------------------------
Page 40 of 52
<PAGE> 42
$100,000, respectively, and their respective employment agreements generally
provide for annual merit increases. The employment agreements also provide that
such persons will participate in the Company's Executive Bonus Plan, health plan
and any other benefit plan established for selected officers of the Company and
that in the event of a termination of employment without "good cause" (as
defined in the agreements), such persons will be entitled to any unpaid salary
in a specified percentage through the remainder of the term of their respective
agreement. The Company had also entered into an employment agreement with Mr.
Bensuaski, who resigned as officer of the Company effective September 9, 1997.
The agreement with Mr. Bensuaski also provided for the Company to continue to
pay annual premiums for certain life insurance coverage through 1998.
FRI has entered into an employment agreement with Mr. Page, under which he was
appointed Vice President of FRI for a term expiring on December 31, 1999. As of
February 27, 1998, Mr. Page receives a salary of $225,000, participates in FRI's
bonus plan and in a health plan and may participate in any other benefit plan
established by FRI for its executives. FRI also maintains life insurance
coverage with respect and for the benefit of Mr. Page in an amount of $500,000.
Mr. Page is entitled to certain severance payments in the event of a termination
of employment by reason of disability or death. His employment agreement
includes a covenant not to compete for a casino license in Reno, Sparks or
downtown Las Vegas, Nevada or Tunica, Mississippi.
In accordance with industry practice, the Company has entered into employment
agreements with certain of its other vice presidents and departmental directors.
EXECUTIVE BONUS PLAN
The Company has established an Executive Bonus Plan to provide the senior
executive officers of the Company with a performance-based compensation program.
Effective January 1, 1998, the Company will set aside a portion of its annual
consolidated EBITDA, adjusted for extraordinary non-recurring items that are
deemed non-operational in nature ("Adjusted EBITDA"), each year so long as such
Adjusted EBITDA for such year is at least $30 million. The set aside amount will
start at 1.4% of Adjusted EBITDA at the $30 million level and increase by
one-tenth of one percent for each $1 million of Adjusted EBITDA above $30
million up to a limit of 3%. Prior to January 1, 1998, the Executive Bonus Plan
was based upon EBITDA prior to any adjustments and no bonuses were paid under
the Plan as then structured. The Compensation Committee will have full
discretion concerning the payment of executive bonuses.
STOCK OPTIONS
Stock Option Incentive Plan. The Company has adopted a Stock Option Incentive
Plan (the "Plan"). The following is a description of the plan.
The Plan provides for the grant of options to purchase Common Stock either that
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
that are not intended to so qualify ("non-qualified stock options"). All
officers, directors, employees, consultants, advisers, independent contractors
and agents are eligible to receive options under the Plan, except that only
employees are may receive incentive stock options. The Plan also permits a
one-time grant of options to certain former employees in substitution for
options previously granted to them and having substantially the same terms and
conditions. The maximum number of shares available for issuance under the Plan
is 1,000,000. At December 31, 1997, there were 676,974 options outstanding under
the Plan.
- --------------------------------------------------------------------------------
Page 41 of 52
<PAGE> 43
The Plan is administered by the Board of Directors or, in its discretion, by a
committee of the Board of Directors appointed for that purpose (the "Plan
Committee"), which, subject to the terms of the Plan, has the authority in its
sole discretion to determine: (a) the individuals to whom options shall be
granted; (b) the time or times at which options may be exercised; (c) the number
of shares subject to each option, (d) the option price and the duration of each
option granted; and (e) all of the other terms and conditions of options granted
under the Plan.
The exercise price of incentive options granted under the Plan must be at least
equal to the fair market value of the shares on the date of grant (110% of fair
market value in the case of participants who own shares possessing more than 10%
of the combined voting power of the Company or any of its subsidiaries) and may
not have a term in excess of 10 years from the date of grant (five years in the
case of participants who own shares possessing more than 10% of the combined
voting power of the Company). In no event may the aggregate fair market value
(determined as of the time the option is granted) of the shares with respect to
which incentive stock options (granted under the Plan and all other plans of the
Company or any of its subsidiaries) are exercisable for the first time by an
optionee in any calendar year exceed $100,000.
Options granted under the Plan are not transferable other than by will or the
laws of descent and distribution. Unless otherwise determined by the Board of
Directors or the Plan Committee, all stock options granted under the Plan
terminate (i) immediately upon the optionee's termination of employment (or
other relationship) with the Company for cause, (ii) one year after the
optionee's termination of employment (or other relationship) by reason of death
or permanent disability and (iii) 90 days after the optionee's termination of
employment (or other relationship) for any other reason (unless the optionee has
resumed a continuing relationship with the Company), but in no case later than
the scheduled expiration date of the option. Unless otherwise determined by the
Board of Directors or Plan Committee, the number of shares with respect to which
a stock option may be exercised following the optionee's termination of
employment or other relationship is limited to that number of shares which could
have been purchased pursuant to the option had the option been exercised by the
optionee on the date of such termination.
Payment of the exercise price upon exercise of an option must be made in cash
or, in the discretion of the Board of Directors or the Plan Committee, in shares
of Common Stock. Where payment is made in Common Stock, such Common Stock shall
be valued for such purpose at the fair market value of such shares (determined
as specified in the Plan) on the date of exercise.
If the number of outstanding shares of Common Stock is increased or decreased,
or if such shares are exchanged for a different number or kind of shares through
reorganization, merger, recapitalization, stock dividend, stock split, or other
transaction where the Board determines that an adjustment is appropriate, the
aggregate number of shares available for issuance under the Plan, the number of
shares subject to outstanding options, the per share exercise price of
outstanding options and the aggregate number of shares with respect to which
options may be granted to a single participant will be appropriately adjusted by
the Board of Directors.
No grant of options may be made under the Plan after June 25, 2007, which is 10
years after its date of adoption. The Board of Directors has authority to
terminate or to amend the Plan. Amendments may be made without the approval of
the Company's stockholders unless such approval is required by law or stock
exchange requirement. No amendment or termination may impair the rights of any
holder of outstanding options without the consent of such holder. The terms and
conditions of outstanding options may be amended by written agreement between
the optionee and the Company.
- --------------------------------------------------------------------------------
Page 42 of 52
<PAGE> 44
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company is comprised
of Michael A. Ficaro and Patricia W. Becker, as chairperson, neither of whom was
an officer or employee of the Company during or prior to 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 1997 with
regard to the beneficial ownership of Common Stock by (i) each person who, to
the knowledge of the Company, beneficially owns more than 5% of the outstanding
Common Stock, (ii) each director of the Company, (iii) each other person named
in the Summary Compensation Table (see Item 11 - Executive Compensation), and
(iv) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES OWNED BENEFICIALLY
-------------------------
NAME1 NUMBER OF SHARES PERCENTAGE
----- ---------------- ----------
<S> <C> <C>
Philip D. Griffith2 2,644,356 64.6%
Jerome H. Turk3 858,948 21.3%
Paul H. Manske4 134,898 3.3%
Michael E. McPherson5 24,853 *
Michael A. Ficaro6 6,333 *
Patricia W. Becker7 33,808 *
Max L. Page8 133,231 3.3%
Fernando Bensuaski9 33,332 *
All directors and executive officers as a group
(four persons) 2,709,350 67.5%
</TABLE>
- -----------------
1 The address of Messrs. Griffith and Turk is 301 Fremont Street, Las Vegas,
Nevada 89101.
2 Mr. Griffith's stock is held by the Philip D. Griffith Gaming Trust of
which Mr. Griffith is a trustee. Includes 83,333 shares which may be
acquired upon exercise of options exercisable within 60 days.
3 Mr. Turk's stock is held by the Jerome H. Turk Gaming Properties Trust of
which Mr. Turk is a trustee. Includes 25,000 shares which may be acquired
upon exercise of options exercisable within 60 days.
4 Mr. Manske's stock is held by the Paul H. Manske Family Trust of which Mr.
Manske is a trustee. Includes 11,333 shares which may be acquired upon
exercise of options exercisable within 60 days.
5 Represents shares which may be acquired by Mr. McPherson upon exercise of
options exercisable within 60 days.
6 Represents shares which may be acquired by Mr. Ficaro upon exercise of
options exercisable within 60 days.
7 Ms. Becker's stock is held by the Patricia W. Becker Family Trust of which
Ms. Becker is a trustee. Includes 6,333 shares which may be acquired upon
exercise of options exercisable within 60 days.
8 Mr. Page's stock is held by the Max L. Page Trust of which Mr. Page is a
trustee. Includes 9,666 shares which may be acquired upon exercise of
options exercisable within 60 days.
9 Represents share which may be acquired by Mr. Bensuaski upon exercise of
options exercisable within 60 days. Mr. Bensuaski, formerly Executive Vice
President and Chief Financial Officer of the Company resigned as an officer
of the Company effective September 7, 1997.
* Less than 1%.
- --------------------------------------------------------------------------------
Page 43 of 52
<PAGE> 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1987, FRI loaned $3,250,000 to its then stockholders (the
"Stockholders"), including Messrs. Philip D. Griffith and Max L. Page. Such
funds were in turn loaned to Lincoln Partners Corporation ("LPC"), the general
partner of Fitzgeralds Las Vegas Limited Partnership ("FLVLP"), to fund the
purchase of Fitzgeralds Las Vegas by FLVLP. The transactions were structured for
tax reasons associated with FRI's then status as an S corporation and FRI
continues to have an obligation to indemnify Mr. Griffith and Mr. Page for
certain potential tax liabilities arising from such transaction. At that time,
FRI and LPC had, and they continue to have, directly or indirectly, numerous
stockholders in common. The Company has no interest in LPC. The loans made by
FRI were repayable pursuant to promissory notes having identical terms. Such
notes, which were amended in March 1992, bore interest at 6.69% per annum and
were payable interest only on each anniversary date thereof until June 1997, on
which date the notes matured and were payable in full with all accrued and
unpaid interest. The Stockholders failed to pay the sums due under their
respective notes, aggregating $1,807,255 in principal amount, on the June 30,
1997 due date. All amounts owned to FRI by the Stockholders under the Notes were
paid by November 10, 1997.
A fee is payable to executive officers of the Company, not to exceed $250,000
per year as to any such individual, who agree to provide any requested guarantee
of Company borrowings and letters of credit. Such fee, which is set by the Board
of Directors on a case-by-case basis, is generally equal to 2% to 3% of the
amount guaranteed or the letter of credit. Mr. Griffith has guaranteed letters
of credit and certain Company borrowings. Since January 1, 1997, Mr. Griffith
has guaranteed borrowings, aggregating at any one time a maximum of $5,638,889,
for which he received fees of $91,047 and has guaranteed letters of credit and
surety bonds, aggregating at any one time a maximum of $726,000, for which he
received fees of $23,840. In connection with the proposed settlement of the
Harolds Club claims, Mr. Griffith has also agreed to provide a guarantee of
certain promissory notes for which he will receive the customary fee. See Item I
- - Business - Legal Proceedings.
The Company provided executive and administrative services to each of its
significant subsidiaries and allocated a portion of its corporate overhead to
each such significant subsidiary This allocation does not necessarily reflect
the costs incurred by the Company in connection with such support and
accordingly, such allocation does not necessarily reflect that which could be
obtained from an unaffiliated party.
All future transactions between the Company and its affiliates in excess of $1.0
million, other than transactions entered into in the ordinary course of business
on terms generally made available to third parties, will be reviewed and passed
upon by a majority of disinterested directors,
- --------------------------------------------------------------------------------
Page 44 of 52
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements. The following financial statements
are attached:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
Schedule II -- Consolidated Valuation And Qualifying Accounts.
3. Exhibits. Refer to (c) below
(b) Reports on Form 8-K. For the fiscal year ended December 31, 1997, the
Company filed the following reports on Form 8-K:
(i) Form 8-K, Item 5, filed as of January 13, 1997;
(ii) Form 8-K, Item 5, filed as of June 5, 1997;
(iii) Form 8-K, Item 5, filed as of July 22, 1997;
(iv) Form 8-K, Item 5, filed as of August 19, 1997;
(v) Form 8-K, Item 5, filed as of January 12, 1998
(c) Exhibits. Reference is made to the Index to Exhibits immediately preceding
the exhibits thereto.
- --------------------------------------------------------------------------------
Page 45 of 52
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 31,
1998.
Fitzgeralds Gaming Corporation
By:
--------------------------
Michael E. McPherson
Senior Vice President
Chief Financial Officer
Treasurer and Secretary
- --------------------------------------------------------------------------------
Page 46 of 52
<PAGE> 48
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Philip D. Griffith and Michael E. McPherson, and
each of them, his or her own attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman, President, Chief Executive March 31, 1998
- -------------------------------------- Officer, and Director (Principal
Philip D. Griffith Executive Officer)
Senior Vice President, Chief March 31, 1998
- -------------------------------------- Financial Officer, Treasurer and
Michael E. McPherson Secretary (Principal Financial and
Accounting Officer)
Director March 31, 1998
- --------------------------------------
Michael A. Ficaro
Director March 31, 1998
- --------------------------------------
Patricia W. Becker
Director March 31, 1998
- --------------------------------------
Max L. Page
</TABLE>
- --------------------------------------------------------------------------------
Page 47 of 52
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DOCUMENT NUMBERED PAGE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
2(a) (i) Recapitalization Agreement, dated March 14, 1994, among
Fitzgeralds South, Inc. (formerly Fitzgeralds Gaming Corporation),
Fitzgeralds Las Vegas, Inc. and certain stockholders thereof; (ii)
Plan of Reorganization and Stockholders Agreement, dated December
5, 1994, among Fitzgeralds Gaming Corporation and stockholders of
Fitzgeralds Reno, Inc., Fitzgeralds South, Inc., Fitzgeralds Inc.,
Nevada Club, Inc.; and (iii) Supplement to Plan of Reorganization
and Stockholders Agreement, dated December 30, 1994, between
Fitzgeralds Gaming Corporation and the stockholders of Fitzgeralds
Reno, Inc. and Nevada Club, Inc.(1)
3(a) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Gaming Corporation.(1)
3(b) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds South, Inc.(1)
3(c) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Reno, Inc., as amended.(1)
3(d) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Incorporated.(1)
3(e) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Nevada
Club, Inc.(1)
3(f) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Las Vegas, Inc.(1)
3(g) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Fremont Experience Corporation.(1)
3(h) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Mississippi, Inc.(1)
3(i) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Black Hawk, Inc.(1)
3(j) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Black Hawk II, Inc.(3)
3(k) (i) Certificate of Organization, as amended and (ii) Second Amended
and Restated Operating Agreement of 101 Main Street Limited
Liability Company.(3)
4(a) Form of Indenture, by and among Fitzgeralds Gaming Corporation,
Fitzgeralds South, Inc., Fitzgeralds Reno, Inc., Fitzgeralds
Incorporated, Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont
Experience Corporation, Fitzgeralds Mississippi, Inc., Fitzgeralds
Black Hawk, Inc., Fitzgeralds Black Hawk II, Inc. and 101 Main
Street Limited Liability Company, and The Bank of New York, as
trustee.(2)
4(b) Form of Registration Rights Agreement, by and among Fitzgeralds
Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds Reno,
Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Fremont Experience Corporation, Fitzgeralds
Mississippi, Inc., Fitzgeralds Black Hawk, Inc., Fitzgeralds Black
Hawk II, Inc. and 101 Main Street Limited Liability Company, and
Jefferies & Company, Inc. and Merrill Lynch, Merrill, Lynch,
Pierce, Fenner and Smith Incorporated, as initial purchasers.(2)
</TABLE>
- --------------------------------------------------------------------------------
Page 48 of 52
<PAGE> 50
<TABLE>
<S> <C> <C>
4(c) Form of Security and Pledge Agreement by and among Fitzgeralds
Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds Reno,
Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Fremont Experience Corporation, Fitzgeralds
Mississippi, Inc., Fitzgeralds Black Hawk, Inc., Fitzgeralds Black
Hawk II, Inc., and 101 Main Street Limited Liability Company, as
grantors, and The Bank of New York, as collateral agent.(2)
4(d) Forms of Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by each of Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc., and Fitzgeralds Reno, Inc., as
trustor, the trustee named therein, as trustee, and The Bank of New
York, as beneficiary.(2)
4(e) Form of First Preferred Vessel Mortgage on the Whole of the
Fitzgeralds Tunica, by and between Fitzgeralds Mississippi, Inc.,
as owner and mortgagor and The Bank of New York, as trustee.(2)
4(f) Form of Assignment of Rents, Leases and Property, by each of
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability
Company, each as an assignor, and The Bank of New York, as
assignee.(2)
4(g) Form of Certificate of Designation of Preferences and Rights for the Preferred
Stock.(1)
4(h) Form of Warrant Agreement between the Company and The Bank of New
York, as successor in interest to First Interstate Bank of Nevada,
N.A., as warrant agent.(1)
4(i) Form of First Amendment to Warrant Agreement by and between
Fitzgeralds Gaming Corporation and The Bank of New York, as warrant
agent.(2)
10(a) Agreement for Amendment, Extension and Restructure of Loans, dated September 27,
1991, First Amendment to Agreement for Amendment, Extension and Restructure of
Loans, dated October 29, 1992, Second Amendment to Agreement for Amendment,
Extension and Restructure of Loans, dated December 31, 1993, Third Amendment for
Amendment, Extension and Restructure of Loans, dated July 27, 1994, and Fourth
Amendment to Agreement for Amendment, Extension and Restructure of Loans, dated
January 27, 1995, each between Fitzgeralds Reno, Inc. and First Interstate Bank of
Nevada, N.A.(1)
10(b) Lease-Purchase Agreement, dated December 31, 1993, between Murray P. Jacobs
(Lessor-Seller) and each of Nevada Club, Inc. (Lessee) and Fitzgeralds Reno, Inc.
(Purchaser).(1)
10(c) (i) Credit Agreement between Fitzgeralds Reno, Inc. and PDS Financial Corporation
("PDS"); (ii) Promissory Note from Fitzgeralds Reno, Inc. to PDS; (iii) Security
Agreement between Fitzgeralds Reno, Inc. and PDS; and (iv) Guaranty by Fitzgeralds
Gaming Corporation in favor of PDS, each dated March 15, 1995.(1)
10(d) Purchase and Sale Agreement, dated November 29, 1994, and Amendment No. 1 to
Purchase and Sale Agreement, dated November 29, 1994, each between Fitzgeralds Reno,
Inc. and Gamma International, Ltd.(1)
10(e) (i) Promissory Note from Polk Landing Entertainment Corporation to
International Game Technology - North America; and (ii) Guaranty,
by Fitzgeralds Gaming Corporation in favor of International Game
Technology - North America, each dated February 24, 1994.(1)
10(f) (i) Installment Sales Agreement between International Game
Technology and Polk Landing Entertainment Corporation and (ii)
Guaranty by Fitzgeralds South, Inc. in favor of International Game
Technology, each dated April 2, 1994.(1)
10(g) Promissory Note, dated May 25, 1994, from Polk Landing Entertainment
Corporation to
</TABLE>
- --------------------------------------------------------------------------------
Page 49 of 52
<PAGE> 51
<TABLE>
<S> <C> <C>
International Game Technology.(1)
10(h) (i) Promissory Note from Polk Landing Entertainment Corporation to
International Game Technology and (ii) Guaranty by Fitzgeralds
South, Inc. in favor of International Game Technology, each dated
August 1994.(1)
10(i) Sales Agreement, dated December 8, 1994, between Mikohn Gaming Corporation and Polk
Landing Entertainment Corporation.(1)
10(j) (i) Agreement for Wastewater Service and (ii) Agreement for Water
Service, each dated March 15, 1994, and (iii) Amendment to
Agreements for Water and Wastewater Services, dated June 27, 1994,
each between Polk Landing Entertainment Corporation and River Bend
Environmental Energy, Inc.(1)
10(k) (i) Credit Agreement between Fitzgeralds Las Vegas, Inc. and PDS, (ii) Promissory
Note from Fitzgeralds Las Vegas, Inc. to PDS, (iii) Security Agreement between
Fitzgeralds Las Vegas, Inc. and PDS and (iv) Guaranty by Fitzgeralds Gaming
Corporation in favor of PDS, each dated March 15, 1995.(1)
10(l) (i) Credit Agreement between 101 Main Street Limited Liability,
d/b/a Fitzgeralds Black Hawk Casino and PDS, (ii) Promissory Note
from 101 Main Street Limited Liability Company, d/b/a Fitzgeralds
Black Hawk Casino to PDS, (iii) Security Agreement between 101 Main
Street Limited Liability Company, d/b/a Fitzgeralds Black Hawk
Casino and PDS and (iv) Guaranty by Fitzgeralds Gaming Corporation
in favor of PDS, each dated March 15, 1995.(1)
10(m) (i) Credit Agreement between 101 Main Street Limited Liability,
d/b/a Fitzgeralds Black Hawk Casino and PDS, (ii) Promissory Note
from 101 Main Street Limited Liability Company, d/b/a Fitzgeralds
Black Hawk Casino to PDS and (iii) Guaranty by Fitzgeralds Gaming
Corporation in favor of PDS, each dated March 15, 1995.(1)
10(n) Promissory Note, dated March 28, 1995, from 101 Main Street Limited
Liability Company to Fitzgeralds Black Hawk, Inc.(1)
10(o) Management Agreement, dated October 21, 1994, and Amendment No. 1 to Management
Agreement, dated February 1995, each between Fitzgeralds Black Hawk, Inc. and 101
Main Street Limited Liability Company.(1)
10(p) Second Amended Management Agreement, dated May 13, 1995, between Fitzgeralds Arizona
Management, Inc. and Yavapai-Apache Nation.(1)
10(q) Amended Interim Agreement, dated March 11, 1995, between Fitzgeralds Arizona
Management, Inc. and Yavapai-Apache Nation.(1)
10(r) Technical Services and Casino Consulting Agreement, dated March 15,
1994, First Amendment to Technical Services and Casino Consulting
Agreement, dated October 20, 1994, and Second Amendment to
Technical Services and Casino Consulting Agreement, dated April 13,
1995, each between Fitzgeralds Arizona Management, Inc. and
Yavapai-Apache Nation.(1)
10(s) Settlement Agreement and Mutual Releases, dated March 30, 1995,
between The Oneida Indian Nation and Fitzgeralds New York, Inc.(1)
10(t) Promissory Note, dated March 30, 1995, from the Oneida Indian
Nation to Fitzgeralds New York, Inc.(1)
10(u) Mutual Release, dated March 30, 1995, between the Oneida Indian Nation and Philip D.
Griffith.(1)
10(v) Memorandum of Agreement, dated March 30, 1995, between Fitzgeralds Las Vegas, Inc.
and the Culinary Workers and Bartenders Unions.(1)
</TABLE>
- --------------------------------------------------------------------------------
Page 50 of 52
<PAGE> 52
<TABLE>
<S> <C> <C>
10(w) (i) Lease, dated December 31, 1974, between Santino Oppio, as
Lessor, and Center Street Properties Corp., as Lessee, and (ii)
Sublease and Agreement, dated December 31, 1986, by Meta K.
Fitzgerald, as Sublessor, and Lincoln Investments, Inc. (now known
as Fitzgeralds Reno, Inc.), as Sublessee.(1)
10(x) (i) Lease Agreement and Interim Agreement Regarding Lease Agreement
and (ii) Lease Agreement, dated September 5, 1995, both between
John A. Kramer, Sr., Trustee, Helen M. Kramer, Elizabeth Thatcher
Brooks and Betty Bennett, Executrix of the estate of John David
Kramer, as Lessor, and Fitzgeralds Las Vegas, Inc., as Lessee.(1)
10(y) Lease Agreement, dated September 1, 1978, between Jewel F. Nolan
and Julie L. Nolan, David Kramer and Betty Bennett and Richard J.
Tinkler, as Lessor, and M.B. Dalitz, as Lessee. Amendment, dated
December 20, 1982, between Julie L. Nolan, David Kramer, Betty
Bennett and Richard J. Tinkler, as Lessor, and M.B. Dalitz, as
Lessee. Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients and
between Julie L. Nolan, David Kramer, Betty Bennett and Richard J.
Tinkler, as Lessor, and M.B. Dalitz, as Lessee.(1)
10(z) Lease Agreement, dated July 21, 1954, between Las Vegas Lodge No. 32, Free &
Accepted Masons, as Lessor, and H. John Gluskin, as Lessee. Amendment to Lease
Agreement, dated July 26, 1954, between Las Vegas Lodge No. 32, Free & Accepted
Masons, as Lessor, and H. John Gluskin, as Lessee. Assignments, dated July 27,
1954, February 2, 1955, August 7, 1972 and September 1, 1973. Supplemental
Agreement of October 14, 1994, between Las Vegas Lodge No. 32, Free & Accepted
Masons and H. John Gluskin. Articles of Amendment, dated June 7, 1973, between Las
Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and Frederic N. Richman and
The Pullman Company, d/b/a Nevada Building Company. Amendment to Masonic Lodge
Ground Lease, dated December 20, 1982. Lease Amendment, Estoppel Certificate and
Consent to Assignment, dated October 23, 1987, to the named recipients and between
Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John Gluskin, as
Lessee.(1)
10(aa) Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee, under
wills of A.W. Ham and Alta M. Ham, as Lessor, and Nevada Building
Company, as Lessee, Amendments to Lease, dated December 20, 1982
and December 30, 1982, between A.W. Ham, Jr., Trustee, as Lessor,
and M.B. Dalitz, as Lessee. Lease Amendment, Estoppel Certificate
and Consent to Assignment, dated October 18, 1987, to the named
recipients and between A.W. Ham, Jr., Trustee, and M.B. Dalitz.(1)
10(bb) Amended and Restated Operating Agreement of The Fremont Street
Experience Limited Liability Company, a Nevada Limited Liability
Company, dated June 6, 1995.(1)
10(cc) Substitute and Replacement Promissory Notes, dated December 31, 1993, from Nevada
Club, Inc. to Bank of America Nevada.(1)
10(dd) Form of Fitzgeralds Gaming Corporation Amended and Restated Stock Option Incentive
Plan.(3)
10(ee) Employment Agreements dated July 1, 1995 between Fitzgeralds Gaming
Corporation and Philip D. Griffith and March 1, 1997 between
Fitzgeralds Gaming Corporation and Michael E. McPherson.(2)(3)
10(ff) Executive Bonus Plan of Fitzgeralds Gaming Corporation.(3)
10(gg) License Agreement, dated September 11, 1995, between Holiday Inns Franchising, Inc.
and Fitzgeralds Las Vegas, Inc.(1)
10(hh) (i) Loan and Security Agreement, dated March 13, 1996, between the
CIT
</TABLE>
- --------------------------------------------------------------------------------
Page 51 of 52
<PAGE> 53
<TABLE>
<S> <C> <C>
Group/Equipment Financing, Inc. ("CIT") and Fitzgeralds
Mississippi, Inc. (including Rider A thereto) (ii) Promissory Note,
dated March 13, 1996, from Fitzgeralds Mississippi, Inc. to CIT,
(iii) Guaranty Agreement, dated March 13, 1996, by Fitzgeralds
Gaming Corporation in favor of CIT, and (iv) Guaranty Agreement,
dated March 13, 1996, by Fitzgeralds South, Inc. in favor of CIT.(2)
10(ii) Warrant Agreement, dated December 19, 1994, between Fitzgeralds
Gaming Corporation and Fitzgeralds Lucky Investor Partnership, as
amended June, 1995(1)
10(jj) Warrant Agreement, dated March 14, 1994, between Fitzgeralds South,
Inc. and First Interstate Bank of California.(1)
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
10(kk) Irrevocable (Standby) Letter of Credit of Trustmark National Bank,
dated June 24, 1994, and Amendment No. One to Irrevocable (Standby)
Letter of Credit of Trustmark National Bank, dated December 29,
1994, with Polk Landing Entertainment Corporation as Applicant and
River Bend Environmental Energy, Inc. as Beneficiary.(1)
10(ll) Registration Rights Agreement, dated March 14, 1994, by and among
Fitzgeralds Gaming Corporation, Fitzgeralds Las Vegas Limited
Partnership, Fitzgeralds Las Vegas Inc., Polk Landing Entertainment
Corporation, Fitzgeralds Fremont Experience Corporation,
Fitzgeralds Mississippi, Inc. and Donaldson, Lufkin, & Jenrette
Securities Corporation.(1)
10(mm) Form of Management Agreements between Fitzgeralds Gaming Corporation and each of
Fitzgeralds Las Vegas, Inc., Polk Landing Entertainment Corporation, Fitzgeralds
Reno, Inc., Nevada Club, Inc., Fitzgeralds Black Hawk, Inc. and Fitzgeralds Arizona
Management, Inc.(1)
10(nn) Indemnification Agreements, each dated July 14, 1995, between Fitzgeralds Gaming
Corporation and each of Philip D. Griffith, Jerome H. Turk, Terrance W. Oliver,
Fernando Bensuaski, Michael E. McPherson and Gerald C. Heetland.(1)
10(00) Form of Shareholders' Agreement among the Shareholders listed
therein, Fitzgeralds Gaming Corporation and First Interstate Bank
of Nevada, N.A.(1)
21 List of subsidiaries of the Company.(3)
99(c) Financial data schedule.(3)
</TABLE>
- ----------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 33-94624, which became effective on December 13, 1995.
(2) Incorporated by reference to the Company's Report on Form 8-K, SEC File
No. 000-26518, filed January 12,
1998.
(3) Filed herewith.
- --------------------------------------------------------------------------------
Page 52 of 52
<PAGE> 55
ITEM 8. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FITZGERALDS GAMING CORPORATION CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report F - 2
Balance Sheets as of December 31, 1997 and 1996 F - 3
Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 F - 5
Statements of Stockholders' Equity (Deficiency) for the Years Ended
December 31, 1997, 1996 and 1995 F - 6
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 F - 7
Notes to Consolidated Financial Statements F - 9
</TABLE>
F - 1
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
Fitzgeralds Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Fitzgeralds
Gaming Corporation and subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for each of the three years in the period
ended December 31, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). These financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 27, 1998
F - 2
<PAGE> 57
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 14,809,617 $ 13,349,497
Accounts receivable, net of allowance for doubtful accounts of
$411,881, and $253,942 2,060,045 2,056,841
Accounts and notes receivable - related parties 136,173 2,209,188
Inventories 1,313,611 1,545,661
Prepaid expenses:
Gaming taxes 1,163,342 1,374,319
Other 1,734,186 1,694,320
------------ ------------
Total current assets 21,216,974 22,229,826
------------ ------------
PROPERTY AND EQUIPMENT, net 163,704,715 151,883,083
------------ ------------
OTHER ASSETS:
Estimated realizable value of Nevada Club assets held for sale 3,979,228 --
Restricted cash - construction 393,987 2,254,323
Restricted investment 1,000,000 1,000,000
Investments 1,347,813 5,014,175
Debt offering costs 8,724,936 7,013,894
Goodwill, net 14,046,231 --
Other assets 1,206,356 1,783,273
------------ ------------
Total other assets 30,698,551 17,065,665
------------ ------------
MINORITY INTEREST 75,199 --
------------ ------------
TOTAL $215,695,439 $191,178,574
============ ============
</TABLE>
F - 3
<PAGE> 58
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,285,897 $ 25,637,728
Current portion of notes payable - related parties 304,637 2,111,892
Accounts payable 7,236,856 11,518,602
Accrued and other:
Payroll and related 4,061,565 3,290,264
Progressive jackpots 979,449 733,800
Outstanding chips and tokens 768,633 843,162
Interest 175,432 459,326
Offering costs 660,775 1,048,611
Other 6,262,740 3,619,451
------------- -------------
Total current liabilities 27,735,984 49,262,836
LONG-TERM DEBT, net of current portion 206,191,485 127,856,487
NOTES PAYABLE - RELATED PARTIES, net of current portion -- 25,903
------------- -------------
Total liabilities 233,927,469 177,145,226
------------- -------------
MINORITY INTEREST -- 587,837
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
CUMULATIVE REDEEMABLE PREFERRED STOCK,
$.01 par value; $25 stated value; 800,000 shares authorized, issued and
outstanding; liquidation preference $20,000,000 stated value plus accrued
dividends of $6,983,663 and $3,288,873 recorded at liquidation preference
value, net of unamortized offering costs and discount of $7,352,266 and
$7,800,091, respectively 19,631,397 15,488,782
------------- -------------
STOCKHOLDERS' DEFICIENCY:
Common stock, $.01 par value; 29,200,000 shares authorized;
4,012,846 shares issued and outstanding 40,128 40,128
Additional paid-in capital 23,649,582 23,785,603
Accumulated deficit (61,553,137) (25,869,002)
------------- -------------
Total stockholders' deficiency (37,863,427) (2,043,271)
------------- -------------
TOTAL $ 215,695,439 $ 191,178,574
============= =============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE> 59
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING REVENUES:
Casino $ 141,215,071 $ 111,284,884 $ 115,048,414
Food and beverage 22,499,113 18,551,978 18,276,813
Rooms 21,318,538 15,875,829 13,116,906
Other 9,965,508 7,405,998 6,869,141
------------- ------------- -------------
Total 194,998,230 153,118,689 153,311,274
Less promotional allowances 15,296,497 12,588,342 11,914,178
------------- ------------- -------------
Net 179,701,733 140,530,347 141,397,096
------------- ------------- -------------
OPERATING COSTS AND
EXPENSES:
Casino 69,674,986 58,323,360 57,158,020
Food and beverage 17,214,885 13,330,471 12,496,888
Rooms 12,512,496 9,644,494 7,120,826
Other operating 1,681,063 1,543,516 1,821,157
Selling, general and administrative 48,933,178 44,920,756 41,021,687
Depreciation and amortization 12,053,777 8,896,951 8,010,498
Write down of assets and lease settlement 4,009,832 -- --
------------- ------------- -------------
Total 166,080,217 136,659,548 127,629,076
------------- ------------- -------------
INCOME FROM OPERATIONS 13,621,516 3,870,799 13,768,020
OTHER INCOME (EXPENSE):
Interest income 383,469 1,822,964 292,567
Interest income - stockholders 78,708 237,524 28,218
Interest expense (25,368,844) (20,208,230) (14,711,618)
Interest expense - stockholders (126,259) (38,899) (315,234)
Other income (expense) (882,182) (662,251) (490,896)
------------- ------------- -------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (12,293,592) (14,978,093) (1,428,943)
INCOME TAX (PROVISION) BENEFIT -- 1,484,167 (2,825,746)
-------------- -------------- --------------
LOSS BEFORE EXTRAORDINARY ITEM (12,293,592) (13,493,926) (4,254,689)
EXTRAORDINARY ITEM - LOSS ON
EARLY RETIREMENT OF DEBT (19,247,928) -- --
------------- ------------- -------------
NET LOSS (31,541,520) (13,493,926) (4,254,689)
PREFERRED STOCK DIVIDENDS (4,142,615) (3,536,152) (98,497)
------------- ------------- -------------
NET LOSS APPLICABLE TO
COMMON STOCK $ (35,684,135) $ (17,030,078) $ (4,353,186)
============= ============= =============
NET LOSS PER COMMON SHARE:
Before extraordinary item $ (4.09) $ (4.26) $ (1.09)
Extraordinary item (4.80) -- --
------------- ------------- -------------
NET LOSS PER COMMON SHARE - BASIC $ (8.89) $ (4.26) $ (1.09)
============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,012,846 3,998,877 3,989,655
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE> 60
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Retained Total
Common Stock Additional Earnings Stockholders'
-------------------------- Paid-In (Accumulated Equity
Shares Amount Capital Deficit) (Deficiency)
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 3,932,827 $ 39,328 $ 16,457,630 $ (5,409,939) $ 11,087,019
Net loss -- -- -- (4,254,689) (4,254,689)
Common stock dividends -- -- -- (1,018,292) (1,018,292)
Preferred stock dividends -- -- -- (98,497) (98,497)
Issuance of stock 23,989 240 (240) -- --
Issuance of warrants, net
of offering costs -- -- 10,463,717 -- 10,463,717
Issuance of stock options -- -- 215,042 -- 215,042
Purchase and retirement
of treasury stock -- -- (333,333) -- (333,333)
Contributions from
stockholders/partners -- -- (2,347,641) 2,347,641 --
--------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 3,956,816 39,568 24,455,175 (8,433,776) 16,060,967
Net loss -- -- -- (13,493,926) (13,493,926)
Common stock dividends -- -- -- (405,148) (405,148)
Preferred stock dividends -- -- -- (3,536,152) (3,536,152)
Issuance of stock 56,030 560 790 -- 1,350
Issuance of stock options -- -- 63,666 -- 63,666
Adjustment to purchase
price of treasury stock -- -- (734,028) -- (734,028)
--------- ------------ ------------ ------------ ------------
BALANCE DECEMBER 31, 1996 4,012,846 40,128 23,785,603 (25,869,002) (2,043,271)
Net loss -- -- -- (31,541,520) (31,541,520)
Preferred stock dividends -- -- -- (4,142,615) (4,142,615)
Adjustment to purchase price of
treasury stock -- -- (136,021) -- (136,021)
--------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 4,012,846 $ 40,128 $ 23,649,582 $(61,553,137) $(37,863,427)
========= ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE> 61
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(31,541,520) $(13,493,926) $ (4,254,689)
Adjustments to reconcile net loss to net
cash provided by operating activities, net
of effects of acquisition:
Depreciation and amortization 12,053,777 8,896,951 8,010,498
Amortization of note discount
and offering costs 3,062,020 1,998,619 1,824,577
Write down of assets and lease settlement 3,982,000 -- --
Recovery of bad debt from related party (510,439) -- --
Loss on early retirement of debt 17,537,928 -- --
Deferred income taxes -- (1,484,167) 2,825,796
Other 634,993 995,058 822,421
(Increase) decrease in accounts receivable, net 92,655 369,954 (1,059,536)
(Increase) decrease in accounts
receivable - related parties (74,173) (221,174) 218,362
(Increase) decrease in inventories 345,880 (177,431) (171,798)
(Increase) decrease in prepaid expenses 283,887 (376,545) 219,080
(Increase) decrease in other assets 204,922 (464,318) (37,897)
Increase (decrease) in accounts payable (4,369,705) 5,579,952 1,161,211
Increase (decrease) in accrued and other liabilities (414,968) (864,374) (1,090,030)
------------ ------------ ------------
Net cash provided by operating activities 1,287,257 758,599 8,467,995
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 129,948 372,529 9,708,331
Repayments from related parties 2,518,805 86,664 219,466
Purchase of treasury stock -- -- (333,333)
Acquisition of property and equipment (3,642,878) (53,263,739) (9,830,127)
(Increase) decrease in restricted cash -
construction 1,860,336 46,845,677 (49,100,000)
Increase in advances receivable -- -- (541,650)
Purchase of business, net of cash acquired (25,747,169) -- --
Other 224,406 (408,999) (526,678)
------------ ------------ ------------
Net cash used in investing activities (24,656,552) (6,367,868) (50,403,991)
------------ ------------ ------------
</TABLE>
(Continued)
F - 7
<PAGE> 62
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from 1997 Offering 202,634,300 -- --
Proceeds from 1995 Offering -- -- 135,014,840
Payment of debt offering costs (11,308,428) (275,625) (9,983,915)
Proceeds from issuance of stock -- 1,350 --
Advances from related parties -- -- 868,195
Proceeds from issuance of debt 38,221,811 9,643,064 7,200,963
Repayment of long-term debt (202,573,620) (10,222,261) (78,954,240)
Common stock dividends
and dividends to minority stockholders (337,393) (405,148) (1,018,292)
Repayments to related parties (1,807,255) -- (3,113,317)
(Increase) decrease in restricted cash -- 471,569 (120,415)
Other -- (98,007) --
------------- ------------- -------------
Net cash provided by (used in)
financing activities 24,829,415 (885,058) 49,893,819
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,460,120 (6,494,327) 7,957,823
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 13,349,497 19,843,824 11,886,001
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 14,809,617 $ 13,349,497 $ 19,843,824
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F - 8
<PAGE> 63
FITZGERALDS GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Fitzgeralds Gaming Corporation (the "Company") is a diversified
multi-jurisdictional gaming holding company that owns and operates four
Fitzgeralds-brand casino-hotels, in downtown Las Vegas, Nevada
("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica,
Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds
Black Hawk"). In addition, the Company has an exclusive agreement to
manage the Cliff Castle casino, an Indian-owned gaming facility in Camp
Verde, Arizona ("Cliff Castle"), through May 2000. Because of the
integrated nature of these operations, the Company is considered to be
engaged in one industry segment.
The Company currently conducts substantially all of its business through
wholly-owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds
South, Inc. ("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly
owns and operates Fitzgeralds Reno and until its sale in May 1995, Harolds
Club in Reno, Nevada; FSI owns and operates Fitzgeralds Las Vegas and
Fitzgeralds Tunica through wholly owned subsidiaries; and FI owns and
operates Fitzgeralds Black Hawk through wholly owned subsidiaries. FI also
manages Cliff Castle through its 85%-owned subsidiary, Fitzgeralds Arizona
Management, Inc. ("FAMI"). In addition, through its 85%-owned subsidiary,
Fitzgeralds New York, Inc. ("FNYI"), FI is receiving a fee in
consideration of work performed prior and subsequent to the opening of the
Turning Stone casino in Verona, New York, owned by the Oneida Indian
Nation.
Nevada Club, Inc. ("NCI"), a wholly owned subsidiary of the Company, owned
and operated the Nevada Club in Reno, Nevada. The Nevada Club has been
closed pending completion of its sale.
Separate net operating revenues and net income (loss) of the consolidated
entities, net of intercompany eliminations, for the years ended December
31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Operating Revenues:
FGC $ -- $ -- $ --
FSI:
Fitzgeralds Las Vegas 46,540,155 43,482,777 42,652,710
Fitzgeralds Tunica 68,734,152 48,747,813 46,465,895
FRI:
Harolds Club -- -- 1,520,244
Fitzgeralds Reno 39,803,326 37,076,390 40,212,715
NCI 6,237,697 6,432,276 7,036,701
FI:
Fitzgeralds Black Hawk 12,691,475 -- --
Other 5,694,928 4,791,091 3,508,831
------------ ------------ ------------
Consolidated net operating revenues $179,701,733 $140,530,347 $141,397,096
============ ============ ============
</TABLE>
F - 9
<PAGE> 64
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Income (Loss):
FGC $(18,423,409) $ (410,264) $ (39,570)
FSI:
Fitzgeralds Las Vegas (8,980,159) (8,219,859) (1,721,655)
Fitzgeralds Tunica (4,692,512) (9,462,003) (1,379,339)
FRI:
Harolds Club (1,852,832) -- (1,896,510)
Fitzgeralds Reno 3,377,213 2,604,333 (428,503)
NCI (2,074,365) (842,312) (328,470)
FI:
Fitzgeralds Black Hawk (1,926,503) -- --
Other 3,031,047 2,836,179 1,539,358
------------ ------------ ------------
Consolidated net loss $(31,541,520) $(13,493,926) $ (4,254,689)
============ ============ ============
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company conform to generally accepted
accounting principles. The following is a summary of the more significant
of such policies:
CONSOLIDATION - The consolidated financial statements of the Company
include the accounts of its wholly owned and majority owned subsidiaries.
All intercompany balances and transactions have been eliminated in
consolidation.
MINORITY INTEREST - Minority interest represents the minority
stockholders' share of equity in FAMI and FNYI.
CASH AND CASH EQUIVALENTS - Cash includes cash required for gaming
operations. The Company considers cash equivalents to include short-term
investments with original maturities of ninety days or less. At December
31, 1997 and 1996, the Company had bank deposits in excess of federally
insured limits of approximately $7,764,000 and $3,740,000, respectively.
INVENTORIES - consisting principally of food and beverages and operating
supplies, are stated at the lower of first-in, first-out cost or market.
The estimated cost of normal operating quantities (base stock) of china,
silverware, glassware, linen, uniforms and utensils has been recorded as
an asset and is not being depreciated. Costs of base stock replacements
are expensed as incurred. Other assets in the accompanying consolidated
balance sheets includes $699,989 and $868,168 of base stock inventories at
December 31, 1997 and 1996.
PROPERTY AND EQUIPMENT - are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated lives of
the assets. Costs of major improvements are capitalized; costs of normal
repairs and maintenance are charged to expenses as incurred. Gains or
losses on disposals are recognized.
F - 10
<PAGE> 65
CAPITALIZED INTEREST - Interest costs totaling $1,814,195 and $7,340 were
capitalized into property and equipment for the years ended December 31,
1996 and 1995, respectively. No interest was capitalized during the year
ended December 31, 1997.
RESTRICTED CASH - CONSTRUCTION - represents cash and cash equivalents to
fund expansion projects at Fitzgeralds Las Vegas and Fitzgeralds Tunica
held in collateral accounts pursuant to certain disbursement agreements.
RESTRICTED INVESTMENT - represents U.S. Treasury Notes of $1,000,000 held
in an escrow account for the benefit of certain land lessors related to
Fitzgeralds Las Vegas.
INVESTMENTS - The Company's investments in limited liability corporations
organized to construct certain improvements in downtown Las Vegas and to
operate Fitzgeralds Black Hawk prior to the Company's purchase of 100%
ownership in that casino are accounted for using the equity method.
DEBT OFFERING COSTS - Costs associated with the issuance of debt are
deferred and amortized over the life of the related indebtedness using the
effective interest method. Debt offering costs at December 31, 1997 and
1996 are presented net of accumulated amortization of $2,160 and $636,190,
respectively. Unamortized debt offering costs of $8,148,910 related to
debt retired from the proceeds of the 1997 Offering were expensed in
December 1997.
GOODWILL - represents the cost in excess of fair value of the net assets
acquired in purchase transactions. Goodwill is being amortized on a
straight-line method over 40 years and is recorded net of accumulated
amortization of $132,930 at December 31, 1997.
CASINO REVENUE - is the net win from gaming activities, which is the
difference between gaming wins and losses.
PROMOTIONAL ALLOWANCES - Operating revenues include the retail value of
rooms, food and beverage provided to customers without charge;
corresponding charges have been deducted from revenue in the accompanying
consolidated statements of operations as promotional allowances in the
determination of net operating revenues. The estimated costs of providing
the complimentary services are charged to the casino department and are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Hotel $ 2,104,907 $ 1,635,213 $ 1,109,155
Food and beverage 10,684,329 9,543,492 8,828,648
Other 223,949 102,951 91,037
----------- ----------- -----------
Total $13,013,185 $11,281,656 $10,028,840
=========== =========== ===========
</TABLE>
INDIRECT EXPENSES - Certain indirect expenses of operating departments
such as depreciation and amortization are shown separately in the
accompanying consolidated statements of operations and are not allocated
to departmental operating costs and expenses.
FEDERAL INCOME TAXES - The Company accounts for income taxes in accordance
with SFAS No. 109, Accounting for Income Taxes, which requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying
F - 11
<PAGE> 66
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating loss and tax
credit carry forwards.
FINANCIAL REPORTING PERIOD - The Company has adopted a "4-4-5" (weeks)
financial reporting period which maintains a December 31 year-end. This
method of reporting results in 13 weeks in each quarterly accounting
period. The first and fourth accounting periods will have a fluctuating
number of days resulting from the maintenance of a December 31 year-end,
whereas the second and third periods will have the same number of days
each year.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based on
current information, that the carrying value of the Company's cash and
cash equivalents, restricted cash, accounts, notes and advances
receivable, and accounts payable approximates fair value because of the
short maturity of those instruments. The Company estimates the fair value
of its senior secured notes payable approximates book value as of December
31, 1997 because the 1997 Offering (see Note 8) was completed on December
30, 1997. The Company estimates the fair value of its senior secured notes
payable issued in 1995 approximated $86.1 million as of December 31, 1996
based on analyst's reports, quotes and recent trades of the securities.
The Company estimates the fair value of its preferred stock to approximate
book value as no sales or exchanges have occurred and no market quotes for
such securities exist. The Company estimates the fair value of all other
long-term debt and notes payable - related parties approximates their
carrying value because interest rates on the debt approximate market
rates.
IMPAIRMENT OF LONG-LIVED ASSETS - In 1996 the Company adopted SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. This statement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
STOCK BASED COMPENSATION - In 1996 the Company adopted SFAS No. 123,
Accounting for Awards of Stock-Based Compensation. This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans and for transactions where equity securities
are issued for goods and services. This statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees. Management's
current intention is to continue to follow APB Opinion No. 25, and to
adopt only the disclosure requirement of SFAS No. 123.
EARNINGS PER SHARE - The Company adopted SFAS No. 128, Earnings per Share,
in 1997. This statement simplifies the standards for computing earnings
per share (EPS) and makes them comparable to international EPS standards.
It replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures. The adoption of SFAS No. 128 had no effect on the Company's
1996 and 1995 loss per share calculations.
During the years ended December 31, 1997, 1996, and 1995, there were no
outstanding convertible securities that would result in dilutive potential
common shares and, as such, diluted earnings per share are not applicable.
Options to purchase 676,974 shares of common stock at prices ranging from
$1.00 to $1.10, 450,051 shares of common stock at prices ranging from
$1.00 to $4.50 per share and 526,561 shares of common stock at prices
ranging from $1.00 to $4.50 per share and warrants to purchase 1,971,835,
2,675,237 and 2,675,237 shares of common stock at $.01 per share were
outstanding at December 31,
F - 12
<PAGE> 67
1997, 1996 and 1995, respectively. Such options are not included in the
computation of diluted earnings per share because to do so would have been
antidilutive for the years presented.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1997, the FASB issued SFAS
131, Disclosures about Segments of an Enterprise and Related Information,
which will be effective for the Company beginning January 1, 1998. SFAS
131 redefines how operating segments are determined and requires
qualitative disclosure of certain financial and descriptive information
about a company's operating segments. The Company anticipates with the
adoption of SFAS 131 it will expand its segment disclosures relative to
Nevada, Colorado and Mississippi operations. The Company believes the
segment information required to be disclosed under SFAS 131 will be more
comprehensive than previously reported, including expanded disclosure of
income statement and balance sheet items for each of its reportable
operating segments.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS - Certain amounts in the 1996 and 1995 consolidated
financial statements have been reclassified to conform to the 1997 method
of presentation.
3. STATEMENTS OF CASH FLOWS INFORMATION
The following supplemental disclosures are provided as part of the
consolidated statements of cash flows for the years ended December 31,
1997, 1996 and 1995:
Cash paid for interest, net of amounts capitalized, during the years ended
December 31, 1997, 1996 and 1995 was $22,590,718, $22,363,448 and
$10,041,419, respectively.
Long-term contracts payable of $300,863 in 1997, $3,762,425 in 1996 and
$2,624,160 in 1995, were incurred with the acquisition of new equipment.
During 1997, 1996 and 1995, accumulated deficit was increased by
$4,142,615, $3,536,152 and $98,497 for preferred stock dividends
consisting of $3,694,790, $3,195,890 and $92,983 accrued dividends and
$447,825, $340,262 and $5,514 accretion of discount on preferred stock.
During 1997 and 1996 additional paid in capital decreased and the note
payable to a former stockholder increased by $136,021 and $636,020,
respectively, pursuant to an adjustment to the purchase price of treasury
stock.
In 1997, accrued offering costs of $660,775 were incurred in connection
with the 1997 Offering. In 1995, accrued offering costs of $2,596,799 were
incurred in connection with the 1995 Offering.
During 1997, certain assets of Nevada Club with a book value totaling
$6,157,227 were written down to their estimated realizable value of
$4,000,227 and reclassified from Property and Equipment to Estimated
Realizable Value of Nevada Club Assets Held for Sale.
During 1997, notes payable of $1,525,000 and accrued liabilities of
$300,000 were incurred in connection with the Harolds Club lease
settlement.
During 1997, the Company reclassified $985,216 short term debt to other
accrued liabilities.
During 1997, the Company reclassified $281,250 of other assets to minority
interest.
F - 13
<PAGE> 68
During 1997, the Company acquired the remaining 78% membership interest in
101 Main with the allocation of the purchase price as follows:
<TABLE>
<S> <C>
Working capital other than cash $ (3,218,233)
Property and equipment 19,591,964
Goodwill 14,179,918
Long-term debt (4,806,480)
--------------
Net $ 25,747,169
=============
</TABLE>
During 1996 advances receivable of $2,500,000 were transferred to
investments.
Notes payable of $2,077,363 in 1995 were incurred for the purchase of
land.
During 1995, $425,000 in other assets was reclassified to property and
equipment.
The Company issued 23,989 shares of its common stock in 1995 to a minority
stockholder of FI upon the completion of the 1995 Offering, resulting in
an increase in common stock and a decrease in additional paid-in capital
of $240.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
SERVICE
LIFE
1997 1996 (YEARS)
------------- ------------- ---------
<S> <C> <C> <C>
Land used in casino operations $ 15,606,209 $ 12,961,120
Buildings and improvements 116,588,374 103,360,569 7-40
Site improvements 14,383,100 14,331,622 20
Barge and improvements 12,896,235 12,885,433 15
Furniture, fixtures and equipment 61,974,234 57,503,519 3-12
------------- -------------
221,448,152 201,042,263
Less accumulated depreciation
and amortization (57,976,447) (49,335,270)
------------- -------------
163,471,705 151,706,993
Construction in progress 233,010 176,090
------------- -------------
Total $ 163,704,715 $ 151,883,083
============= =============
</TABLE>
Substantially all property and equipment are pledged as collateral on
long-term debt.
5. INVESTMENTS
The Company owns a 17.65% interest in a limited liability company owned by
eight downtown Las Vegas casinos to construct and participate in the
Fremont Street Experience. The Freemont Street Experience is an urban
theater which includes a space frame containing over two million lights, a
sky parade light show, sidewalk and street improvements, a parking
structure, and special events and festivals.
F - 14
<PAGE> 69
The Company accounts for this investment using the equity method.
Condensed financial information of the limited liability corporation as of
December 31, 1997 and 1996 and for the years then ended is summarized
below.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Current assets $ 128,943 $ 2,102,692
Non current assets 13,283,314 16,295,965
Current liabilities 910,312 848,586
Non current liabilities 141,669 1,358,723
Net assets 13,412,258 16,191,348
Revenues $ 3,224,995 $ 2,508,049
Operating loss (8,142,487) (10,069,775)
Net loss (8,142,487) (10,069,775)
</TABLE>
Effective February 16, 1996, the Company, through FBHI, purchased a 22%
membership interest in 101 Main, a limited liability company formed to
construct, develop and operate a casino in Gilpin County, Colorado. In
addition, FBHI entered into a Management Agreement with 101 Main to manage
the casino operations for a period of 10 years and retained an option to
purchase the remaining 78% interest in 101 Main. The first floor of the
casino opened on May 23, 1995.
The Company accounted for its 22% investment in 101 Main using the equity
method. Condensed balance sheet and statement of operations information
for 101 Main as of December 31, 1996, for the year ended December 31,
1996, and for the period from January 1, 1997 through August 15, 1997 (the
date the remaining 78% interest in 101 Main was acquired by the Company)
is summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-----------
<S> <C>
Summarized Balance Sheet Information
Current assets $ 2,264,357
Non current assets 21,531,466
Current liabilities 5,168,166
Non current liabilities 7,607,679
Net assets 11,019,978
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
AUGUST 15, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Summarized Statement of Operations Information
Revenues $21,295,752 $27,944,135
Operating income 5,398,745 7,777,331
Income before extraordinary item 4,378,932 6,084,598
Net income 4,130,769 6,084,598
</TABLE>
F - 15
<PAGE> 70
6. ACQUISITION OF 101 MAIN
On August 15, 1997, the Company acquired the 78% membership interest in
101 Main not previously owned by FBHI, at a purchase price of
approximately $27.3 million. Because of certain restrictions on the
Company, as issuer, and FBHI, as a subsidiary guarantor, contained in
existing loan documents, FBHI formed Fitzgeralds Black Hawk, Inc. - II
("FBHI-II") as a wholly-owed subsidiary of FBHI. FBHI then contributed
substantially all of its assets including its 22% membership interest in
101 Main, its option to acquire the remaining 78% membership interest in
101 Main and the Management Agreement between FBHI and 101 Main, to
FBHI-II. At the same time, 101 Main loaned approximately $27.3 million of
the proceeds of its $38.0 million 13% First Mortgage Notes due 2000 (the
"101 Main Notes") to FBHI-II for use in acquiring the additional 78%
membership interest in 101 Main. FBHI-II, as the owner of all of the
membership interests in 101 Main, and the Management Agreement, guaranteed
the obligations of 101 Main under the 101 Main Notes. The remainder of the
proceeds from the 101 Main Notes was used to retire certain existing
indebtedness secured by assets of 101 Main and for general corporate
purposes.
The acquisition of the 78% membership interest in 101 Main has been
recorded as a purchase. Prior to the acquisition, the Company's 22%
membership interest in 101 Main was accounted for using the equity method.
From August 15, 1997, the financial statements of 101 Main have been
consolidated with those of the Company.
The allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Purchase price $ 27,300,000
Cash acquired 1,552,831
------------
Net $ 25,747,169
============
Working capital other than cash $ (3,218,233)
Property and equipment 19,591,964
Goodwill 14,179,918
Long-term debt (4,806,480)
------------
Net $ 25,747,169
============
</TABLE>
The table below reflects pro forma condensed financial information for the
Company as if the 78% membership interest in 101 Main was acquired on
January 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Net revenues $ 200,454,134 $ 167,893,638
Loss before extraordinary item (8,735,241) (8,478,690)
Net loss (28,231,332) (8,478,690)
Net loss applicable to common stock (32,373,947) (12,014,842)
Net loss per common share (8.07) (3.00)
</TABLE>
F - 16
<PAGE> 71
7. LONG-TERM DEBT
Long-term debt is as follows at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
--------------- ------------------
<S> <C> <C>
Senior secured notes payable (the "Notes"); subject to
certain exceptions, secured by a first priority lien on
substantially all of the assets of the subsidiaries of
the Company (other than FAMI, FNYI and NCI) except
for certain excluded assets; due in semiannual
installments of interest at 12.25% on June 15 and
December 15; with a final payment of principal and
interest due on December 15, 2004 (net of unamortized
discount of $2,364,697) $ 202,635,303 $ -
Priority secured notes payable repaid in 1997 - 5,010,465
Senior secured notes payable repaid in 1997 - 108,909,919
Note payable to an individual to acquire Fitzgeralds
Casino/Hotel (Reno) repaid in 1997 - 18,067,287
Note payable to repurchase outstanding common shares from a
major stockholder repaid in 1997 - 5,707,015
Revolving credit and term note payable to a bank repaid in 1997
- 1,233,606
Notepayable to a trust to acquire land used in casino operations;
collateralized by deed of trust on the land; due in monthly
installments of $32,681, including interest at 7.5%; remaining
principal and interest due December 6, 2000 1,050,616 1,351,620
Notepayable to a bank to acquire the Nevada Club; collateralized by a
deed of trust on land and buildings, a security agreement on
furniture, fixtures and equipment and a personal guarantee by
certain stockholders; due in monthly installments of $55,839,
including interest at the bank's prime rate plus 2% (10.5% at
December 31, 1997); principal
balance due December 1998 2,658,356 3,047,088
</TABLE>
F - 17
<PAGE> 72
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Notes payable secured by gaming equipment; due in aggregate
monthly installments of $108,708, including interest at
11.5%; remaining principal due August 1998 833,294 1,969,947
Contract payable secured by gaming equipment, due in monthly
principal installments of $133,333 plus interest at 10.83%;
remaining principal due March 1998 533,333 2,000,000
Contracts payable, collateralized by certain equipment, due in
maximum aggregate monthly installments of $309,552, with
varying maturity dates through 2001 3,810,696 4,702,490
Obligation for construction of water/sewer lines, secured by an
irrevocable letter of credit, due in monthly installments of
$11,735, including imputed interest of 9.5% 273,965 328,034
Other 1,681,819 1,166,744
--------------- ----------------
Total long-term debt 213,477,382 153,494,215
Less current portion (7,285,897) (25,637,728)
--------------- ----------------
Long-term portion $ 206,191,485 $ 127,856,487
=============== ================
</TABLE>
The scheduled maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
<S> <C>
1998 $ 7,285,897
1999 1,904,376
2000 815,282
2001 392,768
2002 351,207
Thereafter 202,727,852
--------------
Total $ 213,477,382
==============
</TABLE>
The note payable to a bank to acquire the Nevada Club with a balance of
$2,658,356 as of December 31, 1997, has covenants placing restrictions on
Nevada Club and requiring that certain financial ratios be maintained. As
of December 31, 1997, NCI was not in compliance with certain of these
covenants. NCI continues to make scheduled principal and interest payments
on the notes. The entire balance of this note has been classified as
current at December 31, 1997. The Company has received an offer to buy
Nevada Club, and upon its sale, this note payable will be retired.
F - 18
<PAGE> 73
On March 14, 1994, FSI issued $36 million of 13% senior secured notes due
1996. In connection with the issuance of these notes, FSI issued warrants
(the "FSI Warrants") to purchase 112,108 shares of its common stock. No
value was ascribed to the FSI Warrants. The FSI Warrants are exercisable
at $.01 per share, expire five years from the closing of the offering for
these notes and are subject to certain anti-dilution adjustments. FSI
Warrants to purchase 54,384 shares of common stock of FSI were also issued
to the sales agent. These FSI Warrants are exercisable at $32.18 per share
and expire five years from the closing of the offering. All FSI Warrants
issued in connection with this note offering are exercisable only for
shares of common stock of FSI. These notes were repaid from a portion of
the proceeds from the 1995 Offering at which time, the Company repurchased
approximately 90% of the $.01 FSI Warrants, leaving 5,358 FSI Warrants
outstanding.
EXTRAORDINARY ITEM
In December 1997, the Company recorded an extraordinary loss on early
retirement of debt of $19,247,928 consisting of the net write-off of
unamortized discount and debt offering costs and early payment premium on
debt retired with the proceeds of the Notes.
8. THE OFFERINGS
THE 1997 OFFERING
On December 30, 1997, the Company completed a private placement of debt
(the "1997 Offering"). The Company issued $205,000,000 aggregate principal
amount of 12.25% Senior Secured Notes due December 15, 2004 (the "Notes").
A summary of the proceeds from the 1997 Offering is as follows:
<TABLE>
<S> <C>
Face amount $ 205,000,000
Less discount (2,365,700)
----------------
Proceeds 202,634,300
Less offering costs (8,727,096)
----------------
Net proceeds $ 193,907,204
================
</TABLE>
THE NOTES
The Notes bear interest at a fixed rate of 12.25% per annum payable on
June 15 and December 15 of each year, commencing June 15, 1998. The Notes
will mature on December 15, 2004.
The Notes are secured by a first priority lien on substantially all of the
assets of the subsidiaries of the Company, except certain excluded assets
and subsidiaries, as defined.
The Notes will be redeemable at the option of the Company, in whole or in
part, on or after December 15, 2001, at the redemption prices defined in
the indenture governing the Notes (the "Note Indenture"), plus accrued and
unpaid interest to the date of redemption. Prior to December 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the
Notes at a redemption price of 112.5% of the principal amount thereof,
plus accrued and unpaid interest through the applicable date of
redemption, with the cash proceeds of one or more Public Equity Offerings
(as defined), provided that at least $133,250,000 aggregate principal
amount of the Notes remains outstanding immediately thereafter.
Upon a Change of Control (as defined), the Company will be required to
offer to repurchase all of the outstanding Notes at a cash price equal to
101% of the principal amount thereof, plus accrued and unpaid interest to
the date of repurchase.
F - 19
<PAGE> 74
The Note Indenture contains covenants which, among other things, restrict
the Company's ability to (i) make certain payments to, or investments in,
third parties; (ii) incur additional indebtedness or liens on any assets;
(iii) enter into transactions with affiliates; and (iv) sell assets or
subsidiary stock. At December 31, 1997, the Company was in compliance with
these provisions.
THE 1995 OFFERING
On December 19, 1995, the Company completed a public offering (the "1995
Offering") of debt, preferred stock and warrants (the "Warrants"). The
Company issued 123,000 Note Units each consisting of $1,000 principal
amount of 13% Senior Secured Notes due December 31, 2002 with Contingent
Interest and 13.59368 Warrants, each to purchase one share of the
Company's common stock at $.01 per share, and 800,000 Preferred Stock
Units, each consisting of one share of Cumulative Redeemable Preferred
Stock (the "Preferred Stock") and 1.25402 Warrants. The Warrants were
assigned a value of $4.50.
A summary of the proceeds from the 1995 Offering is as follows:
<TABLE>
<CAPTION>
1995 PREFERRED 1995
NOTES STOCK WARRANTS TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Face amount $ 123,000,000 $ 20,000,000 $ -- $ 143,000,000
Less discount on notes (7,985,160) -- -- (7,985,160)
Less value assigned to
warrants (7,524,104) (4,514,463) 12,038,567 --
------------- ------------- ------------- -------------
Proceeds 107,490,736 15,485,537 12,038,567 135,014,840
Less offering costs (7,374,459) (3,631,405) (1,574,850) (12,580,714)
------------- ------------- ------------- -------------
Net proceeds $ 100,116,277 $ 11,854,132 $ 10,463,717 $ 122,434,126
============= ============= ============= =============
</TABLE>
PREFERRED STOCK
The Preferred Stock has a liquidation preference of $20 million dollars
($25 per share), plus accrued and unpaid dividends. Cash dividends on the
Preferred Stock will be payable commencing March 31, 1996 out of funds
legally available therefor (when and if declared by the Company's Board of
Directors) in an amount equal to 15% of the liquidation preference.
Dividends if not paid (whether or not declared) will be cumulative from
December 19, 1995 and will be compounded quarterly. The Note Indenture
restricts the Company's ability to pay dividends on the Preferred Stock,
and the Company has no current intention to pay any dividends on the
Preferred Stock. The Preferred Stock may be redeemed by the Company at any
time at a redemption price equal to 100% of the liquidation preference
plus accrued and unpaid dividends on the date of redemption subject to
restrictions in the Note Indenture. The Company will be obligated to
redeem all of the Preferred Stock on December 31, 2005 at a redemption
price equal to 100% of the liquidation preference plus accrued and unpaid
dividends on the date of redemption. In the event that the Company
consummates a Qualified Public Offering (Qualified Public Offering means a
firm commitment underwritten public offering of Common Stock of the
Company for which the Company receives net proceeds of at least $25
million, and after which the Common Stock is traded on a national
securities exchange or quoted on the Nasdaq National Market), it will be
required to offer to repurchase 35% of the Preferred Stock at a price
equal to 100% of the liquidation preference on the date of repurchase.
F - 20
<PAGE> 75
WARRANTS
The Warrants were originally exercisable for an aggregate of 2,675,237
shares of the Company's common stock at $.01 per share. However, in
connection with the 1997 Offering and the repayment of the 1995 Notes,
the Company redeemed 703,402 of the Warrants. The remaining 1,971,835
Warrants are freely transferable and exerciseable, are subject to
anti-dilution adjustments, and expire December 19, 1998.
9. COMMITMENTS
Future minimum rental payments under operating leases with noncancelable
lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998 $ 2,186,626
1999 1,889,314
2000 1,535,255
2001 1,248,444
2002 1,141,592
Thereafter 2,637,434
-------------
Total $ 10,638,665
=============
</TABLE>
Such operating lease commitments primarily relate to equipment, signs,
warehouses and ground leases on which the Company's buildings and
equipment reside. Rent expense for the years ended December 31, 1997, 1996
and 1995 was $2,211,745, $1,989,321 and $2,034,061, respectively.
On May 31, 1995, FRI sold the closed Harolds Club in Reno to an unrelated
publicly-traded company which subsequently sold Harolds Club to a company,
the assets of which are now under control of the United States Bankruptcy
Court for the Northern District of New York. Pursuant to the terms of
certain indemnification, assignment and assumption and guarantee
agreements executed by FRI in connection with FRI's purchase and
subsequent sale of Harolds Club, FRI is contingently obligated for certain
land lease payments plus certain property-related costs, such as taxes and
insurance.
As of December 31, 1997, lease obligations in the aggregate amount of
approximately $1,106,000 were unpaid and the remaining Harolds Club lease
obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998 $ 580,745
1999 334,214
2000 334,214
2001 252,749
2002 212,016
Thereafter 3,745,711
------------
Total $ 5,459,649
============
</TABLE>
F - 21
<PAGE> 76
The current owner of Harolds Club has not met its obligations with respect
to the land leases and in August 1996 each of the five land lessors filed
separate actions in the Second Judicial District Court, Washoe County,
State of Nevada, against the current owner, FRI and other non-related
prior lessees under the land leases seeking past due rent, taxes and other
property-related expenses, as well as attorneys' fees and costs.
Cross-claims for indemnification have been asserted against FRI by the
entity from which it assumed the land leases, and FRI has asserted
cross-claims against the entities that are obligated to indemnify FRI
under the various indemnification, assignment and assumption, and
guarantee agreements.
Orders granting summary judgment against FRI have been entered in four of
the actions for the aggregate sum of $1,243,220. Two orders have been
reduced to judgments. In anticipation of the sale of Harolds Club, the
parties to each of the five land lessor actions are currently negotiating
a settlement agreement, the details of which are set forth below. Pending
the sale of Harolds Club, and subject to certain other terms and
conditions, FRI has agreed to pay monthly lease payments on two of the
land leases in the total amount of $28,977.
The current owner of Harolds Club and the five land lessors have received
an offer to purchase their respective interests in Harolds Club. The same
unrelated party has made an offer to purchase the Nevada Club for a
purchase price of $4,000,000 and, in anticipation of completing the sale,
the Company closed Nevada Club in December 1997. To facilitate the sale of
both properties and subject to terms and conditions to be agreed upon
between the potential purchaser and FRI, FRI has agreed to pay the land
lessors $2,125,000 in exchange for a dismissal with prejudice of all
claims against FRI arising out of FRI's purchase and subsequent sale of
Harolds Club. FRI anticipates paying $600,000 of the $2,125,000 settlement
in cash, less the cumulative amount of interim monthly rental payments
($28,977 per month), concurrently with the closing of the Harolds Club
transaction and executing five separate promissory notes totaling
$1,525,000 for the balance. The notes will be amortized over five years
with interest fixed at the prime rate in effect at the largest financial
institution in Nevada on the date the notes are executed and will be
secured by the personal guarantee of the Chairman and Chief Executive
Officer of the Company. In addition to such guarantee, and subject to
certain conditions, a prior owner of Harolds Club named in four of the
five land lessor actions has agreed to reimburse FRI $300,000, and to
provide a payment guarantee for one of the five notes as its contribution
to the settlement of the actions. The closing of the Harolds Club
transaction is subject to the receipt by FRI of the $300,000 reimbursement
and the closing of the Nevada Club sale.
During 1997, the Company recorded an expense of $1,852,832 for the
anticipated net settlement obligation, including related legal fees. In
anticipation of the Nevada Club transaction, the Company has reclassified
$6,157,227 from Property and Equipment to Estimated Realizable Value of
Nevada Club Assets Held for Sale in the consolidated balance sheet as of
December 31, 1997 and has recorded an allowance of $2,157,000 against the
book value of the assets held for sale to write such assets down to the
estimated net realizable value for the year ended December 31, 1997.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with the President and
four other officers of the Company for terms expiring on various dates
through December 31, 1999. Such officers currently have salaries of
$496,125, $250,000, $225,000, $210,000 and $100,000. The employment
agreements also provide that such person will participate in an executive
bonus plan, health plan and any other benefit plan established for
selected officers of the Company and that in the event of a termination of
employment without "good cause" (as defined in the agreements), such
persons will be entitled to any unpaid salary through a specified
percentage of the remainder of the term of their employment agreements.
F - 22
<PAGE> 77
10. RELATED PARTY TRANSACTIONS
Accounts and notes receivable - related parties consist of the following
at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Unsecured notes receivable from stockholders,
collected in 1997 $ - $ 1,167,853
Unsecured note receivable from a former stockholder,
collected in 1997 - 639,402
Unsecured note receivable from a former stockholder,
collected in 1997 - 216,865
Accrued interest receivable on notes - 81,725
Other advances 136,173 114,096
--------------- -------------
Total 136,173 2,219,941
Less current portion (136,173) (2,209,188)
--------------- -------------
Long-term portion (included in other assets) $ - $ 10,753
=============== =============
</TABLE>
Other advances represent advances made to affiliated companies. The
amounts do not bear interest and there are no stated repayment terms.
Notes payable - related parties consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996
--------------- -------------
<S> <C> <C>
Unsecured notes payable to stockholders; interest at 6.24%;
payable on demand $ 304,637 $ 304,637
Subordinated notes payable issued pursuant to the buy-out
of the former general partners of FLVLP, repaid in 1997 - 1,807,255
Other - 25,903
--------------- -------------
304,637 2,137,795
Less current portion (304,637) (2,111,892)
--------------- ------------
Long-term portion $ - $ 25,903
=============== ============
</TABLE>
Accrued interest payable on notes payable - related parties, included in
accrued interest payable, was $23,104 and $4,191 at December 31, 1997 and
1996.
11. PROFIT SHARING PLAN
The Company has contributory profit-sharing plans for eligible employees.
The Company's contribution to the plans for any year, as determined by the
Board of Directors, is discretionary. Contributions to the plan are
allocated among eligible participants in the proportion of their salaries
to the total salaries of all
F - 23
<PAGE> 78
participants. Plan contributions, excluding matching contributions
described below, were $0, $0 and $301,585 for the years ended December 31,
1997, 1996 and 1995.
Effective January 1, 1989, the Company amended the plans to include a
401(k) savings plan whereby eligible employees may contribute up to 15% of
their salary, which is matched by the Company at 25 cents per employee
dollar contributed, up to a maximum of 6% of their salary. The Company's
matching contributions were $277,941, $390,237 and $197,006 for the years
ended December 31, 1997, 1996 and 1995.
Each employee age 21 or older completing 1,000 or more hours of service
during the twelve-month period preceding the entry dates, January 1 or
July 1, is eligible to participate in the plans.
In addition, the Company contributes to multi-employer defined
contribution pension plans under various union agreements. Contributions,
based on wages paid to covered employees, were $386,975, $322,405 and
$314,963 for the years ended December 31, 1997, 1996 and 1995.
12. CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK - In the normal course
of business, the Company is a party to financial instruments with
off-balance-sheet risk such as guarantees, which are not reflected in the
accompanying consolidated balance sheets.
The Company has an irrevocable letter of credit with a bank in the amount
of $251,000. Such letter, which expires on November 1, 1998, may be drawn
upon by the State of Nevada Insurance Division in the event that FRI, NCI,
or FLVI fails to pay to its employees workmen's compensation benefits
under a self-insurance program.
The Company has an irrevocable letter of credit with a bank in the amount
of $200,000 which expires on November 1, 1998, and may be drawn by a third
party in the event Fitzgeralds Mississippi fails to pay its utility
obligations.
The Company has an irrevocable letter of credit with a bank in the amount
of $275,000 which expires on November 1, 1998, and may be drawn by an
insurance company in the event Fitzgeralds Mississippi fails to pay its
portion of a deductible workmen's compensation insurance program.
In January 1998, the Company executed a letter of credit with a bank in
the amount of $105,000 which expires on November 30, 1998, and may be
drawn by a lessee of an underlying parcel of land of Fitzgeralds Reno in
the event Fitzgeralds Reno fails to pay its obligation as a sub-lessee of
this parcel.
No amounts were drawn at December 31, 1997 on any of the above letters of
credit and management does not expect any material losses to result from
these off-balance sheet instruments.
LEGAL MATTERS - The Company is party to various legal actions and
administrative proceedings and subject to various claims arising in the
course of business. The Company believes that the disposition of these
matters will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
The current bankruptcy of an adjacent casino property involves the jointly
developed access road to Fitzgeralds Tunica. In the opinion of management
of the Company, the Company's continued access to the property is not in
jeopardy and the ultimate outcome of this matter will not have a material
adverse effect on the results of operations or the financial position of
the Company.
F - 24
<PAGE> 79
EMPLOYEE MEALS - On September 30, 1997 the United States Tax Court isssued
an adverse ruling applicable to hotels and casinos which provide meals to
employees. The Tax Court ruled that nonqualifying employees are required
to recognize income based upon the fair value of the meals received in
excess of the amount paid by the employee. Accordingly, employers may be
liable for withholding and payroll taxes associated with the fair value of
the meals provided to employees in excess of the amount paid by the
employee. At this time, it is uncertain whether or not the Company will be
liable for withholding and payroll taxes related to the income excluded
from nonqualifying employee wages for the meals it has provided.
13. STOCKHOLDERS' EQUITY
STOCK REPURCHASE
On December 21, 1990, FRI entered into an agreement to repurchase certain
of its outstanding common shares from a major stockholder. Such agreement
also provided for the repurchase of similar ownership interests of such
stockholder in NCI and a third entity. Pursuant to the terms of the
agreement, the purchase price paid by the Company was subject to
adjustment upon the occurrence of certain events. Accordingly, the
purchase price was increased by $734,028 in 1996 and by $136,021 in 1997.
The Company's obligation to the former shareholder was paid from proceeds
of the 1997 Offering.
CONTRIBUTIONS FROM STOCKHOLDERS/PARTNERS
Pursuant to a business combination, the S corporation elections and
partnership status of certain subsidiaries were terminated. Therefore,
undistributed earnings (losses) of these subsidiaries have been
transferred to additional paid-in capital at the end of 1995 in the
consolidated statements of stockholders' equity (deficiency).
ISSUANCES OF WARRANTS
The Company has outstanding common stock warrants issued in connection
with its 1995 Offering. See Note 8. FSI has outstanding common stock
purchase warrants issued in connection with its senior secured notes. See
Note 7.
During 1994, the Company sold for $133,650 in cash, warrants to purchase a
total of 29,097 shares of common stock at $.05 per share. In addition, in
1994 the Company received $125,000 in cash in payment for 26,942 common
shares to be issued upon completion of the Company's 1995 Offering. Such
shares were issued during 1996.
ACQUISITION OF FI STOCK
As part of a business combination, the Company issued 23,989 shares of its
common stock in 1995 to a minority stockholder of FI upon the completion
of the 1995 Offering.
STOCK OPTIONS
In February 1995, the Company granted options to purchase 87,140 shares of
common stock of the Company at $1.00 per share to certain employees of the
Company. 50% of the options granted vested on June 30, 1995. The remaining
50% of the options vested on June 30, 1996. No options had been exercised
as of December 31, 1997.
F - 25
<PAGE> 80
In September 1995, the Company established an Incentive Option Plan (the
"Option Plan"). In December 1995, the Company granted options under the
Option Plan to purchase 75,000 shares to each of two officers and 50,000
shares to each of two additional officers. In addition, approximately
193,000 options were granted under the Option Plan to Company employees
concurrently with the closing of the 1995 Offering. In connection with the
election of two non-employee directors concurrently with the 1995
Offering, the Company granted options to purchase 5,000 shares to each of
such non-employee directors. During 1996, 6,000 options were granted under
the Option Plan and 82,510 options were forfeited. These options were
exercisable at $4.50 per share, with the options vesting ratably over
three years. With the exception of 50,000 options which expired in 1996,
all options will expire on December 31, 1999. In March 1997, the exercise
price of all options then outstanding was reduced, to reflect the then
current fair market value, from $4.50 per share to $1.00 per share, except
for options granted to two controlling stockholders, the exercise price of
which was reduced to $1.10 per share.
In June 1997, the Company determined that its two previously adopted stock
option plans had never become effective because they were adopted subject
to approvals which had not been obtained. Accordingly, the Company adopted
a new Stock Option Incentive Plan (the "Plan"), subject to stockholder
approval, to replace the two prior plans. The Plan was approved by
stockholders on August 1, 1997.
The Plan, as amended, provides for the grant of options to purchase Common
Stock that are either intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, or that are not intended to so qualify ("non-qualified options").
All officers, directors, employees, consultants, advisors, independent
contractors and agents of the Company and its subsidiaries are eligible to
receive options under the Plan, except that only employees may receive
incentive stock options. The Plan also permits a one-time grant of options
to certain former employees in substitution for options previously granted
to them and having substantially the same terms and conditions. The
maximum number of shares available for issuance under the Plan is
1,000,000.
In October 1997 the Board of Directors granted options to purchase 660,974
shares under the Plan in full replacement of previously granted options.
All of such options were granted subject to the optionee's agreement to
the cancellation of all previously granted options. The replacement
options were for the same number of shares, with substantially the same
terms and conditions, as the then outstanding options they replaced.
The Plan is administered by the Board of Directors or, in its discretion,
by a committee of the Board of Directors appointed for that purpose (the
"Plan Committee"), which, subject to the terms of the Plan, has the
authority in its sole discretion to interpret the Plan and to determine:
(a) the individuals to whom options shall be granted; (b) the time or
times at which options may be exercised; (c) the number of shares subject
to each option; (d) the option price and the duration of each option
granted; and (e) all of the other terms and conditions of options granted
under the Plan.
The exercise price of incentive stock options granted under the Plan must
be at least equal to the fair market value of the shares on the date of
grant (110% of fair market value in the case of participants who own
shares possessing more than 10% of the combined voting power of the
Company or any of its subsidiaries) and may not have a term in excess of
10 years from the date of grant (five years in the case of participants
who own shares possessing more than 10% of the combined voting power of
the Company). In no event may the aggregate fair market value (determined
as of the time the option is granted) of the shares with respect to which
incentive stock options (granted under the Plan and all other plans of the
Company or any of its subsidiaries) are exercisable for the first time by
an optionee in any calendar year exceed $100,000.
F - 26
<PAGE> 81
A summary of the status of the Company's stock option grants as of
December 31, 1997, 1996 and 1995 and changes during the years then ended
is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------------ ------------
<S> <C> <C>
Outstanding at January 1, 1995 - $ -
Granted 540,140 3.94
Forfeited (13,579) 1.00
------------ ------------
Outstanding at December 31, 1995 526,561 4.01
Granted 6,000 4.50
Forfeited (82,510) 4.22
------------ ------------
Outstanding at December 31, 1996 450,051 3.98
Granted 981,974 1.03
Canceled (660,974) 1.03
Forfeited (94,077) 1.67
------------- ------------
Outstanding at December 31, 1997 676,974 $ 1.03
============ ============
Options exercisable at year-end 386,968 $ 1.05
============ ============
</TABLE>
As of December 31, 1997, the 676,974 options outstanding under the plans
have exercise prices of $1.00 and $1.10 and a weighted-average remaining
contractual life of 2.85 years.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. The compensation cost that has been charged
against income for its plans was $0, $63,666 and $215,042 for 1997, 1996
and 1995, respectively. Had compensation cost for the Company's two
stock-based compensation plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of
SFAS No. 123, the Company's pro forma net loss and loss per common share
would have been the amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss As reported $ (31,541,520) $(13,493,926) $ (4,254,689)
Proforma (31,598,880) $(13,599,207) $ (4,243,296)
Loss per common share As reported $ (8.89) $ (4.26) $ (1.09)
Proforma $ (8.91) $ (4.29) $ (1.09)
</TABLE>
The fair value of each option grant for the pro forma disclosure was
estimated on the date of grant using the minimum value method with the
following weighted-average assumptions used for grants in 1997, 1996 and
1995; risk-free interest rates of 6.2 percent, 5.91 percent and 5.45
percent, respectively, with expected lives of three years, three years and
four years, respectively. The weighted-average fair value of options
granted during 1997, 1996 and 1995 were $1.00, $0.71 and $1.32,
respectively.
F - 27
<PAGE> 82
TREASURY STOCK PURCHASE AND RETIREMENT
FMI purchased and retired certain of its shares held by a minority
stockholder in exchange for a note payable in the amount of $333,333. The
note was repaid with a portion of the proceeds from the 1995 Offering.
14. INCOME TAXES
The income tax (provision) benefit recognized in the consolidated
financial statements consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ----------------- ---------------
<S> <C> <C> <C>
Deferred (provision) benefit $ - $ 1,484,167 $ (2,825,746)
---------------- ----------------- ---------------
Total $ - $ 1,484,167 $ (2,825,746)
================ ================ ===============
</TABLE>
A reconciliation of the income tax (provision) benefit with amounts
determined by applying the statutory U.S. Federal income tax rate to
consolidated loss before taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ----------------- ---------------
<S> <C> <C> <C>
Tax benefit at U.S. statutory rate $ 11,073,695 $ 5,242,297 $ 502,060
Entities which had elected S corporation
status or were partnerships
-- -- (501,497)
Deferred liabilities recorded upon the
change to a taxable status by entities
which had elected S Corporation status
or were partnerships -- -- (3,002,235)
(Increase) decrease in valuation allowance (10,981,971) (3,567,514) 303,922
Other (91,724) (190,616) (127,996)
---------------- ---------------- ----------------
Total $ -- $ 1,484,167 $ (2,825,746)
================ ================ ================
</TABLE>
The tax items comprising the Company's net deferred tax liability as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Start-up costs $ -- $ 2,017,568 $ 2,017,568
Accrued and other liabilities 1,163,568 -- 1,163,568
Bad debt reserve 144,159 -- 144,159
FICA credits not utilized -- 323,898 323,898
NOL carryforward -- 21,448,488 21,448,488
Differences from flow through entity -- 192,408 192,408
Other -- 24,082 24,082
----------- ----------- -----------
1,307,727 24,006,444 25,314,171
----------- ----------- -----------
</TABLE>
(Continued)
F - 28
<PAGE> 83
(Continued)
<TABLE>
<CAPTION>
CURRENT NON-CURRENT TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Difference between book and
tax basis of property -- 9,000,954 9,000,954
Prepaid expenses 636,694 -- 636,694
------------ ----------- -----------
636,694 9,000,954 9,637,648
------------ ------------ -----------
671,033 15,005,490 15,676,523
Less: valuation allowance (671,033) (15,005,490) (15,676,523)
------------ ------------ -----------
Net deferred tax liability $ -- $ -- $ --
============ ============ ===========
</TABLE>
START COPY HERE
The tax items comprising the Company's net deferred tax liability as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Start-up costs $ -- $ 1,409,066 $ 1,409,066
Accrued and other liabilities 844,448 -- 844,448
Bad debt reserve 267,534 -- 267,534
FICA credits not utilized -- 212,795 212,795
NOL carryforward -- 12,806,098 12,806,098
Other -- 93,567 93,567
------------ ------------ ------------
1,111,982 14,521,526 15,633,508
------------ ------------ ------------
Deferred tax liabilities:
Differences from flow through entity -- 149,320 149,320
Difference between book and
tax basis of property -- 8,498,185 8,498,185
Prepaid expenses 865,598 -- 865,598
------------ ------------ ------------
865,598 8,647,505 9,513,103
------------ ------------ ------------
246,384 5,874,021 6,120,405
Less: valuation allowance (246,384) (5,874,021) (6,120,405)
------------ ------------ ------------
Net deferred tax liability $ -- $ -- $ --
============ ============ ============
</TABLE>
A valuation allowance has been established in the amount of $15.7 million
at December 31, 1997 for consolidated net operating loss carryforwards.
Realization of the valuation allowance is dependent on the Company
generating sufficient taxable income prior to expiration of the loss
carryforwards.
As of December 31, 1997, the Company had consolidated net operating loss
carryforwards of approximately $61 million which are available to offset
future taxable income through 2017. Of these carryforwards, $3.7 million
are available only to offset future taxable income of FMI. The
availability of the loss carryforwards may be further limited in the event
of a significant change in ownership of the entities.
F - 29
<PAGE> 84
CHANGE IN TAX STATUS - The provision for income taxes for the year ended
December 31, 1995 has been increased by $3,002,235 as a result of
recording deferred tax liabilities upon the change to a taxable status by
certain subsidiaries of the Company.
15. GUARANTEE OF THE NOTES
The Company's obligations under the Notes are fully and unconditionally
guaranteed, jointly and severally, by all subsidiaries of the Company
(other than FAMI, FNYI and NCI). Subject to certain exceptions, the
guarantee is secured by a first priority lien on substantially all assets
of the guarantor subsidiaries other than certain excluded assets, as
defined. Such excluded assets include, among other things, (i) cash,
deposit accounts and other cash equivalents of $13,337,368 and $12,920,340
at December 31, 1997 and 1996, respectively; (ii) furniture, fixtures and
equipment with a net book value of $11,439,196 and $12,940,965 at December
31, 1997 and 1996, respectively, securing certain non-recourse
indebtedness; and (iii) any agreements, permits, licenses or the like that
cannot be subjected to a lien without the consent of third parties, which
consent is not obtainable by the Company (including all gaming licenses of
the Company and its restricted subsidiaries (as defined)), provided that
excluded assets does not include the proceeds of the assets under clauses
(ii) or (iii) or any other collateral to the extent such proceeds do not
constitute excluded assets under clause (i) above.
Condensed consolidating financial statement information for Fitzgeralds
Gaming Corporation, the Guarantor Subsidiaries, the Non-Guarantor
Subsidiaries and Eliminating Entries (which consist principally of the
elimination of intercompany loan and investment accounts) follows.
F - 30
<PAGE> 85
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
ASSETS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,385,746 $ 10,951,622 $ 1,472,249 $ -- $ 14,809,617
Accounts and notes
receivable, net 11,532 1,674,085 510,601 -- 2,196,218
Inventories -- 1,313,611 -- -- 1,313,611
Prepaid and other current
assets 195,094 2,579,131 123,303 -- 2,897,528
------------- ------------- ------------- ------------- -------------
Total current assets 2,592,372 16,518,449 2,106,153 -- 21,216,974
------------- ------------- ------------- ------------- -------------
PROPERTY AND EQUIPMENT, net 82,409 163,473,309 148,997 -- 163,704,715
OTHER ASSETS 189,355,896 29,211,119 4,833,754 (192,702,218)(b) 30,698,551
MINORITY INTEREST -- -- 75,199 -- 75,199
------------- ------------- ------------- ------------- -------------
TOTAL $ 192,030,677 $ 209,202,877 $ 7,164,103 $(192,702,218) $ 215,695,439
============= ============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term
debt $ -- $ 4,932,178 $ 2,658,356 $ -- $ 7,590,534
Accounts payable, accrued and
other 2,960,233 18,462,718 443,151 (1,720,652)(c) 20,145,450
------------- ------------- ------------- ------------- -------------
Total current liabilities 2,960,233 23,394,896 3,101,507 (1,720,652) 27,735,984
LONG TERM DEBT,
net of current portion 209,023,127 207,873,263 5,709,140 (216,414,045)(a) 206,191,485
------------- ------------- ------------- ------------- -------------
Total liabilities 211,983,360 231,268,159 8,810,647 (218,134,697) 233,927,469
------------- ------------- ------------- ------------- -------------
CUMULATIVE REDEEMABLE
PREFERRED STOCK 19,631,397 -- -- -- 19,631,397
STOCKHOLDERS' DEFICIENCY (39,584,080) (22,065,282) (1,646,544) 25,432,479 (d) (37,863,427)
------------- ------------- ------------- ------------- -------------
TOTAL $ 192,030,677 $ 209,202,877 $ 7,164,103 $(192,702,218) $ 215,695,439
============= ============= ============= ============= =============
</TABLE>
- ----------
(a) To eliminate intercompany accounts and notes payable.
(b) To eliminate intercompany accounts and notes receivable, investment in
subsidiaries and other capitalized costs.
(c) To eliminate intercompany deferred interest income.
(d) To eliminate investment in subsidiaries, other capitalized costs, and
intercompany deferred interest income.
F - 31
<PAGE> 86
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
ASSETS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,887,273 $ 10,033,067 $ 429,157 $ -- $ 13,349,497
Accounts and notes
receivable, net 38,198 3,830,576 397,255 -- 4,266,029
Inventories -- 1,510,219 35,442 -- 1,545,661
Prepaid and other current
assets 171,810 2,676,729 220,100 -- 3,068,639
------------- ------------- ------------- ------------- -------------
Total current assets 3,097,281 18,050,591 1,081,954 -- 22,229,826
------------- ------------- ------------- ------------- -------------
PROPERTY AND
EQUIPMENT, net 81,178 147,502,651 4,299,254 -- 151,883,083
OTHER ASSETS 126,663,939 18,588,082 2,651,644 (130,838,000)(a) 17,065,665
------------- ------------- ------------- ------------- -------------
TOTAL $ 129,842,398 $ 184,141,324 $ 8,032,852 $(130,838,000) $ 191,178,574
============= ============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS'
DEFICIENCY
CURRENT LIABILITIES:
Current portion of
long-term debt $ 120,415 $ 27,210,354 $ 418,851 $ -- $ 27,749,620
Accounts payable, accrued
and other 3,145,683 19,455,130 704,209 (1,791,806)(c) 21,513,216
------------- ------------- ------------- ------------- -------------
Total current
liabilities 3,266,098 46,665,484 1,123,060 (1,791,806) 49,262,836
LONG TERM DEBT, net of
current portion 114,922,596 145,492,473 7,121,669 (139,654,348)(b) 127,882,390
------------- ------------- ------------- ------------- -------------
Total liabilities 118,188,694 192,157,957 8,244,729 (141,446,154) 177,145,226
------------- ------------- ------------- ------------- -------------
MINORITY INTEREST -- -- 587,837 -- 587,837
CUMULATIVE REDEEMABLE
PREFERRED STOCK 15,488,782 -- -- -- 15,488,782
STOCKHOLDERS' DEFICIENCY (3,835,078) (8,016,633) (799,714) 10,608,154 (d) (2,043,271)
------------- ------------- ------------- ------------- -------------
TOTAL $ 129,842,398 $ 184,141,324 $ 8,032,852 $(130,838,000) $ 191,178,574
============= ============= ============= ============= =============
</TABLE>
- ----------
(a) To eliminate intercompany accounts and notes receivable and investment in
subsidiaries.
(b) To eliminate intercompany accounts and notes payable.
(c) To eliminate intercompany deferred interest income.
(d) To eliminate investment in subsidiaries and intercompany deferred interest
income.
F - 32
<PAGE> 87
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $ 135,895,642 $ 5,319,429 $ -- $ 141,215,071
Food and beverage -- 21,094,261 1,404,852 -- 22,499,113
Rooms -- 21,318,538 -- -- 21,318,538
Other -- 4,774,324 5,191,184 -- 9,965,508
------------- ------------- ------------- ------------- -------------
Total -- 183,082,765 11,915,465 -- 194,998,230
Less promotional
allowances -- 14,770,306 526,191 -- 15,296,497
------------- ------------- ------------- ------------- -------------
Net -- 168,312,459 11,389,274 -- 179,701,733
------------- ------------- ------------- ------------- -------------
OPERATING COSTS AND
EXPENSES:
Casino -- 66,046,542 3,628,444 -- 69,674,986
Food and beverage -- 16,178,476 1,036,409 -- 17,214,885
Rooms -- 12,512,496 -- -- 12,512,496
Other operating -- 1,681,063 -- -- 1,681,063
Selling, general and
administrative 4,354,305 46,909,116 1,804,025 (4,134,268)(g) 48,933,178
Depreciation and
amortization 20,794 11,757,606 275,377 -- 12,053,777
Write down of assets and
lease settlement 27,832 2,580,000 1,402,000 -- 4,009,832
------------- ------------- ------------- ------------- -------------
Total 4,402,931 157,665,299 8,146,255 (4,134,268) 166,080,217
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) FROM
OPERATIONS (4,402,931) 10,647,160 3,243,019 4,134,268 13,621,516
OTHER INCOME (EXPENSE):
Interest income 17,438,078 349,823 11,163 (17,336,887)(h) 462,177
Interest expense (19,712,305) (22,729,426) (319,105) 17,265,733 (e) (25,495,103)
Other income (expense) (9,184,622) 2,693,840 (207,980) 5,816,580 (f) (882,182)
------------- ------------- ------------- ------------- -------------
Income (loss) before
income taxes and
extraordinary item (15,861,780) (9,038,603) 2,727,097 9,879,694 (12,293,592)
Income tax (provision)
benefit 3,075,065 (1,413,031) (1,662,034) -- --
------------- ------------- ------------- ------------- -------------
Income (loss) before
extraordinary item (12,786,715) (10,451,634) 1,065,063 9,879,694 (12,293,592)
Extraordinary item - Loss
on early retirement
of debt (18,683,651) (564,277) -- -- (19,247,928)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (31,470,366) $ (11,015,911) $ 1,065,063 $ 9,879,694 $ (31,541,520)
============= ============= ============= ============= =============
</TABLE>
- ----------
(e) To eliminate intercompany interest expense.
(f) To eliminate interest in loss of subsidiaries and intercompany management
fee expense.
(g) To eliminate intercompany management fee expense.
(h) To eliminate intercompany interest income, intercompany management fee
income, intercompany deferred interest income, and other intercompany income.
F - 33
<PAGE> 88
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $ 105,760,883 $ 5,524,001 $ -- $ 111,284,884
Food and beverage -- 17,043,731 1,508,247 -- 18,551,978
Rooms -- 15,875,829 -- -- 15,875,829
Other -- 3,476,265 4,258,163 (328,430)(d) 7,405,998
------------- ------------- ------------- ------------- -------------
Total -- 142,156,708 11,290,411 (328,430) 153,118,689
Less promotional allowances -- 11,951,259 637,083 -- 12,588,342
------------- ------------- ------------- ------------- -------------
Net -- 130,205,449 10,653,328 (328,430) 140,530,347
------------- ------------- ------------- ------------- -------------
OPERATING COSTS AND
EXPENSES:
Casino -- 54,497,530 3,910,240 (84,410)(d) 58,323,360
Food and beverage -- 12,254,352 1,076,119 -- 13,330,471
Rooms -- 9,644,494 -- -- 9,644,494
Other operating 16 1,543,500 -- -- 1,543,516
Selling, general and
administrative 4,965,042 43,055,896 2,103,578 (5,203,760)(g) 44,920,756
Depreciation and
amortization 13,071 8,651,374 232,506 -- 8,896,951
------------- ------------- ------------- ------------- -------------
Total 4,978,129 129,647,146 7,322,443 (5,288,170) 136,659,548
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) FROM
OPERATIONS (4,978,129) 558,303 3,330,885 4,959,740 3,870,799
OTHER INCOME (EXPENSE):
Interest income 15,724,484 1,930,931 110,923 (15,705,850)(e) 2,060,488
Interest expense (18,033,588) (19,126,739) (584,458) 17,497,656 (e) (20,247,129)
Other income (expense) (7,993,455) 2,885,233 (332,491) 4,778,462 (f) (662,251)
------------- ------------- ------------- ------------- -------------
INCOME (LOSS)
BEFORE TAXES (15,280,688) (13,752,272) 2,524,859 11,530,008 (14,978,093)
INCOME TAX (PROVISION)
BENEFIT (5,044) 1,510,922 (21,711) -- 1,484,167
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (15,285,732) $ (12,241,350) $ 2,503,148 $ 11,530,008 $ (13,493,926)
============= ============= ============= ============= =============
</TABLE>
- ----------
(d) To eliminate intercompany rental income and expense.
(e) To eliminate intercompany interest expense, interest income and deferred
interest income.
(f) To eliminate interest in loss of subsidiaries and intercompany management
fee income.
(g) To eliminate intercompany rental expense and intercompany management fee
expense.
F - 34
<PAGE> 89
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
--------------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $ 107,540,734 $ 7,507,680 $ -- $ 115,048,414
Food and beverage -- 16,470,776 1,806,037 -- 18,276,813
Rooms -- 13,116,906 -- -- 13,116,906
Other -- 3,783,897 3,158,608 (73,364)(d) 6,869,141
------------- ------------- ------------- ------------- -------------
Total -- 140,912,313 12,472,325 (73,364) 153,311,274
Less promotional allowances -- 11,099,855 814,323 -- 11,914,178
------------- ------------- ------------- ------------- -------------
Net -- 129,812,458 11,658,002 (73,364) 141,397,096
------------- ------------- ------------- ------------- -------------
OPERATING COSTS AND
EXPENSES:
Casino -- 51,988,877 5,227,830 (58,687)(d) 57,158,020
Food and beverage -- 11,259,768 1,237,120 -- 12,496,888
Rooms -- 7,120,826 -- -- 7,120,826
Other operating -- 1,811,534 9,623 -- 1,821,157
Selling, general and
administrative 94,872 37,331,202 3,610,290 (14,677)(d) 41,021,687
Depreciation and amortization -- 7,397,005 613,493 -- 8,010,498
------------- ------------- ------------- ------------- -------------
Total 94,872 116,909,212 10,698,356 (73,364) 127,629,076
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) FROM
OPERATIONS
(94,872) 12,903,246 959,646 -- 13,768,020
OTHER INCOME (EXPENSE):
Interest income 576,366 504,235 106,677 (866,493)(e) 320,785
Interest expense (545,338) (14,230,036) (1,117,971) 866,493 (e) (15,026,852)
Other income (expense) (2,782,270) 887,056 (54,620) 1,458,938 (f) (490,896)
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE
TAXES (2,846,114) 64,501 (106,268) 1,458,938 (1,428,943)
INCOME TAX (PROVISION)
BENEFIT 24,274 (2,054,640) (795,380) -- (2,825,746)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (2,821,840) $ (1,990,139) $ (901,648) $ 1,458,938 $ (4,254,689)
============= ============= ============= ============= =============
</TABLE>
- ----------
(d) To eliminate intercompany rental income and expense.
(e) To eliminate intercompany interest income and expense.
(f) To eliminate interest in loss of subsidiaries.
F - 35
<PAGE> 90
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES $ (6,529,107) $ 4,074,467 $ 3,741,897 $ -- $ 1,287,257
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of assets -- 109,012 20,936 -- 129,948
Repayments from related parties -- 2,518,805 -- -- 2,518,805
Acquisition of property
and equipment (22,025) (3,566,861) (53,992) -- (3,642,878)
Advances to related parties (61,500,446) -- -- 61,500,446 (b) --
(Increase) decrease in
restricted cash-construction (355,572) 2,215,908 -- -- 1,860,336
Purchase of business, net
of cash acquired -- (25,747,169) -- -- (25,747,169)
Dividends received 2,896,714 1,911,893 -- (4,808,607)(a) --
Other -- 224,406 -- -- 224,406
------------- ------------- ------------- ------------- -------------
Net cash provided by (used
in) investing activities (58,981,329) (22,334,006) (33,056) 56,691,839 (24,656,552)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from 1997 Offering 202,634,300 -- -- -- 202,634,300
Payment of debt offering costs (9,225,656) (2,082,772) -- -- (11,308,428)
Advances from related parties -- 61,500,446 -- (61,500,446)(b) --
Proceeds from issuance of debt -- 38,221,811 -- -- 38,221,811
Repayment of long-term debt (128,399,735) (73,757,422) (416,463) -- (202,573,620)
Dividends -- (2,896,714) (2,249,286) 4,808,607 (a) (337,393)
Repayments to related parties -- (1,807,255) -- -- (1,807,255)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used
in) financing activities 65,008,909 19,178,094 (2,665,749) (56,691,839) 24,829,415
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (501,527) 918,555 1,043,092 -- 1,460,120
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 2,887,273 10,033,067 429,157 -- 13,349,497
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 2,385,746 $ 10,951,622 $ 1,472,249 $ -- $ 14,809,617
============= ============= ============= ============= =============
</TABLE>
- ----------
(a) To eliminate intercompany dividends.
(b) To eliminate intercompany advances.
F - 36
<PAGE> 91
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES $(11,572,491) $ 9,004,758 $ 3,326,332 $ -- $ 758,599
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
assets -- 334,798 37,731 -- 372,529
Repayments from
related parties -- 86,664 -- -- 86,664
Acquisition of property
and equipment (94,249) (53,164,997) (4,493) -- (53,263,739)
Decrease in restricted
cash - construction -- 46,845,677 -- -- 46,845,677
Dividends received -- 3,698,396 -- (3,698,396)(a) --
Other -- (408,999) -- -- (408,999)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) investing activities (94,249) (2,608,461) 33,238 (3,698,396) (6,367,868)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of common stock 1,350 -- -- -- 1,350
Payment of debt
offering costs (275,625) -- -- -- (275,625)
Proceeds from issuance
of debt 5,654,211 3,988,853 -- -- 9,643,064
Repayment of long-term
debt (523,332) (9,119,798) (579,131) -- (10,222,261)
Dividends -- -- (4,103,544) 3,698,396 (a) (405,148)
Decrease in restricted cash -- 471,569 -- -- 471,569
Other -- (98,007) -- -- (98,007)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities 4,856,604 (4,757,383) (4,682,675) 3,698,396 (885,058)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (6,810,136) 1,638,914 (1,323,105) -- (6,494,327)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR 9,697,409 8,394,153 1,752,262 -- 19,843,824
------------ ------------ ------------ ------------ ------------
CASH AND CASH
EQUIVALENTS, END
OF YEAR $ 2,887,273 $ 10,033,067 $ 429,157 $ -- $ 13,349,497
============ ============ ============ ============ ============
</TABLE>
- ----------
(a) To eliminate intercompany dividends.
F - 37
<PAGE> 92
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES $ (708,178) $ 10,203,560 $ (1,027,387) $ -- $ 8,467,995
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of assets -- 634,730 9,073,601 -- 9,708,331
Repayments from
related parties -- 25,137 219,466 (25,137)(a) 219,466
Purchase of treasury stock -- (333,333) -- -- (333,333)
Acquisition of property and
equipment -- (9,740,664) (89,463) -- (9,830,127)
Advances to related parties (114,874,329) -- -- 114,874,329 (a) --
Increase in restricted
cash - construction -- (49,100,000) -- -- (49,100,000)
Increase in advances
receivable -- (541,650) -- -- (541,650)
Dividends received -- 777,750 -- (777,750)(b) --
Investment in Fremont
Street Experience -- (526,678) -- -- (526,678)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used
in) investing activities (114,874,329) (58,804,708) 9,203,604 114,071,442 (50,403,991)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from 1995 Offering 135,014,840 -- -- -- 135,014,840
Payment of debt offering
costs (9,983,915) -- -- -- (9,983,915)
Advances from related parties -- 115,742,524 -- (114,874,329)(a) 868,195
Proceeds from issuance of debt -- 7,200,963 -- -- 7,200,963
Repayment of long-term debt -- (70,084,605) (8,869,635) -- (78,954,240)
Dividends -- (914,792) (881,250) 777,750 (b) (1,018,292)
Repayments to related parties -- (2,925,562) (212,892) 25,137 (a) (3,113,317)
Increase in restricted cash -- (120,415) -- -- (120,415)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 125,030,925 48,898,113 (9,963,777) (114,071,442) 49,893,819
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 9,448,418 296,965 (1,787,560) -- 7,957,823
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 248,991 8,097,188 3,539,822 -- 11,886,001
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 9,697,409 $ 8,394,153 $ 1,752,262 $ -- $ 19,843,824
============= ============= ============= ============= =============
</TABLE>
- ----------
(a) To eliminate intercompany advances and repayments.
(b) To eliminate intercompany dividends.
******
F - 38
<PAGE> 93
FITZGERALDS GAMING CORPORATION SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE:
- ------------------------------------------------------------------------------
Year Ended Beginning Balance Provisions Recoveries Ending Balance
- ---------- ----------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
12/31/95 $376,626 $273,143 $(306,539) $343,230
12/31/96 343,230 373,978 (463,266) 253,942
12/31/97 253,942 560,462 (402,523) 411,811
ALLOWANCE FOR DOUBTFUL RELATED PARTY NOTES RECEIVABLE:
- -------------------------------------------------------------------------------
Year Ended Beginning Balance Provisions Recoveries Ending Balance
- ---------- ----------------- ---------- ---------- --------------
12/31/95 $510,439 $ - $ - $510,439
12/31/96 510,439 - - 510,439
12/31/97 510,439 - (510,439) -
ALLOWANCE TO WRITE DOWN ASSETS HELD FOR SALE TO ESTIMATED REALIZABLE VALUE:
- ------------------------------------------------------------- -----------------
Year Ended Beginning Balance Additions Deletions Ending Balance
- ---------- ----------------- ---------- ----------- --------------
12/31/95 $1,401,262 $ - $(1,401,262) $ -
12/31/96 - - - -
12/31/97 - 2,157,000 - 2,157,000
</TABLE>
<PAGE> 1
ARTICLES OF INCORPORATION
OF
FITZGERALDS BLACK HAWK II, INC.
The undersigned, an individual, does hereby act as incorporator in
adopting the following Articles of Incorporation for the purpose of organizing
a business corporation, pursuant to the provisions of the Colorado Business
Corporation Act.
FIRST: The corporate name for the corporation (hereinafter called the
"corporation") is FITZGERALDS BLACK HAWK II, INC.
SECOND: The number of shares which the corporation is authorized to
issue is two million five hundred thousand (2,500,000), all of which are of a
par value of $.01 each and are of the same class and are Common shares.
THIRD: The street address of the initial registered office of the
corporation in the State of Colorado is 1560 Broadway, Denver, Colorado 80202.
The name of the initial resident agent of the corporation at said
registered office is Corporation Service Company.
FOURTH: The address of the corporation's initial principal office is 101
Main Street, Black Hawk, Colorado 80422.
FIFTH: The name and address of the incorporator is:
<TABLE>
<CAPTION>
Name Address
- --------------------------- -------------------------------
<S> <C>
Zarvart A. Karaccusian 350 S. Grand Avenue, 36th Floor
Los Angeles, California 90071
</TABLE>
<PAGE> 2
SIXTH: The purposes for which the corporation is organized, which shall
include the authority of the corporation to engage in any lawful business, are
as follows:
To have all the general powers granted to corporations organized under
the Colorado Business Corporation Act, whether granted by specific
statutory authority or by construction of law.
SEVENTH: No holder of any of the shares of any class of the corporation
shall be entitled as of right to subscribe for, purchase, or otherwise acquire
any shares of any class of the corporation which the corporation proposes to
issue or any rights or options which the corporation proposes to grant for the
purchase of shares of any class of the corporation or for the purchase of any
shares, bonds, securities, or obligations of the corporation which are
convertible into or exchangeable for, or which carry any rights to subscribe
for, purchase, or otherwise acquire shares of any class of the corporation; and
any and all of such shares, bonds, securities, or obligations of the
corporation, whether now or hereafter authorized or created, may be issued, or
may be reissued if the same have been reacquired and if their reissue is not
prohibited, and any and all of such rights and options may be granted by the
Board of Directors to such individuals and entities, and for such lawful
consideration, and on such terms, as the Board of Directors to such individuals
and entities, and for such lawful consideration, and on such terms, as the
Board of Directors in its discretion may determine, without first offering the
same, or any thereof, to any said holder.
EIGHTH: The corporation shall, to the fullest extent permitted by the
provisions of the Colorado Business Corporation Act, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said provisions from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by
-2-
<PAGE> 3
said provisions, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaws, vote of shareholders or disinterested directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administration of such a person.
NINTH: The personal liability of the directors of the corporation is
eliminated to the fullest extent permitted by the provisions of the Colorado
Business Corporation Act, as the same may be amended and supplemented.
TENTH: The duration of the corporation shall be perpetual.
ELEVENTH: Cumulative voting is not desired in the election of directors.
Signed on July 30, 1997
/s/ ZARVART A. KARACCUSIAN
----------------------------------------
Zarvart A. Karaccusian, Incorporator
CONSENT OF INITIAL REGISTERED AGENT TO APPOINTMENT
--------------------------------------------------
The undersigned person hereby consents to appointments as the initial
registered agent of the corporation named in Article FIRST of the annexed
Articles of Incorporation.
Corporation Service Company
By: [SIG]
----------------------------
Authorized Signature
-3-
<PAGE> 4
STATE OF COLORADO
DEPARTMENT OF STATE
I hereby certify that this is a true and
complete copy of the document filed in
this office and admitted to record in
File 971121877
- --------------------------------------
- -------------------------------------- [SEAL]
DATED Dec 22 1997
[SIG]
- --------------------------------------
Secretary of State
By [SIG]
- --------------------------------------
<PAGE> 5
BYLAWS
OF
FITZGERALDS BLACK HAWK II, INC.
ARTICLE I - Offices
1.1 Principal Office. The principle offices of the corporation shall
initially be at 101 Main Street, Black Hawk, Colorado 80422, but the board of
directors, in its discretion, may keep and maintain offices wherever the
business of the corporation may require.
1.2 Registered Office and Agent. the corporation shall have and
continuously maintain a registered office, which may be the same as its
principal office in the State of Colorado, and a registered agent whose business
office is identical with such registered office. The initial registered office
and the initial registered agent are specified in the Articles of Incorporation.
the corporation may change its registered office or change its registered agent,
or both, upon filing a statement as specified by law in the office of the
Secretary of State of Colorado.
ARTICLE II - Meetings of Shareholders
2.1 Time and Place. Any meeting of the shareholders may be held at
such time and place, within or outside of the State of Colorado, as may be fixed
by the board of directors or as shall be specified in the notice of the meeting
or waiver of notice of the meeting.
2.2 Annual Meeting. The annual meeting of the shareholders shall be
held at the principal offices of the corporation on the 1st day of August of
each year, beginning in the year 1998, or at such other place or date as the
board of directors may determine.
2.3 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, may be called by the president, the board of directors, or
the holders of not less than one tenth of all of the shares entitled to vote at
the meeting.
2.4 Record Date. For the purpose of determining shareholders
entitled to notice of, or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the board
of directors may fix in advance a date as the record date for any such
determination of shareholders. The record date may not be fixed more than fifty
and, in the case of a meeting of the shareholders, not less than ten days before
the date of the proposed action, except when it is proposed that the authorized
shares be increased in which case the record date shall be set no less than
thirty days before the date of such action.
<PAGE> 6
2.5 Voting List. At least ten days before each meeting of shareholders,
the secretary of the corporation shall made a complete list of the shareholders
entitled to vote at such meeting, or any adjournment of such meeting, which
list shall be arranged in alphabetical order and shall contain the address of
and number of shares held by each shareholder. This list shall be kept on file
at the principal office of the corporation for a period of ten days prior to
such meeting, shall be produced and kept open at the meeting, and shall be
subject to inspection by any shareholder for any purpose germane to the meeting
during usual business hours of the corporation and during the whole time of the
meeting.
2.6 Notices. Written notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten nor more than fifty
days before the date of the meeting unless it is proposed that the authorized
shares be increased in which case at least thirty days notice shall be given.
Notice shall be given either personally or by mail, by or at the direction of
the president, the secretary, or the officer or person calling the meeting, to
each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States
mail, postage prepaid, addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation. If delivered
personally, such notice shall be deemed to be delivered when handed to the
shareholder or deposited at his address as it appears on the stock transfer
books of the corporation.
2.7 Quorum. Except as otherwise provided by law, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of the shareholders. If a quorum shall not be present or
represented, the shareholders present in person or by proxy may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, for a period not to exceed sixty days at any one adjournment, until
the number of shares required for a quorum shall be present. At any such
adjourned meeting at which a quorum is represented, any business may be
transacted which might have been transacted at the meeting originally called.
The shareholders present or represented at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of a number of shareholders resulting in less than a quorum.
2.8 Voting. Except as otherwise provided by law, all matters shall be
decided by a vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter. Each outstanding share shall be
entitled to one vote on such matters submitted to a vote of the shareholders. A
shareholder may vote either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the secretary of the corporation before or at
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<PAGE> 7
the time of the meeting. No proxy shall be valid after eleven months from the
date of its execution, unless otherwise provided by the proxy. Voting shall
be oral, except as otherwise provided by law, but shall be by written ballot if
such written vote is demanded by any shareholder present in person or by proxy
and entitled to vote.
2.9 Waiver. Whenever the law or these by-laws require a notice of a
meeting to be given, a written waiver of notice signed by a shareholder
entitled to notice, whether before, at, or after the time stated in the notice,
shall be equivalent to the giving of notice. Attendance of a shareholder in
person or by proxy at a meeting constitutes a waiver of notice of a meeting,
except where a shareholder attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened.
2.10 Action by Shareholders Without a Meeting. Any action required to or
which may be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to such action.
Such consent may be executed in counterparts and shall be effective as of the
date of the last signature thereon.
ARTICLE III - Directors
3.1 Authority of Board of Directors. The business and affairs of the
corporation shall be managed by a board of directors which shall exercise all
the powers of the corporation, except as otherwise provided by Colorado law
or the articles of incorporation of the corporation.
3.2 Number. The Board of Directors of the Corporation shall consist of
two (2) members. The number of directors may be increased or decreased by
amendment to these Bylaws, subject to limits in the Articles of Incorporation.
At each annual meeting of shareholders, the shareholders shall elect directors
to hold office until the next succeeding annual meeting. A director shall hold
office for the term elected, and until a successor shall be elected and
qualified.
3.3 Qualification. Directors shall be natural persons at the age of
eighteen years or older, but need not be residents of the State of Colorado or
shareholders of the corporation.
3.4 Election. The board of directors shall be elected at the annual
meeting of the shareholders or at a special meeting called for that purpose.
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<PAGE> 8
3.5 Term. Each director shall be elected to hold office until the next
annual meeting of shareholders and until his successor shall have been elected
qualified.
3.6 Removal and Resignation. Any director may be removed at a meeting
expressly called for that purpose, with or without cause, by a vote of the
holders of the majority of shares entitled to vote at an election of directors.
Any director may resign at any time by giving written notice to the president or
to the secretary, and acceptance of such resignation shall not be necessary to
make it effective unless the notice so provides.
3.7 Vacancies. Any vacancy occurring on the board of directors and any
directorship to be filled by reason of an increase in the size of the board of
directors shall be filled by the affirmative vote of the majority, though less
than a quorum, of the remaining directors. A director elected to fill a vacancy
shall hold office during the unexpired term of his predecessor in office. A
director elected to fill a position resulting from an increase in the board of
directors shall hold office until the next annual meeting of shareholders and
until his successor shall have been elected and qualified.
3.8 Meetings. A regular meeting of the board of directors shall be held
immediately after, and at the same place as, the annual meeting of shareholders.
No notice of this meeting of the board of directors need be given. The board of
directors, or any committee designated by the board of directors, may, by
resolution, establish a time and place for additional regular meeting which may
thereafter be held without further notice. Special meetings of the board of
directors, or any committee designated by the board of directors, may be called
by the president or any two members of the board or directors or of such
committee.
3.9 Notices. Notice of a special meeting of the board of directors
stating the date, hour and place of such meeting shall be given to each member
of the board of directors, or committee of the board or such committee calling
the meeting. The notice may be deposited in the United States mail at least
seven days before the meeting addressed to the director at the last address he
has furnished to the corporation for this purpose, and any notice so mailed
shall be deemed to have been given at the time it is mailed. Notice may also be
given at least two days before the meeting in person, or by telephone, prepaid
telegram, telex, facsimile, cablegram or radiogram, and such notice shall be
deemed to have been given at the time when the personal or telephone
conversation occurs, or when the telegram, facsimile, telex, cablegram or
radiogram is either personally delivered to the director or delivered to the
last address of the director furnished to the corporation by him for this
purpose.
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<PAGE> 9
3.10 Quorum. Except as provided in Section 3.7 of these Bylaws, a
majority of the number of directors fixed in accordance with these Bylaws shall
constitute a quorum for the transaction of business at all meetings of the board
of directors. The act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directs, except as
otherwise specifically required by law.
3.11 Waiver. A written waiver of notice signed by a director entitled to
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of notice. Attendance of a director at a meeting
constitutes a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
3.12 Attendance by Telephone. Members of the board of directors or any
committee designated by the board of directors may participate in a meeting of
the board or committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other at the same time. Such participation shall constitute presence
in person at the meeting.
3.13 Action by Directors Without a Meeting. Any action required to or
which may be taken at a meeting of the board of directors, executive committee,
or other committee of the directors may be taken without am meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
directors, executive or other committee members entitled to vote with respect to
the proposed action. such consent may be executed in counterparts and shall be
effective as of the date of the last signature thereon.
ARTICLE IV - Committees
4.1 Executive and Other Committees Authorized. The board of directors by
resolution adopted by a majority of the entire board of directors, may designate
from among its members an executive committee and one or more other committees
each of which, to the extent provided in the resolution, shall have all of the
authority of the board of directors. The board of directors may provide by
resolution such powers, limitation, and procedures for such committees as the
board deems advisable. However, no such executive or other committee shall have
the authority of the board of directors in amending the articles of
incorporation, adopting a plan of merger or consolidation, recommending to the
shareholders the sale, lease, exchange, or other disposition of all or
substantially all of the property and assets of the corporation otherwise than
in the usual and regular course of its business, recommending to the
shareholders a voluntary dissolution of the corporation or a revocation thereof,
amending these Bylaws, or other action which
5
<PAGE> 10
cannot be legally delegated to such committee by the board of directors under
applicable law.
ARTICLE V - Officers
5.1 Number and Election. The officer of the corporation shall be a
president, a secretary and a treasurer, who shall be elected by the board of
directors. In addition, the board of directors may elect one or more vice
presidents and the board of directors or the president may appoint one or more
assistant secretaries or assistant treasurers, and such other subordinate
officers as he shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the president. Any two or more offices may be
held by the same person, except the offices of president and secretary. The
officers of the corporation shall be natural persons of the age of eighteen
years or older.
5.2 President. The president shall be the chief executive officer of the
corporation and shall preside at all meetings of shareholders and of the board
of directors. Subject to the direction and control of the board of directors, he
shall have general and active management of the business of the corporation and
shall see that all orders and resolutions of the board of directors are carried
into effect. He may execute contracts, deeds and other instruments on behalf of
the corporation as is necessary and appropriate. He shall perform such
additional functions and duties as are appropriate and customary for the office
of president and as the board of directors may prescribe from time to time.
5.3 Vice President. The vice president, or, if there shall be more than
one, the vice presidents in the order determined by the board of directors,
shall be the officer(s) next in seniority after the president. Each vice
president shall also perform such duties and exercise such powers as are
appropriate and as are prescribed by the board of directors or president. Upon
the death, absence or disability of the president, the vice president, or, if
there shall be more than one, the vice presidents in the order determined by
the board of directors, shall perform the duties and exercise the powers of the
president.
5.4 Secretary. The secretary shall give, or cause to be given, notice of
all meetings of the shareholders and special meetings of the board of
directors, keep the minutes of such meetings, have charge of the corporate seal
and stock records, to be responsible for the maintenance of all corporate
records an files and the preparation and filing of reports to governmental
agencies, other than tax returns, have authority to affix the corporate seal to
any instrument requiring it (and, when so affixed, it may be attested by his
signature), and perform such other functions and duties as are appropriate and
customary for the
6
<PAGE> 11
office of secretary as the board of directors or the president may prescribe
from time to time.
5.5 Assistant Secretary. The assistant secretary, or, if there shall be
more than one, the assistant secretaries in the order determined by the board
of directors of the president, shall, in the death, absence or disability of
the secretary or in case such duties are specifically delegated to him by the
board of directors, president or secretary, perform the duties and exercise the
powers of the secretary and shall, under the supervision of the secretary,
perform such other duties and have such other powers as may be prescribed from
time to time by the board of directors or the president.
5.6 Treasurer. The treasurer shall have control of the funds and the care
and custody of all stocks, bonds and other security owned by the corporation
and shall be responsible for the preparation and filing of tax returns. He
shall receive all moneys paid to the corporation and shall have authority to
give receipts and vouchers, to sign and endorse checks and warrants in its name
and on its behalf, and give full discharge for the same. He shall also have
charge of disbursement of the funds of the corporation, shall keep full and
accurate records of the receipts and disbursements, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as shall be designated by the board of
directors. The corporation's principal banking depositories shall be at
Colorado banking institutions which provide federally insured accounts. The
Treasurer shall perform such other duties and have such other powers as are
appropriate and customary for the office of treasurer as the board of directors
or president may prescribe from time to time.
5.7 Assistant Treasurer. The assistant treasurer, or, if there shall be
more than one, the assistant treasurers in the order determined by the board of
directors or the president, shall in the death, absence or disability of the
treasurer or in case such duties are specifically delegated to him by the board
of directors, president or treasurer, perform the duties and exercise the
powers of the treasurer, and shall, under the supervision of the treasurer,
perform such other duties and have such other powers as the board of directors
or the president may prescribe from time to time.
5.8 Removal and Resignation. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any officer may resign at any time by
giving written notice of his resignation to the president or to the secretary.
Any vacancy occurring in any office, the election or appointment to which is
made by the board of directors, shall be filled by the board of directors.
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<PAGE> 12
5.9 Compensation. Officers shall receive such compensation for their
services as may be authorized or ratified by the board of directors. Election or
appointment of an officer shall not of itself create a contract right to
compensation for services performed as such officer.
ARTICLE VI - Stock
6.1 Certificates. Certificates representing shares of the capital
stock of the corporation shall be in such form as may be approved by the board
of directors and shall be signed by the president or any vice president and by
the secretary or an assistant secretary. All certificates shall be consecutively
numbered and the names of the owners, the numbers of the shares and the date of
issue shall be entered on the books of the corporation. Each certificate
representing shares shall state upon its face (a) that the corporation is
organized under the laws of the State of Colorado, (b) the name of the person to
whom issued, (c) the value, if any, of each share represented by the
certificate, and (e) any restrictions placed upon the transfer of the shares
represented by the certificate.
6.2 Facsimile Signatures. Where a certificate is signed (1) by a
transfer agent other than the corporation or its employee, or (2) by a registrar
other than the corporation or its employee, any other signature on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed, or whose facsimile signature or signatures have been placed
upon, any certificate, shall cease to be such officer, transfer agent, or
registrar, whether because of death, resignation or otherwise, before the
certificate is issued by the corporation, it may nevertheless be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
6.3 Transfer of Stock. Transfer of shares shall be made on the books
of the corporation only upon presentation of the certificate or certificates
representing such shares properly endorsed by the person or persons appearing
upon the face of such certificate to the owner, or accompanied by the proper
transfer or assignment separate from the certificate, except as may otherwise be
expressly provided by the statutes of the State of Colorado or by order of a
court of competent jurisdiction. The officers or transfer agents of the
corporation may, in their discretion, require a signature guaranty before making
any transfer. The corporation shall be entitled to treat the person in whose
name any shares are registered for all purposes, and shall not be bound to
recognize any equitable or other claim or interest in the shares on the part of
any other person, whether or not the corporation shall have notice of such claim
or interest.
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<PAGE> 13
ARTICLE VII - Miscellaneous
7.1 Corporate Seal. The board of directors may adopt a seal which shall
be circular in form and shall bear the name of the corporation and the words
"SEAL" and "COLORADO" which, when adopted, shall constitute the corporate seal
of the corporation. The seal may be used by causing it or a facsimile thereof
to be impressed, affixed, manually reproduced, or rubber stamped with indelible
ink.
7.2 Fiscal Year. The board of directors may, by resolution, adopt a
fiscal year for this corporation.
7.3 Insider Employer. No contract or other transaction between the
corporation and one or more of its directors or any other corporation, firm,
joint venture, association, or entity in which one or more of its directors are
directors or officers or are financially interested shall be either void or
voidable solely because of such relationship or interest or solely because such
directors are present at the meeting of the board of directors or a committee
thereof which authorizes, approves, or ratifies such contract or transaction or
solely because their votes are counted for such purpose if: (a) the fact of
such relationship or interest is disclosed or known to the board of directors
or committee which authorizes, approves, or ratifies the contract or
transaction by a vote or consent sufficient for the purpose without counting
the votes or consents of such interested director; or (b) the fact of such
relationship or interest is disclosed or known to the shareholders entitled to
vote and they authorize, approve, or ratify such contract or transaction by
vote or written consent; or (c) the contract or transaction is fair and
reasonable to the corporation. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
a committee thereof which authorizes, approves, or ratifies such contract or
transaction.
7.4 Amendment of Bylaws: These Bylaws may at any time and from time to
time be amended, supplemented or repealed by the board of directors.
ARTICLE VIII - DIRECTOR LIABILITY AND INDEMNIFICATION
8.1 No Director of the Corporation shall be liable to the Corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
Director, except that this provision shall not eliminate or limit the liability
of a Director to the Corporation or its shareholders for monetary damages for
(i) any breach of Director's duty of loyalty to the Corporation or its
shareholders, (ii) acts or omissions not in good faith which involve
intentional misconduct or a knowing violation of law, (iii) acts specified in
Section 7-108-403, C.R.S., or (iv) any transaction from which the Director
derived an improper personal benefit.
9
<PAGE> 14
8.2 The Corporation shall indemnify and hold any Director harmless from
any loss or damage incurred by her or him by reason of any act performed by her
or him in good faith for or on behalf of the Corporation and in furtherance of
the Corporation's business or objectives.
10
<PAGE> 1
ARTICLES OF ORGANIZATION
OF
101 MAIN STREET LIMITED LIABILITY COMPANY
The undersigned natural persons of the age of eighteen years or more,
acting as organizers of 101 MAIN STREET LIMITED LIABILITY COMPANY, under the
Colorado Limited Liability Company Act, adopt the following Articles of
Organization for said Limited Liability company:
I.
NAME OF COMPANY
The name of the limited liability company is 101 MAIN STREET LIMITED
LIABILITY COMPANY (the "Company").
II.
PERIOD OF DURATION
The period of duration is twenty-nine years from the date of filing of
these Articles of Organization with the Colorado Secretary of State, unless the
limited liability company is sooner dissolved.
III.
PURPOSE
The limited liability company is organized pursuant to the Colorado
Limited Liability Company Act for the purpose of engaging in the business of
constructing, developing and operating a casino in Gilpin County, Colorado, and
for the purpose of engaging in such other lawful business as the members may
determine, with the powers as described in the Colorado Limited Liability
Company Act.
IV.
REGISTERED OFFICE AND AGENT
The name and address of the initial registered agent are as follows:
Richard H. Bard
Suite 900
4500 Cherry Creek South Drive
Denver, Colorado 80222
<PAGE> 2
V.
OPERATING AGREEMENT
The Operating Agreement of the Company shall be executed by each member of
the Company and shall set forth all provisions for the affairs of the Company
and the conduct of its business to the extent that such provisions are not
inconsistent with law or these Articles.
VI.
CONTINUATION UPON WITHDRAWAL OF MEMBER
The members shall have the right to continue the Company upon the death,
retirement, resignation, expulsion, bankruptcy or dissolution of a member or
occurrance of any other event which terminates the continued membership of a
member in the Company (collectively, "withdrawal") so long as there are at
least two remaining members and the remaining members agree to continue the
Company by unanimous written consent within 90 days after the withdrawal of a
member, as set forth in the Operating Agreement of the Company.
VII.
LIABILITY OF MEMBERS AND EXECUTIVE MANAGEMENT COMMITTEE
Neither the members of the Company nor the managers of the Company are
liable under a judgment, decree or order of a court, or in any other manner,
for a debt, obligation or liability of the Company.
VIII.
MANAGERS
The Company is to be managed by four managers. The names and address of
the initial managers of the Company who are to serve until the first annual
meeting of members or until their successors are elected and qualify are:
Richard H. Bard
Suite 900
4500 Cherry Creek South Drive
Denver, CO 80222
Michael O. Pranke
101 Main Street
Black Hawk, CO 80422
2
<PAGE> 3
John Randall ("Randy") Winegard
3000 Kirkwood Street
Burlington, IA 52601-1007
Larry W. Rheinschmidt
Rheinschmidt Contracting Co.
1100 Agency
P.O. Box 308
Burlington, IA 52601
The managers may be removed and replaced by the members, as provided in
the Operating Agreement of the Company. The managers shall have the
responsibilities accorded to them by the members and set out in the Operating
Agreement of the Company.
IX.
OTHER PROVISIONS
The following provisions, not inconsistent with law, which the members
elect to set out in these Articles of Organization for the regulation of the
internal affairs of the Company, which are under the Colorado Limited Liability
Act, required or permitted to be set out herein and in the Operating Agreement
of the Company are as follows:
a. The Company shall indemnify an individual made a party to a
proceeding because he is or was a manager, member, employee, or agent
of the Company against liability incurred in the proceeding,
including reasonable expenses and attorneys' fees, if:
(1) He conducted himself in good faith;
(2) He reasonably believed that his conduct was in or at least not
opposed to the Company's best interest;
and
(3) In the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
b. Indemnification shall also be provided for an individual's conduct
with respect to an employee benefit plan if the individual reasonably
believed his conduct to be in the interest of the participants in and
beneficiaries of the plan.
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<PAGE> 4
c. The Company shall timely pay for or reimburse the reasonable expenses
incurred by a manager, member, employee or agent of the Company who is
a party to a proceeding in advance of final disposition of the
proceeding if:
(1) The individual furnishes the Company a written affirmation of his
good faith belief that he has not met the standard of conduct
described herein;
(2) The individual furnishes the Company a written undertaking
executed personally or on his behalf to repay the advance if it
is ultimately determined that he did not meet the standard of
conduct; and
(3) A determination is made that the facts then known to those making
the determination would not preclude indemnification under the
law. The undertaking required by this paragraph shall be an
unlimited general obligation but need not be secured and may be
accepted without reference to financial ability to make
repayment.
d. The indemnification and advance of expenses authorized herein shall
not be exclusive of any other rights to which any manager, member,
employee or agent may be entitled under the Operating Agreement of the
Company, as a matter of law or as determined by the managers. The
Articles of Organization shall not be interpreted to limit in any
manner the indemnification or right to advancement for expenses of an
individual who would otherwise be entitled thereto.
X.
ORGANIZER
The name and address of the organizer is:
Richard H. Bard
Suite 900
4500 Cherry Creek South Drive
Denver, Colorado 80222
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned has caused these Articles of
Organization to be executed this 8th day of March, 1993.
/s/ RICHARD H. BARD
-----------------------------
Richard H. Bard
<PAGE> 6
For office use only
Mail to: Secretary of State Corporations Section
1560 Broadway, Suite 200
Denver, CO 80202
(303) 894-2251
Fax (303) 894-2242
MUST BE TYPED 951058204 M $25.00
FILING FEE: $25.00 SECRETARY OF STATE
MUST SUBMIT TWO COPIES 05-02-95 14:05
Please include a typed
self-addressed envelope
LL931026455
AMENDMENT TO THE ARTICLES OF ORGANIZATION
FOR A COLORADO LIMITED LIABILITY COMPANY
Pursuant to the provisions of the Colorado Limited Liability Company Act, as
amended (the "Act"), the Articles of Organization shall be amended as set forth
herein:
101 Main Street Limited Liability Company
-----------------------------------------
Exact name of limited liability company
4500 Cherry Creek S. Drive, Suite 900, Denver, CO 80222
-------------------------------------------------------
Address
The members desire to change the Articles or Organization as described below:
Article VIII of the Company's Articles of Organization shall be
deleted in its entirety and replaced with the following:
VIII.
MANAGERS
The Company shall be managed by a manager or group of managers.
Managers shall be elected or appointed in the manner set forth in the
Company's Operating Agreement.
Dated this 28th day of April, 1995
101 MAIN STREET LIMITED
LIABILITY COMPANY
By: /s/ RICHARD H. BARD
-------------------------------
Richard H. Bard, Manager
COMPUTER UPDATE COMPLETE
<PAGE> 7
Mail to: Secretary of State For office use only
Corporations Section
1560 Broadway, Suite 200 [ILLEGIBLE] C $10.00
Denver, CO 80202 SECRETARY OF STATE
(303) 894-2251 05-22-95 16:26
Fax (303) 894-2242
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FILING FEE: $10.00 LL931026455
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self-addressed envelope
CERTIFICATE OF
ASSUMED OR TRADE NAME
101 Main Street Limited Liability Company, a limited liability company under
the laws of the State of Colorado, being desirous of transacting a portion of
its business under an assumed or trade name as permitted by 7-71-101, Colorado
Revised Statutes, hereby certifies:
1. The location of its principal office is: 4500 Cherry Creek South Drive,
Suite 900, Denver, Colorado 80222.
2. The name, other than its own, under which business is carried on is:
Fitzgeralds Casino.
3. A brief description of the kind of business transacted under such assumed
or trade name is: Operation of a licensed limited gaming casino in Black
Hawk.
- -------------------------------------------------------------------------------
Limited Partnership or Limited Liability Corporations complete this section
Companies complete this section
- -------------------------------------------------------------------------------
Main Street Limited ----------------------------------
Liability Company Name of Corporation
by /s/ RICHARD H. BARD by
----------------------------- -----------------------------
Manager Its
----------------------------
Title
- -------------------------------------------------------------------------------
<PAGE> 8
MAIL TO: SECRETARY OF STATE FOR OFFICE USE ONLY
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202 951131276 C $10.00
MUST BE TYPED (303) 894-2251 SECRETARY OF STATE
FILING FEE: $10.00 FAX (303) 894-2242 10-25-95 14:38
MUST SUBMIT TWO COPIES
LL 931026455
Please include a STATEMENT OF CHANGE OF
typed self-addressed REGISTERED OFFICE OR
envelope REGISTERED AGENT, OR BOTH
Pursuant to the provisions of the Colorado Business Corporation Act, the
Colorado Nonprofit Corporation Act, the Colorado Uniform Limited Partnership
Act of 1981 and the Colorado Limited Liability Company Act, the undersigned,
organized under the laws of:
Colorado
---------------------------------------------------------------------------
submits the following statement for the purpose of changing its registered
office or its registered agent, or both, in the state of Colorado:
FIRST: The name of the corporation, limited partnership or limited liability
company is:
101 Main Street Limited Liability Company
----------------------------------------------------------------------
SECOND: Street address of the current REGISTERED OFFICE is:
450 Cherry Creek Dr. So., Suite 900, Denver, CO 80222
----------------------------------------------------------------------
and if changed, the new street address is:
535 16th Street, Suite 920, Denver, CO 80202
----------------------------------------------------------------------
THIRD: The name of the current REGISTERED AGENT is: Richard H. Bard
-------------------------
and if changed, the new registered agent is: Shirley A. Higgs
-------------------------
Signature of Registered Agent /s/ SHIRLEY A. HIGGS
----------------------------------------
Principal place of business 535 16th St., Suite 920, Denver, CO 80202
------------------------------------------
The address of its registered office and the address of the business office of
its registered agent, as changed, will be identical.
101 Main Street Limited Liability Company
---------------------------------------------
Name of Entity
By /s/ SHIRLEY A. HIGGS
---------------------------------------------
Its Corporate Secretary
---------------------------------------------
Title
<PAGE> 9
Mail to: Secretary of State | For office use only
Corporation Section |
1580 Broadway, Suite 200 | 961014353 C $25.00
Denver, CO 80202 | SECRETARY OF STATE
(303) 894-2251 | 01-31-96 [ILLEGIBLE]
Fax (303) 894-2242 |
|___________________________
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self-addressed envelope
LL931026455
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF ORGANIZATION
FOR A COLORADO LIMITED LIABILITY COMPANY
Pursuant to the provisions of the Colorado Limited Liability Company Act, as
amended (the "Act"), the Articles of Organization shall be amended as set forth
herein:
101 Main Street Limited Liability Company
---------------------------------------------
Exact name of limited liability company
535 - 16th Street, Suite 920, Denver, CO 80202
-------------------------------------------------
Address
The member desire to change the Articles of Organization by adding a new
Article XI as follows:
XI
Member Restrictions
During all times in which the Company is subject to Rule 4.5 of the
Colorado Gaming Regulations, the following provisions shall apply:
The limited liability company shall not issue any voting securities or
other voting interests except in accordance with provisions of the Colorado
Limited Gaming Act and the regulations promulgated thereunder. The issuance
of any voting securities or other voting interests in violation thereof
shall be void and such voting securities or other voting interests shall be
deemed not to be issued and outstanding until (a) the limited liability
company shall cease to be subject to the jurisdiction of the Colorado
Limited Gaming Control Commission, or (b) the Colorado Limited Gaming
Control Commission shall, by affirmative action, validate said issuance or
waive any defect in issuance.
No voting securities or other voting interests issued by the limited
liability company and no interest, claim or charge therein or thereto shall
be transferred in any manner whatsoever except in accordance with the
provisions of the Colorado Limited Gaming Act and the regulations
promulgated thereunder. Any transfer in violation thereof shall be void
until (a) the limited liability company shall cease to be subject to the
jurisdiction of the Colorado Limited Gaming Control Commission, or (b) the
Colorado Limited Gaming Control Commission shall, by affirmative action,
validate said transfer or waive any defect in said transfer.
<PAGE> 10
If the Colorado Limited Gaming Control Commission at any time
determines that a holder of voting securities or other voting interests of
this limited liability company is unsuitable to hold such securities or
other voting interests, then the issuer of such voting securities or other
voting interests may, within sixty (60) days after the finding of
unsuitability, purchase such voting securities or other voting interests of
such unsuitable person at the lessor of (i) the cash equivalent of such
person's investment in the limited liability company, or (ii) the current
market price as of the date of the finding of unsuitability unless such
voting securities or other voting interests are transferred to a suitable
person (as determined by the Commission) within sixty (60) days after the
finding of unsuitability. Until such voting securities or other voting
interest are owned by persons found by the Commission to be suitable to own
them, (a) the limited liability company shall not be required or permitted
to pay any dividend or interest with regard to the voting securities or
other voting interests, (b) the holder of such voting securities or other
voting interests shall not be entitled to vote on any matter as the holder
of the voting securities or other voting interests, and such voting
securities or other voting interests shall not for any purposes be included
in the voting securities or other voting interests of the limited liability
company entitled to vote, and (c) the limited liability company shall not
pay any renumeration in any form to the holder of the voting securities or
other voting interests except in exchange for such voting securities or
other voting interests as provided in this paragraph.
Dated this 30th day of January, 1996.
101 MAIN STREET LIMITED LIABILITY COMPANY
By: /s/ RICHARD H. BARD
----------------------------------
Richard H. Bard, Manager
<PAGE> 11
MAIL TO: SECRETARY OF STATE FOR OFFICE USE ONLY
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200 19971126668
DENVER, CO 80202 $ 25.00
MUST BE TYPED (303) 894-2251 SECRETARY OF STATE
FILING FEE: $10.00 FAX (303) 894-2242 08-11-97 10:24:49
MUST SUBMIT TWO COPIES
DLLC 19931026455
AMENDMENT TO THE ARTICLES OF ORGANIZATION
FOR A COLORADO LIMITED LIABILITY COMPANY
Pursuant to the provisions of the Colorado Limited Liability Company Act, the
Articles of Organization shall be amended as set forth herein:
101 MAIN STREET LIMITED LIABILITY COMPANY
- --------------------------------------------------------------------------------
Exact name of limited liability company
120 Gregory Street, P.O. Box P
- -------------------------------------------------------------------------------
Address
Black Hawk Colorado 80422
- -------------------------------------------------------------------------------
City State Zip
The Articles of Organization are hereby amended by unanimous consent of the
members as follows:
1. Articles II, III, VI, VII and IX are deleted in entirety.
2. The Company and all of its members hereby affirmatively elect to be
governed by the provisions of the "Colorado Limited Liability Company Act,"
Colo. Rev. Stat. Sections 7-80-101 through 7-80-1101 (1994), as amended.
Dated this _______ day of August, 1997.
101 MAIN STREET LIMITED LIABILITY COMPANY
By: /s/ RICHARD H. BARD
-------------------------------------
Richard H. Bard, Manager
<PAGE> 12
Mail to: Secretary of State For office use only
Corporations Section 199711575
1560 Broadway, Suite 200 $5.00
Denver, CO 80202 SECRETARY OF STATE
(303) 894-2251 10-01-97 14:25:54
Fax (303) 894-2242
MUST BE TYPED
FILING FEE: $5.00
MUST SUBMIT TWO COPIES
DLLC-19931026455
STATEMENT OF CHANGE OF
Please include a typed REGISTERED OFFICE OR
self addressed envelope REGISTERED AGENT, OR BOTH
Pursuant to the provisions of the Colorado Business Corporation Act, the
Colorado Nonprofit Corporation Act, the Colorado Uniform Limited Partnership
Act of 1981 and the Colorado Limited Liability Company Act, the undersigned,
organized under the laws of:
COLORADO
-------------------------------
submits the following statement for the purpose of changing its registered
office or its registered agent, or both, in the State of Colorado:
FIRST: The name of the corporation, limited partnership or limited liability
company is:
101 Main Street Limited Liability Company
------------------------------------------------------------
SECOND: Street address of current REGISTERED OFFICE is: 535 16th St., Denver
---------------------
CO 80202
and if changed, the new street address is: 101 Main Street
--------------------------
Black Hawk, CO 80422
THIRD: The name of its current REGISTERED AGENT is: Shirley Higgs
------------------------
and if changed, the new registered agent is: Joe C. Collins
------------------------
Signature of Registered Agent [SIG]
---------------------------------------
Principal place of business 101 Main Street, Black Hawk, CO 80422
-----------------------------------------
The address of its registered office and the address of the business office of
its registered agent, as changed, will be identical.
101 Main Street Limited Liability Company
-----------------------------------------
Name of Entity
By /s/ PHILIP D. GRIFFITH
--------------------------------------
Philip D. Griffith
Its Manager
--------------------------------------
Title
<PAGE> 13
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
OF
101 MAIN STREET LIMITED LIABILITY COMPANY
(A COLORADO LIMITED LIABILITY COMPANY)
THIS AGREEMENT is executed under and is to be governed by the laws of the
State of Colorado. It is entered into as of the 15th day of August, 1997, by
FITZGERALDS BLACK HAWK II, INC., a Colorado corporation ("FBHII"), the sole
member of 101 Main Street Limited Liability Company, a Colorado limited
liability company (the "Company").
RECITALS:
A. Hawkeye Gaming Ventures Limited Liability Company, a Wyoming limited
liability company ("Hawkeye"), and Main Street Gaming House Partners, L.P., a
Colorado limited partnership ("Main Street"), the initial members of the
Company, executed an Operating Agreement, effective as of March 11, 1993,
governing the operations of the Company (the "Operating Agreement").
B. Subsequently, Dry Gulch Investments, L.C., an Iowa limited liability
company ("Dry Gulch"), and Fitzgeralds Black Hawk, Inc., a Nevada corporation
("FBHI"), became additional Members of the Company.
C. Effective August 15, 1997, FBHII acquired all of the interests in the
Company held by Hawkeye, Main Street, Dry Gulch and FBHI.
D. FBHII wishes to amend and restate the Operating Agreement.
THEREFORE, the Operating Agreement is amended and restated in its entirety
as follows:
ARTICLE 1 PRINCIPAL PLACE OF BUSINESS
The principal place of business in Colorado shall be 101 Main Street,
Black Hawk, Colorado 80422, with such other places of business as may be
determined by the Members from time to time.
ARTICLE 2 PURPOSE OF BUSINESS
The Purpose of the Company is to engage in any lawful activity for which a
limited liability company may be organized under the Colorado Limited Liability
Company Act (the "Act"). Notwithstanding the foregoing, without the unanimous
consent of the Members, the Company shall not engage in any business other than
the business of owning and operating a casino in Gilpin County, Colorado and
such other activities directly related to such business as may be necessary,
advisable or appropriate to further such business.
<PAGE> 14
ARTICLE 3 ACCOUNTING AND REPORTS FOR THE COMPANY
3.1 RECORDS AND ACCOUNTING. The books and records of the Company shall
be kept, and the financial position and the results of its operations recorded,
in accordance with the accounting methods determined by the Members. The books
and records of the Company shall reflect all Company transactions and shall be
appropriate and adequate for the Company's business. All accounting books and
records of the Company shall be maintained at any office of the Company or at
the Company's principal place of business in Colorado, and each Member, and its
duly authorized representatives, shall have access to them at such office of
the Company and the right to inspect and copy them at reasonable times. The
fiscal year of the Company for financial reporting and for federal income tax
purposes shall be the calendar year.
3.2 REPORTS.
a. The Company shall within 60 days after the end of each calendar
year send to each person who was a Member at any time during the year then ended
such tax information relating to the Company as shall be required by law or as
shall be necessary for such Member to prepare and file its federal income tax
return and all required state and local income and other tax returns with
respect to jurisdictions in which the Company is engaged in business or
qualified to do business or owns investments.
b. The Company shall within 90 days after the end of each calendar
year send to each person who was a Member at any time during the year then
ended an annual report including (i) the balance sheet of the Company as of the
end of such year and statements of operations and changes in Members' capital
contributions, prepared in accordance with generally accepted accounting
principles consistently applied and accompanied by a report of the accountants
on such statements; and (ii) a report of the activities of the Company during
the period covered by the annual report. The annual report shall set forth
distributions to the Members for the period covered thereby and the amount of
such distributions released from reserves established in a Prior period.
c. The Company shall within 30 days after the end of each calendar
quarter send to each person who was a Member at any time during such quarter an
unaudited balance sheet of the Company as of the end of such quarter and
unaudited statements of operations and changes in Members' capital
contributions for such quarter, and cash flow for such quarter, accompanied by
a report of the Company's activities during such quarter.
ARTICLE 4 MEMBERS
4.1 MEMBERS. The name and address of each Member together with the
membership interest ("Membership Interests") of such Member shall be set forth
on Exhibit A. Exhibit A shall be amended to reflect the admission of additional
or substituted Members.
4.2 RIGHTS AND OBLIGATIONS OF MEMBERS. The Company has been formed as a
limited liability company under Act. The rights and obligations of the Members
shall be determined pursuant to the Act and this Agreement. To the extent that
the rights or obligations of any Member are different by reason of any
provision of this Agreement than they would be in the absence of such
provision, this Agreement shall, to the extent permitted by the Act, control.
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<PAGE> 15
4.3 LIMITED LIABILITY. Except as required under the Act or as otherwise
expressly set forth in this Agreement, no Member shall be personally liable for
any debt, obligation, or liability of the Company, whether that liability or
obligation arises in contract, tort, or otherwise.
4.4 TRANSACTIONS WITH THE COMPANY. Subject to any limitations set forth
in this Agreement and with the prior approval of the Members after full
disclosure of the Member's involvement, a Member or any affiliate of a Member
may lend money to and transact other business with the Company. Subject to
other applicable law, such Member has the same rights and obligations with
respect thereto as a Person who is not a Member.
4.5 COMPETING ACTIVITIES. A Member and its affiliates may engage or
invest in, independently or with others, any business activity of any type or
description, including without limitation those that might be the same as or
similar to the Company's business and that might be in direct or indirect
competition with the Company. Neither the Company nor any other Member shall
have any right in or to such other ventures or activities or to the income or
proceeds derived therefrom. A Member shall not be obligated to present any
investment opportunity or prospective economic advantage to the Company, even
if the opportunity is of the character that, if presented to the Company, could
be taken by the Company. A Member shall have the right to hold any investment
opportunity or prospective economic advantage for its own account or to
recommend such opportunity to persons other than the Company.
4.6 COMPENSATION. The Members of the Company are not, as such, entitled
to any compensation. However, the Members shall be reimbursed for reasonable
out-of-pocket expenses incurred on behalf of the Company.
4.7 FOREIGN MEMBERS. Each Member and transferee of a Membership Interest
who is a nonresident of Colorado shall execute and deliver to the Tax Matters
Person a Form DR 0107-COLORADO LIMITED LIABILITY COMPANY NONRESIDENT MEMBER
INCOME TAX AGREEMENT (the "Nonresident Tax Agreement") no later than 60 days
after becoming a Member or transferee of a Membership Interest, as the case may
be.
ARTICLE 5 CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
5.1 CAPITAL CONTRIBUTIONS. With the consent of the Members, any Members
may, but shall not be obligated to, make capital contributions to the Company
on such terms as shall be determined by the Members.
5.2 CAPITAL ACCOUNTS.
a. A separate capital account shall be maintained for each Member.
Each Member's capital account shall be increased by (i) the amount of money
contributed by such Member to the Company; (ii) the fair market value of
property contributed by such Member to the Company, net of liabilities secured
by such contributed property that the Company is considered to assume or take
subject to under Section 752 of the Internal Revenue Code of 1986, as amended
(the "Code"); (iii) allocations to such Member of net profits; and (iv)
allocations to such Member of income described in Section 705(a)(1)(B) of the
Code. Each Member's capital account shall be decreased by (i) the amount of
money distributed to such Member by the Company; (ii) the fair
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<PAGE> 16
market value of property distributed to such Member by the Company (net of
liabilities secured by such distributed property that such Member is considered
to assume or take subject to under Section 752 of the Code); (iii) allocations
to such Member of expenditures described in Section 705(a)(2)(B) of the Code;
and (iv) allocations to the account of such Member of Company loss and
deduction as set forth in the Treasury Regulations, taking into account
adjustments to reflect book value.
b. In the event of a permitted sale or exchange of a
Membership Interest in the Company, the capital account of the transferor shall
become the capital account of the transferee to the extent it relates to the
transferred Membership Interest in accordance with Section 1.704-1(b)(2)(iv) of
the Treasury Regulations.
c. The manner in which capital accounts are to be
maintained pursuant to this Section 5.3 is intended to comply with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
5.3 WITHDRAWAL OR REDUCTION OF MEMBERS' CONTRIBUTIONS TO CAPITAL.
a. A Member shall not receive out of the Company's
property any part of its capital contribution until all liabilities of the
Company, except liabilities to Members on account of their capital
contributions, have been paid or there remains property of the Company
sufficient to pay them.
b. A Member, irrespective of the nature of its capital
contribution, has only the right to demand and receive cash in return for its
capital contribution.
ARTICLE 6 DISTRIBUTIONS
6.1 DETERMINATION. From time to time, but not less frequently than
annually, the Members shall determine the amount of cash available for
distribution.
6.2 DISTRIBUTION FORMULA. Except as provided in Section 9.2, all
cash available for distribution shall be distributed to the Members pro rata
in accordance with their respective Membership Interests.
6.3 UNPAID DISTRIBUTIONS. Any declared but unpaid distributions to
Members shall constitute a liability of the Company to such Members.
6.4 LIMITATIONS UPON DISTRIBUTIONS. No distribution shall be
declared and paid unless, after the distribution is made, the value of the
assets of the Company is in excess of all liabilities of the Company, except
liabilities to Members on account of their contribution.
ARTICLE 7 PROFITS OR LOSSES
7.1 ALLOCATION OF PROFITS AND LOSSES. The net profits or the net
losses (and any separately stated items) of the Company for each fiscal year
shall be allocated to the Members, pro rata in accordance with their respective
Membership Interests.
-4-
<PAGE> 17
7.2 SPECIAL ALLOCATIONS TO CAPITAL ACCOUNTS. Notwithstanding Section 7.1
hereof, but subject to Section 7.3:
a. No allocations of loss, deduction and/or expenditures described
in Section 705(a)(2)(B) of the Code shall be charged to the capital account of
any Member if such allocation would cause such Member to have a deficit
capital account as defined below. The amount of the loss, deduction and/or Code
Section 705(a)(2)(B) expenditure which would have caused a Member to have a
deficit capital account shall instead be charged to the capital account of any
Members which would not have a deficit capital account as a result of the
allocation, in proportion to their respective capital contributions, or, if no
such Members exist, then to the Members in accordance with their interests in
Company profits pursuant to Section 7.1.
"Deficit capital account" shall mean with respect to any Member, the
deficit balance, if any, in such Member's capital account as of the end of the
taxable year, after giving effect to the following adjustments:
(i) credit to such capital account any amount which such Member is
obligated to restore under Section 1.7041(b)(2)(ii)(c) of the Treasury
Regulations, as well as any addition thereto pursuant to the next to last
sentence of Sections 1.704-2(g)(1) and (i)(5) of the Treasury Regulations,
after taking into account thereunder any changes during such year in
partnership minimum gain (as determined in accordance with Section
1.704-2(d) of the Treasury Regulations) and in the minimum gain
attributable to any nonrecourse debt (as determined under Section
1.704-2(i)(3) of the Treasury Regulations); and
(ii) debit to such capital account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
This definition of deficit capital account is intended to comply with the
provision of Treasury Regulations Section 1.7041(b)(2)(ii)(d) and 1.704-2, and
shall be interpreted consistently with those provisions.
b. In the event any Member receives any adjustments, allocations,
or distributions described in Sections 1.7041(b)(2)(ii)(d)(4),(5), or (6) of
the Treasury Regulations, which create or increase a deficit capital account of
such Member, then items of Company income and gain (consisting of a pro rata
portion of each item of Company income, including gross income, and gain for
such year and, if necessary, for subsequent years) shall be specially credited
to the capital account of such Member in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the deficit
capital account so created as quickly as possible. It is the intent that this
Section 7.2(b) be interpreted to comply with the alternate test for economic
effect set forth in Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
c. Notwithstanding any other provisions of this Section 7.2, if
there is a net decrease in the Company's minimum gain as defined in Treasury
Regulation Section 1.704-2(d) during a taxable year of the Company, then, the
capital accounts of each Member shall be allocated items of income (including
gross income) and gain for such year (and if necessary for subsequent years)
equal to that Member's share of the net decrease in Company minimum gain. This
Section
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<PAGE> 18
7.2(D) is intended to comply with the minimum gain chargeback requirement of
Section 1.704-2 of the Treasury Regulations and shall be interpreted
consistently therewith.
d. Items of Company loss, deduction and expenditures described in
Section 705(a)(2)(B) which are attributable to any nonrecourse debt of the
Company and are characterized as partner recourse deductions under Section
1.704-2(i) of the Treasury Regulations shall be allocated to the Members'
capital accounts in accordance with said Section 1.704-2(i) of the Treasury
Regulations.
e. Beginning in the first taxable year in which there are allocations of
"nonrecouse deductions" (as described in Section 1.704-2(b) of the Treasury
Regulations) such deductions shall be allocated to the Members in accordance
with, and as part of, the allocations of Company profit or loss for such period.
f. In accordance with Section 704(c)(1)(A) of the Code and Section
1.704-1(b)(2)(i)(iv) of the Treasury Regulations, if a Member contributes
property with a fair market value that differs from its adjusted basis for
federal income tax purposes at the time of contribution, income, gain, loss,
and deductions with respect to the property shall, solely for federal income
tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company and its
fair market value at the time of contribution. If applicable Treasury
Regulations permit a choice of methods for making said allocations, the method
to be used shall be determined by the Members.
g. Pursuant to Section 704(c)(1)(B) of the Code, if any contributed
property is distributed by the Company other than to the contributing Member
within five years of being contributed, then, except as provided in Section
704(c)(2) of the Code, the contributing Member shall be treated as recognizing
gain or loss from the sale of such property in an amount equal to the gain or
loss that would have been allocated to such Member under Section 704(c)(1)(A) of
the code if the property had been sold at its fair market value at the time of
the distribution.
h. In the case of any distribution by the Company to a Member or
transferee of a Membership Interest to which Sections 704(c)(1)(B) or 737 of
the Code apply, such Member or transferee of a Membership Interest shall be
treated as recognizing gain in an amount equal to the lesser of:
(1) the excess, if any, of (A) the fair market value of the property
(other than money) received in the distribution over (B) the adjusted basis
of such Member's Membership Interest or transferees membership Interest in
the Company immediately before the distribution reduced (but not below
zero) by the amount of money received in the distribution, or
(2) the net precontribution gain (as defined in Section 737(b) of the
Code) of the Member or transferee of a Membership Interest. The "net
precontribution gain" means the net gain (if any) which would have been
recognized by the distributed Member or transferee of a Membership Interest
under Section 704(c)(1)(B) of the Code of all property which (A) had been
contributed to the Company within five years of the distribution, and (B)
is held by the Company immediately before the distribution, had been
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<PAGE> 19
distributed by the Company to another Member or transferee of a Membership
Interest. If any portion of the property distributed consists of property
which had been contributed by the distributed member or transferee of a
Membership Interest to the Company, then such property shall not be taken
into account under this Section 7.2(i) and shall be taken into account in
determining the amount of the net precontribution gain. If the property
distributed consists of an interest in an entity, the preceding sentence
shall not apply to the extent that the value of such interest is
attributable to the property contributed to such entity after such interest
had been contributed to the Company.
i. In connection with a capital contribution of money or other
property (other than a de minimis amount) by a new or existing member or
transferee of a Membership Interest as consideration for a Membership Interest
or in connection with the liquidation of the Company or a distribution of money
or other property (other than a de minimis amount) by the Company to a retiring
Member or transferee of a Membership Interest as consideration for a Membership
Interest), the capital accounts of the Members shall be adjusted to reflect a
revaluation of Company property (including intangible assets) in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv)(f). If under Section
1.704-1(b)(2)(iv)(f) of the Treasury Regulations, Company property that has
been revalued is properly reflected in the capital accounts and on the books of
the Company at a book value that differs from the adjusted tax basis of such
property, depreciation, depletion amortization, and gain or loss with respect
to such property shall be shared among the Members in a manner that takes
account of the variation between the adjusted basis of the property and its
book value, in the same manner as variations between the adjusted tax basis and
fair market value of property contributed to the Company are taken into account
in determining the Members' shares of tax items under Section 704(c) of the
Code.
j. All recapture of income tax deductions resulting from sale or
disposition of Company property shall be allocated to the Member or Members to
whom the deduction that gave rise to such recapture was allocated hereunder to
the extent that such Member is allocated any gain from the sale or other
disposition of such property.
k. Any credit or charge to the capital accounts of the Members
pursuant to Section 7.2(b), (c), and/or (d), hereof shall be taken into account
in computing subsequent allocations of profits and losses pursuant to Section
7.1, so that the net amount of any items charged or credited to capital
accounts pursuant to the Sections 7.1 and 7.2 shall to the extent possible, be
equal to the net amount that would have been allocated to the capital account
of each Member pursuant to the provisions of this Article 7 if the special
allocations required by Sections 7.2(b), (c), and/or (d), hereof had not
occurred.
7.3 SINGLE MEMBER. For any taxable year or other fiscal period during
which the Company has only one Member, such Member and the Tax Matters Partner
shall not be required to comply with the requirements of Sections 5.2, 7.1,
7.2, 8.4, 9.2 (with respect to distributions in respect of Capital accounts),
and 9.3 to the extent that such requirements would be consistent with or
unnecessary under the provisions of the Code and the Treasury Regulations
applicable to a single-member limited liability company.
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<PAGE> 20
ARTICLE 8 ADMINISTRATIVE PROVISIONS
8.1 MANAGEMENT. The management of the business of the Company shall be
vested in the Members. The Members shall perform the duties specified in this
Agreement and, in addition, shall have full power and authority to manage and
conduct all the business and affairs of the Company.
8.2 VOTING.
a. Except as specifically provided herein, any vote required by the
members hereunder shall be held upon not less than five days' notice (unless
such notice is waived by the Members). In all matters in which a vote, approval
or consent of the Members is required, the vote, consent or approval of
Members holding a majority of the Membership Interests shall be required to
authorize or approve such act. Any action that may be taken at a meeting of
Members may be taken without a meeting, if a consent in writing setting forth
the action so taken, is signed and delivered to the Company within thirty (30)
days of the record date for that action by members having not less than the
minimum number of votes that would be necessary to authorize or take that
action at a meeting at which all Members entitled to vote on that action at a
meeting were present and voted.
b. Notwithstanding any provision of this Agreement, at any time
during which the Company has only one Member such Member may (i) take any
action with respect to the Company permitted by this Agreement or by the Act
without the requirement hereunder of any vote, consent or meeting and (ii)
shall be authorized to sign on behalf of and bind the Company to any such
action.
8.3 OFFICERS. The members may, from time to time, in their discretion
appoint and remove officers and employees of the Company. Such officers and
employees shall have such titles and duties, and such authority (including,
without limitation, such authority to bind, or otherwise to act on behalf of,
the Company), as shall be determined by the Members from time to time, subject
to any express restrictions contained in this Agreement.
8.4 TAX MATTERS AND TAX MATTERS MEMBER. To the extent applicable to the
Company, the Members shall from time to time cause the Company to make, or to
refrain from making, such elections or determinations for federal, state and
local tax purposes as they deem to be in the best interests of the Company and
the Members. If applicable to the Company under the Code, FBHII shall be the
tax matters partner within the meaning of Code Section 6231 ("Tax Matters
Member") of the Company. The Tax Matters Member shall represent the Company (at
the Company's expense) in connection with all examinations of the Company by
tax authorities, including resulting judicial and administrative proceedings,
and shall oversee the Company tax affairs in the overall best interests of the
Company. If for any reason the Tax Matters Member can no longer serve in that
capacity or ceases to be a Member, the Members shall designate a successor Tax
Matters Member.
8.4 BANK ACCOUNTS. The Members shall maintain the funds of the Company in
one or more separate bank accounts in the name of the Company, and shall not
permit the funds of the Company to be commingled in any manner with the funds
or any other person.
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<PAGE> 21
8.5 NOTICES. All notices, demands, and other writings required
herein, or any of them, may be either delivered in person by private courier or
otherwise or sent by prepaid registered or certified mail and, if so mailed,
shall be deemed given upon mailing or, if otherwise sent, shall be deemed given
upon receipt. Each Member must notify the Company in writing of a change of
address.
8.6 INDEMNIFICATION.
a. The Company shall indemnify an individual made a party
to a proceeding because he is or was a Member, employee, or agent of the Company
against liability incurred in the proceeding, including reasonable expenses and
attorneys' fees, if:
(i) he conducted himself in good faith;
(ii) he reasonably believed that his conduct was in
or at least not opposed to the Company's best interest; and
(iii) in the case of a criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
b. Indemnification shall also be provided for an
individual's conduct with respect to an employee benefit plan if the individual
reasonably believed his conduct to be in the interests of the participants in
and beneficiaries of the plan.
c. The Company shall timely pay for or reimburse the
reasonable expenses incurred by member, employee, or agent of the Company who is
a party to a proceeding in advance of final disposition of the proceeding if:
(i) the individual furnishes the Company a written
affirmation of his good faith belief that he has met the standard of
conduct described herein:
(ii) the individual furnishes the Company a written
undertaking executed personally or on his behalf to repay the advance if
it is ultimately determined that he did not meet the standard of
conduct; and
(iii) a determination is made that the facts then
known to those making the determination would not preclude
indemnification under the law. The undertaking required by this
paragraph shall be an unlimited general obligation but need not be
secured and may be accepted without reference to financial ability to
make repayment.
d. The indemnification and advance of expenses authorized
herein shall not be exclusive of any other rights to which any Member,
employee, or agent may be entitled under this Agreement, as a matter of law,
or as determined by the Members. The Articles of Organization shall not be
interpreted to limit in any manner the indemnification or right to advancement
for expenses of any individual who would otherwise be entitled thereto.
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<PAGE> 22
8.7 ADMISSION OF ADDITIONAL MEMBERS
a. The Members may admit to the Company additional Member(s) who
shall participate in the profits, losses, cash available for distributions, and
ownership of the assets of the company on such terms as are determined by all of
the Members;
b. Admission of any such additional Member(s) shall require the
written consent of all Members then having a Membership Interest in the Company;
and
c. Admission of such additional Member(s) may result in a dilution
of the interests of the then Members.
8.8 COMPANY FILES AND RECORDS. All Company records and files, including
client files, client lists, and other data bases established by or on behalf of
the company are, and are forever to remain, the property of the company unless
and until such are distributed as distributions in kind. No part of the Company
property is to be copied or otherwise removed from the Company without the
express, written consent of the Company, except as provided in Section 3.2.
ARTICLE 9 DISSOLUTION
9.1 DISSOLUTION. the Company shall be dissolved, its assets shall be
disposed of, and its affairs wound up on the first to occur of the following:
a. The death, retirement, resignation, expulsion, bankruptcy, or
dissolution of a Member or occurrence of any other event which terminates the
continued membership of a member in the Company (an "Event of Withdrawal"),
unless there is at least one remaining Member and the remaining Member or
Members agree to continue the Company by unanimous written consent within 90
days after such Event of Withdrawal.
b. The entry of a decree of judicial dissolution.
c. The unanimous consent of the Members to the voluntary dissolution
of the Company.
9.2 WINDING UP THE COMPANY
a. The Members shall continue to share profits and losses during
liquidation in the same proportion as before dissolution. The proceeds from
liquidation of Company assets shall be applied as follows: (i) to payment of
debts of the Company other than to the Members, (ii) to payment of amounts owed
to members for amounts borrowed from and not repaid to members, and (iii) to the
members in accordance with their positive capital account balances, to the
extent thereof, after taking into account all allocations of profits and losses
and other appropriate capital account adjustments for the Company's taxable year
during which such liquidation occurs.
b. No Member shall have any obligation to restore any negative
balance in its capital account on liquidation or otherwise unless otherwise
agreed unanimously by the Members.
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<PAGE> 23
9.3 GAINS OR LOSSES IN WINDING UP. Any gains or losses on disposition of
Company properties in the process of liquidation shall be credited or charged
to the Members in the proportion of their Membership Interests and in accord-
ance with Section 704(c)(1)(A) of the Code and Section 1.704-1(6)(2)(i)(iv) of
the Treasury Regulations. Any property distributed in kind in the liquidations
must be valued and treated as though the property were sold and the cash
proceeds were distributed. The difference between the value of the property
distributed in kind and its book value shall be treated as a gain or loss on
the sale of the property and credited or charged to the Members in proportion to
their Membership Interests.
ARTICLE 10 RESTRICTIONS ON TRANSFERS OF INTERESTS
10.1 TRANSFER LIMITED. Members shall not sell, transfer, encumber,
pledge, grant a security or any other interest in, donate, or otherwise dispose
of nor enter into any agreement to engage in any such transactions with respect
to any of their respective Membership Interests of the Company which they may
now own or hereafter acquire, unless the Member (hereinafter called the
"Transferor") desiring to make the sale, transfer, encumbrance, or other
disposition, shall first either have obtained the unanimous written consent of
the Members.
10.2 SUBSTITUTED MEMBER. A substituted Member is a person who, with the
approval of all of the Members by unanimous written consent, has been admitted
to all the rights of a Member who transferred or assigned its Membership
Interest in the Company as provided for herein. The substituted Member has all
the rights and powers and is subject to all the restrictions and liabilities of
its assignor.
10.3 TRANSFEREE. Notwithstanding any other provision of this Agreement as
to any transfer under this Article 10, if all of the Members of the Company do
not approve by unanimous written consent of the admission of a transferee of a
Member's Interest as a substituted Member, such transferee shall have no right
to participate in the management of the business and affairs of the Company or
to become a Member, shall only be entitled to receive the share of profits or
other compensation by way of income and the return of contribution to which the
transferring Member would otherwise be entitled, and shall be subject to all
the restrictions and liabilities of its assignor.
10.4 ADDITIONAL LIMITATIONS. Notwithstanding any other provision of this
Agreement as to any transfer under this Article 10, the Members shall impose
such conditions of transfer, the performance of such acts, and the rendering of
such covenants or undertakings by the vendor and the transferee of such
interest, as counsel for the Company may reasonably determine to be necessary
to avoid the violation of any federal and state securities or gaming laws with
respect to any such transfer, to evidence the transferee's agreement to be
bound by all terms and provisions hereof, and to evidence the intent of the
transferee to purchase such interest with a view to investment, and not with a
view to further distribution thereof.
ARTICLE 11 GAMING REGULATIONS
If the Colorado Gaming Division determines for any reason that a Member is
not suitable to continue as a licensee, and the Member has exhausted all
reasonable avenues of appeal, then that Member's Membership Interests shall be
purchased by the Company for a purchase price equal to the fair market value of
the Membership Interests, as mutually agreed upon by the Member and the
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<PAGE> 24
Company. If the Member and the Company are unable to agree upon the fair market
value of the Membership Interests, then they shall appoint an independent
appraiser to establish such value. Such appraiser shall be paid by the Company.
If the Member and the Company are unable to agree upon an independent
appraiser, then the Member and the Company, at their own expense, shall select
an appraiser to establish the fair market value. If the lower appraisal is
within 10% of the higher appraisal, then the average of the two appraisals
shall be considered the fair market value. If the lower appraisal is not within
10% of the higher appraisal, then the two appraisers shall select a third
appraiser to be paid for by the Company. The average of the third appraiser and
the appraiser within the closest percentage of the third appraiser shall be
considered the fair market value. If the first and second appraisers are each
within an equal percentage of the third appraiser, then the third appraisal
shall be considered the fair market value. At the option of the Company, the
purchase price may be paid over a period of five years, with 20% to be paid
the first year and the balance to be paid over the remaining four years.
ARTICLE 12 GENERAL PROVISIONS
12.1 CHOICE OF LAW. The validity of this Agreement is to be determined
under, and the provisions of this Agreement are to be construed in accordance
with, the laws of the State of Colorado.
12.2 BINDING EFFECT. This Agreement is to be binding upon, and inure to
the benefit of the heirs, administrators, executors, successors-in-interest,
and assigns of the Members.
12.3 GENDER AND PLURALITY. Whenever applicable, the pronouns designating
the masculine or neuter shall equally apply to the feminine, neuter, or
masculine genders. Furthermore, whenever applicable within this Agreement, the
singular shall include the plural and vice versa.
12.4 CAPTIONS. Article, section, and paragraph captions and headnotes
are for reference purposes only and shall not be considered to affect context.
12.5 SEVERABILITY. Should any part of this Agreement be found by a court
of competent jurisdiction to be void or against public policy, such part is to
be deleted; but the Agreement, as so amended, is to remain in full force and
effect.
12.6 INTEGRATION. This Agreement embodies the entire agreement and
understanding among the Members and supersedes all prior agreements and
understandings, if any, among and between Members relating to the subject
matter hereof.
12.7 COUNTERPARTS. This Agreement may be executed in several
counterparts and that all counterparts so executed are to constitute one
agreement binding all parties hereto, notwithstanding the fact that all parties
are not signatories to the original or to the same counterpart.
12.8 ATTORNEYS' FEES. In the event of any litigation or formal legal
proceeding between the parties to this Agreement, the Members specifically
covenant and agree that the prevailing party in such litigation shall be
entitled to recover, in addition to other damages, all court costs, expenses
and reasonable attorneys' fees that it may actually incur in enforcing the
terms of this Agreement, and the parties expressly waive any statute, rule of
law or public policy to the contrary
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<PAGE> 25
and further covenant and agree that they shall confirm such waiver in writing at
the time of commencement of any such action, proceeding or counterclaim.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and first above written.
FITZGERALDS BLACK HAWK II, INC.,
a Colorado corporation
By: /s/ PHILLIP D. GRIFFITH
-------------------------------
Phillip D. Griffith
President
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<PAGE> 26
EXHIBIT A
MEMBERS OF 101 MAIN STREET LIMITED LIABILITY COMPANY
(a Colorado Limited Liability Company)
<TABLE>
<CAPTION>
Member's
Membership
Member's Name Member's Address Interest
- ------------------------------- ---------------------- ----------
<S> <C> <C>
Fitzgeralds Black Hawk II, Inc. 101 Main Street 100%
Black Hawk, CO 80422
</TABLE>
<PAGE> 1
FITZGERALDS GAMING CORPORATION
STOCK OPTION INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF FEBRUARY 25, 1998)
1. PURPOSE
The purpose of the Fitzgeralds Gaming Corporation Stock Option Incentive
Plan is to further the interests of Fitzgeralds Gaming Corporation, a Nevada
corporation (the "Company"), and its Subsidiaries by encouraging and enabling
selected officers, directors, employees, consultants, advisers, independent
contractors and agents, upon whose judgment, initiative and effort the Company
is largely dependent for the successful conduct of its business, to acquire and
retain a proprietary interest in the Company by ownership of its stock through
the exercise of stock options to be granted hereunder. Options granted hereunder
are either options intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Code or non-qualified stock options.
2. DEFINITIONS
Whenever used herein the following terms shall have the following
meanings, respectively:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
(c) Committee" shall mean the Stock Option or Compensation Committee
appointed by the Board to administer the Plan, or if no committee has been
appointed or the Board elects to retain the power to administer the Plan,
reference to "Committee" shall be deemed to refer to the Board.
(d) "Common Stock" shall mean the Company's Common Stock, $0.01 par
value.
(e) "Company" shall mean Fitzgeralds Gaming Corporation, a Nevada
corporation.
(f) "Employee" shall mean, in connection with Incentive Options, only
employees of the Company or any Subsidiary or Parent Corporation of the Company.
(g) "Fair Market Value Per Share" of the Common Stock on any date shall
mean, if the Common Stock is publicly traded, the mean between the highest and
lowest quoted selling prices of the Common Stock on such date or, if not
available, the mean between the bona fide bid and asked prices of the Common
Stock on such date. In any situation not covered above, or if there were no
sales on the date in question, the Fair Market Value Per Share shall be
determined by the Committee in accordance with Section 20.2031-2 of the Federal
Estate Tax Regulations.
(h) "Incentive Option" shall mean an Option granted under the Plan which
is designated as and qualified as an incentive stock option within the meaning
of Section 422 of the Code.
<PAGE> 2
(i) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3 promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended, or any successor rule.
(j) "Non-Qualified Option" shall mean an Option granted under the Plan
which does not qualify as, or is not designated as, an incentive stock option
within the meaning of Section 422 of the Code.
(k) "Option" shall mean an Incentive Option or a Non-Qualified Option.
(l) "Optionee" shall mean any person who has been granted an Option
under the Plan.
(m) "Outside Director" shall have the meaning set forth in Section
162(m) of the Code.
(n) "Parent Corporation" shall have the meaning set forth in Section
424(e) of the Code.
(o) "Permanent Disability" shall mean termination of a Relationship with
the Company or any Subsidiary of the Company with the consent of the Company or
such Subsidiary by reason of permanent and total disability within the meaning
of Section 22(e)(3) of the Code.
(p) "Plan" shall mean the Fitzgeralds Gaming Corporation Stock Option
Incentive Plan, as amended from time to time.
(q) "Relationship" shall mean that the Optionee is or has agreed to
become an officer, director, employee, consultant, adviser, independent
contractor or agent of the Company or any Subsidiary of the Company.
(r) "Subsidiary" shall have the meaning set forth in Section 424(f) of
the Code.
(s) "Termination for Cause" means the termination of an employee's
employment with the Company, whether voluntary or involuntary, that is
determined by the Committee to have resulted from the discovery by the Company
of the employee's dishonesty, commission of a felony (regardless of whether or
not prosecuted) or fraud.
3. ADMINISTRATION
(a) The Plan shall be administered either (i) by the Board, or (ii) in
the discretion of the Board, by a committee of at least two directors of the
Company appointed by the Board, all of which members are both Non-Employee
Directors and Outside Directors. The Committee may delegate some or all of its
powers under the Plan to an executive officer of the Company, except with
respect to Option grants to executive officers or directors.
(b) Any action of the Committee with respect to the administration of
the Plan shall be taken by majority vote or by unanimous written consent of its
members.
(c) Subject to the provisions of the Plan, the Committee shall have the
authority to construe and interpret the Plan, to define the terms used therein,
to determine the time or times an Option may be exercised and the number of
shares for which an Option may be exercised at any one time, to prescribe,
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<PAGE> 3
amend and rescind rules and regulations relating to the Plan, to determine the
time and nature of a participant's termination of their employment for purposes
of the Plan, and to make all other determinations necessary or advisable for the
administration of the Plan. All determinations and interpretations made by the
Committee shall be conclusive and binding on all Optionees and on their
guardians, legal representatives and beneficiaries.
(d) The Company shall indemnify and hold harmless the members of the
Board and the Committee from and against any and all liabilities, costs and
expenses incurred by such persons as a result of any act, or omission to act, in
connection with the performance of such persons' duties, responsibilities and
obligations under the Plan, other than such liabilities, costs and expenses as
may result from the negligence, bad faith, willful misconduct or criminal acts
of such persons.
(e) The Company will provide financial information to the Optionees on
the same basis as the Company provides such information to its stockholders.
4. NUMBER OF SHARES SUBJECT TO PLAN
The aggregate number of shares of Common Stock subject to Options which
may be granted under the Plan shall not exceed 1,000,000. The shares of Common
Stock to be issued upon the exercise of Options may be authorized but unissued
shares, shares issued and reacquired by the Company or shares purchased by the
Company on the open market. If any Option granted hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for purposes of the Plan.
5. ELIGIBILITY AND PARTICIPATION
(a) Non-Qualified Options may be granted to any person who has a
Relationship with the Company or any of its Subsidiaries. Incentive Options may
be granted to any Employee. In addition, the Committee may make a one-time grant
of Options to former employees in substitution for options previously granted to
them, for the same number of shares and having substantially the same terms and
conditions as the options they are replacing. The Committee shall determine the
persons to whom Options shall be granted, the time or times at which such
Options shall be granted and the number of shares to be subject to each Option.
An Optionee may, if he is otherwise eligible, be granted an additional Option or
Options if the Committee shall so determine. An Employee may be granted
Incentive Options or Non-Qualified Options or both under the Plan; provided,
however, that the grant of Incentive Options and Non-Qualified Options to an
Employee shall be the grant of separate Options and each Incentive Option and
each Non-Qualified Option shall be specifically designated as such.
(b) In no event shall the aggregate fair market value (determined as of
the time the Option is granted) of the shares with respect to which Incentive
Options (granted under the Plan or any other plans of the Company or any
Subsidiary or Parent Corporation of the Company) are exercisable for the first
time by an Optionee in any calendar year exceed $100,000.
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<PAGE> 4
6. PURCHASE PRICE
The purchase price of each share covered by each Option shall be
determined by the Committee; provided, however, that in the case of an Incentive
Option such price shall not be less than 100% of the Fair Market Value Per Share
of the Common Stock on the date the Incentive Option is granted; and provided
further that if at the time an Incentive Option is granted the Optionee owns or
would be considered to own by reason of Section 424(d) of the Code more than 10%
of the total combined voting power of all classes of stock of the Company or any
Subsidiary or Parent Corporation of the Company, the purchase price of the
shares covered by such Incentive Option shall not be less than 110% of the Fair
Market Value Per Share of the Common Stock on the date the Incentive Option is
granted.
7. DURATION OF OPTIONS
The expiration date of an Option and all rights thereunder shall be
determined by the Committee; provided, however, that the expiration date of an
Incentive Option must be within 10 years from the date on which the Incentive
Option is granted, unless at the time the Incentive Option is granted the
Optionee owns or would be considered to own by reason of Section 424(d) of the
Code more than 10% of the total combined voting power of all classes of stock of
the Company or any Subsidiary or Parent Corporation of the Company, in which
case the expiration date of such Incentive Option must be within five years from
the date of grant. In the event the Committee does not specify the expiration
date of an Option, the expiration date shall be 10 years from the date on which
the Option was granted; provided, however, that if at the time an Incentive
Option is granted the Optionee owns or would be considered to own by reason of
Section 424(d) of the Code more than 10% of the total combined voting power of
all classes of stock of the Company or any Subsidiary or Parent Corporation of
the Company, such Incentive Option shall expire five years from the date of
grant. Options shall be subject to earlier termination as provided herein.
8. EXERCISE OF OPTIONS
An Option shall vest and become exercisable from time to time in
installments or otherwise in accordance with such schedule and upon such other
terms and conditions as the Committee shall in its discretion determine at the
time the Option is granted. An Optionee may purchase less than the total number
of shares for which the Option is exercisable, provided that a partial exercise
of an Option may not be for less than 100 shares, unless the exercise is during
the final year of the Option, and shall not include any fractional shares. As a
condition to the exercise, in whole or in part, of any Option, the Committee may
in its sole discretion require the Optionee to pay, in addition to the purchase
price of the shares covered by the Option, an amount equal to any federal, state
or local taxes that the Committee has determined are required to be paid in
connection with the exercise of such Option in order to enable the Company to
claim a deduction or otherwise. Furthermore, if any Optionee disposes of any
shares of stock acquired by exercise of an Incentive Option prior to the
expiration of either of the holding periods specified in Section 422(a)(1) of
the Code, the Optionee shall pay to the Company, or the Company shall have the
right to withhold from any payments to be made to the Optionee, an amount equal
to any federal, state or local taxes that the Committee has determined are
required to be paid in connection with the exercise of such Option in order to
enable the Company to claim a deduction or otherwise.
-4-
<PAGE> 5
9. METHOD OF EXERCISE
(a) To the extent that an Option has become exercisable, the Option may
be exercised from time to time by giving written notice to the Company stating
the number of shares with respect to which the Option is being exercised,
accompanied by payment in full, by cash or by certified or cashier's check
payable to the order of the Company or the equivalent thereof acceptable to the
Company, of the purchase price for the number of shares being purchased and, if
applicable, any federal, state or local taxes required to be paid in accordance
with the provisions of Section 8 hereof.
(b) In the Committee's discretion, payment of the purchase price for the
shares with respect to which the Option is being exercised may be made in whole
or in part with shares of Common Stock which have been held by the Optionee (or
other person entitled to exercise the Option) for at least six months. If
payment is made with shares of Common Stock, the Optionee, or other person
entitled to exercise the Option, shall deliver to the Company certificates
representing the number of shares of Common Stock in payment for the shares
being purchased, duly endorsed for transfer to the Company. If requested by the
Committee, prior to the acceptance of such certificates in payment for such
shares, the Optionee, or any other person entitled to exercise the Option, shall
supply the Committee with a representation and warranty in writing that he has
good and marketable title to the shares represented by the certificate(s), free
and clear of all liens and encumbrances. The value of the shares of Common Stock
tendered in payment for the shares being purchased shall be their Fair Market
Value Per Share on the date of the exercise.
(c) Notwithstanding the foregoing, the Company shall have the right to
postpone the time of delivery of the shares for such period as may be required
for it to comply, with reasonable diligence, with any applicable listing
requirements of any national securities exchange or automated quotation system
or any federal, state or local law. If an Optionee, or other person entitled to
exercise an Option, fails to accept delivery of or fails to pay for all or any
portion of the shares requested in the notice of exercise, upon tender of
delivery thereof, the Committee shall have the right to terminate his Option
with respect to such shares.
10. NON-TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be assignable or transferable by
the Optionee, either voluntarily or by operation of law, otherwise than by will
or the laws of descent and distribution, and each Option shall be exercisable
during the Optionee's lifetime only by the Optionee.
11. CONTINUANCE OF RELATIONSHIP
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any Optionee any rights with respect to the continuation of
his employment by or other Relationship with the Company or any Subsidiary or
Parent Corporation of the Company or interfere in any way with the right of the
Company or any Subsidiary or Parent Corporation of the Company at any time to
terminate such employment or other Relationship or to increase or decrease the
compensation of the Optionee from the rate in existence at the time of the grant
of an Option.
-5-
<PAGE> 6
12. TERMINATION OF RELATIONSHIP OTHER THAN BY DEATH OR PERMANENT DISABILITY
Except as the Committee may determine otherwise at any time with respect
to any particular Option granted hereunder:
(a) If an Optionee ceases to have a Relationship for any reason other
than his death or Permanent Disability or termination for cause, any Options
granted to him shall terminate 90 days from the date on which such Relationship
terminates unless such Optionee has resumed or initiated a Relationship and has
a Relationship on such date. During such 90-day period, the Optionee may
exercise any Option granted to him but only to the extent such Option was
exercisable on the date of termination of his Relationship and provided that
such Option has not expired or otherwise terminated as provided herein. A leave
of absence approved in writing by the Company shall not be deemed a termination
of Relationship for purposes of this Section 12, but no Option may be exercised
during any such leave of absence, except during the first 90 days thereof.
(b) For purposes hereof, termination of an Optionee's Relationship for
reasons other than death or Permanent Disability shall be deemed to take place
upon the earliest to occur of the following: (i) the date of the Optionee's
retirement from employment under the normal retirement policies of the Company
or any Subsidiary of the Company; (ii) the date of the Optionee's retirement
from employment with the approval of the Committee because of disability other
than Permanent Disability; (iii) the date the Optionee receives notice or advice
that his employment or other Relationship is terminated; or (iv) the date the
Optionee ceases to render the services which he was employed, engaged or
retained to render to the Company or any Subsidiary (absences for temporary
illness, emergencies and vacations or leaves of absence approved in writing by
the Company excepted). The fact that the Optionee may receive payment from the
Company or any Subsidiary of the Company after termination for vacation pay, for
services rendered prior to termination, for salary in lieu of notice or for
other benefits shall not affect the termination date.
(c) No Option may be exercised or claimed following an Optionee's
termination of Relationship as a result of Termination for Cause, and no Option
may be exercised or claimed while the Optionee is being investigated for a
Termination for Cause.
13. DEATH OR PERMANENT DISABILITY OF OPTIONEE
Except as the Committee may expressly determine otherwise at any time
with respect to any particular Option granted hereunder, if an Optionee shall
die at a time when he is in a Relationship or if the Optionee shall cease to
have a Relationship by reason of Permanent Disability, any Options granted to
him shall terminate one year after the date of his death or termination of
Relationship due to Permanent Disability unless by its terms it shall expire
before such date or otherwise terminate as provided herein, and shall only be
exercisable to the extent that it would have been exercisable on the date of his
death or his termination of Relationship due to Permanent Disability. In the
case of death, the Option may be exercised by the executor or administrator of
the Optionee's estate or the person or persons to whom the Optionee's rights
under the Option shall pass by will or by the laws of descent and distribution.
-6-
<PAGE> 7
14. STOCK PURCHASE NOT FOR DISTRIBUTION
Each Optionee shall, by accepting the grant of an Option under the Plan,
represent and agree, for himself and his transferees in the event of his death,
that all shares of stock purchased upon exercise of the Option will be received
and held without a view to distribution except as may be permitted by the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder. After each notice of exercise of any portion of an Option, if
requested by the Committee, the person entitled to exercise the Option shall
agree in writing that the shares of stock are being acquired in good faith
without a view to distribution.
15. PRIVILEGES OF STOCK OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall
have any of the rights or privileges of a stockholder of the Company with
respect to any shares of Common Stock issuable upon exercise of such Option
until such person has become the holder of record of such shares. No adjustment
shall be made for dividends or distributions of rights in respect of such shares
if the record date is prior to the date on which such person becomes the holder
of record, except as provided in Section 16 hereof.
16. ADJUSTMENTS
(a) If the number of outstanding shares of Common Stock is increased or
decreased, or if such shares are exchanged for a different number or kind of
shares or securities of the Company, through reorganization, merger,
recapitalization, reclassification, stock dividend, stock split, combination of
shares or other transaction or change in corporate structure affecting the
Common Stock such that an adjustment is determined by the Board to be
appropriate under the Plan, the aggregate number of shares of Common Stock
subject to the Plan as provided in Section 4 hereof, the shares of Common Stock
subject to issued and outstanding Options under the Plan and the aggregate
number of shares of Common Stock with respect to which Options may be granted to
a single Optionee as provided in Section 5(c) hereof shall be appropriately and
proportionately adjusted by the Board. Any such adjustment in the outstanding
Options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the Option but with an appropriate adjustment in
the price for each share or other unit of any security covered by the Option,
provided, however, that such adjustment shall not result in the Company being
required to issue or sell any fractional shares. The Board's determination as to
which adjustments shall be made and the extent thereof shall be final, binding
and conclusive.
(b) Notwithstanding the provisions of Section 16(a), upon the
dissolution or liquidation of the Company or upon any reorganization, merger or
consolidation with one or more corporations as a result of which the Company is
not the surviving corporation (or is a subsidiary of another corporation), or
upon a sale of all or substantially all of the assets of the Company to another
corporation or entity, the Board may take such action, if any, as it in its
discretion may deem appropriate to accelerate the time within which and the
extent to which Options may be exercised, to terminate Options at or prior to
the date of any such event or to provide for the assumption of Options by
surviving, consolidated, successor or transferee corporations.
(c) Adjustments under this Section 16 shall be made by the Board, whose
determination as to which adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
-7-
<PAGE> 8
17. AMENDMENT AND TERMINATION OF PLAN
(a) The Board may from time to time suspend or terminate the Plan with
respect to any shares at the time not subject to Options, or amend or revise the
terms of the Plan. Amendments may be made without stockholder approval, except
as required to satisfy applicable laws or regulations or the requirements of any
stock exchange or automated quotation system on which the Common Stock is
listed.
(b) No amendment, suspension or termination of the Plan shall, without
the consent of the Optionee, alter or impair in a manner adverse to the Optionee
any rights or obligations under any Option theretofore granted to such Optionee.
(c) The terms and conditions of any Option granted to an Optionee may be
modified or amended only by a written agreement executed by the Optionee and the
Company; provided, however, that if any amendment or modification of an
Incentive Option would constitute a "modification, extension or renewal" within
the meaning of Section 424(h) of the Code, such amendment shall be null and void
unless the amendment contains an acknowledgment by the parties substantially in
the following form: "The parties hereto recognize and agree that this amendment
constitutes a modification, renewal or extension within the meaning of Section
424(h) of the Code, of the option granted on ."
18. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board and approval
by the Company's stockholders; provided, however, that prior to approval of the
Plan by the Company's stockholders, but after adoption by the Board, Options may
be granted under the Plan subject to obtaining the stockholders' approval of the
adoption of the Plan. Notwithstanding the foregoing, stockholders' approval must
occur no later than 12 months after the date of adoption of the Plan by the
Board.
19. TERM OF PLAN
No Option shall be granted pursuant to the Plan after 10 years from the
earlier of the date of adoption of the Plan by the Board or the date of approval
of the Plan by the Company's stockholders.
The Plan was adopted by the Board on June 26, 1997 and approved by the
stockholders at the annual meeting held on August 1, 1997. This amendment and
restatement is effective as of February 25, 1998.
IN WITNESS WHEREOF, the undersigned have executed this amended and
restated Stock Option Incentive Plan effective as of February 25, 1998.
/s/Philip D. Griffith /s/Michael E. McPherson
- ------------------------------- -----------------------------------
Philip D. Griffith Michael E. McPherson
Chairman and Chief Senior Vice President, CFO,
Executive Officer Treasurer and Secretary
-8-
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on March
1, 1997, by and between Fitzgeralds Gaming Corporation, a Nevada corporation
(the "Company"), and Michael E. McPherson ("Executive").
1. Term
The Company hereby agrees to employ Executive, and Executive hereby agrees
to serve the Company, on the terms and conditions of this Agreement for
the period commencing on March 1, 1997 and terminating on February 28,
1999 (such period, subject to earlier termination as provided herein,
being referred to as the "Period of Employment").
2. Duties and Services
During the Period of Employment, Executive agrees to serve the Company as
Senior Vice President of Operations and in such other offices and
positions and to perform such reasonable and appropriate duties as may be
requested of him by the President of Fitzgeralds Gaming Corporation
("Parent Company"), in accordance with the terms herein set forth. In
performance of his duties, Executive shall be subject to the direction of
the President. Excluding periods of vacation to which Executive is
entitled, Executive shall devote his full time, energy and skill to the
business and affairs of the Company and its subsidiaries and affiliates
and to the promotion of their interests. The principal place of business
of the Executive will be Reno, Nevada, or other such location as may be
mutually agreed upon by the President and the Executive. Executive
acknowledges and agrees that this Agreement is subject to the licensing
and regulatory control of the Nevada Gaming Commission and the State
Gaming Control Board (the "Nevada Gaming Authorities") and various other
state, county and city gaming regulatory enforcement agencies (with the
Nevada Gaming Authorities, collectively the "Gaming Authorities") which
may require that Executive be investigated for personal suitability and
licensing. Executive shall fully cooperate with the Gaming Authorities in
order that he may obtain all required licenses, permits, approvals or
findings of suitability required in connection with his employment
hereunder.
3. Compensation
(a) Salary and Bonuses. As compensation for his services hereunder, the
Company shall pay Executive, during the Period of Employment, an annual
base salary, which shall be payable in installments in accordance with the
Company's compensation schedule as in existence from time to time. The
Initial annual base salary shall be $145,000.
<PAGE> 2
On March 1, 1998, the annual base salary payable to Executive shall be
reviewed and an increase will be awarded if warranted based on
performance. Executive shall be entitled to participate in the Company's
bonus plan as approved by the Company's Board of Directors.
(b) Fringe Benefits. During the Period of Employment, Executive shall be
entitled to participate in a benefit plan, subject to the same
definitions, qualifications and conditions as may exist from time to
time, under the terms of the Employer's group benefit plan offered at
any time to all other Executives of Employer. nothing contained herein
shall preclude Executive from participating in the present or future
employee benefit plans of the Company, including without limitation any
pension plan, long term disability plan, profit sharing plan, savings
plan, deferred compensation plan, stock option plan and
health-and-accident plan or arrangement, if he meets the eligibility
requirements therefor.
(c) Expenses. All travel and other expenses incidental to the rendering
of services by Executive hereunder shall be paid by the Company. If any
such expenses are paid in the first instance by Executive, the Company
shall reimburse him therefor on presentation of the appropriate
documentation required by the Internal Revenue Code and Regulations or
otherwise required under the Company policy in connection with such
expenses. In the event that such travel incurred in the rendering of
services by the Executive should result in the Executive incurring a
state income tax liability, the Company agrees to reimburse the
Executive for such state income tax liability, including penalties and
interest and for the cost of preparing such state income tax returns.
The Company's responsibility for the aforementioned state tax liability
will not be extinguished with the termination of the Employee Agreement.
(d) Vacation. Executive shall be entitled to paid vacation, to be take
at times or times mutually satisfactory to Executive and the President.
Unused vacation shall be paid to the Executive upon the termination of
the contract.
4. Termination.
(a) Notwithstanding the provisions of Section 1, hereof, Executive may
be discharged by the Company for Cause (as defined in Section 4(c)
hereof), in which event the Period of Employment hereunder shall cease
and terminate and the Company shall have no further obligation or duties
under this Agreement, except for obligations accrued under Section 3 at
the date of termination. In addition, the Period of Employment hereunder
shall cease and terminate upon the earliest to occur of the following
events: (i) the death of Executive or (ii) at the election of the Board
of Directors, (subject to the Americans With Disabilities Act), the
inability of Executive by reason of physical or mental disability to
continue the proper performance of his duties hereunder for a period of
180 consecutive days. Upon termination of the Period of Employment
pursuant to the preceding sentence, the
-2-
<PAGE> 3
Company shall continue to pay to Executive or his estate, as the case may
be, the entire compensation otherwise payable to him under Section 3(a)
hereof for the lesser of 90 days or the remaining Period of Employment.
(b) In the event that Executive is discharged by the Company other than
for Cause or other than pursuant to Section 4(a) hereof by reason or
physical or mental disability, Executive shall have no further obligations
or duties under this Agreement; provided, however, that Executive shall
continue to be bound by the provisions of Section 5 and 6 hereof if the
Company continues to make all payments to Executive pursuant to Section 3
hereof based on a termination date of the date on which the Period of
Employment would have expired, but for such termination pursuant to this
Section 4(b).
(c) For purposes of this Agreement, cause ("Cause") shall be deemed to
exist only upon (i) conviction of a felony; (ii) embezzlement or
misappropriation of funds or property of the Company or any of its
subsidiaries or affiliates; (iii) failure to obtain and maintain during the
Period of Employment all licenses, permits, approvals or findings of
suitability with the Gaming Authorities required in connection with his
employment hereunder; (iv) commission of any criminal or other improper act
which could result in the suspension or revocation of any such license,
permit, approval or finding of suitability; or (v) Executive's consistent
refusal to substantially perform, or willful misconduct in the substantial
performance of, his duties and obligations hereunder.
If during the pendency of any application for licensing or during the
pendency of any formal investigation or disciplinary proceeding into the
personal qualifications or suitability of the Executive, the Company
determines that the Executive's personal suitability may be denied or
determined to be unsuitable or may delay the Company's licensing, the
Company may, in its sole discretion, to the extent permitted by the
applicable Gaming Authorities, employ the Executive for other duties and
services at a rate of compensation to be agreed upon until such matters are
resolved. For purposes of this Section 4(c), "duties and responsibilities"
of the Executive shall mean those duties and responsibilities which are
consistent with Executive's current position with the Company and shall not
include any additional duties or responsibilities assigned to Executive
after the date hereof which, in the reasonable judgment of Executive, are
inconsistent in any respect with Executive's current position or
substantially increase his duties and responsibilities from those currently
contemplated hereby.
5. Non-Competition Clause
If the Company is fulfilling its obligation under Section 4(b), the
Executive shall not perform any kind of services, whether related directly
or indirectly to another Gaming Licensee or Gaming Company.
- 3-
<PAGE> 4
If Executive terminates his contract prior to the expiration of the
period of employment or if the company is continuing payments pursuant
to Section 3, the Employee may not be employed or provide services for
any Casino Licensee in either Reno, Sparks, Downtown Las Vegas or
Tunica, Mississippi.
6. Confidentiality
The Company and Executive acknowledge that the services to be performed
by Executive under this Agreement are unique and extraordinary and, as
a result of such employment, executive will be in possession of
confidential information, proprietary information and trade secrets
(collectively, "Confidential Material") relating to the business
practices of the company and its Affiliates Executive agrees that he
will not, directly or indirectly, (i) disclose to any other person or
entity either during or after his employment by the Company or (ii)
use, except during his employment by the Company in the business and
for the benefit of the Company or any of its Affiliates, any
Confidential Material acquired by Executive during his employment by
the Company, without the prior written consent of the Company. Upon
termination of is employment with the Company for any reason, Executive
agrees to return to the Company all tangible manifestations of
Confidential Materials and all copies thereof. All programs, ideas,
strategies, approaches, practices or inventions created, developed,
obtained or conceived of by Executive prior to or during the term
thereof, and all business opportunities presented to Executive during
the term hereof by reason of his engagement by the Company, shall be
owned by and belong exclusively to the Company, provided that they are
related in any manner to its business or that of any of its Affiliates.
Executive shall (i) promptly disclose all such programs, ideas,
strategies, approaches, practices, inventions or business opportunities
to the Company and (ii) execute and deliver to the Company, without
additional compensation, such instruments as the Company may require
from time to time to evidence its ownership of any such items.
Executive agrees that the remedy at law for any breach by him of this
Section 6 will be inadequate and that the Company shall be entitled to
injunctive relief.
7. Miscellaneous
(a) Notices. Any notice or other communication required or
permitted to be given hereunder shall be made in writing and shall be
delivered in person or mailed by prepaid registered or certified mail,
return receipt requested, addressed to the parties as follows:
If to the Company:
Fitzgeralds Gaming Corporation
302 Fremont Street
Las Vegas, Nevada 89101
Attention: President and General Counsel
- 4 -
<PAGE> 5
If to Executive:
Michael E. McPherson
Fitzgeralds Gaming Corporation
300 E. 2nd Street, 15th Floor
Reno, Nevada 89501
or to such other address as the party shall have furnished in writing in
accordance with this Section. Such notices or communications shall be effective
upon delivery if delivered in person and either upon actual receipt or three
(3) days after mailing, whichever is earlier, if delivered by mail.
(b) Parties In Interest This Agreement shall be binding upon and inure to the
benefit of Executive, and it shall be binding upon and inure to the benefit of
the Company and any corporation succeeding to all or substantially all of the
business and assets of the Company by merger, consolidation, purchase of assets
or otherwise.
(c) Entire Agreement. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of Executive by the Company and contains all of the covenants and
agreements between the parties with respect to such employment in any manner
whatsoever. Any modification of this Agreement will be effective only if it is
in writing signed by the party to be charged.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada, without giving effect to the
choice of law or conflicts of laws rules and laws of such jurisdiction.
(e) Severability. In the event that any term or condition contained in this
Agreement shall for any reason be held by a court of competent jurisdiction to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or condition of
this Agreement, but this Agreement shall be construed as if such invalid or
illegal or unenforceable term or condition had never been contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
dates across from their respective signatures, effective as of the date first
written above.
4/17/97 FITZGERALDS GAMING CORPORATION
- -----------------------------
Date By: /s/ PHILIP D. GRIFFITH
--------------------------------------
Philip D. Griffith
President and Chief Executive Officer
4/16/97 By: /s/ MICHAEL E. MCPHERSON
- ----------------------------- --------------------------------------
Date Michael E. McPherson
-5-
<PAGE> 1
EXHIBIT 10 (ff)
EXECUTIVE BONUS PLAN
The Company has established an Executive Bonus Plan to provide the senior
executive officers of the Company with a performance-based compensation program.
Effective January 1, 1998, the Company will set aside a portion of its annual
consolidated EBITDA, adjusted for extraordinary non-recurring items that are
deemed non-operational in nature ("Adjusted EBITDA"), each year so long as such
Adjusted EBITDA for such year is at least $30 million. The set aside amount will
start at 1.4% of Adjusted EBITDA at the $30 million level and increase by
one-tenth of one percent for each $1 million of Adjusted EBITDA above $30
million up to a limit of 3%. Prior to January 1, 1998, the Executive Bonus Plan
was based upon EBITDA prior to any adjustments and no bonuses were paid under
the Plan as then structured. The Compensation Committee will have full
discretion concerning the payment of executive bonuses.
<PAGE> 1
EXHIBIT 23
LIST OF SUBSIDIARIES
Fitzgeralds South, Inc.
Fitzgeralds Reno, Inc.
Fitzgeralds Incorporated
Fitzgeralds Mississippi, Inc.
Fitzgeralds Las Vegas, Inc.
Fitzgeralds Fremont Experience Corporation
Fitzgeralds Black Hawk, Inc.
Fitzgeralds Black Hawk II, Inc.
Fitzgeralds New York, Inc.
Fitzgeralds Arizona Management, Inc.
101 Main Street Limited Liability Company
Fitzgeralds Management Corp.
Nevada Club, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,809,617
<SECURITIES> 0
<RECEIVABLES> 2,060,045
<ALLOWANCES> 411,881
<INVENTORY> 1,313,611
<CURRENT-ASSETS> 21,216,974
<PP&E> 221,681,162
<DEPRECIATION> (57,976,447)
<TOTAL-ASSETS> 215,695,439
<CURRENT-LIABILITIES> 27,735,984
<BONDS> 206,191,485
19,631,397
0
<COMMON> 40,128
<OTHER-SE> (37,903,555)
<TOTAL-LIABILITY-AND-EQUITY> 215,695,439
<SALES> 23,558,865
<TOTAL-REVENUES> 194,998,230
<CGS> 11,876,566
<TOTAL-COSTS> 166,080,217
<OTHER-EXPENSES> 882,182
<LOSS-PROVISION> 560,462
<INTEREST-EXPENSE> 25,495,103
<INCOME-PRETAX> (12,293,592)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,293,592)
<DISCONTINUED> 0
<EXTRAORDINARY> 19,247,928
<CHANGES> 0
<NET-INCOME> (31,541,520)
<EPS-PRIMARY> (8.89)
<EPS-DILUTED> (8.89)
</TABLE>
