<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
REGISTRATION NO. 333-51273
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FITZGERALDS GAMING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Nevada 7999 88-0329170
------------------------------- -------------------------------------------------------- ----------------------------
(State Or Other Jurisdiction of (Primary Standard Industrial Classification Code Number) (IRS Employer Identification
Incorporation Or Organization) Number)
AND ITS GUARANTOR SUBSIDIARIES
Nevada FITZGERALDS RENO, INC. 88-0203264
Nevada FITZGERALDS SOUTH, INC. 88-0309887
Nevada FITZGERALDS INCORPORATED 88-0295966
Nevada FITZGERALDS LAS VEGAS, INC. 88-0266868
Mississippi FITZGERALDS MISSISSIPPI, INC. 88-0299002
Nevada FITZGERALDS BLACK HAWK, INC. 88-0314310
Colorado FITZGERALDS BLACK HAWK II, INC. 84-1423521
Colorado 101 MAIN STREET LIMITED LIABILITY COMPANY 84-1423521
Nevada FITZGERALDS FREMONT EXPERIENCE CORPORATION 88-0304028
(State Or Other (Exact name of registrant as specified in its charter) (IRS Employer
Jurisdiction of Identification Number)
Incorporation Or
Organization)
</TABLE>
301 FREMONT STREET, LAS VEGAS, NEVADA 89101/(702) 388-2224
----------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of Registrants' principal executive offices)
PHILIP D. GRIFFITH, 301 FREMONT STREET, LAS VEGAS, NEVADA 89101
(702) 388-2242
- --------------------------------------------------------------------------------
(Name, address, including zip code and telephone number, including area code, of
agent for service)
PLEASE SEND COPIES OF ALL CORRESPONDENCE TO:
THEODORE H. LATTY, ESQ.
HUGHES HUBBARD & REED LLP
350 SOUTH GRAND AVENUE, 36TH FLOOR
LOS ANGELES, CALIFORNIA 90071
(213) 613-2800
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
<PAGE> 2
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CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title Of Each Class of Securities Amount To Be Proposed Maximum Proposed Maximum Amount of
To Be Registered Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
(1) (2)
- -------------------------------------- --------------- ------------------------- -------------------------- --------------------
<S> <C> <C> <C> <C>
12 1/4% Senior Secured Notes $205,000,000 100% $205,000,000 $60,475*
due 2004, Series B
- -------------------------------------- --------------- ------------------------- -------------------------- --------------------
Guarantee of the 12 1/4% Senior -- -- -- --
Secured Notes due 2004, Series B (3)
====================================================================================================================================
</TABLE>
* Previously paid
(1) Estimated pursuant to Rule 457(f)(2) solely for the purpose of
calculating the registration fee.
(2) Pursuant to Rule 457(n).
(3) The 12 1/4% Senior Secured Notes due 2004, Series B of
Fitzgeralds Gaming Corporation being registered will be
guaranteed by each of Fitzgeralds Reno, Inc., Fitzgeralds South,
Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc., Fitzgeralds Fremont Experience
Corporation, Fitzgeralds Black Hawk, Inc., Fitzgeralds Black Hawk
II, Inc. and 101 Main Street Limited Liability Company (the
"Guarantees"). No additional compensation will be paid by the
recipients of the 12 1/4% Senior Secured Notes due 2004, Series B
for the Guarantees. Pursuant to Rule 437(n) under the Securities
Act of 1933, no separate fee is payable for the Guarantees.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
<PAGE> 3
FITZGERALDS GAMING CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement Outside Front Cover Page of Registration Statement;
and Outside Front Cover Page of Prospectus Cross- Reference Sheet; Inside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front Cover Page Available Information;
Outside Back Cover Page
3. Summary Information, Risk Factors, Ratio Prospectus Summary; Risk Factors; Selected
of Earnings to Fixed Charges and Other Information Consolidated Financial and Other Data; Business
4. Terms of the Transaction The Exchange Offer; Description of Notes; Certain
Federal Income Tax Considerations; Plan of
Distribution
5. Pro Forma Financial Information *
6. Material Contacts With The Company Being Acquired *
7. Additional Information Requested For *
Reoffering By Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts and Counsel Legal Matters
9. Disclosure of Commission Position on Indemnification for Securities *
Act Liabilities
10. Instructions with Respect to S-3 Registrants *
11. Incorporation of Certain Information *
by Reference
12. Information with Respect to S-2 or S-3 *
Registrants
13. Incorporation of Certain Information *
by Reference
</TABLE>
- --------------
* Not applicable.
<PAGE> 4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C> <C>
14. Information with Respect to Registrants Other Than S-2 or S-3 Inside Front Cover Page; Prospectus Summary;
Registrants Selected Consolidated Financial and Other Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Financial
Statements
15. Information with Respect to S-3 Companies *
16. Information with Respect to S-2 *
or S-3 Companies
17. Information with Respect to Companies Other Than S-2 or S-3 Companies *
18. Information if Proxies, Consents or *
Authorizations Are to be Solicited
19. Information if Proxies, Consents or Authorizations Are Not to be Inside Front Cover Page; The Exchange Offer;
Solicited or in an Exchange Offer Executive Compensation; Certain Transactions;
Description of Notes.
</TABLE>
- ----------------
* Not applicable.
-2-
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 19, 1998
PROSPECTUS
FITZGERALDS GAMING CORPORATION
OFFER TO EXCHANGE ITS 12-1/4% SENIOR SECURED NOTES DUE
2004, SERIES B, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR
ANY AND ALL OF ITS OUTSTANDING 12-1/4% SENIOR SECURED NOTES DUE 2004,
SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON JULY 16, 1998 UNLESS EXTENDED.
---------------------------
Fitzgeralds Gaming Corporation (the "Company") hereby offers, upon the
terms and conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal" and together
with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount
of its 12-1/4% Senior Secured Notes due 2004, Series B (the "New Notes" or the
"Series B Notes") which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a registration statement (the
"Registration Statement") of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 12-1/4% Senior Secured Notes due 2004,
Series A (the "Old Notes" and collectively with the New Notes, the "Notes"), of
which $205,000,000 principal amount is outstanding as of the date hereof.
Fitzgeralds Reno, Inc., Fitzgeralds South, Inc., Fitzgeralds Incorporated,
Fitzgeralds Mississippi, Inc., Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont
Experience Corporation, Fitzgeralds Black Hawk, Inc., Fitzgeralds Black Hawk II,
Inc. and 101 Main Street Limited Liability Company (collectively, the
"Guarantors") have issued an unconditional guarantee (the "Subsidiary
Guarantees") as to the principal, premium, if any, of and interest on the Notes.
(continued on following page)
---------------------------
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS ON OR ABOUT JUNE 23, 1998.
SEE "RISK FACTORS" (COMMENCING ON PAGE 17) FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND THE
SECONDARY PURCHASE OF THE NEW NOTES.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
NO GAMING AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
OR THE INVESTMENT MERITS OF THE NOTES OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
-1-
<PAGE> 6
(continuation from cover page)
The Company will accept for exchange any and all Old Notes validly
tendered prior to 5:00 p.m., New York City time, on July 16, 1998, unless
extended (the "Expiration Date"). Old Notes may be tendered only in integral
multiples of $1,000. Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum amount of Old Notes being tendered for exchange.
However, the Exchange Offer is subject to certain conditions. In the event the
Company terminates the Exchange Offer and does not accept for exchange any Old
Notes, the Company will promptly return the Old Notes to the holders thereof.
The Company will not receive any proceeds from the Exchange Offer. See the
"Exchange Offer."
The New Notes will be obligations of the Company evidencing the same debt
as the Old Notes, and will be entitled to the benefits of the same indenture
(the "Indenture"). See the "Description of Notes." The form and terms of the New
Notes are the same as the form and terms of the Old Notes in all material
respects except that the New Notes have been registered under the Securities Act
and hence do not include certain rights to registration thereunder and do not
contain transfer restrictions or terms with respect to the special interest
payments applicable to the Old Notes. See the "Exchange Offer."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated
December 30, 1997 (the "Registration Rights Agreement"), by and among the
Company, the Guarantors and the Initial Purchasers of the Notes (as defined
below), a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Exchange Offer is intended to
satisfy the Company's obligations under the Registration Rights Agreement to
register the New Notes under the Securities Act and exchange them for the Old
Notes. Once the Exchange Offer is consummated, the Company will have no further
obligations to register any of the Old Notes not tendered by the holders of the
Old Notes (the "Holders") for exchange, except pursuant to a shelf registration
statement to be filed under certain limited circumstances specified in "The
Exchange Offer -- Purposes of the Exchange Offer." See "Risk Factors --
Consequences to Non-Tendering Holders of Old Notes."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by Holders thereof who are not affiliates of the Company without
compliance with the registration and prospectus delivery provisions of the
Securities Act; provided that the holder is acquiring New Notes in its ordinary
course of business and has no arrangement or understanding with any person to
participate in any distribution (within the meaning of the Securities Act) of
the New Notes. Persons wishing to exchange Old Notes in the Exchange Offer must
represent to the Company that such conditions have been met. However, any Holder
who is an affiliate of the Company or who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of the New Notes cannot rely on the interpretation by the staff of the
Commission set forth in the above referenced no-action letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. See "The Exchange Offer -- Purposes
of the Exchange Offer." In addition, each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that for a period
of 120 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE
USED FOR AN OFFER TO RESELL, RESALE OR OTHER TRANSFER OF NEW NOTES.
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, this Exchange Offer. No underwriter is being used in connection
with this Exchange Offer.
-2-
<PAGE> 7
The Old Notes were initially sold by the Company on December 30, 1997 to
Jefferies & Company, Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
and Smith Incorporated (the "Initial Purchasers"), and the Initial Purchasers
resold the Old Notes (A) to qualified institutional buyers (as defined in Rule
144A under the Securities Act), (B) to a limited number of other institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that, prior to their purchase of any Old Notes, delivered to the
Initial Purchasers and the Company a letter containing certain representations
and agreements and (C) outside the United States to certain persons in reliance
on Regulation S under the Securities Act.
The Old Notes were initially represented by three global notes in fully
registered form (the "Global Old Notes"), registered in the name of a nominee of
The Depository Trust Company ("DTC"), as depositary. The New Notes exchanged for
Old Notes represented by the Global Old Notes will be represented by two global
notes in fully registered form (the "Global New Notes") registered in the name
of the nominee of DTC. The Global New Notes will be exchangeable for New Notes
in registered form, in denominations of $1,000 and integral multiples thereof as
described herein. The New Notes in global form will trade in DTC's Same-Day
Funds Settlement System, and secondary market trading activity in such New Notes
will therefore settle in immediately available funds. See "Description of Notes
- -- Book Entry, Delivery and Form."
The New Notes will bear interest at a rate equal to 12-1/4% per annum from
their date of issuance. Interest on the New Notes is payable semi-annually on
June 15 and December 15 of each year, commencing December 15, 1998. Interest on
the New Notes will accrue from the last interest payment due date for which
interest was paid on the Old Notes surrendered in exchange for such New Notes,
or, if no interest has been paid on such Old Notes, from the date of original
issuance of such Old Notes. Such interest will be paid with the first interest
payment on the New Notes. Interest on the Old Notes accepted for exchange will
cease to accrue upon cancellation of the Old Notes and issuance of the New
Notes.
The Notes will mature on December 15, 2004. The Company will not be
required to make any mandatory redemption or sinking fund payments with respect
to the Notes prior to maturity. The Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or after December 15, 2001, at
the redemption prices set forth herein plus accrued and unpaid interest, if any,
to the date of redemption. Notwithstanding the foregoing, 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 thereon, if any, through the applicable date of
redemption, with the net cash proceeds of one or more Public Equity Offerings
(as defined herein); provided, that (i) such redemption shall occur within 90
days of the closing of such public offering and (ii) at least $133.3 million
aggregate principal amount of Notes remains outstanding immediately after giving
effect to each such redemption. Upon a Change of Control (as defined herein) the
Company will be required to make an offer to repurchase all of the Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase. In addition, the Company
will be required to offer to purchase certain of the Notes at 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase with the proceeds of certain asset sales. See "Description of
Notes."
The Notes and the Subsidiary Guarantees are senior secured obligations of
the Company and the Guarantors, respectively, and rank senior in right of
payment to all present and future senior subordinated and subordinated
indebtedness of the Company, and pari passu in right of payment with all present
and future unsubordinated indebtedness of the Company. The Company and the
Guarantors will be permitted, under certain circumstances, (i) to enter into a
new credit facility (in a principal amount not to exceed $15 million), in which
case the first priority security interest in the collateral securing the Notes
will be subordinated to a lien securing obligations under such credit facility,
and (ii) to grant pari passu liens on the collateral to secure certain other
indebtedness.
Prior to this offering, there has been no public market for the Old Notes
or New Notes. As the Old Notes were issued and the New Notes are being issued to
a limited number of institutions who typically hold similar securities for
investment, the Company does not expect that an active public market for the New
Notes will develop. In addition, resales by certain holders of the Old Notes or
the New Notes of a substantial percentage of the aggregate principal amount of
such notes could constrain the ability of any market maker to develop or
maintain a market for the New Notes. To the extent that a market for the New
Notes should develop, the market value of the New Notes will depend on
prevailing rates the market for similar securities and other factors, including
the financial condition,
-3-
<PAGE> 8
performance and prospects of the Company. Such factors might cause the New Notes
to trade at a discount from face value. See "Risk Factors -- Lack of Public
Market for Notes."
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act for the registration of the New Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the New Notes offered hereby, reference is made to the Registration
Statement and to the exhibits filed therewith. Statements contained in this
Prospectus concerning the contents of any contract or other document are not
necessarily complete. With respect to each such contract or other document filed
with the Commission as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance and in
accordance therewith files reports and other information with the Commission.
The Registration Statement, the exhibits forming a part thereof and the reports
and other information filed by the Company with the Commission in accordance
with the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and will also be available for inspection
and copying at the regional offices of the commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained upon written request from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rated. In addition, the Commission maintains a website (http://www.sec.gov) that
contains such reports and other information filed by the Company.
The Indenture provides that, following the filing date of this
Registration Statement for and so long as any of the New Notes are outstanding,
the Company will file with the commission the periodic reports required to be
filed with the Commission under the Exchange Act, whether or not the Company is
subject to Section 13(a) or 15(d) of the Exchange Act. The Company is also
required, within 15 days of filing each such report with the Commission, to
provide the Trustee and the Holders of the New Notes with annual reports
containing the information required to be contained in Form 10-K promulgated
under the Exchange Act, quarterly reports containing the information required to
be contained in form 10-Q promulgated under the Exchange Act, and from time to
time such other information as is required to be contained in Form 8-K
promulgated under the Exchange Act. If filing such reports with the Commission
is prohibited by the Exchange Act, the Company will also provide copies of such
reports to prospective purchasers of the New Notes upon written request.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1997 and Quarterly Report on Form 10-Q for the quarter ended March 29, 1998 are
hereby incorporated by reference. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering made hereby shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
by reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in any subsequently filed
document which is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits thereto). Written or telephone requests for such copies should be
directed to the Company's principal office: Fitzgeralds Gaming Corporation, 301
Fremont Street, Las Vegas, Nevada 89101, Attention: Chief Financial Officer
(telephone: (702) 388-2224).
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<PAGE> 9
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by reference to, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Prospective investors are urged to read the entire Prospectus, including the
matters set forth under the heading "Risk Factors." This Prospectus contains
forward-looking statements and information that involve risks and uncertainties,
and such statements and information are subject to the assumptions set forth in
connection therewith and the information contained or incorporated by reference
herein. Unless otherwise indicated or the context otherwise requires, as used in
this Prospectus the term "Company" or "Fitzgeralds" refers to Fitzgeralds Gaming
Corporation and its subsidiaries.
THE COMPANY
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, Fitzgeralds Arizona Management Inc. ("FAMI"), a subsidiary
85% owned by the Company, had an exclusive agreement (the "Management
Agreement") 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 "Nation"). On June 9, 1998, FAMI entered into a Termination
Agreement with the Nation wherein the parties mutually agreed to terminate the
Management Agreement. In exchange for terminating the Management Agreement, the
Nation agreed to pay FAMI a lump sum of $8.2 million, which was received by FAMI
on June 10, 1998. The Company markets its properties primarily to middle-market
customers, emphasizing its Fitzgeralds brand and its "Fitzgeralds Irish Luck"
theme. As of March 29, 1998 the Company operated a total of 3,682 slot machines,
110 table games and approximately 1,500 hotel rooms in its Fitzgeralds-brand
properties.
The Company experienced a significant increase in EBITDA (as defined
herein) in 1997 as a result of recent major capital improvements and the
completion of the acquisition of Fitzgeralds Black Hawk. During 1996, the
Company invested over $57 million in its properties, including the construction
of a 507-room hotel and an approximately 10,000 square-foot special events
center at Fitzgeralds Tunica and extensive hotel and restaurant renovation and
casino expansion at Fitzgeralds Las Vegas. Primarily as a result of disruption
caused by the construction and renovation, EBITDA was negatively affected for
the 1996 fiscal year. As of December 31, 1996, the construction and renovation
were substantially complete. In August 1997, the Company acquired the remaining
78% membership interest in 101 Main Street Limited Liability Company ("101
Main"), the entity that owns Fitzgeralds Black Hawk, for $27.3 million. The
Company had owned a 22% membership interest in 101 Main since February 1996 and
had managed Fitzgeralds Black Hawk since its opening in May 1995. The Company
generated net revenues of $179.7 million and Adjusted EBITDA (as defined herein)
of $30.6 million for the fiscal year ended December 31, 1997 and net revenues of
$47.4 million and Adjusted EBITDA of $8.1 million for the quarter ended March
29, 1998.
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.
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<PAGE> 10
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 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.
FITZGERALDS LAS VEGAS. At March 29, 1998, Fitzgeralds Las Vegas offered
approximately 1,080 slot machines, 27 table games, 638 hotel rooms, a 48-seat
keno lounge and a sports book. The Company believes that Fitzgeralds Las Vegas
will continue to benefit from the Fremont Street Experience due to its corner
location on Fremont and Fourth Streets, directly across from the only vehicle
entrance to the Fremont Street Experience Parking Structure, and its close
proximity to substantially all in-line retail shopping near the Fremont Street
Experience. To more fully capitalize on the Fremont Street Experience, the
Company undertook an approximately $19.4 million renovation and expansion of
Fitzgeralds Las Vegas, which started in April 1996 and was completed by December
31, 1996. For the year ended December 31, 1997, compared to 1996, Fitzgeralds
Las Vegas casino revenues increased 6.8% while total casino revenues for the Las
Vegas downtown market decreased .05%.
FITZGERALDS TUNICA. At March 29, 1998, Fitzgeralds Tunica offered
approximately 1,219 slot machines, 39 table games, 507 hotel rooms and a special
events center. The Company believes that Fitzgeralds Tunica is well positioned
to capitalize on its unique Irish castle design and heavily wooded 121-acre
Company-owned site. The Fitzgeralds Tunica casino was opened in June 1994 at a
cost of approximately $46 million and the addition of the hotel and special
events center was substantially completed in October 1996 at a cost of
approximately $34 million. The Company intends to further capitalize on its
location as the only Tunica casino-hotel on the Mississippi River. Among other
things, the Company is currently considering the addition of a dock (suitable
for large Mississippi River cruise operators and Memphis-based excursion boats)
and a Company-owned excursion boat to increase customer traffic and further
differentiate Fitzgeralds Tunica from other Tunica properties. The Company also
expects that a new casino trolley system, which commenced operation in December
1997, and the new inter-casino connector road, anticipated to open by mid-July
1998, will increase exposure and customer traffic to Fitzgeralds Tunica by
increasing accessibility and substantially decreasing the driving distance from
other Tunica gaming facilities. For the year ended December 31, 1997, compared
to 1996, Fitzgeralds Tunica casino revenues increased 32.0% while total casino
revenues for the Tunica market increased 14.6%.
FITZGERALDS RENO. At March 29, 1998, Fitzgeralds Reno offered
approximately 866 slot machines, 32 table games, 351 hotel rooms, a 100-seat
keno lounge and a sports book (operated by a third party). Fitzgeralds Reno is
centrally located next to the landmark Reno Arch in downtown Reno. The Company
believes that the downtown Reno gaming market will continue to benefit from the
National Bowling Stadium, expected increases in airline passenger traffic and a
new riverfront development project. The Company completed construction in
February 1998 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. The Company also believes that the recent
renovation of the front entrance and hotel rooms will further increase
visibility and improve operations. For the year ended December 31, 1997,
compared to 1996, Fitzgeralds Reno casino revenues increased 4.8% while total
casino revenues for the Reno market increased 2.0%.
-6-
<PAGE> 11
FITZGERALDS BLACK HAWK. At March 29, 1998, Fitzgeralds Black Hawk offered
approximately 517 slot machines, 12 table games and the only covered parking
garage in Black Hawk. The Company believes that Fitzgeralds Black Hawk, with its
current market share of approximately 14.0%, is well positioned to take
advantage of the expected continuing growth of the Black Hawk gaming market. In
October 1996, according to the Rocky Mountain News, Denver metro residents voted
Fitzgeralds Black Hawk as having the "Best $1 Slots" and "Best $5 Slots" and its
restaurant as having the "best" variety, kitchen, desserts and full-service
dining among the casinos located in Colorado. The Company plans an expansion of
the casino and additional gaming equipment, and although final plans and
specifications and a detailed budget are not currently available, construction
costs of the expansion are estimated at approximately $6.5 million, plus an
additional $1.5 million for gaming equipment and approximately $1.0 million for
a parking expansion. Construction of the expansion is currently expected to be
completed in Spring 1999. The casino expansion is designed to provide an initial
increase in slot capacity of approximately 50%. For the year ended December 31,
1997, compared to 1996, Fitzgeralds Black Hawk casino revenues increased 21.8%
while total casino revenues for the Black Hawk market increased 6.7%.
-7-
<PAGE> 12
FITZGERALDS GAMING CORPORATION AND AFFILIATES
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 operated Cliff Castle through its 85%-owned subsidiary, 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 ownership structure of Fitzgeralds Gaming Corporation and its
affiliated group of companies is as follows(1):
- ------------
(1) Excludes Nevada Club, Inc. ("NCI"), which owned and operated the Nevada
Club.
(2) In connection with the issuance of its 13% Senior Secured Notes due 1996,
FSI issued warrants currently exercisable for 5,358 shares of its common
stock at an exercise price of $0.01 per share and warrants currently
exercisable for 54,384 shares of its common stock at an exercise price of
$32.18 per share. Such warrants, if fully exercised, would represent
approximately 5.6% of the issued and outstanding capital stock of FSI.
See Note 7 of Notes to Consolidated Financial Statements.
The Company sold Harolds Club in Reno, Nevada in 1995 and has been
marketing the adjacent Nevada Club for sale. The Company has received an offer
to purchase the Nevada Club from an undisclosed purchaser, unaffiliated with
the Company, and, in anticipation of such sale, closed the Nevada Club in
December 1997. On June 8, 1998, the Company and the same undisclosed purchaser
executed an Asset Purchase Agreement (the "Asset Purchase Agreement") for the
sale of the Nevada Club property in the amount of $3,768,750. The effectiveness
of the Asset Purchase Agreement is conditioned upon the execution and delivery
of (i) certain other settlement and lease termination agreements (collectively,
the "Settlement Agreements") with the current and prior Harolds Club land
lessees (the "Lessees") and the Harolds Club land owners (the "Landlords") and
(ii) certain asset purchase agreements between the Landlords and the undisclosed
purchaser. Additionally, each of the above agreements is conditioned upon the
approval by the Federal Bankruptcy Court (the "Court") of the transactions
involving the Harolds Club. The Company is currently engaged in negotiations
with the Landlords and the Lessees, and the undisclosed purchaser is currently
engaged in negotiations with the Landlords. However, there can be no assurance
that such negotiations will be successfully concluded, there can be no assurance
that the Court will approve the transactions and there can be no assurance when
any such approval might be granted.
The Company was incorporated in Nevada in 1994. Its principal executive
offices are located at 301 Fremont Street, Las Vegas, Nevada 89101; telephone
(702) 388-2400.
-8-
<PAGE> 13
TERMS OF THE EXCHANGE OFFER
The Exchange Offer ..................... $1,000 principal amount of New
Notes in exchange for each $1,000
principal amount of Old Notes. As
of the date hereof, $205.0 million
in aggregate principal amount of
Old Notes are outstanding. The
Company will issue the New Notes to
Holders on or promptly after the
Expiration Date.
Based on an interpretation by the
staff of the Commission set forth
in no-action letters issued to
third parties, the Company believes
that New Notes issued pursuant to
the Exchange Offer in exchange for
Old Notes may be offered for
resale, resold and otherwise
transferred by holders thereof who
are not affiliates of the Company
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act; provided that the
holder is acquiring New Notes in
the ordinary course of its business
and has no arrangement or
understanding with any person to
participate in any distribution
(within the meaning of the
Securities Act) of the New Notes.
Persons wishing to exchange Old
Notes in the Exchange Offer must
represent to the Company that such
conditions have been met. However,
any Holder who is an affiliate of
the Company or who tenders in the
Exchange Offer with the intention
to participate, or for the purpose
of participating, in a distribution
of the New Notes cannot rely on the
interpretation by the staff of the
Commission set forth in the above
referenced no-action letters and
must comply with the registration
and prospectus delivery
requirements of the Securities Act
in connection with any resale
transaction. See "The Exchange
Offer -- Purposes of the Exchange
Offer."
Each broker-dealer that receives
New Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a
prospectus in connection with any
resale of such New Notes. The
Letter of Transmittal states that
by so acknowledging and by
delivering a prospectus, a
broker-dealer will not be deemed to
admit that it is an "underwriter"
within the meaning of the
Securities Act. This Prospectus, as
it may be amended or supplemented
from time to time, may be used by a
broker-dealer in connection with
resales of New Notes received in
exchange for Old Notes where such
Old Notes were acquired by such
broker-dealer as a result of
market-making activities or other
trading activities. The Company has
agreed that for a period of 120
days after Expiration Date, it will
make this Prospectus available to
any broker-dealer for use in
connection with any such resale.
See "Plan of Distribution." Except
as described in this paragraph and
in the immediately preceding
paragraph, this Prospectus may not
be used for an offer to resell,
resale or other transfer of New
Notes.
-9-
<PAGE> 14
Expiration Date ........................ 5:00 p.m., New York City time, on
July 20, 1998, unless the Exchange
Offer is extended, in which case
the term "Expiration Date" means
the latest date and time to which
the Exchange Offer is extended.
Accrued Interest on the New Notes and
the Old Notes........................... The New Notes will accrue interest
from the last interest payment due
date on which interest was paid on
the Old Notes surrendered in
exchange for the New Notes, or if
no interest has been paid on the
Old Notes, from the date of
original issuance of the Old Notes.
Such interest will be paid with the
first interest payment on the New
Notes. Interest on the Old Notes
accepted for exchange will cease to
accrue upon cancellation of the Old
Notes and issuance of the New
Notes. Holders of Old Notes whose
Old Notes are not exchanged will
receive the accrued interest
payable on December 15, 1998 on
such date in accordance with the
terms of the Indenture.
Conditions to the Exchange Offer........ The Exchange Offer is subject to
certain customary conditions, any
and all of which may be waived by
the Company. If any such conditions
exist prior to the Expiration Date,
the Company may (i) refuse to
accept any Old Notes and return all
previously tendered Old Notes, or
(ii) extend the Exchange Offer. See
"The Exchange Offer -- Conditions."
Procedures for Tendering Old Notes..... Each Holder of Old Notes desiring to
accept the Exchange Offer must
complete, sign and date the Letter
of Transmittal, or a facsimile
thereof, in accordance with the
instructions contained herein and
therein, and mail or otherwise
deliver such Letter of Transmittal,
or such facsimile, together with
such Old Notes to be exchanged and
any other required documentation to
The Bank of New York, as Exchange
Agent (the "Exchange Agent"), at
the address set forth herein and
therein or effect a tender of such
Old Notes pursuant to the
procedures for book-entry transfer
as provided for herein. By
executing the Letter of
Transmittal, each Holder will
represent to the Company that,
among other things, the New Notes
acquired pursuant to the Exchange
Offer are being obtained in the
ordinary course of business of the
person receiving such New Notes,
whether or not such person is the
Holder, that neither the Holder nor
any such other person has an
arrangement or understanding with
any person to participate in the
distribution of such New Notes and
that neither the Holder nor any
such person is an "affiliate," as
defined in Rule 405 under the
Securities Act, of the Company.
Each broker-dealer that receives
New Notes for its own account in
exchange for Old Notes, where such
Old Notes were acquired by such
broker-dealer as a result of
market-making activities or other
trading activities, must
acknowledge that it will deliver a
prospectus in connection with any
resale of such
-10-
<PAGE> 15
New Notes. See "The Exchange Offer
-- Procedures for Tendering" and
"Plan of Distribution."
Special Procedures for Beneficial Owners Any beneficial owner whose Old
Notes are registered in the name of
a broker, dealer, commercial bank,
trust company or other nominee and
who wishes to tender such Old Notes
in the Exchange Offer should
contact such registered Holder
promptly and instruct such
registered Holder to tender on such
beneficial owner's behalf. If such
beneficial owner wishes to tender
on such owner's own behalf, such
owner must, prior to completing and
executing the Letter of Transmittal
and delivering its Old Notes,
either make appropriate
arrangements to register ownership
of the Old Notes in such owner's
name or obtain a properly completed
bond power from the registered
Holder. The transfer of registered
ownership may take considerable
time and it may not be possible to
complete a transfer initiated
shortly before the Expiration Date.
See "The Exchange Offer --
Procedures for Tendering."
Guaranteed Delivery Procedures.......... Holders of Old Notes who wish to
tender their Old Notes and whose
Old Notes are not immediately
available or who cannot deliver
their Old Notes, the Letter of
Transmittal or any other documents
required by the Letter of
Transmittal to the Exchange Agent,
or cannot complete the procedure
for book-entry transfer, prior to
the Expiration Date must tender
their Old Notes according to the
Guaranteed Delivery Procedures set
forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal Rights....................... Tenders may be withdrawn at any
time prior to 5:00 p.m., New York
City time, on the Expiration Date.
Acceptance of Old Notes and Delivery
of New Notes............................ The Company will accept for
exchange any and all Old Notes
which are properly tendered in the
Exchange Offer prior to 5:00 p.m.,
New York City time, on the
Expiration Date. The New Notes
issued pursuant to the Exchange
Offer will be delivered promptly
following the Expiration Date. Any
Old Notes not accepted for exchange
will be returned without expense to
the tendering Holder thereof as
promptly as practicable after the
expiration or termination of the
Exchange Offer. See "The Exchange
Offer -- Terms of the Exchange
Offer."
Termination of Certain Rights .......... All rights under the Registration
Rights Agreement (including
registration rights) of holders of
the Old Notes eligible to
participate in the Exchange Offer
generally will terminate, excepting
certain indemnification and other
rights, upon consummation of the
Exchange Offer.
-11-
<PAGE> 16
Certain Tax Considerations.............. The exchange pursuant to the
Exchange Offer will not be a
taxable event for Federal income
tax purposes. See "Certain Federal
Income Tax Considerations."
Exchange Agent ......................... The Bank of New York is serving as
Exchange Agent in connection with
the Exchange Offer.
DESCRIPTION OF THE NEW NOTES
The Exchange Offer is being made to the Holders of the $205.0 million
aggregate principal amount of outstanding Old Notes. The New Notes will be
obligations of the Company evidencing the same debt as the Old Notes and will be
entitled to the benefit of the same Indenture. See "Description of Notes." The
form and terms of the New Notes are the same as the form and terms of the Old
Notes in all material respects except that the New Notes have been registered
under the Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to the
Weekly Liquidated Damages Amount applicable to the Old Notes. See "Description
of Notes."
Securities Offered.................... $205.0 million in aggregate
principal amount of 12-1/4% Senior
Secured Notes due 2004, Series B.
Maturity.............................. December 15, 2004.
Interest Rate and Payment Dates....... The Notes will bear interest at a
rate of 12-1/4% per annum, payable
semi-annually in cash in arrears on
each June 15 and December 15,
commencing December 15, 1998.
Subsidiary Guarantees................. The Notes will be guaranteed on an
unconditional and irrevocable
senior secured basis by the
Guarantors.
Optional Redemption................... The Notes will be redeemable, at
the option of the Company, in whole
or in part, at any time on or after
December 15, 2001, at the
redemption prices set forth herein,
plus accrued and unpaid interest,
if any, to the date of redemption.
Notwithstanding the foregoing,
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 thereon, if any, through
the applicable date of redemption,
with the net cash proceeds of one
or more Public Equity Offerings (as
defined herein); provided, that (i)
such redemption shall occur within
90 days of the closing of such
public offering and (ii) at least
133.3 million aggregate principal
amount of Notes remains outstanding
immediately after giving effect to
each such redemption.
Security.............................. Subject to certain exceptions, the
Notes will be secured by a first
priority security interest in
substantially all of the assets of
the Company, other than Excluded
Assets (as defined), including all
of the capital stock of the
Company's existing and future
Restricted Subsidiaries (as
defined). The Subsidiary Guarantees
will be secured by a first priority
security interest in substantially
all of
-12-
<PAGE> 17
the assets of the Guarantors, other
than Excluded Assets. The Company
and the Guarantors will be
permitted, under certain
circumstances, (i) to enter into a
new credit facility (in a principal
amount not to exceed $15.0
million), in which case the first
priority security interest in the
collateral securing the Notes will
be subordinated to a lien securing
obligations under such credit
facility and (ii) to grant pari
passu liens on the collateral to
secure certain other indebtedness.
The Company has entered into
negotiations for such a credit
facility; however, there can be no
assurance that the Company will be
able to successfully obtain the
proposed, or any other, credit
facility on terms acceptable to the
Company. See "Description of Notes
-- Collateral."
Ranking............................... The Notes will be senior secured
obligations of the Company and will
rank senior in right of payment to
all present and future senior
subordinated and subordinated
indebtedness of the Company, and
pari passu in right of payment with
all present and future
unsubordinated indebtedness of the
Company.
Change of Control..................... Upon a Change of Control (as
defined), the Company will be
required to make an offer to
repurchase all of the then
outstanding Notes at a purchase
price equal to 101% of the original
principal amount thereof, together
with accrued and unpaid interest,
if any, to the date of repurchase.
See "Description of Notes --
Repurchase Upon Change of Control."
Certain Covenants..................... The Indenture relating to the Notes
contains certain covenants,
including covenants which limit the
ability of the Company and its
Restricted Subsidiaries, subject to
certain exceptions, to: (i) incur
additional indebtedness; (ii) make
restricted payments; (iii) issue
and sell capital stock of
subsidiaries; (iv) enter into
certain transactions with
affiliates; (v) create certain
liens; (vi) sell certain assets;
and (vii) merge, consolidate or
sell substantially all of the
Company's assets. See "Description
of Notes -- Certain Covenants."
-13-
<PAGE> 18
Exchange Offer, Registration Rights
and Transfer Restrictions............. Holders of the New Notes are not
entitled to any exchange rights
with respect to the New Notes.
Holders of the Old Notes are
entitled to certain exchange rights
pursuant to the Registration Rights
Agreement. Under the Registration
Rights Agreement, the Company is
required to offer to exchange the
Old Notes for New Notes having
substantially identical terms which
have been registered under the
Securities Act. This Exchange Offer
is intended to satisfy such
obligation. Once the Exchange Offer
is consummated, the Company will
have no further obligations to
register any of the Old Notes not
tendered by the Holders for
exchange, except pursuant to a
shelf registration statement to be
filed under certain limited
circumstances specified in "The
Exchange Offer -- Purposes of the
Exchange Offer." See "Risk Factors
-- Consequences to Non-Tendering
Holders of Old Notes."
Absence of a Public Market
for the New Notes..................... The New Notes will be a new issue
of securities with no established
market. Accordingly, there can be
no assurance as to the development
or liquidity of any market for the
New Notes.
For a more detailed discussion of the terms of the Notes, see "Description of
Notes."
RISK FACTORS
For a discussion of certain matters that should be considered by prospective
investors, see "Risk Factors."
-14-
<PAGE> 19
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The table below summarizes consolidated financial and other data of the
Company for the years ended December 31, 1995 through 1997 and for the quarters
ended March 30, 1997 and March 29, 1998. This information should be read in
conjunction with the "Selected Consolidated Financial and Other Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Pro Forma Consolidated Financial Statements" and the Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED PRO FORMA
YEAR ENDED DECEMBER 31, ----------------------- YEAR ENDED
------------------------------------- MARCH 30, MARCH 29, DECEMBER 31,
1995 1996 1997 1997 1998 1997(1)
--------- --------- --------- --------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Operating Revenues $ 141,397 $ 140,530 $ 179,702 $ 39,417 $ 47,418 $ 200,454
Income from Operations(2) 13,768 3,871 13,622 2,789 4,460 18,752
Interest Expense, Net 14,706 18,187 25,033 5,664 6,742 26,053
Net Income (Loss) (4,255) (13,494) (31,542) (3,423) (2,580) n/a
OTHER DATA:
EBITDA:(3)
Fitzgeralds Las Vegas $ 4,084 $ 1,656 $ 2,651 $ 1,119 $ 1,624 $ 2,651
Fitzgeralds Tunica 9,934 3,790 11,744 3,081 2,283 11,744
Fitzgeralds Reno 7,009 4,596 5,462 628 200 5,462
Fitzgeralds Black Hawk -- -- 4,842 -- 2,849 11,597
Other(4) 1,667 2,874 4,111 799 1,156 3,569
--------- --------- --------- --------- --------- ---------
Total Properties 22,694 12,916 28,810 5,627 8,112 35,023
Nevada Club 392 (148) (1,282) (4) (402) (1,282)
Harolds Club (1,307) -- (1,853) -- -- (1,853)
--------- --------- --------- --------- --------- ---------
Total EBITDA 21,779 12,768 25,675 5,623 7,710 31,888
Adjustments to EBITDA(5) 1,337 742 4,924 532 402 4,924
--------- --------- --------- --------- --------- ---------
Adjusted EBITDA $ 23,116 $ 13,510 $ 30,599 $ 6,155 $ 8,112 $ 36,812
========= ========= ========= ========= ========= =========
EARNINGS TO FIXED CHARGES:(6) -- -- -- -- -- --
NET CASH PROVIDED BY (USED IN):
Operating Activities $ 8,468 $ 759 $ 1,287 $ 784 $ 5,509 $ 7,092
Investing Activities (50,404) (6,368) (24,657) 524 (809) 54
Financing Activities 49,894 (885) 24,830 (1,725) (2,691) (5,686)
DEPRECIATION AND AMORTIZATION 8,010 8,897 12,054 2,834 3,251 13,136
CAPITAL EXPENDITURES 14,957 57,026 3,944 1,499 2,544 4,147
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, ----------------------
------------------------------------ MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents $ 19,844 $ 13,349 $ 14,810 $ 12,933 $ 16,819
Total Assets 197,213 191,179 215,695 187,012 216,228
Short-Term Debt 11,226 27,750 7,591 33,114 6,187
Long-Term Debt 139,467 127,882 206,191 121,422 206,978
Preferred Stock, Net of Offering Costs and
Discount 11,953 15,489 19,631 16,468 20,766
Stockholders' Equity (Deficiency) 16,061 (2,043) (37,863) (6,545) (41,578)
</TABLE>
(1) Pro Forma Statement of Operations and Other Data assume that the
purchase of the remaining 78% membership interest in 101 Main occurred
January 1, 1997. See "Pro Forma Consolidated Statement of Operations."
(2) 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.
-15-
<PAGE> 20
(3) 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.
(4) Other includes results for management fees and corporate costs not
allocated to the core properties.
(5) 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;
(iii) exclusion of write down of Nevada Club assets of $2.2 million for
1997; (iv) exclusion of Harolds Club lease settlement of $1.9 million
for 1997; and (v) inclusion of $0.6 million for 1996, $1.0 million for
1997 and $0.5 million for the quarter ended March 30, 1997 in cash
received by the Company as a result of its 22% membership in 101 Main.
(6) 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 $0.6 million, $15.5 million, and $10.6 million
for the years ended December 31, 1995, 1996, and 1997, respectively, by
$2.8 million for the quarter ended March 30, 1997 and $2.2 million for
the quarter ended March 29, 1998, and on a pro forma basis, by $11.6
million for the year ended December 31, 1997.
-16-
<PAGE> 21
RISK FACTORS
An investment in the Notes involves a significant degree of risk.
Prospective investors should consider carefully all of the information set forth
in this Prospectus, and, in particular, the factors set forth below. This
Prospectus contains certain forward-looking statements, including statements
containing the words "believes," "anticipates," "expects" and words of similar
import, that involve known and unknown risks, uncertainties and other factors
that may cause the actual results or performance of the Company to be materially
different from any future results or performance expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those described below under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere in this Prospectus. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
HIGH LEVEL OF INDEBTEDNESS
The Company is highly leveraged. At March 29, 1998, the Company's total
indebtedness was approximately $213.2 million and its stockholders' deficiency
(which does not reflect the Preferred Stock) was approximately $41.6 million.
See "Summary Consolidated Financial and Operating Data" "Selected Consolidated
Financial and Other Data." In addition, under the Indenture, the Company and its
subsidiaries may incur additional senior indebtedness (including secured
indebtedness), subject to certain limitations. See "Description of Notes --
Certain Covenants -- Limitation on Incurrence of Indebtedness" and " --
Limitations on Liens." The Company's relatively high level of indebtedness could
result in significant adverse consequences to the Company, including, but not
limited to, the following: (i) a substantial portion of the Company's cash flow
from operations will be dedicated to servicing its debt; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures or acquisitions may be limited; and (iii) the Company's
flexibility in planning for, or reacting to, competitive pressures, changes in
its industry and general economic conditions may be adversely affected.
The Company's ability to meet its debt service and other obligations and
to reduce its total indebtedness will depend upon its future performance, which
will be subject in part to factors beyond the control of the Company, such as
prevailing economic conditions and financial, business and other factors
affecting the operations of the Company. While the Company expects that its
operating cash flow will be sufficient to cover its expenses, including debt
service obligations, there can be no assurance with respect thereto. If the
Company is unable to generate sufficient cash flow, the Company could be
required to reduce or delay capital expenditures, sell material assets or
operations or seek additional debt or equity financing. There can be no
assurance that any of such actions could be effected on satisfactory terms or
that they would be permitted under the terms of the Indenture or the Company's
other debt instruments then in effect, if any. In addition, it is likely that it
will be necessary for the Company to refinance the Notes upon maturity, although
no assurance can be given that the Company will be able to do so.
FLUCTUATIONS IN HISTORICAL OPERATING RESULTS
The Company historically has experienced fluctuations in its operating
results. In the five years from 1993 to 1997, the Company experienced mixed
results in net income (loss). Net income of $4.2 million for 1993 was followed
by net losses of $6.0 million, $4.3 million, $13.5 million and $31.5 million for
1994, 1995, 1996 and 1997, respectively. For the quarter ended March 29, 1998,
the Company had a net loss of $2.6 million. As of March 29, 1998, the Company
had an accumulated deficit of approximately $65.3 million and a net working
capital deficiency of approximately $7.0 million. The Company believes that this
volatility in its results of operations may be attributed in substantial part to
several market factors, including increased competition, adverse weather
conditions and disruptions caused by (i) the construction of the Fremont Street
Experience, (ii) the renovation and expansion of Fitzgeralds Las Vegas and (iii)
the expansion of Fitzgeralds Tunica. In addition, the Company had incurred
increased interest expense subsequent to its December 1995 offering of senior
secured notes, preferred stock and warrants (the "1995 Offering"). There can be
no assurance that such fluctuations in operating results will not continue in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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COMPETITION AND RISKS OF EXPANDED LEGALIZATION OF GAMING
The Company faces intense competition in each of the markets in which its
gaming facilities are located. Some of the competitors have significantly
greater name recognition and financial and marketing resources than the Company.
Such competition results, in part, from the geographic concentration of
competitors. All of the Company's casinos primarily compete with other casinos
in their immediate and surrounding geographic areas. New expansion and
development activity is occurring in each of the relevant markets, which may be
expected to intensify competitive pressures. All of the Company's casinos also
compete to a lesser extent with casinos in other locations, including Indian
lands, riverboats and cruise ships, and with other forms of legalized gaming in
the United States, including state-sponsored lotteries, on- and off-track
wagering and card parlors. Several states have considered legalized casino
gaming and others may in the future. Legalization of large-scale, unlimited
casino gaming in or near any major metropolitan area or increased gaming in
other areas could have a material adverse effect on the business of any or all
of the Company's gaming facilities. See "Business -- Competition."
Specific competitive factors relating to the Company's primary gaming
markets include the following:
LAS VEGAS. During 1997, compared to 1996, available rooms in the Las Vegas
market increased by 6.3%, while visitor volume increased by only 2.8%. This has
had the effect of intensifying competition, resulting in declining occupancy and
average room rates throughout the Las Vegas market. New properties, or major
additions, expansions or enhancements to competitors' existing properties, could
have a material adverse effect on the Company.
RENO. Fitzgeralds Reno competes with other properties principally on the
basis of location and direct marketing. Fitzgeralds Reno leases, on a lease
expiring on December 31, 1998, a portion of a nearby 850-space parking garage to
provide 345 parking spaces for its guests. Although the Company anticipates that
it will be able to renew the lease, at least on an annual basis, the loss of the
use of such parking facilities would put Fitzgeralds Reno at a competitive
disadvantage with its competitors with parking facilities.
TUNICA. The Tunica market has been intensely competitive and, as a result
of such competition, a number of casinos (including Treasure Bay, which had been
located on property adjacent to Fitzgeralds Tunica) have closed during recent
years. Fitzgeralds Tunica competes primarily with eight other dockside gaming
facilities in the Tunica area. Competition could intensify substantially in the
Tunica market, from both the possible opening of new casinos and the expansion
of existing facilities.
In addition to the substantial competition in the immediate vicinity of
Fitzgeralds Tunica, 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. 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. In addition, gaming has also been
legalized in Coahoma County, Mississippi, where a gaming facility is currently
in operation. Coahoma County is south of Tunica County and closer to Little
Rock, Arkansas. In July 1994, the Choctaw Indian Tribe opened a land-based
casino approximately 100 miles northeast of Jackson, Mississippi.
BLACK HAWK. Competition is intensifying in Black Hawk. A casino/hotel
known as the "Lodge," located at the eastern end of Black Hawk, is expected to
open the latter part of June 1998. The Lodge is expected to have approximately
50-60 hotel rooms, 800 slots, 18 table games, three restaurants and 800 parking
spaces, 300 on-site and 500 off-site. Various published reports detailing a
number of additional new gaming projects have been announced for Black Hawk.
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.
The Colorado Department of Transportation has approved the construction of
a third intersection off State Highway 119 between the two current
intersections. This additional intersection, if constructed, could potentially
reduce traffic flow and customers to Fitzgeralds Black Hawk.
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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.
LIMITATIONS OF SECURITY
Collateral. In the event of a default under the Notes, the proceeds from
the sale of the collateral securing the Notes may not be sufficient to satisfy
the Company's obligations under the Notes in full. The amount to be received by
the holders of the Notes upon such a sale would depend upon numerous factors,
including the condition, age and useful life of the collateral at the time of
such sale, the timing and the manner of the sale, whether the assets are being
sold as part of an ongoing business and whether any Indebtedness under an
Eligible Credit Facility (as defined herein) or any Permitted Tunica Debt (as
defined herein) is outstanding. In addition, the book value of the collateral
should not be relied upon as a measure of realizable value. By its nature, the
collateral will be illiquid and may have no readily ascertainable market value.
The Indenture permits the Company and its subsidiaries, subject to certain
limitations, to grant pari passu liens on the collateral to certain other
creditors. If such liens are granted, any proceeds or distributions from any of
the shared collateral would be divided among these other creditors and the
holders of the Notes. In addition, if the Company enters into an Eligible Credit
Facility, the security interest with respect to the Notes would become
subordinated to the security interest with respect to obligations under such
credit facility and any proceeds or distributions from the collateral would be
distributed first to the lenders under such credit facility. Furthermore, to the
extent that third parties possess Permitted Liens (as defined herein), such
third parties may have rights and remedies with respect to the property subject
to such Liens that, if exercised, could adversely affect the value of the
collateral. In addition, the ability of the holders of the Notes to realize upon
any of the collateral may be subject to certain bankruptcy law limitations in
the event of a bankruptcy. See "Description of Notes -- Collateral," " --Certain
Covenants -- Limitations on Liens" and " -- Limitation on Incurrence of
Indebtedness."
Foreclosure Limitations. In any foreclosure sale of a gaming facility that
at the time of such foreclosure constituted direct or indirect security for the
Notes (or the stock of any subsidiary holding such facility), the purchaser or
the operator of such facility (or stock) would need to be licensed in order to
operate the facility under the local state gaming laws and the regulations
promulgated thereunder. Accordingly, the number of potential bidders in a
foreclosure sale could be less than in foreclosures of other types of
facilities, and such requirements may delay the sales of, and may adversely
affect the sales prices for, such facilities.
In addition, it will be impractical to sell the pledged portion of
Fitzgeralds Las Vegas without the consent and cooperation of the lessors of the
leased portion of this property. Even if consent to the encumbrances of the
leasehold interests is obtained, the leases do not contain mortgagee protections
that are often present in a financeable leasehold interest, and therefore the
ability of the holders of Notes to realize on such collateral may be impaired.
Also, the ability to take possession and dispose of the collateral likely will
be impaired or delayed by applicable bankruptcy law if a bankruptcy were to be
commenced by or against the entity which owns such collateral prior to the
Trustee's taking of possession or disposition of the collateral securing the
Notes.
For a description of certain additional foreclosure limitations, see
"Description of Notes -- Collateral."
GOVERNMENT REGULATION AND LICENSING
The ownership and operation of gaming facilities are subject to extensive
state, local and, with respect to facilities located on Indian land, federal and
tribal regulations as well. The Gaming Authorities (as hereinafter defined) in
the jurisdictions in which the Company operates have broad authority and
discretion to require the Company and its officers, directors, employees and
certain security holders to obtain various licenses, registrations, permits,
findings of suitability and other approvals. To enforce applicable gaming
regulations, Gaming Authorities may, among other things, limit, suspend or
revoke the licenses of any gaming entity or individual, and may levy fines or
forfeiture of assets against the Company or individuals for violations of gaming
laws or regulations. The
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<PAGE> 24
suspension or revocation of any of the Company's licenses or the levy on the
Company of substantial fines or forfeiture of assets would have a material
adverse effect on the Company. See "Regulation and Licensing."
To date, the Company has obtained all governmental licenses,
certifications, registrations, permits, findings of suitability and approvals
necessary for the operation of its gaming activities. The Company has either
obtained all approvals required to undertake the Exchange Offer. Moreover, the
foreclosure on any pledge of stock or other equity interest of a gaming licensee
made in connection with the Exchange Offer would require separate approval from
the appropriate Gaming Authorities in each jurisdiction in which the Company
currently operates. In addition, any future public offering of debt or equity
securities by the Company will require the prior approval of the Nevada Gaming
Authorities (as hereinafter defined) and the Mississippi Gaming Commission.
Gaming licenses and related approvals are deemed to be privileges under state
law, and no assurance can be given that any new licenses, permits or approvals
that may be required in the future will be given or that existing ones will not
be revoked.
Each holder of the Notes will be deemed to have agreed (to the extent
permitted by law) that if a relevant Gaming Authority determines that a holder
or beneficial owner of Notes must be licensed or found suitable under applicable
law, and if such holder or beneficial owner fails to apply or to become licensed
or found suitable, such holder will, upon the request of the Company, dispose of
such holder's Notes within 30 days after receipt of such request or such earlier
date as may be ordered by the relevant Gaming Authority. The Company will also
have the option to repurchase such holder's Notes at a price equal to the lesser
of such holder's cost and 100% of the principal amount thereof, plus accrued and
unpaid interest through the earlier of the date of redemption and the date of
finding of unsuitability.
In August 1996, President Clinton signed a bill creating the National
Gambling Impact Study Commission (the "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.
CERTAIN LEGAL PROCEEDINGS
In addition to various lawsuits relating to routine matters incidental to
its business, the Company has been involved in litigation regarding Harolds Club
and litigation regarding a road right-of-way for Fitzgeralds Tunica. Although no
assurance can be given, the Company believes that the resolution of such matters
will not have a material adverse effect on the Company. See "Business -- Legal
Proceedings."
FUTURE GROWTH AND FINANCING
The Company's growth strategy includes strengthening its existing
properties, which may include future development, construction and renovation
projects. The extent and timing of any such projects will depend upon various
factors, including available cash flow or the ability to obtain additional
financing. There can be no assurance that sufficient cash flow will be available
or that necessary financing will be available at all or on terms satisfactory to
the Company for such projects or for other purposes, including debt service
obligations. See " -- High Level of Indebtedness." In addition, the Company will
be subject to the risks inherent in any construction activity, including, but
not limited to, disruption of existing operations, delays in receipt of permits,
licenses or other regulatory approvals, shortages of materials or skilled labor,
work stoppages, and weather interferences, any of which could delay construction
or result in substantial cost increases to the Company. Although the Company has
no current intention to expand into additional jurisdictions, any decision to do
so in the future would be subject to similar risks and financing issues.
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FEDERAL INCOME TAXES
The Tax Court has recently upheld the disallowance by the Internal Revenue
Service (the "IRS") of a portion of the deduction claimed by another
Nevada-based gaming company for the cost of meals furnished to its employees.
Gaming industry representatives are currently engaged in discussions with the
IRS to clarify its position regarding implementation of this decision and to
minimize any impact on the industry should the decision become final. In
connection with the recent audit of the predecessor of FLVI for its taxable
years ended December 31, 1994, the IRS has raised similar issues regarding the
cost of meals furnished to employees. The Company has claimed aggregate
deductions for federal income tax purposes of approximately $1.8 million for the
cost of such meals provided to employees over the past three years. The IRS may
propose adjustments to the federal tax liability of such predecessor for the
year under audit and to the federal tax liability of the Company for subsequent
taxable years. The Company believes that it has appropriately determined its
federal tax liability for the years in question and intends to vigorously
contest any additional tax liability that may be asserted by the IRS.
In connection with a 1996 audit of Fitzgeralds Tunica, the IRS determined
that for the period June 1994 through December 1995 a total of 21 reportable
exceptions to the cash transaction reporting requirements had occurred. Although
the Treasury Department has discretionary authority to impose a fine with
respect to each such exception, no action has been taken to date. The Company
believes that such reporting exceptions do not warrant imposition of a material
fine, and that any fine, if imposed, would not be material in amount.
STATE GAMING TAXES
The Company believes that the prospect of significant tax revenue is one
of the primary reasons that many jurisdictions have legalized gaming. As a
result, gaming operators are typically subject to significant taxes and fees, in
addition to corporate income taxes, where applicable, and such taxes and fees
are subject to increase at any time. Any material increase in these taxes or
fees could adversely affect the gaming industry, including the Company. The
Company pays and expects to continue to pay substantial taxes and fees in
Nevada, Mississippi and Colorado and in any other jurisdiction in which it
conducts gaming operations. See "Regulation and Licensing."
SEASONALITY; SEVERE WEATHER; AND ABSENCE OF INSURANCE COVERAGE
The gaming operations of the Company in certain locations may be seasonal
and, depending on the location and other circumstances, the effects of such
seasonality could be significant. At Fitzgeralds Las Vegas, business levels are
generally weaker from Thanksgiving through the middle of January (except during
the week between Christmas and New Years) 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. As a result, the
Company's revenues, operating income and net income historically have been lower
in the first and fourth quarters than in the second and third quarters.
Consequently, interim results are not necessarily indicative of the full fiscal
year, and quarterly results may vary substantially, both within a fiscal year
and between comparable fiscal years. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company's results also are affected by inclement weather in the
relevant markets. For example, the Company's Tunica site, located on the
Mississippi River, is subject to flooding, especially in late-winter and
early-spring, as well as hurricanes and tornadoes. The Fitzgeralds Black Hawk
site, located in the mountains of Colorado, and the Fitzgeralds Reno site,
located in the foothills of the Sierra Nevada mountains in Nevada, are subject
to snow and icy road conditions during the winter months. Any such severe
weather conditions may discourage potential customers from visiting the
Company's facilities. It is unlikely that the Company will be able to obtain
business interruption coverage for casualties resulting from severe weather, and
there can be no assurance that the Company will be able to obtain casualty
insurance coverage at affordable rates for casualties resulting from severe
weather.
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AVAILABILITY AND RETENTION OF KEY MANAGEMENT
The Company's operations and development are dependent upon the efforts
and experience of its executive officers. Although the Company has entered into
employment agreements with Messrs. Griffith, Manske and McPherson to serve in
their present offices for terms expiring June 30, 1998, December 31, 1998 and
February 28, 1999, respectively, the loss of the services of any one of these
individuals could adversely affect the Company. The Company and Mr. Griffith
have begun discussing the terms of, and the Company anticipates that it will
enter into, a new employment agreement to replace the agreement expiring June
30, 1998. However, there can be no assurance that the Company will be able to
enter into a new agreement with Mr. Griffith on terms acceptable to the Company.
See "Management -- Employment Agreements."
CONTROL BY MAJORITY STOCKHOLDER
Philip D. Griffith, Chairman, President and Chief Executive Officer of the
Company, owns approximately 63.8% of the outstanding Common Stock of the Company
(excluding 83,333 options presently exercisable by Mr. Griffith). As a result,
Mr. Griffith will be able effectively to control the outcome of all matters
requiring stockholder approval and, since there are no cumulative voting rights,
will be able to elect all of the Company's directors. See "Security Ownership of
Certain Beneficial Owners and Management."
FRAUDULENT TRANSFER CONSIDERATIONS
The obligations of the Guarantors under the Subsidiary Guarantees may be
subject to review under state or federal fraudulent transfer laws in the event
of a Guarantor's bankruptcy or other financial difficulty.
Under such laws, if in a lawsuit by an unpaid creditor or representative
of creditors of a Guarantor, such as a trustee in bankruptcy or the Guarantor as
a debtor in possession under Chapter 11 of the Bankruptcy Code, a court were to
find that when the Guarantor executed its Subsidiary Guarantee (or, in some
jurisdictions, when it became obligated to make payments thereunder), it (a)
received less than fair consideration or reasonably equivalent value therefor
and (b) either (i) was or was rendered insolvent, (ii) was engaged in a business
or transaction for which its remaining unencumbered assets constituted
unreasonably small capital, or (iii) intended to incur or believed (or
reasonably should have believed) that it would incur debts beyond its ability to
pay as they matured, the court could avoid both the Guarantor's obligations
under its Subsidiary Guarantee and any security interest granted by the
Guarantor to secure its Subsidiary Guarantee, and direct the return of any
amounts paid thereunder to the Guarantor or to a fund for the benefit of its
creditors. It should be noted that a court could avoid a Guarantor's obligations
under its Subsidiary Guarantee without regard to factors (a) and (b) above, if
it found that the Guarantor executed its Subsidiary Guarantee with actual intent
to hinder, delay or defraud its creditors.
A court will likely find that a Guarantor did not receive fair
consideration or reasonably equivalent value for its Subsidiary Guarantee to the
extent that it did not benefit directly from the proceeds of the Notes.
Moreover, even if a portion of the proceeds of the Notes is used to repay a
Guarantor's existing debts, the court will likely find that the Guarantor did
not receive fair consideration or reasonably equivalent value for its Subsidiary
Guarantee to the extent that the Company incurred that existing debt in order to
finance the Guarantor's acquisition.
The measure of insolvency for purposes of the foregoing will vary
depending on the law of the jurisdiction being applied. Generally, however, an
entity would be considered insolvent if the sum of its debts (including
contingent or unliquidated debts) is greater than all of its property at a fair
valuation or if the present fair salable value of its assets is less than the
amount that will be required to pay its probable liability on its existing debts
as they become absolute and matured.
ABSENCE OF PUBLIC MARKET
The Old Notes were offered and sold pursuant to an exemption from
registration under applicable securities laws and were subject to significant
restrictions on resale. The New Notes are a new issue of securities for which
there is currently no active trading market. Each Initial Purchaser has advised
the Company that it currently intends to make a market in the Notes, but it is
not obligated to do so and may discontinue such activity at any time without
notice. Although the Company does not intend to list the Notes on any securities
exchange or to seek approval for quotation of the Notes through any automated
quotation system, the New Notes will be eligible for trading in the
over-the-counter ("OTC")
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market. However, there can be no assurance that an active trading market for
the New Notes will develop. If a market does develop, the price of the New Notes
may fluctuate and liquidity may be limited. If a market for the New Notes does
not develop, purchasers may be unable to resell such securities for an extended
period of time, if at all. If a trading market develops for the New Notes,
future trading prices of such securities will depend on many factors, including,
among other things, primarily interest rates, the Company's results of
operations and the market for similar securities.
DEPENDENCE UPON CASH FLOW FROM SUBSIDIARIES
The Company's operations are conducted through its direct and indirect
subsidiaries. As a holding company, the Company holds no significant assets,
other than its investments in and advances to its subsidiaries, and the Company
is dependent upon the cash flow of its subsidiaries to meet its own obligations.
Accordingly, the Company's ability to make interest and principal payments when
due to holders of the Notes is dependent upon the receipt of sufficient funds
from its subsidiaries, which ability may be limited by law, contract or
otherwise, as well as by the operating results of its subsidiaries. The
Subsidiary Guarantees provides the holders of Notes a direct claim against the
operating assets of the subsidiaries; however, the enforceability of the
Subsidiary Guarantees may be limited by state law suretyship defenses and state
and federal fraudulent transfer law. See " -- Fraudulent Transfer
Considerations."
APPLICATION OF ENVIRONMENTAL REGULATIONS
Generally, the Company and its subsidiaries are subject to a variety of
federal, state and local governmental laws and regulations relating to the use,
storage, discharge, emission and disposal of hazardous materials. While the
Company believes that it and its subsidiaries are presently in material
compliance with all environmental laws, failure to comply with such laws could
result in the imposition of severe penalties or restrictions on operations by
government agencies or courts that could adversely affect operations. In
addition, although the Company is not aware of any environmental contamination
at its properties, it has not conducted environmental investigations of all such
properties. The Company does not have insurance to cover environmental
liabilities, if any.
Specifically, the Black Hawk and Central City gaming districts, including
the Fitzgeralds Black Hawk site, are located within the 400-square mile area
that was designated in 1983 as the Central City/Clear Creek Superfund site (the
"Site") by the Environmental Protection Agency (the "EPA"), pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"). The Site includes numerous specifically identified areas of
mine tailings and other waste piles caused by historical mining activity in the
area that are the subject of ongoing investigation and clean-up by the EPA and
the Colorado Department of Public Health and Environment. CERCLA requires
remediation of sites from which there has been a release or threatened release
of hazardous substances and authorizes the EPA to take any necessary response
actions at Superfund sites, including authorizing potentially responsible
parties ("PRPs") to clean up or contribute to the clean-up of a Superfund site.
PRPs are broadly defined under CERCLA, and include past and present owners and
operators of a site. CERCLA imposes strict liability on PRPs, and courts have
commonly held PRPs to be jointly and severally liable for all response costs.
Fitzgeralds Black Hawk is not within any of the specific areas of the Site
currently identified by the EPA for investigation or remediation. The property
on which Fitzgeralds Black Hawk casino is situated was not an historical mining
site but rather was the location of a general store. The hotel and parking
complex, however, are situated over an historical mining site. Moreover, through
an independent environmental consultant, Phase I and other limited environmental
assessments of the real property underlying Fitzgeralds Black Hawk were prepared
in connection with the development of the property. Although test borings have
been recommended only in connection with any future construction on the
Expansion Parcel (see "Business -- Property"), to date no remediation
requirements have been recommended or required with regard to any portion of the
property. Based on the assessments to date, management is not aware of any
environmental problems affecting Fitzgeralds Black Hawk which are likely to
result in material costs to the Company. No assurance can be given, however,
that environmental problems will not be subsequently discovered. Furthermore,
the EPA or other governmental authorities could broaden their investigations and
identify additional areas within the Site for remediation. If Fitzgeralds Black
Hawk were included in additional areas of concern within the Site, the Company
could be identified as a PRP and any liability related thereto could have a
material adverse effect on the Company.
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In addition, under environmental laws and regulations, a beneficiary of a
deed of trust or mortgage on real estate, such as the trustee, may be held
liable, under certain circumstances, for the costs of remediating or preventing
releases or threatened releases of hazardous materials at a mortgaged property,
and for other rights and liabilities relating to hazardous materials. Under the
Indenture and related documents, the trustee is indemnified against its costs,
expenses and liabilities, including environmental cleanup costs and liabilities.
This could potentially reduce foreclosure proceeds to the holders of the Notes.
In addition, holders may act directly rather than through the trustee, in
specified circumstances, in order to pursue a remedy under the Indenture. If the
holders exercise that right, they could be subject to the risks discussed above.
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. The
costs associated with the Year 2000 project are expected to be approximately
$1.2 million for, collectively, Fitzgeralds Las Vegas, Fitzgeralds Reno,
Fitzgeralds Tunica and Fitzgeralds Black Hawk; however, the Company has not
finalized its investigation. Approximately $900,000 of the cost is expected to
be capitalized with the remaining amount expensed as incurred. 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.
CONSEQUENCES TO NON-TENDERING HOLDERS OF OLD NOTES
New Notes will be exchanged for Old Notes only after timely receipt by the
Exchange Agent of such Old Notes, a properly completed and duly executed Letter
of Transmittal and all other required documentation. Therefore, holders of Old
Notes desiring to tender such Old Notes in exchange for New Notes should allow
sufficient time to insure timely delivery. Neither the Exchange Agent nor the
Company is under any duty to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange. Old Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Old Notes who tenders in the Exchange Offer
for the purpose of participating in a distribution of the New Notes will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by
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<PAGE> 29
such broker-dealer as a result of market making activities or any other trading
activities, must acknowledge that it will deliver a Prospectus in connection
with any resale of such New Notes. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected due to the limited amount,
or "float" of the Old Notes that are expected to remain outstanding following
the Exchange Offer. Generally a lower "float" of a security could result in less
demand to purchase such security and could, therefore, result in lower prices
for such security. For the same reason, to the extent that a large amount of Old
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the New Notes could be adversely affected. See "Plan of
Distribution" and "The Exchange Offer."
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
in this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the terms of which are substantially identical to the New
Notes. The Old Notes surrendered in exchange for New Notes will not result in
any increase and indebtedness of the Company.
The net proceeds of the offering of the Old Notes (the "Offering"), after
deducting discounts and commission and offering expenses, were approximately
$193.9 million. The Company used the net proceeds to (i) repay the outstanding
$123.0 million of the 13% Senior Secured Notes due 2002 issued by the Company in
December 1995, (ii) repay the outstanding $5.4 million of the 13% Priority
Secured States due 1998 issued by the Company in December 1996, (iii) repay the
outstanding $39.7 million of the 13% First Mortgage Notes due 2000 issued by 101
Main in August 1997, (iv) repay approximately $20.1 million of other
indebtedness secured by Fitzgeralds Reno and (v) pay approximately $5.7 million
in interest on the foregoing.
CAPITALIZATION
The following table sets forth as of March 29, 1998 the consolidated cash
and capitalization of the Company. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
(DOLLARS IN THOUSANDS)
<S> <C>
CASH AND CASH EQUIVALENTS................................... $ 16,819
==========
SHORT-TERM DEBT............................................. $ 6,187
==========
LONG-TERM DEBT, NET OF CURRENT PORTION(1)................... $ 206,978
----------
CUMULATIVE REDEEMABLE PREFERRED STOCK(2).................... 20,766
----------
STOCKHOLDERS' DEFICIENCY:
Common Stock(3)........................................... 40
Additional paid-in capital................................ 23,650
Accumulated deficit....................................... (65,268)
----------
Total stockholders' deficiency.................... (41,578)
----------
TOTAL CAPITALIZATION........................................ $ 186,166
==========
</TABLE>
----------
(1) Includes the Notes, which have an aggregate principal balance of $205.0
million and an unamortized discount of $2.3 million.
(2) Recorded at liquidation preference ($20.0 million stated value plus
accrued dividends of $7.996 million), net of unamortized offering costs
and discount of $7.23 million.
(3) $.01 par value; 29,200,000 shares authorized; 4,012,846 shares
outstanding.
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<PAGE> 30
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold on December 30, 1997 to the Initial
Purchasers and the Initial Purchasers resold the Old Notes (A) to qualified
institutional buyers (as defined in Rule 144A under the Securities Act), (B) to
a limited number of other institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that, prior to their
purchase of any Old Notes, delivered to the Initial Purchasers and the Company a
letter containing certain representations and agreements and (C) outside the
United States to certain persons in reliance on Regulation S under the
Securities Act. In connection with the sale of the Old Notes, the Company and
the Initial Purchasers entered into the Registration Rights Agreement pursuant
to which the Company agreed to cause to become effective within 180 days after
December 30, 1997, a registration statement with respect to the Exchange Offer.
In the event that applicable interpretations of the staff of the Commission do
not permit the Company to effect the Exchange Offer and under certain other
circumstances, the Company will, at its cost, file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
Old Notes by the holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective by the Commission as promptly as practicable
after the date of filing.
The Exchange Offer is being made by the Company to satisfy its obligations
under the Registration Rights Agreement, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. Once
the Exchange Offer is consummated, the Company will have no further obligations
to register any of the Old Notes not tendered by the holders of the Old Notes
for exchange, except pursuant to a Shelf Registration Statement as provided in
the foregoing paragraph.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by Holders thereof who are not affiliates of the Company without
compliance with the registration and prospectus delivery provisions of the
Securities Act; provided that the holder is acquiring New Notes in the ordinary
course of its business and has no arrangement or understanding with any person
to participate in any distribution (within the meaning of the Securities Act) of
the New Notes. Persons wishing to exchange Old Notes in the Exchange Offer must
represent to the Company that such conditions have been met. However, any Holder
who tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the New Notes cannot rely on the
interpretation by the staff of the Commission set forth in the above referenced
no-action letters must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K of the Securities Act. Further, any
Holder who may be deemed an "affiliate" (as defined under Rule 405 of the
Securities Act) of the Company cannot rely on the interpretation by the staff of
the Commission set forth in the above referenced no-action letters with respect
to resales of the New Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
In addition, each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. See "Plan
of Distribution."
Except as aforesaid, this Prospectus may not be used for an offer to
resell, or for a resale or other transfer of New Notes.
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<PAGE> 31
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions of the Exchange Offer set
forth in this Prospectus and in the Letter of Transmittal, the Company will
accept any and all Old Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue $1,000
principal amount of New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the New Notes will not bear legends restricting
the transfer thereof and (ii) holders of the New Notes will not be entitled to
any of the rights of Holders of Old Notes under the Registration Rights
Agreement, which rights, excepting certain indemnification and other rights,
will terminate upon the consummation of the Exchange Offer. The New Notes will
evidence the same indebtedness as the Old Notes (which they replace) and will be
issued under, and be entitled to the benefits of the Indenture, which also
authorized the original issuance of the Old Notes, such that both series of
Notes will be treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $205.0 million aggregate principal
amount of Old Notes is outstanding. This Prospectus, together with the letter of
Transmittal, is being sent to such Holders registered as of June [24], 1998.
Only a registered holder of the Old Notes (or such holders legal representative
or attorney-in-fact) as reflected on the records of the Trustee under the
Indenture may participate in the Exchange Offer. There will be no fixed record
date for determining registered holders of the Old Notes entitled participate in
the Exchange Offer.
Holders of the Old Notes do not have any appraisal or dissenter's rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and the regulations of the Commission
thereunder.
In connection with the issuance of the Old Notes, the Company arranged for
the Old Notes to be issued and transferable in book-entry form through the
facilities of DTC, acting as depositary. The corresponding New Notes will be
issued and transferable in book-entry form through DTC. See "Description of
Notes -- Book-Entry," Delivery and Form."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay the expenses, other than
certain applicable taxes, of the Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean July 16, 1998 unless the Company in
its sole discretion extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
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<PAGE> 32
In order to extend the Expiration Date, the Company will notify the
Exchange Agent and the record Holders of Old Notes of any extension by oral or
written notice, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such notice may
state that the Company is extending the Exchange Offer for a specified period of
time or on a daily basis until 5:00 p.m., New York City time, on the date on
which a specified percentage of Old Notes are tendered.
The Company reserves the right to delay accepting any Old Notes, to extend
the Exchange Offer, to amend the Exchange Offer or to terminate the Exchange
Offer and not accept Old Notes not previously accepted if any of the conditions
set forth herein under " -- Conditions" shall have occurred and shall not have
been waived by the Company by giving oral or written notice of such delay,
extension, amendment or termination to the Exchange Agent. Any such delay in
acceptance, extension, amendment or termination will be followed as promptly as
practicable by oral or written notice thereof. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment in a manner reasonably calculated
to inform the Holders of such amendment and the Company will extend the Exchange
Offer as necessary to provide to the Holders a period of five to ten business
days, after such amendment, depending upon the significance of the amendment and
the manner of disclosure to Holders of the Old Notes, if the Exchange Offer
would otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
ACCRUED INTEREST ON THE NEW NOTES AND THE OLD NOTES
The New Notes will bear interest at a rate equal to 12-1/4% per annum from
their date of issuance. Interest on the New Notes is payable semi-annually on
June 15 and December 15 of each year, commencing December 15, 1998. Interest on
the New Notes will accrue from the last interest payment due date for which
interest was paid on the Old Notes surrendered in exchange for such New Notes,
or, if no interest has been paid on such Old Notes, from the date of original
issuance of such Old Notes. Such interest will be paid with the first interest
payment on the New Notes. Interest on the Old Notes accepted for exchange will
cease to accrue upon cancellation of the Old Notes and issuance of the New
Notes. Holders of Old Notes whose Old Notes are not exchanged will receive the
accrued interest payable on December 15, 1998.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a Holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by Instruction 4 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTCs Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at its
address set forth in " -- Exchange Agent" below prior to 5:00 p.m., New York
City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE
WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a Holder will constitute an agreement between such Holder
and the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
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<PAGE> 33
Delivery of all documents must be made to the Exchange Agent at its
address set forth below. Holders may also request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect the above
transactions for such Holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holders. Instead of delivery by mail, it is recommended that Holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company.
Only a Holder of Old Notes may tender such Old Notes in the Exchange
Offer. The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder.
ANY BENEFICIAL HOLDER WHOSE OLD NOTES ARE REGISTERED IN THE NAME OF ITS
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND WHO WISHES
TO TENDER SHOULD CONTACT SUCH REGISTERED HOLDER PROMPTLY AND INSTRUCT SUCH
REGISTERED HOLDER TO TENDER ON ITS BEHALF. IF SUCH BENEFICIAL HOLDER WISHES TO
TENDER ON ITS OWN BEHALF, SUCH BENEFICIAL HOLDER MUST, PRIOR TO COMPLETING AND
EXECUTING THE LETTER OF TRANSMITTAL AND DELIVERING ITS OLD NOTES, EITHER MAKE
APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE OLD NOTES IN SUCH HOLDER'S
NAME OR OBTAIN A PROPERLY COMPLETED BOND POWER FROM THE REGISTERED HOLDER. THE
TRANSFER OF RECORD OWNERSHIP MAY TAKE CONSIDERABLE TIME.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant hereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in the
United States or an institution which falls within the definition of "Eligible
Guarantor Institution" contained in Regulation 17Ad-1 5 under the Exchange Act
(an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers signed as the name of the
registered Holder or Holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority so to act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Old Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly
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<PAGE> 34
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders of Old
Notes, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of such Holder's business, that such Holder has no
arrangement with any person to participate in the distribution of such New
Notes, and that such Holder is not an "affiliate" (as defined under Rule 405 of
the Securities Act) of the Company. If the Holder is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
such Holder by tendering will acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) seeing
forth the name and address of the Holder of the Old Notes and the principal
amount of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together with
the certificate(s) representing the Old Notes to be tendered in proper form for
transfer (or a confirmation of a book-entry transfer into the Exchange Agent's
account at DTC of Old Notes delivered electronically) and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered Old
Notes in proper form for transfer (or confirmation of a book-entry transfer into
the Exchange Agent's account at DTC of Old Notes delivered electronically) and
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within five New York Stock Exchange trading days after the
Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have The Bank of New York (the "Trustee") with respect to
the Old Notes register the transfer of such Old Notes into the name of the
person withdrawing the tender, and (iv) specify the name in which any such Old
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which
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<PAGE> 35
have been tendered but which are not accepted for payment will be returned to
the Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under " -- Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes, if any of the
following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder,
violates applicable law or any applicable interpretation of the Commission;
(b) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might impair the ability of
the Company to proceed with the Exchange Offer; or
(c) there shall have been adopted or enacted any law, statute, rule
or regulation which, in the reasonable judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer.
If any such conditions exist, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to exchanging Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see " -- Withdrawal of Tenders") or (iii) waive certain of such
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn or revoked. If such waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver in a manner reasonably calculated to inform Holders of Old Notes of such
waiver.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition to the foregoing conditions, (i) if, because of any applicable
law or applicable interpretations thereof by the Commission, the Company is not
permitted to effect the Exchange Offer or (ii) if any Holder or Holders of Old
Notes notifies the Company within 20 business days of the Consummation of the
Exchange Offer (A) that any such Holder is prohibited by applicable law or
Commission policy from participating in the Exchange Offer, or (B) that any such
Holder may not resell the New Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and that this Prospectus is not
appropriate or available for such resales by such Holder, or (C) that any such
Holder is a broker-dealer and holds Old Notes acquired directly from the Company
or one of its affiliates, then the Company is required to file a Shelf
Registration Statement. Thereafter, the Company's obligation to consummate the
Exchange Offer shall be terminated.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Old Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Old Note, the
information required by Rule 144A(d)
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<PAGE> 36
(4) under the Securities Act in order to permit resales of such Old Notes
pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration
Statement effective to the extent necessary to ensure that it is available for
resales of transfer-restricted Old Notes by broker-dealers for a period not to
exceed 180 days from the Expiration Date, unless extended pursuant to the terms
of the Registration Rights Agreement and (iv) to provide copies of the latest
version of the Prospectus to broker-dealers upon their request for a period not
to exceed 180 days after the Expiration Date, unless extended pursuant to the
terms of the Registration Rights Agreement.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street, Floor 2100
New York, New York 10286
Attention: Corporate Trust Administration
By Hand:
The Bank of New York
101 Barclay Street, Floor 2100
New York, New York 10286
Attention: Corporate Trust Administration
By Overnight Courier:
The Bank of New York
101 Barclay Street, Floor 2100
New York, New York 10286
Attention: Corporate Trust Administration
By Facsimile:
The Bank of New York
101 Barclay Street, Floor 2100
New York, New York 10286
Attention: Corporate Trust Administration
Facsimile: 212-815-5915
Confirm by telephone: 212-815-3800
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by
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<PAGE> 37
them in forwarding copies of the Prospectus and related documents to the
beneficial owners of the Old Notes and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, are estimated in the aggregate to be approximately
$300,000, and include fees and expenses of the Exchange Agent and Trustee under
the Indenture and accounting and legal fees.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes, which is face value less unamortized original issue discount as reflected
in the Company's accounting records on the date of the exchange. Accordingly, no
gain or loss for accounting purposes will be recognized upon consummation of the
Exchange Offer. The issuance costs incurred in connection with the Exchange
Offer will be capitalized and amortized over the term of the New Notes.
LIQUIDATED DAMAGES
Generally, if (a) neither of the Registration Statements required by the
Registration Rights Agreement is filed on or before the 120th day following the
Closing Date, (b) neither the Exchange Offer Registration Statement nor the
Shelf Registration Statement is declared effective by the SEC on or prior to the
180th day following the Closing Date, (c) the Exchange Offer Registration
Statement becomes effective, and the Company fails to consummate the Exchange
Offer within 30 days following the effectiveness of such Registration Statement,
or (d) the Shelf Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of
transfer-restricted Old Notes during the period specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d) above
being an "Event" and the date on which an Event occurs being an "Event Date"),
then the Company will pay to each holder of the Old Notes, for each weekly
period beginning on the first Event Date (or if such Event has been cured, from
the next Event Date) an amount equal to the Weekly Liquidated Damages (as
defined below) per $1,000 principal amount of Registrable Securities (as defined
in the Registration Rights Agreement) held by such holder. Weekly Liquidated
Damages Amount means, with respect to any applicable Event, an amount per week
per $1,000 principal amount of Registrable Securities equal to (i) $.05 for the
first 90-day period immediately following the applicable Event Date, (ii) $.10
for the second 90-day period immediately following the applicable Event Date,
(iii) $.15 for the third second 90-day period immediately following the
applicable Event Date, and ($.20 thereafter until the applicable Event is cured.
Liquidated damages accrued as of any interest payment date will be payable on
such date.
CONSEQUENCES OF FAILURE OF NON-TENDERING HOLDERS TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Old Notes that are not exchanged for the New Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to a person whom the seller reasonably believes is a
"qualified institutional buyer" in a transaction meeting the requirements of
Rule 144A under the Securities Act, (ii) in a transaction meeting the
requirements of Rule 144 under the Securities Act, (iii) outside the United
States to a
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<PAGE> 38
person that is not a U.S. Person (as defined in Rule 902 under the Securities
Act) in a transaction meeting the requirements of Rule 904 under the Securities
Act, (iv) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel if
requested), (v) to the Company or (vi) pursuant to an effective registration
statement and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction.
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<PAGE> 39
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The consolidated operating data for the three years ended December 31,
1995, 1996 and 1997 and the consolidated balance sheet data as of December 31,
1996 and 1997 have been derived from the consolidated financial statements of
the Company audited by Deloitte & Touche LLP, independent auditors, and
contained elsewhere in this Prospectus. The consolidated operating data for the
years ended December 31, 1993 and 1994 and the consolidated balance sheet data
as of December 31, 1993, 1994 and 1995 have been derived from audited
consolidated financial statements of the Company, which are not contained in
this Prospectus. The financial data as of and for the quarters ended March 30,
1997 and March 29, 1998 are unaudited; however, in the opinion of management,
all adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the results for such periods, have been reflected therein.
The results of operations for the quarter ended March 29, 1998 are not
necessarily indicative of the results of operations that may be expected for the
full year in fiscal 1998. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Pro Forma Consolidated Financial Statements" and the Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED PRO FORMA
YEAR ENDED DECEMBER 31, --------------------- YEAR ENDED
--------------------------------------------------------- MARCH 30, MARCH 29, DECEMBER 31,
1993 1994 1995 1996 1997 1997 1998 1997 (1)
--------- --------- --------- --------- --------- --------- --------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Operating Revenues $ 110,057 $ 131,834 $ 141,397 $ 140,530 $ 179,702 $ 39,417 $ 47,418 $ 200,454
Income from Operations(2) 10,174 1,997 13,768 3,871 13,622 2,789 4,460 18,752
Interest Expense, Net 6,343 10,256 14,706 18,187 25,033 5,664 6,742 26,053
Net Income (Loss) 4,186 (5,979) (4,255) (13,494) (31,542) (3,423) (2,580) n/a
Net Loss per Common
Share - Basic(3) n/a n/a (1.09) (4.26) (8.89) (1.10) (0.93) n/a
OTHER DATA:
EBITDA:(4)
Fitzgeralds Las Vegas $ 6,946 $ 4,926 $ 4,084 $ 1,656 $ 2,651 $ 1,119 $ 1,624 $ 2,651
Fitzgeralds Tunica -- 1,505 9,934 3,790 11,744 3,081 2,283 11,744
Fitzgeralds Reno 10,500 8,345 7,009 4,596 5,462 628 200 5,462
Fitzgeralds Black Hawk -- -- -- -- 4,842 -- 2,849 11,597
Other(5) (1,080) (1,526) 1,667 2,874 4,111 799 1,156 3,569
--------- --------- --------- --------- --------- --------- --------- ---------
Total Properties 16,366 13,250 22,694 12,916 28,810 5,627 8,112 35,023
Nevada Club 1,384 506 392 (148) (1,282) (4) (402) (1,282)
Harolds Club (805) (3,489) (1,307) -- (1,853) -- -- (1,853)
--------- --------- --------- --------- --------- --------- --------- ---------
Total EBITDA 16,945 10,267 21,779 12,768 25,675 5,623 7,710 31,888
Adjustments to EBITDA(6) (82) 8,304 1,337 742 4,924 532 402 4,924
--------- --------- --------- --------- --------- --------- --------- ---------
Adjusted EBITDA $ 16,863 $ 18,571 $ 23,116 $ 13,510 $ 30,599 $ 6,155 $ 8,112 $ 36,812
========= ========= ========= ========= ========= ========= ========= =========
EARNINGS TO FIXED CHARGES:(7) 1.5x -- -- -- -- -- -- --
NET CASH PROVIDED BY
(USED IN):
Operating Activities $ 8,381 $ 7,738 $ 8,468 $ 759 $ 1,287 $ 784 $ 5,509 $ 7,092
Investing Activities (7,655) (34,736) (50,404) (6,368) (24,657) 524 (809) 54
Financing Activities 944 30,302 49,894 (885) 24,830 (1,725) (2,691) (5,686)
DEPRECIATION AND
AMORTIZATION 6,772 8,271 8,010 8,897 12,054 2,834 3,251 13,136
CAPITAL EXPENDITURES 6,913 46,046 14,957 57,026 3,944 1,499 2,544 4,147
</TABLE>
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<PAGE> 40
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, -----------------------
------------------------------------------------------------------- MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
-------- --------- --------- --------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash $ 8,582 $ 11,886 $ 19,844 $ 13,349 $ 14,810 $ 12,933 $ 16,819
Total Assets 93,598 137,660 197,213 191,179 215,695 187,012 216,228
Short-Term Debt 17,065 11,619 11,226 27,750 7,591 33,114 6,187
Long-Term Debt 53,772 100,849 139,467 127,882 206,191 121,422 206,978
Preferred stock, Net of
Offering Costs and
Discount -- -- 11,953 15,489 19,631 16,468 20,766
Stockholders' Equity
(Deficiency) 14,113 11,087 16,061 (2,043) (37,863) (6,545) (41,578)
</TABLE>
- --------------
(1) Pro Forma Statement of Operations and Other Data assume that the purchase
of the remaining 78% membership interest in 101 Main occurred January 1,
1997. See "Pro Forma Consolidated Statement of Operations."
(2) 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. 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.
(3) Net loss per common share is not applicable for 1993 and 1994 as the
Company was not a reporting company prior to 1995.
(4) 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.
(5) Other includes results for management fees and corporate costs not
allocated to the core properties.
(6) 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 $0.5 million for 1993,
$0.5 million for 1994 and $0.4 million for 1995; (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 $2.2 million for 1997;
(v) exclusion of Harolds Club lease settlement of $1.9 million for 1997;
and (vi) inclusion of $0.6 million for 1996, $1.0 million for 1997 and
$0.5 million for the quarter ended March 30, 1997 in cash received by the
Company as a result of its 22% membership in 101 Main.
(7) 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 $8.2 million, $0.6 million, $15.5 million, and $10.6
million for the years ended December 31, 1994, 1995, 1996, and 1997
respectively, by $2.8 million for the quarter ended March 30, 1997 and
$2.2 million for the quarter ended March 29, 1998, and on a pro forma
basis, by $11.6 million for the year ended December 31, 1997.
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<PAGE> 41
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, and other financial information appearing elsewhere
in this Prospectus, as well as the discussion under "Risk Factors."
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 $53.4
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.
The Company sold Harolds Club in Reno, Nevada in 1995 and has been
marketing the adjacent Nevada Club for sale. The Company received an offer to
purchase Nevada Club from an undisclosed purchaser, who is unaffiliated with the
Company, in late 1998 and, in anticipation of such sale, closed the Nevada Club
in December 1997. On June 8, 1998, the Company and the undisclosed purchaser
executed an Asset Purchase Agreement for the sale of the Nevada Club property in
the amount of $3,768,750. The effectiveness of the Asset Purchase Agreement is
contingent upon the execution and delivery of (i) certain other settlement and
lease termination agreements (collectively, the "Settlement Agreements") with
the current and prior Harolds Club land lessees (the "Lessees") and the Harolds
Club land owners (the "Landlords") and (ii) certain asset purchase agreements
between the Landlords and the undisclosed purchaser. Additionally, each of the
above agreements is conditioned upon the approval by the Federal Bankruptcy
Court (the "Court") of the transactions involving the Harolds Club. The Company
is currently engaged in negotiations with the Landlords and the Lessees, and the
undisclosed purchaser is currently engaged in negotiations with the Landlords.
However, there can be no assurance that such negotiations will be successfully
concluded, there can be no assurance that the Court will approve the
transactions and there can be no assurance as to when any such approval might be
granted.
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,
Fitzgerald's Black Hawk, and management fees received by FI (the "Properties").
RECENT EVENTS
On June 9, 1998, FAMI, as Manager of Cliff Castle, entered into a
Termination Agreement with the Nation wherein the parties mutually agreed to
terminate the Management Agreement. In exchange for terminating the Management
Agreement, the Nation agreed to pay FAMI a lump sum of $8.2 million, which was
received by FAMI on June 10, 1998.
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<PAGE> 42
On December 30, 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 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> 43
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, QUARTER ENDED
--------------------------------- ----------------------
MARCH 30, MARCH 29,
STATEMENT OF OPERATIONS DATA 1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Fitzgeralds Las Vegas $ 42,653 $ 43,483 $ 46,540 $ 12,038 $ 12,867
Fitzgeralds Tunica 46,466 48,748 68,734 16,198 16,458
Fitzgeralds Reno 40,212 37,076 39,803 8,408 8,008
Fitzgeralds Black Hawk(1) -- -- 12,692 -- 8,731
Other(2) 3,509 4,791 5,695 1,284 1,354
--------- --------- --------- --------- ---------
Total Properties 132,840 134,098 173,464 37,928 47,418
Nevada Club 7,037 6,432 6,238 1,489 --
Harolds Club 1,520 -- -- -- --
--------- --------- --------- --------- ---------
Total $ 141,397 $ 140,530 $ 179,702 $ 39,417 $ 47,418
========= ========= ========= ========= =========
INCOME (LOSS) FROM OPERATIONS:
Fitzgeralds Las Vegas $ 2,403 $ (330) $ (498) $ 355 $ 871
Fitzgeralds Tunica 6,230 (597) 6,013 1,637 817
Fitzgeralds Reno 4,997 2,318 3,211 54 (383)
Fitzgeralds Black Hawk(1) -- -- 4,215 -- 2,431
Other 1,667 2,861 4,011 795 1,130
--------- --------- --------- --------- ---------
Total Properties 15,297 4,252 16,952 2,841 4,866
Nevada Club 97 (381) (1,477) (52) (406)
Harolds Club (1,626) -- (1,853) -- --
--------- --------- --------- --------- ---------
Total $ 13,768 $ 3,871 $ 13,622 $ 2,789 $ 4,460
========= ========= ========= ========= =========
OTHER DATA
EBITDA(3):
Fitzgeralds Las Vegas $ 4,084 $ 1,656 $ 2,651 $ 1,119 $ 1,624
Fitzgeralds Tunica 9,934 3,790 11,744 3,081 2,283
Fitzgeralds Reno 7,009 4,596 5,462 628 200
Fitzgeralds Black Hawk(1) -- -- 4,842 -- 2,849
Other(4) 1,667 2,874 4,111 799 1,156
--------- --------- --------- --------- ---------
Total Properties 22,694 12,916 28,810 5,627 8,112
Nevada Club 392 (148) (1,282) (4) (402)
Harolds Club (1,307) -- (1,853) -- --
--------- --------- --------- --------- ---------
Total EBITDA 21,779 12,768 25,675 5,623 7,710
Adjustments to EBITDA 1,337 742 4,924 532 402
--------- --------- --------- --------- ---------
Adjusted EBITDA $ 23,116 $ 13,510 $ 30,599 $ 6,155 $ 8,112
========= ========= ========= ========= =========
NET CASH PROVIDED BY (USED IN):
Operating Activities $ 8,468 $ 759 $ 1,287 $ 784 $ 5,509
Investing Activities (50,404) (6,368) (24,657) 524 (809)
Financing Activities 49,894 (885) 24,830 (1,725) (2,691)
DEPRECIATION AND AMORTIZATION 8,010 8,897 12,054 2,834 3,251
CAPITAL EXPENDITURES 14,957 57,026 3,944 1,499 2,544
RATIO OF 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 4 and 6 of Notes
to "Selected Consolidated Financial and Other Data."
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<PAGE> 44
(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.
(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 $0.6 million, $15.5 million, and $10.6 million for the
years ended December 31, 1995, 1996, and 1997, respectively, and by $2.8
million for the quarter ended March 30, 1997 and $2.2 million for the
quarter ended March 29, 1998.
QUARTER ENDED MARCH 29, 1998 COMPARISON TO QUARTER ENDED MARCH 30, 1997
In the discussion below, the "1998 Period" refers to the quarter ended
March 29, 1998 and the "1997 Period" refers to the quarter ended March 30, 1997.
Operating Revenues
Total revenues for the Properties were $51.7 million and net operating
revenues for the Properties were $47.4 million for the 1998 Period,
representing, respectively, 25.3% and 25.0% increases over the Properties' total
revenues of $41.3 million and net operating revenues of $37.9 million for the
1997 Period. Such increases were due primarily to the consolidation of operating
results of Fitzgeralds Black Hawk for the 1998 Period which were not included in
the 1997 Period.
The Company's business can be separated into four operating departments:
casino, food and beverage, rooms and other. Casino revenues for the Properties
(approximately 80.3% and 75.5% of which are derived from slot machine revenues
for the 1998 and 1997 Periods, respectively) increased 32.2% to $38.8 million
for the 1998 Period from the $29.4 million recorded for the 1997 Period, due
principally to the consolidation of operating results of Fitzgeralds Black Hawk.
Casino revenues increased 10.5% at the Las Vegas property, due primarily to
improved marketing strategies and an effective guest development program. Casino
Revenues increased 3.2% at the Tunica property. Casino revenues decreased 4.8%
at the Reno property, due mostly to severe weather conditions throughout the
1998 Period which affected travel over the mountains to Reno, particularly on
weekends. Casino revenue for the Properties represented 75.1% and 71.1% of total
revenues for the Properties for the 1998 and 1997 Periods, respectively.
Room revenues for the Properties (at 9.3% and 11.8% of total revenues for
the Properties for the 1998 and 1997 Periods, respectively) decreased 1.7% from
the 1997 Period. Room Revenues at Fitzgeralds Tunica were essentially unchanged,
due to the combination of a higher average occupancy rate, which increased to
97.7% from 87.1% for the 1997 Period, offset by a decrease in the average daily
rate of 10.0% for the 1998 Period due to an increase in room capacity in the
market. Room revenues decreased 3.5% at Fitzgeralds Las Vegas while the
occupancy rate decreased to 92.0% from 93.8% for the 1997 Period and the average
daily rate decreased 1.4%. At Fitzgeralds Reno, room revenues also decreased
slightly. The occupancy rate decreased to 81.2% for the 1998 Period from 86.2%
for the 1997 Period, mainly due to severe weather conditions, but was offset by
a 7.7% increase in the average daily rate for the 1998 Period as the result of
room demand by the Men's National Bowling Tournament whose participants
primarily travel to Reno by air.
Food and beverage revenues for the Properties (at 11.5% and 12.0% of total
revenues for the Properties for the 1998 and 1997 Periods, respectively)
increased approximately $1.0 million or 20.1% from the 1997 Period to the 1998
Period. This increase was the result of the inclusion of Fitzgeralds Black Hawk
results of approximately $0.6 million as well as the additional Food revenues at
the Tunica, Las Vegas and Reno, which posted gains of 11.4%, 6.0% and 5.4%,
respectively.
Other Revenues for the Properties increased only slightly for the 1998
Period, primarily due to increased management fees from Cliff Castle for the
1998 Period offset by the termination of Fitzgeralds Black Hawk management fees
which were reported in the 1997 Period.
Promotional allowances for the Properties increased 28.4% for the year, as
a result of increases in volumes, partially offset by improved methods to award
complimentary goods and services and the inclusion of Fitzgeralds Black Hawk
promotional allowances for the 1998 Period.
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<PAGE> 45
Operating Costs and Expenses
Total operating costs and expenses for the Properties increased 21.3%, to
$42.6 million for the 1998 Period from $35.1 million for the 1997 Period, due to
the inclusion of Fitzgeralds Black Hawk operating expenses of approximately $6.3
million and increases in revenues and payroll costs.
Casino expenses for the Properties were $18.9 million for the 1998 Period,
a 29.3% increase from the $14.6 million for the 1997 Period, primarily due to
the inclusion of Fitzgeralds Black Hawk casino expenses, which accounted for
86.0% of the total increase for the 1998 Period. Food and beverage expenses for
the Properties increased 11.3%, to $4.1 million for the 1998 Period from $3.7
million for the 1997 Period. Room expenses for the Properties decreased 2.3%, to
$2.8 million for the 1998 Period from $2.9 million for the 1997 Period,
primarily as the result of improved efficiencies in operations and reduction of
revenue volumes. At the Las Vegas and Reno properties, room expenses decreased
by 8.0% and 8.3%, respectively, but increased at the Tunica property by 9.2%,
due primarily to increases in payroll costs. Selling, general and administrative
expense for the Properties increased 20.9%, to $13.0 million for the 1998 Period
from $10.7 million for the 1997 Period due mostly to increases in personnel and
marketing expenses, and inclusion of Fitzgeralds Black Hawk expenses for the
1998 Period, as explained further below.
Personnel expenses for the Properties increased 16.9%, to approximately
$18.0 million for the 1998 Period from approximately $15.4 million for the 1997
Period. This increase was due primarily to the inclusion of Fitzgeralds Black
Hawk personnel expenses, which accounted for 76.5% of the total increase for the
1998 Period, and a 14.3% increase at the Tunica property due to under-staffing
for a portion of the 1997 Period.
Marketing expenses for the Properties, which include advertising,
promotional material, special events and the operations of the Fitzgeralds card,
the increased 20.4% for the 1998 Period. The increase reflects more intensive
marketing efforts at the Tunica property undertaken in response to increasing
competitive activity and the inclusion of Fitzgeralds Black Hawk marketing
expenses, which accounted for 85.4% of the total increase for the 1998 Period.
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 16.5%,
to $3.2 million for the 1998 Period from $2.8 million for the 1997 Period. The
increase resulted primarily from the addition of Fitzgeralds Black Hawk
depreciation and amortization of $0.4 million.
Income from Operations
As a result of the foregoing, income from operations for the Properties
increased 71.3%, to $4.9 million for the 1998 Period from $2.8 million for the
1997 Period.
Net Interest Expense
Interest expense for the Properties (net of interest income), increased
19.1%, to $6.7 million for the 1998 Period from $5.6 million for the 1997
Period, primarily due to increased debt as a result of the purchase of the 78%
interest in 101 Main.
Net Loss
For the reasons described above, net loss for the Properties decreased to
$2.3 million for the 1998 Period as compared to $3.2 million for the 1997
Period.
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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.
Casino revenues for the Properties (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.
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.
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
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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.
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.
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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 $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.
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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.
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
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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
In December 1997, the Company issued $205.0 million 12-1/4% Senior Secured
Notes due 2004. Of the $202.6 million net proceeds, the Company used $123.0
million to retire its 13% Senior Secured Notes due 2002 With Contingent
Interest, $5.4 million to retire its 13% Priority Secured Notes due 1998, $39.7
million to retire the 101 Main 13% First Mortgage Notes due 2000; 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 31, 1997.
At March 29, 1998, the Company had unrestricted cash of $16.9 million,
compared to $14.8 million at December 31, 1997 and $12.9 million at March 30,
1997. The Company's primary sources of liquidity and cash flow during the 1998
Period were operations of $5.5 million, and proceeds from the sale of assets of
$0.5 million. Uses of liquidity during the 1998 Period included acquisition of
property and equipment of $1.2 million, repayment of long term debt of $2.0
million and payment of debt offering costs of $0.6 million.
Net cash used in investing activities was $0.8 million for the 1998 Period
as compared to net cash provided of $0.5 million for the 1997 Period. Net cash
used in financing activities was $2.7 million for the 1998 Period as compared
with net cash used of $1.7 million during the 1997 Period.
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 $1.0 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.
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<PAGE> 51
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
$1.0 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 was 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
March 29, 1998, the current owner of Harolds Club was approximately $1,251,000
in arrears in land lease payments and approximately $285,000 in arrears in
property taxes and assessments.
The current owner of Harolds Club and the five land lessors have received
an offer by an undisclosed purchaser,unaffiliated with the Company, to purchase
their respective interests in Harolds Club. The same undisclosed purchaser has
also made an offer to purchase the Nevada Club, 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 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 and cross-claims against FRI rising 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 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 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.
On June 8, 1998, the Company and the undisclosed purchaser executed an
Asset Purchase Agreement (the "Asset Purchase Agreement" for the sale of the
Nevada Club property in the amount of $3,768,750. The effectiveness of the Asset
Purchase Agreement is contingent upon the execution and delivery of (i) certain
other settlement and lease termination agreements (collectively, the "Settlement
Agreements") with the current and prior Harolds Club land lessees (the
"Lessees") and the Harolds Club land owners (the "Landlords") and (ii) certain
asset purchase agreements between the Landlords and the undisclosed purchaser.
Additionally, each of the above agreements is conditioned upon the approval by
the Federal Bankruptcy Court (the "Court") of the transactions involving the
Harolds Club. The Company is currently engaged in negotiations with the
Landlords and the Lessees, and the undisclosed purchaser is currently engaged in
negotiations with the Landlords. However, there can be no assurance that such
negotiations will be successfully concluded, there can be no assurance that the
Court will approve the transactions and there can be no assurance as to when any
such approval might be granted.
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. See
Part II, Item 1. Legal Proceedings.
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In December 1997, the Company closed the Nevada Club in anticipation of
the aforementioned sale. Upon the sale, a note payable by Nevada Club, Inc.
("NCI") to a bank, which is secured by Nevada Club assets and guaranteed by the
Chairman and Chief Executive Officer of the Company, will be retired. Such note
payable had a principal balance of $2.6 million as of March 29, 1998, and has
covenants placing certain restrictions on NCI and requiring that certain
financial ratios be maintained. As of March 29, 1998, 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; however, NCI continues to make
scheduled principal and interest payments on the note. Although the lender has
not taken any action to date with respect to the Company's failure to comply
with such covenants, the lender has notified the Company that it has not waived
such non-compliance. The lender has additionally stated that it will forbear
exercising any of its remedies provided that Nevada Club is sold by June 30,
1998, and the note is repaid in full at that time. The Company has informed the
lender as to the status of the negotiations for the sale of the Nevada Club and
anticipates that the lender will continue to forbear exercising any of its
remedies during such negotiations. However, there can be no assurance that
Nevada Club will be sold by June 30, 1998, and if it is not sold by June 30,
1998, that the lender will continue to forbear exercising its remedies after
June 30, 1998. A note payable by FRI to a trust which is also secured by Nevada
Club assets will be retired upon the sale. As of March 29, 1998, such note
payable had a principal balance of approximately $1.0 million. There can be no
assurance, however, that Nevada Club will be sold and the Harolds Club
settlement will be consummated. See Part II, Item 1. Legal Proceedings.
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 March 29, 1998, the Company had 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 $7.7 million for the 1998 Period and $5.6 million
for the 1997 Period. EBITDA is calculated by adding depreciation and
amortization expenses to income from operations. The Company's Adjusted EBITDA
was $8.1 million for the 1998 Period and $6.2 million for the 1997 Period.
Adjusted EBITDA is determined based on the adjustments described in Notes 4 and
6 of Notes to "Selected Consolidated Financial and Other 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 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 $2.2 million and
$2.8 million for the 1998 and 1997 Periods, respectively, and $10.6 million and
$15.5 million for the years ended December 31, 1997 and 1996, respectively.
BUSINESS SEASONALITY AND SEVERE WEATHER
The gaming operations of the Company in certain locations may be seasonal
and, depending on the location and other circumstances, the effects of such
seasonality could be significant. At Fitzgeralds Las Vegas, business levels
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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.
The Company's results are also affected by inclement weather in relevant
markets. The Fitzgeralds Black Hawk site, located in the mountains of Colorado,
and the Fitzgeralds Reno site, located in the foothills of the Sierra Nevada
mountains in Nevada, are subject to snow and icy road conditions during the
winter months. Any such severe weather conditions may discourage potential
customers from visiting the Company's facilities.
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. The
costs associated with the Year 2000 project are expected to be approximately
$1.2 million for, collectively, Fitzgeralds Las Vegas, Fitzgeralds Reno,
Fitzgeralds Tunica and Fitzgeralds Black Hawk; however, the Company has not
finalized its investigation. Approximately $900,000 of the cost is expected to
be capitalized with the remaining amount expensed as incurred. 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.
BUSINESS
OVERVIEW
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, Fitzgeralds Arizona Management Inc. ("FAMI"), a subsidiary
85% owned by the Company, had an exclusive agreement 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 "Nation"). On June 9, 1998,
FAMI entered into a Termination Agreement with the Nation wherein the parties
mutually agreed to terminate the Management Agreement. In exchange for
terminating the Management Agreement, the Nation agreed to pay FAMI a lump sum
of $8.2 million, which was received by FAMI on June 10, 1998. The Company
markets its properties primarily to middle-market customers,
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emphasizing its Fitzgeralds brand and its "Fitzgeralds Irish Luck" theme. As of
March 29, 1998 the Company operated a total of 3,682 slot machines, 110 table
games and approximately 1,500 hotel rooms in its Fitzgeralds-brand properties.
The Company has experienced a significant increase in EBITDA in 1997 as a
result of recent major capital improvements and the completion of the
acquisition of Fitzgeralds Black Hawk. During 1996, the Company invested over
$57 million in its properties, including the construction of a 507-room hotel
and a 10,000 square-foot special events center at Fitzgeralds Tunica and
extensive hotel and restaurant renovation and casino expansion at Fitzgeralds
Las Vegas. Primarily as a result of disruption caused by the construction and
renovation, EBITDA was negatively affected for the 1996 fiscal year. As of
December 31, 1996, the construction and renovation were substantially complete.
In August 1997, the Company acquired the remaining 78% membership interest in
101 Main, the entity that owns Fitzgeralds Black Hawk, for $27.3 million. The
Company had owned a 22% membership interest in 101 Main since February 1996 and
had managed Fitzgeralds Black Hawk since its opening in May 1995. The Company
generated net revenues of $179.7 million and Adjusted EBITDA of $30.6 million
for the fiscal year ended December 31, 1997 and net revenues of $47.4 million
and Adjusted EBITDA of $8.1 million for the quarter ended March 29, 1998.
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 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.
FITZGERALDS LAS VEGAS. The Company believes that Fitzgeralds Las Vegas
will continue to benefit from the Fremont Street Experience due to its corner
location on Fremont and Fourth Streets, directly across from the only vehicle
entrance to the Fremont Street Experience Parking Structure, and its close
proximity to substantially all in-line retail shopping near the Fremont Street
Experience. Construction on the Fremont Street Experience started in
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September 1994 and was substantially completed in November 1995. To more fully
capitalize on the Fremont Street Experience, the Company undertook an
approximately $19.4 million renovation and expansion of Fitzgeralds Las Vegas,
which started in April 1996 and was substantially completed in December 1996.
For 1997, compared to 1996, Fitzgeralds Las Vegas casino revenues increased 6.8%
while total casino revenues for the Las Vegas downtown market decreased .05%.
FITZGERALDS TUNICA. The Company believes that Fitzgeralds Tunica is well
positioned to capitalize on its unique Irish castle design and heavily wooded
121-acre Company-owned site. The Fitzgeralds Tunica casino was opened in June
1994 at a cost of approximately $46 million, and the addition of a 507-room
hotel and special events center was substantially completed in October 1996 at a
cost of approximately $34 million. The Company intends to further capitalize on
its location as the only Tunica casino-hotel on the Mississippi River. Among
other things, the Company is considering the addition of a dock (suitable for
large Mississippi River cruise operators and Memphis-based excursion boats) and
a Company-owned excursion boat to increase customer traffic and further
differentiate Fitzgeralds Tunica from other Tunica properties. The Company also
expects that a new casino trolley system, which commenced operation in December
1997, and the new inter-casino connector road, anticipated to open by mid-July
1998, will increase exposure and customer traffic to Fitzgeralds Tunica by
increasing accessibility and substantially decreasing the driving distance from
other Tunica gaming facilities. For 1997, compared to 1996, Fitzgeralds Tunica
casino revenues increased by 32.0% while total casino revenues for the Tunica
market increased 14.6%.
FITZGERALDS RENO. Fitzgerald's Reno is centrally located next to the
landmark Reno Arch in downtown Reno. The Company believes that the Reno gaming
market will continue to benefit from the National Bowling Stadium, increases in
airline passenger traffic and a new riverfront development project. The Company
completed construction, in February 1998, 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. The Company also believes that the recent renovation of the front entrance
and hotel rooms will further increase visibility and improve operations. For
1997, compared to 1996, Fitzgeralds Reno casino revenues increased 4.8% while
total casino revenues for the Reno market increased 2.0%.
FITZGERALDS BLACK HAWK. The Company believes that Fitzgeralds Black Hawk,
with its current market share of approximately 14%, is well positioned to take
advantage of the expected continuing growth of the Black Hawk gaming market.
According to the Rocky Mountain News, Denver metro residents voted Fitzgeralds
Black Hawk as having the "Best $1 Slots" and "Best $5 Slots" and its restaurant
as having the "best" variety, kitchen, desserts and full-service dining among
the casinos located in Colorado. The Company plans to build a 70- to 80-room
hotel, budgeted at $4 million, and casino expansion, budgeted at $6.0 million,
plus an additional $1.5 million for gaming equipment, with completion currently
expected in Spring 1999. The casino expansion is designed to provide an initial
increase in slot capacity of approximately 50%. For 1997, compared to 1996,
Fitzgeralds Black Hawk casino revenues increased 21.8% while total casino
revenues for the Black Hawk market increased 6.7%.
CURRENT PROPERTIES AND MARKETS
FITZGERALDS LAS VEGAS
PROPERTY. 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 March 29, 1998, the facility
contained a 638-room hotel (including 14 suites) and a casino offering 1,080
slot machines, 27 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.
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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 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 MARKET. 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.
The following tables set forth certain operating results for the downtown
Las Vegas gaming market and for Fitzgeralds Las Vegas for the years ended
December 31, 1995 through 1997, as reported by the Nevada State Gaming Control
Board with respect to the downtown Las Vegas gaming market.
DOWNTOWN LAS VEGAS GAMING MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
------------ ------------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Casino revenue......................... $642.3 $679.0 $678.5
% Change from prior period............. (6.0)% 5.7% (.1)%
Slot revenue as a % of casino revenue.. 67.0% 70.4% 70.6%
</TABLE>
FITZGERALDS LAS VEGAS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
----------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Casino revenue.......................... $30.4 $30.6 $32.7
% Change from prior period.............. (5.9)% 0.6% 6.8%
Slot revenue as a % of casino revenue... 73.4% 75.1% 74.8%
Market share............................ 4.7% 4.5% 4.8%
</TABLE>
FITZGERALDS LAS VEGAS STRATEGY. The Company believes that, among downtown
casinos, it is well positioned to benefit from the Fremont Street Experience due
to its location on Fremont Street, directly across from the only vehicle
entrance to the Fremont Street Experience Parking Structure, and its close
proximity to substantially all in-line retail shopping near the Fremont Street
Experience. In addition, Fourth Street, which runs between the Parking Structure
and Fitzgeralds Las Vegas, has been renovated, landscaped and reconfigured as a
one-way thoroughfare which serves as the main vehicle route into downtown Las
Vegas from the Las Vegas Strip.
The Company also believes that many gaming patrons choose to stay and play
in downtown Las Vegas because the downtown casinos have traditionally provided a
more comfortable and less intimidating environment and are perceived to offer
more liberal slot payouts and better odds on table games than casinos located on
the Las Vegas Strip. The renovation and expansion of Fitzgeralds Las Vegas,
which was substantially completed in December 1996, was designed to capitalize
on the anticipated increase in downtown visitors. The project included
renovation
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of all hotel rooms, the special events center, the casino entrance and facade
and all exterior signage. The first and second floors of the casino were also
renovated and expanded to add casino space offering an additional 110 slot
machines and a new restaurant complex. A balcony on the second floor of the
casino was added to capture the visual excitement of the Sky Parade Light Show
and other events. In addition, the main hotel and valet entrance, which will
also be signed and themed, will be moved from Third Street to Fourth Street in
mid-1998 to take better advantage of Fitzgeralds Las Vegas' proximity to Fourth
Street and the Fremont Street Experience Parking Structure. The Company
continues to upgrade its existing slot and table game products and anticipates
that it will complete the introduction of its fully integrated player tracking
system by the end of June 1998.
FITZGERALDS TUNICA
PROPERTY. 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 March 29, 1998, the facility included a
507-room hotel, special events center, indoor swimming pool and a casino
offering 1,219 slot machines and 39 table games, two bars, three restaurants and
a gift shop.
TUNICA MARKET. Gaming in Tunica commenced in October 1992. Gaming revenue
for the Tunica market has grown from approximately $740 million in 1996 to
approximately $848 million in 1997. The Company believes that Tunica gaming
revenue should continue to grow as infrastructure improvements and hotel rooms
are added. Tunica County has commenced construction on a new road connecting the
casino gaming areas to the north and south of the Fitzgeralds Tunica site, with
completion anticipated by June 1998. When completed, the connector road will
route traffic less than one mile (compared to the current five-mile trip) from
the entrance to Fitzgeralds Tunica as it crosses Fitzgeralds Boulevard and
significantly improve access to Fitzgeralds Tunica. It is also anticipated that
construction will commence in the first quarter of 1998 on a redesigned and
expanded intersection for Highways 61 and 304, with new signage, leading to
Fitzgeralds Tunica and the Tunica casino strip. In addition, it is estimated
that there were 5,500 hotel and motel rooms in the Tunica market as of January
1998. The market is also expected to benefit from the completion of amenities,
such as golf courses, convention space and other entertainment facilities.
The following tables set forth certain operating results for the Tunica
gaming market and for Fitzgeralds Tunica for the years ended December 31, 1995
through 1997, as reported by an independent source based on data from the Tunica
County Administrator's tax records with respect to the Tunica gaming market.
TUNICA GAMING MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
------------ ------------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Casino revenue......................... $624.4 $739.7 $848.0
% Change from prior period............. 51.5% 18.5% 14.6%
Slot revenue as a % of casino revenue.. 77.0% 80.0% 79.6%
</TABLE>
FITZGERALDS TUNICA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
----------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Casino revenue.......................... $44.9 $44.8 $59.1
% Change from prior period.............. 63.8% (0.2)% 32.0%
Slot revenue as a % of casino revenue... 81.5% 82.4% 83.8%
Market share............................ 7.2% 6.1% 7.0%
</TABLE>
FITZGERALDS TUNICA STRATEGY. 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 mid-July 1998, will increase exposure and customer
traffic to
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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.
The Company intends to further capitalize on its location as the only
Tunica casino-hotel on the Mississippi River. For example, the addition of a
dock (suitable for large Mississippi River cruise operators and Memphis-based
excursion boats) and a company-owned excursion boat are currently under
consideration at Fitzgeralds Tunica, which are intended to increase customer
traffic and further differentiate Fitzgeralds Tunica from other Tunica
properties. The Company intends to use the approximately 300-passenger excursion
boat as a marketing attraction for Fitzgeralds Tunica by offering sightseeing
tours, promotional programs and special events. Based on preliminary analysis
and budgets, it is currently estimated that the cost of construction of the dock
and acquisition of the excursion boat will approximate $1.75 million. Subject to
the availability of adequate cash flow and the receipt of all requisite permits,
licenses and approvals necessary for such a project, as to which there can be no
assurance, the Company currently anticipates completion of the dock and
commencement of excursion boat activities by December 1998. Subject to the
availability of financing or adequate cash flow, 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.
FITZGERALDS RENO
PROPERTY. 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 March 29, 1998, the facility consisted of a 16-story,
351-room hotel and a casino offering 866 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 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 or the
holders of the Notes, exercise any right, title, or interest it may hold or
obtain in the air rights parcel, no assurances can be made that such an exercise
will not occur.
RENO MARKET. The Reno market is an established, stable gaming market with
over 5 million visitors in 1996 and currently over 21,000 hotel and motel rooms.
Casino revenues have grown from approximately $919 million in 1994 to
approximately $995 million in 1997. The Company believes that following factors
will continue to expand the Reno gaming market: (i) the National Bowling
Stadium, which opened in February 1995; (ii) continued airport improvements and
expected increases in airline passenger traffic, which increased approximately
1.8% for 1997 and (iii) a proposed $20 million riverfront development project,
which is expected to include retail shopping, restaurants, movie theaters and
related amenities, located two blocks from Fitzgeralds Reno. The Company
believes that it benefited from the successful 1997 Womens National Bowling
Tournament, and expects to benefit from the 1998 Men's National Bowling
Tournament and other future activities at the National Bowling Stadium. The
National Bowling Stadium, with its 80 bowling lanes, Omni Max theater,
multi-media entertainment center, meeting space and parking facility, is located
one block from Fitzgeralds Reno. The Reno market also benefits from special
annual events in the Reno area including Hot August Nights, the National
Championship Air Races, the Reno Balloon Races and the Reno Rodeo, each of which
draws approximately 100,000 visitors to Reno.
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<PAGE> 59
The following tables set forth certain operating results for the Reno
gaming market and for Fitzgeralds Reno for the years ended December 31, 1995
through 1997, as reported by the Nevada State Gaming Control Board with respect
to the Reno gaming market.
WASHOE COUNTY (RENO) GAMING MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
------------ ------------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Casino revenue......................... $984.4 $975.7 $995.4
% Change from prior period............. 7.2% (0.9)% 2.0%
Slot revenue as a % of casino revenue.. 70.8% 70.7% 72.6%
</TABLE>
FITZGERALDS RENO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
----------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Casino revenue.......................... $32.2 $30.4 $31.8
% Change from prior period.............. 5.7% (5.7)% 4.8%
Slot revenue as a % of casino revenue... 67.4% 69.4% 71.7%
Market share............................ 3.3% 3.1% 3.2%
</TABLE>
FITZGERALDS RENO STRATEGY. The Fitzgeralds Reno 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 the Rainbow
Skyway, an enclosed temperature-controlled, themed pedestrian bridge, 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 in February 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
PROPERTY. 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 March 29,
1998, the main floor casino offered 517 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. In October 1996, according to
the Rocky Mountain News, Denver metro residents
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voted Fitzgeralds Black Hawk as having the "Best $1 Slots" and "Best $5 Slots"
and 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.
BLACK HAWK MARKET. The Black Hawk market, which includes only the City of
Black Hawk, attracts drive-in or "day trip" customers from the population
centers of Denver, Boulder and Fort Collins, Colorado as well as Cheyenne,
Wyoming. These population centers are located within a 170-mile radius of the
Black Hawk market. The population within this 170-mile radius has experienced
steady growth from a population of 2.8 million in 1990 to 3.4 million in 1997.
Gaming revenues have increased from approximately $56.2 million in 1992, the
first full year of gaming operations, to approximately $234.6 million in 1997.
For 1997, gaming revenues in the city of Black Hawk grew at a rate of 6.7%
compared to 1996. This growth is driven by continuing upgrades to Highway 119
and the Main Street redevelopment project which includes the Main & Gregory
street intersection now under construction. Additionally, a casino/hotel known
as the "Lodge," located at the eastern end of Black Hawk, is expected to open
the latter part of June 1998. The Lodge is expected to have approximately 50-60
hotel rooms, 800 slots, 18 table games, three restaurants and 800 parking
spaces, 300 on-site and 500 off-site.
The following tables set forth certain operating results for the Black
Hawk gaming market and for Fitzgeralds Black Hawk for the years ended December
31, 1995 through 1997, as reported by the Colorado Division of Gaming with
respect to the Black Hawk gaming market.
BLACK HAWK GAMING MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
------------ ------------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Casino revenue......................... $195.9 $219.9 $234.6
% Change from prior period............. 12.8% 12.3% 6.7%
Slot revenue as a % of casino revenue.. n/m 93.2% 93.9%
</TABLE>
FITZGERALDS BLACK HAWK
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
----------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Casino revenue.......................... $11.2 $26.9 $32.8
% Change from prior period.............. n/m n/m 21.7%
Slot revenue as a % of casino revenue... 91.7% 92.6% 92.6%
Market share............................ 5.7% 12.2% 14.0%
</TABLE>
FITZGERALDS BLACK HAWK STRATEGY. 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 August 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,
construction costs are estimated at approximately $6.5 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.
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<PAGE> 61
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>
MANAGEMENT AGREEMENTS
The Company receives monthly payments of $133,333 in lieu of management
fees from the Turning Stone Casino in Verona (near Syracuse), New York. Such
payments will cease in August 1998.
The Company will continue to consider other management opportunities which
may become available from time to time.
COMPETITION
The Company faces intense competition from other companies in the gaming
industry in each of the markets in which its gaming facilities are located. Some
of these companies have significantly greater name recognition and financial and
marketing resources than the Company. Such competition results, in part, from
the geographic concentration of competitors. All of the Company's casinos
primarily compete with other casinos in their immediate and surrounding
geographic areas. New expansion and development activity is occurring in each of
the relevant markets, which may be expected to intensify competitive pressures
on the Company's operations. All of the Company's casinos also compete to a
lesser extent with casinos in other locations, including Indian lands,
riverboats and cruise ships, and with other forms of legalized gaming in the
United States, including state-sponsored lotteries, on- and off-track wagering
and card parlors. Several states have considered legalizing casino gaming and
others may in the future. Legalization of large-scale, unlimited casino gaming
in or near any major metropolitan area or increased gaming in other areas could
have an adverse economic impact on the business of any or all of the Company's
gaming facilities. For example, the Company's casino in Tunica, Mississippi
competes for customers from Memphis, Tennessee and Little Rock, Arkansas, where
gaming activity is currently prohibited. The legalization of gaming in either of
those jurisdictions would likely have an adverse impact on the Company's
operations at Fitzgeralds Tunica. Colorado has experienced recent legislative
activity with respect to expanding gaming venues, but no such legislation has
been passed to date. There can be no assurance that the Company will be able to
continue to compete successfully in these or any other markets. See "Risk
Factors-Competition and Risks of Expanded Legalization of Gaming."
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<PAGE> 62
EMPLOYEES AND UNIONS
As of March 29, 1998, the Company indirectly employed approximately 3,354
persons. Fitzgeralds Las Vegas employed approximately 1,014 people,
approximately 451 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. The Culinary
and Bartenders Union notified the Company of its intent to seek changes and
modifications in the terms and conditions of its agreement and negotiations are
in progress. In addition, four employees are represented by the United
Brotherhood of Carpenters and Joiners of America, Silver State District Council
of Carpenters, Local No. 1780, under a contract which expires on July 31, 1998.
Fitzgeralds Tunica, Fitzgeralds Reno and Fitzgeralds Black Hawk employed
approximately 1,111, 874 and 318 people, respectively. None of the employees of
Fitzgeralds Tunica, Fitzgeralds Reno or Fitzgeralds Black Hawk are represented
by a union. In addition, the Company also directly employed approximately 37
people in its corporate offices. Management believes that it has excellent
relations with its employees and unions.
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. The Company also has a franchise license agreement with
Holiday Hospitality Franchising, Inc. to operate the Fitzgeralds Las Vegas hotel
as a Holiday Inn. See "-- Current Properties and Markets -- Fitzgeralds Las
Vegas -- Property."
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 (the "Court"). 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 was 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 or third party complaints against the
entities that are obligated to indemnify FRI under the various indemnification,
assignment and assumption, and guarantee agreements. Additionally, in or about
December 1997, one of the land lessors filed an additional action seeking rent,
taxes and assessments accruing from October 1997 through March 1998.
Orders granting summary judgment against FRI have been entered in five of
the actions for the aggregate sum of $1,302,827. 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
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<PAGE> 63
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 by an undisclosed purchaser, unaffiliated with the Company, to purchase
their respective interests in Harolds Club. The same undisclosed purchaser has
also made an offer to purchase the Nevada Club, 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 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 and cross-claims against FRI rising 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 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 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.
On June 8, 1998, the Company and the undisclosed purchaser executed an
Asset Purchase Agreement (the "Asset Purchase Agreement" for the sale of the
Nevada Club property in the amount of $3,768,750. The effectiveness of the Asset
Purchase Agreement is contingent upon the execution and delivery of (i) certain
other settlement and lease termination agreements (collectively, the
"Settlement Agreements") with the current and prior Harolds Club land lessees
(the "Lessees") and the Harolds Club land owners (the "Landlords") and (ii)
certain asset purchase agreements between the Landlords and the undisclosed
purchaser. Additionally, each of the above agreements is conditioned upon the
approval by the Federal Bankruptcy Court (the "Court") of the transactions
involving the Harolds Club. The Company is currently engaged in negotiations
with the Landlords and the Lessees, and the undisclosed purchaser is currently
engaged in negotiations with the Landlords. However, there can be no assurance
that such negotiations will be successfully concluded, there can be no assurance
that the Court will approve the transactions and there can be no assurance as to
when any such approval might be granted.
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. See
Part II, Item 1. Legal Proceedings.
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.
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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
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.
PROPERTIES
LAS VEGAS. Fitzgeralds Las Vegas is located in downtown Las Vegas, Nevada
on a site comprising substantially all of the city block bounded by Fremont,
Carson, Third and Fourth Streets. The Company's property includes a casino,
638-room hotel, 337-car parking structure and related amenities. Of the 32
contiguous lots comprising the block, 17 are owned by the Company. Of the
remaining 15 lots, 11 underlying the casino-hotel are held under four ground
leases with remaining terms expiring from 2038 to 2077 with monthly lease
payments aggregating $57,637.
TUNICA. Fitzgeralds Tunica is located on a 121-acre site owned by the
Company in Tunica, Mississippi. The property includes a casino, 507-room hotel
and parking for approximately 1,250 automobiles.
RENO. Fitzgeralds Reno is located in downtown Reno, Nevada. The Company's
property includes a casino, 351-room hotel and related amenities. Of the 10 lots
comprising the property, 9.5 lots (8.5 of which are contiguous) are owned by the
Company. Another 0.5 lot is held under a ground lease expiring on December 31,
2024 at a monthly rental of $8,749.
BLACK HAWK. The real property owned by the Company consists of several
parcels of land totaling approximately 70,870 square feet, located at the
intersection of Gregory and Main Street in Black Hawk, Colorado. Fitzgeralds
Black Hawk occupies an approximately 14,685 square foot portion of one parcel
(the "Casino Parcel") and the attached garage occupies approximately 20,000
square feet of another approximately 28,979 square-foot parcel (the "Garage
Parcel"). An old office building, currently occupied by the Company and two
unrelated tenants of the Company with leases expiring in August 1998, sits on an
approximately 8,178 square-foot portion of the third parcel (the "Expansion
Parcel"). Approximately 5,028 square feet of the Expansion Parcel remains
undeveloped and is situated between the office building and the casino. The
Casino Parcel is improved with a casino and related amenities; the Garage Parcel
is improved with a 400-space (all valet) parking garage; and the Expansion
Parcel is partially improved with the office building.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth certain information with respect to the
officers, directors and significant employees of the Company as of May 31, 1998:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ---- --- ----------------
<S> <C> <C>
Philip D. Griffith 53 Chairman, President, Chief Executive Officer and Director
Michael A. Ficaro 51 Director
Max L. Page 48 Director of the Company and Executive Vice President and a director of FRI and General
Manager of Fitzgeralds Reno
Patricia W. Becker 46 Director
Michael E. McPherson 47 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 58 Senior Vice President of Marketing of the Company
Cara L. Brown 35 Vice President and General Counsel of the Company
Domenic Mezzetta 62 Vice President and a director of FMI and General Manager of Fitzgeralds Tunica
William J. Noonan, III 46 Vice President and a director of FLVI and General Manager of Fitzgeralds Las Vegas
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 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.
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<PAGE> 66
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 Powerhouse Technologies, 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.
DOMENIC MEZZETTA was named Vice President and a director of a subsidiary
of the Company and General Manager of Fitzgeralds Tunica in May 1998, bringing
over 27 years of experience in the gaming industry to his new position. Prior to
joining the Company, Mr. Mezzetta served as Vice President and General Manager
of Hollywood Casino and Hotel in Tunica from January 1994 to May 1998; as Vice
President and General Manager of Island Fantasy Casino in Tunica from August
1993 to January 1994; as General Manager of El Capitan in Hawthorne, Nevada from
May 1990 to August 1993; as Assistant General Manager of the Stardust Hotel and
Casino in Las Vegas from May 1986 to May 1990; and as General Manager of Cactus
Pete's Resort Hotel and Casino in Elko, Nevada from October 1983 to May 1985;
and in various executive level positions at Harvey's Resort Hotel and Inn
Casinos at Lake Tahoe from July 1971 to October 1983.
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
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<PAGE> 67
Administration from the University of Kansas and a degree in Public
Administration/Economics from Southwest Missouri State University.
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 salaries, 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 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, Max L. Page 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.
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
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<PAGE> 68
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 3,206
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 9,975
Executive Vice President of 1996 200,000 5,000 - - 7,009
FRI & General Manager of 1995 200,000 - - 10,000 8,884
Fitzgeralds Reno
Fernando Bensuaski(5) 1997 200,353 - - -- 20,834
1996 257,200 - - -- 177
1995 73,315 - - 50,000 52
</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 $453 in premiums for life insurance and long disability policies for
Messrs. McPherson, Manske, Page and Bensuaski, respectively. See
Employment Agreements with Executive Officers and Key Employees.
4 Mr. McPherson was elected Senior Vice President, Chief Financial Officer
and Treasurer of the Company on August 1, 1997, and Secretary on September
7, 1997.
5 Mr. Bensuaski, formerly Executive Vice President and Chief Financial
Officer of the Company, resigned as an officer of the Company effective
September 7, 1997. 16,668 of Mr. Bensuaski's options expired unexercised
on September 7, 1997.
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<PAGE> 69
OPTION /SAR GRANTS TABLE
The following table sets forth, with respect to the named executive
officers, the information concerning the grant of stock options during the
fiscal year ended December 31, 1997. During fiscal year 1997, there was a total
of 321,000 new stock options granted, of which 147,000 stock options were
granted to named executive officers. The Company has never granted stock
appreciation rights ("SARs").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------------
Potential Realizable
Number of Percent of Total Value at Assumed
Securities Options/SARs Exercise Annual Rate of Stock
Underlying Granted to or Base Price Appreciation
Options/SARs Employees Price Expiration for Option Term(1)
Name Granted # in Fiscal Year ($/Sh) Date 5% 10%
------------------------- ----------------- ----------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Philip D. Griffith 100,000 33.0% 1.10 12/31/00 $127,339 $146,410
Michael E. McPherson 19,000 6.3% 1.00 12/31/00 21,995 25,289
Paul H. Manske 19,000 6.3% 1.00 12/31/00 21,995 25,289
Max L. Page 9,000 3.0% 1.00 12/31/00 10,419 11,979
Fernando Bensuaski* -- -- -- -- -- --
</TABLE>
- ---------------
1 The Company's Common Stock is not publicly traded.
* Mr. Bensuaski, formerly Executive Vice President and Chief Financial
Officer of the Company, resigned as an officer of the Company effective
September 7, 1997.
OPTION/SAR EXERCISES TABLE
The following table sets forth, with respect to the named executive
officers, information concerning the exercise of stock options during the fiscal
year ended December 31, 1997 and unexercised stock options held as of December
31, 1997.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-
Shares Options/SARs at Fiscal The-Money Options/SARs
Acquired on Value Year End (#) at Fiscal Year End
Name Exercise # Realized Exercisable Unexercisable ($)(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. The Company and Mr. Griffith have begun
discussing the terms of, and anticipate that the Company and Mr. Griffith will
enter into, a new employment agreement to replace the agreement expiring June
30, 1998. However, there can be no assurance that the Company will be able to
enter into a new agreement with Mr. Griffith on terms acceptable to the Company.
Messrs. Griffith, Manske, and McPherson and Ms. Brown, as of April 1, 1998, have
salaries of $496,125, $250,000, $225,000 and $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
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<PAGE> 70
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 7, 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 April 1, 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 to 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 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.
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
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<PAGE> 71
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.
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.
CERTAIN 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
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<PAGE> 72
under their respective notes, aggregating $1,807,255 in principal amount, on the
June 30, 1997 due date. All amounts owed 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 $117,138 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 $26,990. 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 31, 1998 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 "Executive Compensation"), and (iv) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES OWNED BENEFICIALLY
NAME(1) NUMBER OF SHARES PERCENTAGE
----- ---------------- ----------
<S> <C> <C>
Philip D. Griffith(2) 2,644,356 64.6%
Jerome H. Turk(3) 858,948 21.3%
Paul H. Manske(4) 134,898 3.3%
Michael E. McPherson(5) 24,853 *
Michael A. Ficaro(6) 6,333 *
Patricia W. Becker(7) 33,808 *
Max L. Page(8) 133,231 3.3%
Fernando Bensuaski(9) 33,332 *
All directors and executive officers as a group
(five persons) 2,842,581 68.6%
</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, which options expire
June 30, 1998.
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.
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<PAGE> 73
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 shares which may be acquired by Mr. Bensuaski upon exercise of
options exercisable within 60 days, which options expire on June 30, 1998.
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%.
REGULATION AND LICENSING
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 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
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<PAGE> 74
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.
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 and Fitzgeralds Reno 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 the voting securities of a Registered Corporation
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) 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.
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<PAGE> 75
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 voting securities of a Registered
Corporation 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, such as the Notes, to file
applications, be investigated and be found suitable to own the debt security of
a Registered Corporation if the Nevada Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. 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. In addition, the Company has the
right to require a holder of Notes who fails to apply for a license or a finding
of suitability as required by any Nevada Gaming Authority to dispose of its
Notes or to redeem such notes. See "Description of Notes --Redemption -- In
Accordance with Gaming Laws."
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. The
Exchange Offer will constitute a public offering (as defined in the Nevada Act)
and requires prior approval of the Nevada Commission upon the recommendation of
the Nevada Board, which approval has been obtained. The pledge of the equity
securities of a Corporate Licensee or an entity that is registered as an
Intermediary Company ("Stock Pledges") also requires the prior approval of the
Nevada Commission. In addition, restrictions on the transfer of an equity
security issued by a Corporate Licensee or Intermediary Company and agreements
not to encumber such securities (collectively, "Stock Restrictions") are
ineffective without the prior approval of the Nevada Commission. Therefore, the
Stock Pledges and the Stock Restrictions on the stock of FRI, FSI and FLVI in
respect of the Notes require the prior approval of the Nevada Commission to be
effective, which approval has been obtained. Certain transactions related to the
Exchange Offer also require prior approval of the Nevada Commission, including
(i) the issuance of guarantees of the Nevada Gaming Subsidiaries; (ii) the
hypothecation of assets by the Nevada Gaming Subsidiaries; (iii) the Stock
Pledges; and the (iv) the Stock Restrictions (collectively the "Related
Transactions"), which approvals have been obtained. Such approvals do 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.
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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 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 serving or selling of food or refreshments or
the selling of any 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 or enter into associations that are harmful to the State of Nevada
or its ability to collect gaming taxes and fees, or employ, contract or
associate with a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
Alcoholic Beverages. 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 license, and any such disciplinary action could (and
revocation would) have a material adverse effect on the operations of the Nevada
Gaming Subsidiaries.
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MISSISSIPPI GAMING REGULATION
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission (the "Mississippi
Commission") and the Mississippi State Tax Commission. The Company must register
under the Mississippi Gaming Control Act (the "Mississippi Act") and its gaming
operations are subject to the licensing and regulatory control of the
Mississippi Commission and various local, city and county regulatory agencies.
The Mississippi Act, which legalized dockside casino gaming in Mississippi, was
enacted on June 29, 1990. Although not identical, the Mississippi Act is similar
to the Nevada Act. Effective October 29, 1991, the Mississippi Commission
adopted regulations in furtherance of the Mississippi Act which are also similar
in many respects to the Nevada gaming regulations.
Under Mississippi law, gaming vessels in Tunica County must be located on
the Mississippi River or on navigable waters. Fitzgeralds Tunica was constructed
on barges situated in a specially constructed basin made a part of the
Mississippi River by a navigable inlet. On May 24, 1993, the Mississippi
Commission granted site approval to the Fitzgeralds Tunica site. On April 21,
1994, FMI, d/b/a Fitzgeralds Tunica, received a gaming operator's license from
the Mississippi Commission. At the same meeting, certain key principals of FMI
were found suitable. Said license and findings of suitability were renewed by
FMI, d/b/a Fitzgeralds Tunica, on March 21, 1996, and will expire on March 21,
1998. A condition placed on this license by the Mississippi Commission is that
the barge placement continue to meet the statutory requirements of navigability.
Fitzgeralds Tunica opened on June 6, 1994.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Commission seek to: (i) prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Commission; (iv) prevent cheating and
fraudulent practices; (v) provide a source of state and local revenues through
taxation and licensing fees; and (vi) ensure that gaming licensees, to the
extent practicable, employ Mississippi residents. The regulations are subject to
amendment and interpretation by the Mississippi Commission.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Gulf Coast or the
Mississippi River but only if the voters in such counties have not voted to
prohibit gaming in that county. As of November 20, 1997, dockside gaming was
permissible in nine of the 14 eligible counties in the State and gaming
operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren
and Washington counties. The law permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. There are no limitations on the number of
gaming licenses which may be issued in Mississippi. The legal age for gaming in
Mississippi is 21.
The Company and FMI are required to submit detailed financial, operating
and other reports to the Mississippi Commission. Substantially all loans,
leases, sales of securities and similar financing transactions entered into by
the Company and FMI must be reported to or approved by the Mississippi
Commission. FMI is also required to periodically submit detailed financial and
operating reports to the Mississippi Commission and to furnish any other
information required thereby.
Each of the directors, officers and key employees of the Company who are
actively and directly engaged in the administration or supervision of gaming, or
who have any other significant involvement with the activities of the Company,
and each of the officers and directors and certain employees of FMI, must be
found suitable therefor, and may be required to be licensed, by the Mississippi
Commission. The finding of suitability is comparable to licensing, and both
require submission of detailed personal financial information followed by a
thorough investigation. In addition, any individual who is found to have a
material relationship to, or material involvement with, the Company or FMI may
be required to be investigated in order to be found suitable or to be licensed
as a business associate of the Company or FMI. Key employees, controlling
persons or others who exercise significant influence upon the management or
affairs of the Company or FMI may also be deemed to have such a relationship or
involvement. There can be no assurance that such persons will be found suitable
by the Mississippi Commission. An application
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for licensing may be denied for any cause deemed reasonable by the Mississippi
Commission. Changes in licensed positions must be reported to the Mississippi
Commission. In addition to its authority to deny an application for a license,
the Mississippi Commission has jurisdiction to disapprove a change in corporate
position. If the Mississippi Commission were to find a director, officer or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or FMI, the Company or FMI would have to suspend,
dismiss and sever all relationships with such person. The Company or FMI would
have similar obligations with regard to any person who refuses to file
appropriate applications. Each gaming employee must obtain a work permit which
may be revoked upon the occurrence of certain specified events.
Mississippi statutes and regulations give the Mississippi Commission the
discretion to require a suitability finding with respect to anyone who acquires
any security of the Company or FMI, regardless of the percentage of ownership.
The current practice of the Mississippi Commission is to require anyone
acquiring 5% or more of any voting securities of a public company with a
licensed subsidiary or private company licensee to be found suitable. If the
owner of voting securities who is required to 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 owner of voting securities found unsuitable and who holds, directly or
indirectly, any beneficial ownership of equity interests in the Company or FMI
beyond such period of time as may be prescribed by the Mississippi Commission
may be guilty of a misdemeanor. 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 Mississippi Commission may be found unsuitable. The Company or FMI is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be an owner of or to have any other relationship with it, the
Company or FMI (i) pays the unsuitable person any dividends or interest upon any
of its securities or any payments or distribution of any kind whatsoever, (ii)
recognizes the exercise, directly or indirectly, of any voting rights in its
securities by the unsuitable person or (iii) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
limited and specific circumstances. In addition, if the Mississippi Commission
finds any owner of voting securities unsuitable, such owner must immediately
surrender all securities to the Company or FMI, as applicable, and the Company
or FMI must purchase the security so offered for cash at fair market value
within 10 days.
The Company and FMI will be required to maintain current ownership ledgers
in the State of Mississippi which may be examined by the Mississippi Commission
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 Mississippi Commission. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company and FMI also are
required to render maximum assistance in determining the identity of the
beneficial owner. The Company may be required to disclose to the Mississippi
Commission upon request the identities of the holders of the Senior Secured
Notes. In addition, the Mississippi Commission under the Mississippi Act may, in
its discretion, (i) require holders of debt securities, such as the Notes, of
registered corporations to file applications, (ii) investigate such holders and
(iii) require such holders to be found suitable to own such debt securities.
Although the Mississippi Commission generally does not require the individual
holders of obligations such as Notes to be investigated and found suitable, the
Mississippi Commission retains the discretion to do so for any reason, including
but not limited to a default, or where the holder of the debt instrument
exercises a material influence over the gaming operations of the entity in
question. Any holder of debt securities required to apply for a finding of
suitability must pay all investigative fees and costs of the Mississippi
Commission in connection with such an investigation.
The regulations provide that a change in control of the Company or FMI may
not occur without the prior approval of the Mississippi Commission. Mississippi
law prohibits the Company from making a public offering or private placement of
its securities without the approval of or waiver of approval by the Mississippi
Commission if any part of the proceeds of the offering is to be used to finance
the construction, acquisition or operation of gaming facilities in Mississippi,
or to retire or extend obligations incurred for one or more of such purposes.
Mississippi law also prohibits the Company from pledging or otherwise placing
restrictions on the stock of FMI without the prior approval of the Mississippi
Commission. On November 20, 1997, the Mississippi Commission approved the
Offering and certain other transactions to be consummated in connection
therewith, including the pledge of the stock of FMI.
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The Mississippi Act requires that certificates representing securities of
the Company or FMI bear a legend to the general effect that the securities are
subject to the Mississippi Act and regulations of the Mississippi Commission.
The Mississippi Commission, through the power to regulate licensees, has the
power to impose additional restrictions on the holders of the Company's or FMI's
securities at any time.
As Mississippi licensees, neither the Company nor FMI may engage in gaming
activities outside Mississippi without approval of the Mississippi Commission.
Such approval has been granted by the Mississippi Commission for those
jurisdictions in which the Company or FMI is currently operating.
The licenses obtained by the Company and FMI are not transferable and new
licenses must be obtained every two years. There can be no assurance that any
subsequent application will be approved. Each issuing agency may at any time
dissolve, suspend, condition, limit or restrict a license or approval to own
equity interests in the Company or FMI for any cause deemed reasonable by such
agency. Substantial fines for each violation of gaming laws or regulations may
be levied against the Company or FMI in Mississippi. A violation under any
gaming license held by the Company or FMI may be deemed a violation of all the
other licenses held by the Company or FMI. Suspension or revocation of any of
the foregoing licenses or of the approval of the Company or FMI would have a
material adverse effect upon the business of the Company.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Mississippi and to the counties and
cities in which FMI's operations will be conducted. Depending upon the
particular fee or tax involved, these fees and taxes are payable either monthly,
quarterly or annually and are based upon (i) the percentage of the gross gaming
revenues received by the casino operation, (ii) the number of slot machines
operated by the casino, (iii) the number of table games operated by the casino
or (iv) the number of casino patrons. The foregoing license fees are allowed as
a credit against FMI's Mississippi income tax liability for the year paid.
In October 1994, the Mississippi Commission adopted a regulation
requiring, as a condition of licensure or license renewal, that a gaming
establishment's site development plan include an approved 500-car parking
facility in close proximity to the casino complex and infrastructure facilities
which will amount to at least 25% of the casino cost. Such facilities may
include any of the following: a 250-room hotel of at least a two-star rating (as
defined by the current edition of the Mobil Travel Guide) a theme park, a golf
course, marinas, a tennis complex, entertainment facilities or any other such
facility as approved by the Mississippi Commission as infrastructure. Parking
facilities, roads, sewage and water systems or facilities normally provided by
governmental entities are excluded. The Mississippi Commission may, in its
discretion, reduce the number of hotel rooms and parking spaces required where
it is shown, to the satisfaction of the Mississippi Commission, that sufficient
rooms are available to accommodate the anticipated visitor load. Such reduction
in the number of rooms does not impact the 25% investment requirement imposed by
the regulation. The number of parking spaces may also be reduced to accommodate
smaller casinos. The Company met such requirements with the opening of the
Fitzgeralds Tunica Hotel and related facilities in 1996.
The sale of alcoholic beverages, including beer and wine, at Fitzgeralds
Tunica is subject to licensing, control and regulation by the Alcoholic Beverage
Control Division (the "ABC") of the Mississippi State Tax Commission. The ABC
requires that all equity owners and managers file personal record forms and
fingerprint forms for their licensing process. In addition, owners of more than
5% of FMI's equity and FMI's officers and managers must submit detailed
financial information to ABC for licensing. All such licenses are revocable and
are non- transferable. The Mississippi State Tax Commission has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of Fitzgeralds Tunica.
COLORADO GAMING REGULATION
Colorado legalized limited gaming by constitutional amendment approved by
Colorado voters on November 6, 1990. The Colorado legislature thereafter enacted
the Limited Gaming Act of 1991 (the "Colorado Act") to implement the provisions
of the constitutional amendment and limited gaming commenced in Colorado on
October 1, 1991. The Colorado Act authorizes limited gaming only in certain
designated commercial districts of Central City,
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Black Hawk and Cripple Creek, Colorado. Limited gaming consists of poker,
blackjack and slot machines, all with maximum single bets of five dollars. Only
persons aged 21 or older may participate in limited gaming, and limited gaming
is prohibited between the hours of 2:00 a.m. and 8:00 a.m. Limited gaming is
only allowed on premises licensed for that purpose, and the licensed premises of
any building may not exceed 35% of the square footage of the building and no
more than 50% of any floor of such building.
Pursuant to the Colorado Act and the rules and regulations promulgated
thereunder (collectively, the "rules"), the ownership and operation of limited
gaming facilities in Colorado, however acquired, are subject to extensive
regulation. The Colorado Act created the Division of Gaming (the "Colorado
Division") within the Colorado Department of Revenue and the Colorado Limited
Gaming Control Commission (the "Colorado Gaming Commission") to license,
implement, regulate, and supervise the conduct of limited gaming. The Director
of the Colorado Division (the "Colorado Director"), under the general
supervision of the Colorado Gaming Commission is granted broad powers to ensure
compliance with the Colorado Act and the rules.
The Colorado Gaming Commission has authority to issue retail gaming,
operator, key employee and support licenses for slot machine manufacturers and
distributors. The Colorado Director also has the authority to issue key employee
and support licenses. All such licenses are for renewable one-year periods. The
Colorado Gaming Commission has broad discretion to condition, suspend, revoke,
limit or restrict a license at any time. The Colorado Gaming Commission may
issue temporary licenses with a duration of up to six months. The Colorado
Gaming Commission also has authority to impose fines against licensees.
All license applicants must demonstrate to the Colorado Gaming Commission
that they are suitable for licensing and are of good moral character. Applicants
who are career offenders, have certain criminal convictions, have associations
with career offender cartels or have certain pending criminal charges are
disqualified from licensure. Licensure by the Colorado Gaming Commission or the
Colorado Director is a revocable privilege and not a vested interest or property
right. All licenses are nontransferable.
A retail gaming license is required for all persons permitting or
conducting limited gaming on their premises. In addition, an operator license is
required for all persons who permit slot machines on their premises or who
engage in the business of placing and operating slot machines on the premises of
a retail gaming licensee. No person may have an ownership interest in more than
three retail licenses. With certain exceptions for licensed operators, a slot
machine manufacturer or distributor license is required for all persons who
manufacture, import, distribute, sell or lease for a fixed or flat fee, slot
machines in Colorado.
All natural persons employed in the field of limited gaming and all gaming
employees must hold either a support or key employee license. A key employee is
an executive, employee or agent of a gaming licensee having the power to
exercise a significant influence over decisions concerning any part of the
operation of a gaming licensee. The Colorado Gaming Commission may determine
that any employee of a licensee is a key employee and, therefore, require that
such person apply for licensing as a key employee.
All applicants for Colorado gaming licenses must complete comprehensive
application forms, pay required fees, and provide all information required by
the Colorado Gaming Commission and the Colorado Division. The Colorado Division
conducts a thorough background investigation of each applicant or any persons or
entities associated with the applicant. The investigation may cover the
background, personal history, financial associations, character, record and
reputation of the applicant. The applicant pays the full cost of the background
investigation. There is no limit on the cost or duration of the background
investigation. Applicants who do not provide all requested information during a
background investigation may be denied a gaming license.
The current practice of the Colorado Division and the Colorado Gaming
Commission, which may change at any time, is to require every officer and
director, or equivalent office holders for non-corporate applicants, and 5% or
greater beneficial owners of an applicant or licensee to complete background
investigation forms, provide comprehensive information and submit to a full
background investigation conducted by the Colorado Division and Colorado Gaming
Commission. The Colorado Division may, and sometimes does, require information
from and conducts background investigations of persons holding less than a 5%
beneficial interest in an applicant or licensee.
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In addition, all persons loaning monies, goods, or real or personal
property to a licensee or applicant, or having any interest in a licensee or
applicant, or entering into any agreement with a licensee or applicant, must
provide any information requested by the Colorado Division or Colorado Gaming
Commission; and in the discretion of the Colorado Division or the Colorado
Gaming Commission, these persons must supply all information relevant to a
determination of any such person's suitability for licensure and must submit to
a full background investigation if ordered by the Colorado Gaming Commission.
Failure promptly to provide all information requested, or to submit to a
suitability or background investigation, may result in the denial of a license
application, suspension or revocation of an existing license, termination of any
lease, note, arrangement, or agreement between the applicant or licensee and the
person requested to provide the information, and other sanctions. Applicants and
licensees may be required by the Colorado Gaming Commission to pay the costs of
background, suitability, or other investigations of persons associated with the
applicant or licensee. Investigations for suitability, background, or any other
reason may delay license application or the operation under any agreement with a
licensee. All agreements, contracts, leases or arrangements in violation of the
Colorado Act or the rules are void and unenforceable.
Persons found unsuitable by the Colorado Gaming Commission may be required
immediately to terminate any interest in, association or agreement with, or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant may also jeopardize the licensee's license or applicant's license
application. Licenses may be conditioned upon termination of any relationship
with unsuitable persons.
The Colorado Act and the rules require licensees to maintain detailed
books and records which accurately account for all monies and business
transactions. Books and records must be furnished upon demand to the Colorado
Gaming Commission, the Colorado Division and other law enforcement authorities.
The rules also establish extensive playing procedures, standards, requirements
and rules of play for poker, blackjack and slot machines.
Retail gaming licensees must, in addition, adopt comprehensive internal
control procedures governing their limited gaming operations. Such procedures
include the areas of accounting, internal fiscal control, surveillance,
security, cashier operations, key control, reporting procedures, personnel
procedures and fill and drop procedures, among others. Such procedures must be
approved in advance by the Colorado Division. Licensees are prohibited from
engaging in fraudulent acts which include, among other things, misrepresenting
the probabilities of pay out, improperly canceling a bet, conducting limited
gaming without a valid license and employing an unlicensed person in a position
which requires a licensed employee. Licensees must report to the Colorado
Division all licenses, and all applications for licenses, in foreign
jurisdictions.
With limited exceptions applicable to licensees that are publicly traded
entities, no person, including persons who may acquire an interest in a licensee
pursuant to a foreclosure, may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Gaming Commission.
The rules impose certain additional restrictions and reporting and filing
requirements on publicly traded entities holding gaming licenses in Colorado and
on gaming licensees in Colorado owned directly or indirectly, five percent or
more, by publicly traded entities. Such rules apply to the Company. In addition,
gaming licensees, affiliated companies, and controlling persons thereof, must
comply with notice requirements upon the filing of registration statements with
the Securities and Exchange Commission. Such entities also must include certain
provisions in their charter or other organizational documents restricting the
transfer of interests in the entity except in compliance with the Colorado Act.
The Colorado Gaming Commission may require persons affiliated with, and certain
direct or indirect owners of, such entities to apply for a finding of
suitability. If found unsuitable, such persons must terminate their relationship
with the entity and such owners must sell their interest back to the issuer or
to a suitable person approved by the Colorado Gaming Commission.
The State of Colorado has enacted an annual tax on the adjusted gross
proceeds ("AGP") from limited gaming. AGP is generally defined as the amounts
wagered minus payments to players. For poker, AGP means those sums wagered in a
hand retained by the licensee as compensation. Currently, the gaming tax on AGP
is: 2% on the first $2 million; 4% on AGP over $2 million to $4 million; 14% on
AGP over $4 million to $5 million; 18% on AGP over $5
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million to $10 million; and 20% on all AGP above $10 million. The gaming tax is
paid monthly, with licensees required to file returns by the 15th of the
following month. Effective October 1 of each year, the Colorado Gaming
Commission establishes the gaming tax rates for the following 12 months. Under
the Colorado Constitution, the Colorado Gaming Commission may increase the
gaming tax rate to as much as 40% of AGP.
The Colorado Gaming Commission requires all gaming licensees to pay an
annual device fee for each slot machine, blackjack table and poker table. The
current state device fee, established October 1, 1997, is $56.25. The
municipalities of Central City, Black Hawk and Cripple Creek also assess and
collect separate device fees. The current annual device fee in Black Hawk is
$750 per device. There is no statutory limit on state or city device fees, which
may be increased at the discretion of the state or city. The state device fee is
not prorated; a device used at any time during the year is assessed the full
state fee. Local device fees may be prorated according to device usage; the City
of Black Hawk currently pro rates device fees such that any device used at any
time during a calendar quarter is subject to the device fee for such calendar
quarter. In addition, business improvement fees of $100 per device and
transportation impact fees of $77 per device are currently imposed. Black Hawk
also imposes taxes and fees on other aspects of the businesses of gaming
licensees, such as parking, liquor license and other municipal taxes and fees.
It is not unreasonable to expect substantial increases in these fees, or the
imposition of new taxes and fees.
Violations of the Colorado Act, or any of the rules, is a criminal
offense. Persons violating the Colorado Act or the rules may, in addition to any
gaming license suspension or revocation, be subject to criminal prosecution
resulting in incarceration, fines or both.
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.
The sale of alcoholic beverages in gaming establishments is subject to
strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and non-transferable. State and local
licensing authorities have full power to limit, condition, suspend or revoke any
such licenses. Violation of the state alcoholic beverage laws is a criminal
offense, and violators are subject to criminal prosecution, incarceration and
fines.
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DESCRIPTION OF NOTES
GENERAL
The Old Notes were issued, and the New Notes will be issued, pursuant to
an indenture (the "Indenture") among the Company, the Guarantors and The Bank of
New York, as trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of certain provisions of the Indenture, the Collateral
Agreements (defined below) and the Intercreditor Agreement does not purport to
be complete and is qualified in its entirety by reference to the Indenture, the
Collateral Agreements and the Intercreditor Agreement, including the definitions
therein of certain terms used below. Copies of the forms of Indenture, the
Collateral Agreements and the Intercreditor Agreement are available from the
Company upon request. The definitions of certain terms used in the following
summary are set forth below under " -- Certain Definitions." For purposes of
this summary, the term "Company" refers to Fitzgeralds Gaming Corporation and
not to any of its Subsidiaries.
The Notes are senior secured obligations of the Company and rank senior in
right of payment to all existing and future subordinated Indebtedness of the
Company and pari passu in right of payment with all existing and future senior
Indebtedness of the Company. The Company and the Guarantors will be permitted,
under certain circumstances, (i) to enter into Eligible Credit Facilities (in a
principal amount not to exceed $15.0 million), in which case the first priority
security interest in the Collateral securing the Notes will be subordinated to a
lien securing obligations under such credit facility, and (ii) to grant pari
passu liens on the Collateral to secure Permitted Tunica Debt.
The Notes are guaranteed (the "Subsidiary Guarantees") by each of the
Company's existing and future Significant Restricted Subsidiaries. The Notes and
the Subsidiary Guarantees are secured by the Collateral, as set forth below
under " -- Collateral."
The New Notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
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<PAGE> 84
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $255 million, of
which $205 million were issued in the Offering, and will mature on December 15,
2004. Interest on the Notes is payable semi-annually on December 15 and June 15
of each year, commencing on June 15, 1998, to holders of record on the
immediately preceding December 1 and June 1, respectively. The Notes bear
interest at 12 -1/4% per annum from the date of original issue. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The Notes will be payable both as to principal and interest at the office or
agency of the Company maintained for such purpose within the City of New York
or, at the option of the Company, payment of interest may be made by check
mailed to the holders of the Notes at their respective addresses set forth in
the register of holders of Notes. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose. If a payment date is a Legal Holiday, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
REDEMPTION
At the Option of the Company. Except as set forth below, the Notes are not
redeemable at the Company's option prior to December 15, 2001. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the applicable date of
redemption, if redeemed during the 12-month period beginning on December 15 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2001...................................... 106.250%
2002...................................... 104.166%
2003...................................... 102.083%
2004...................................... 100.000%
</TABLE>
Notwithstanding the foregoing, 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 thereon, if any, through the applicable date of redemption, with the
net cash proceeds of one or more Public Equity Offerings; provided, that (i)
such redemption shall occur within 90 days of the date of closing of such public
offering and (ii) at least $133.3 million aggregate principal amount of Notes
remains outstanding immediately after giving effect to each such redemption.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee deems to be fair and appropriate; provided,
that Notes of $1,000 or less may not be redeemed in part. Notice of redemption
will be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each holder of Notes to be redeemed at such holder's
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note will state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the date of redemption, interest
will cease to accrue on Notes or portions of them called for redemption.
Mandatory. The Notes are not entitled to any mandatory redemption or
sinking fund.
In Accordance with Gaming Laws. Each holder, by accepting the Notes, is
deemed to have agreed (to the extent permitted by applicable law) that if the
Gaming Authority of any jurisdiction in which the Company or any of its
Subsidiaries conducts or proposes to conduct gaming requires that a Person who
is a holder or a beneficial owner of any of the Notes must be licensed or found
suitable under applicable gaming laws, such holder shall apply for a license or
a finding of suitability within the required time period. If such Person fails
to apply or become licensed or is found unsuitable, the Company shall have the
right, at its option, (i) to require such Person to dispose of its Notes
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<PAGE> 85
or beneficial interest therein within 30 days of receipt of notice of the
Company's election or such earlier date as may be ordered by such Gaming
Authority, or (ii) to redeem such Notes (a "Regulatory Redemption") at a price
of the lesser of (a) such Person's cost and (b) 100% of the principal amount
thereof, plus accrued and unpaid interest to the earlier of the date of
redemption and the date of the finding of unsuitability (the "Regulatory
Redemption Offer Price"), which may be less than 30 days following the notice of
redemption if so ordered by the Gaming Authority. The holder or beneficial owner
applying for a license or finding of suitability must pay all costs of the
licensure or investigation for such finding.
GUARANTORS
The repayment of the Notes is unconditionally and irrevocably guaranteed,
jointly and severally, by all Significant Restricted Subsidiaries. The Indenture
provides that so long as any Notes remain outstanding, any future Significant
Restricted Subsidiary shall enter into a similar Subsidiary Guarantee, and the
stock or other equity interest of such Significant Restricted Subsidiary shall
be pledged to secure the Notes.
If all of the Capital Stock of any Guarantor is sold by the Company or any
of its Subsidiaries to a Person (other than the Company or any of its
Subsidiaries) and the Net Proceeds from such Asset Sale are used in accordance
with the terms of the covenant described under " -- Certain Covenants --
Limitation on Asset Sales," then such Guarantor shall be released and discharged
from all of its obligations under its guarantee of the Notes and the Indenture;
provided, that the Collateral Agent has received all documentation required by
the Trust Indenture Act in connection therewith.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Subsidiary Guarantee, result in the obligations of such
Guarantor under the Subsidiary Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law.
See "Risk Factors -- Fraudulent Transfer Considerations."
COLLATERAL
Subject to certain exceptions, the Notes are secured by a first priority
security interest in substantially all of the assets of the Company, other than
the Excluded Assets, including all of the Capital Stock of the Company's
existing and future Restricted Subsidiaries. The Subsidiary Guarantees are
secured by a first priority security interest in substantially all of the assets
of the Guarantors, other than Excluded Assets. "Excluded Assets" include, (i)
cash, deposit accounts and other cash equivalents; (ii) furniture, fixtures and
equipment securing Non-Recourse Indebtedness permitted to be incurred under the
Indenture; (iii) assets securing Purchase Money Obligations or Capital Lease
Obligations permitted to be incurred under the Indenture; and (iv) any
agreements, permits, licenses or the like that cannot be subjected to a Lien
under the Collateral Agreements 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); provided, that Excluded Assets does
not include the proceeds of the assets under clauses (ii), (iii) or (iv) or of
any other Collateral to the extent such proceeds do not constitute Excluded
Assets under clause (i) above.
The Company has entered into a leasehold deed of trust that granted the
Trustee a first priority Lien on the Company's interest in each of the ground
leases at Fitzgeralds Las Vegas and Fitzgeralds Reno (the "Nevada Ground
Leases") to the extent such grant is permitted by law and does not violate the
terms of the applicable Nevada Ground Lease. The Company also will use its best
efforts, other than the payment of money to such lessors, to obtain the consent
of each of the lessors to such grant and to the foreclosure by the Trustee of
the Lien created thereby. If it is later determined that the Company was
prohibited, by law or agreement, from granting a Lien on any of the Nevada
Ground Leases without the consent of the applicable lessor, and the Company
failed to obtain such consent, the Trustee will not have a Lien on the
applicable Nevada Ground Lease, and the affected portion of the Company's
interests in the Nevada Ground Leases will be excluded from the Collateral.
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<PAGE> 86
The Company and the Guarantors have entered into security and pledge
agreements, mortgages, deeds of trust and certain other collateral assignment
agreements (collectively, the "Collateral Agreements") that provide for the
grant of a security interest in or pledge of the Collateral to the Trustee, as
collateral agent (in such capacity, the "Collateral Agent"), for the benefit of
the holders of the Notes. Such pledges and security interests secure the payment
and performance when due of all of the Obligations of the Company and the
Guarantors under the Indenture, the Notes, the Subsidiary Guarantees and the
Collateral Agreements. The pledge of, or any negative pledge on, the stock of
FRI, FSI and FLVI requires the approval of the Nevada Gaming Authorities. The
Company has obtained all approvals required to undertake the Exchange Offer and
the pledge of the stock of FRI, FSI and FLVI. See "Regulation and Licensing --
Nevada Gaming Regulation."
The Company and the Guarantors are permitted, under certain circumstances,
to enter into an Eligible Credit Facility, in which case the first priority
security interest securing the Notes will be subordinated to a Lien securing
such credit facility to the extent provided by the Intercreditor Agreement. In
addition, the Company is permitted, under certain circumstances, to incur
Permitted Tunica Debt that would be secured by Liens ranking equally in priority
with the Liens securing the Notes. See " --Intercreditor Agreement."
So long as no Event of Default has occurred and is continuing, and subject
to certain terms and conditions in the Indenture, an Eligible Credit Facility,
the Intercreditor Agreement and the Collateral Agreements, the Company is
entitled to receive all cash dividends, interest and other payments made upon or
with respect to the Capital Stock of any Restricted Subsidiary pledged by it,
and to exercise any voting, other consensual rights and other rights pertaining
to such Collateral pledged by it. All funds distributed under the Collateral
Agreements and received by the Collateral Agent for the benefit of the holders
of the Notes will be retained and/or distributed by the Collateral Agent in
accordance with the provisions of the Indenture.
Upon the full and final payment and performance of all Obligations of the
Company under the Indenture and the Notes, the Collateral Agreements will
terminate, and the pledged Collateral will be released. In addition, in the
event that the pledged Collateral is sold and the Net Proceeds are or will be
applied in accordance with the terms of the covenant described under " --Certain
Covenants -- Limitation on Asset Sales," the Collateral Agent will release
simultaneously with such sale the Liens in favor of the Collateral Agent in the
assets sold, provided, that the Collateral Agent has received all documentation
required by the Trust Indenture Act in connection therewith therefor.
In the event of a default under the Notes, the proceeds from the sale of
the Collateral may not be sufficient to satisfy the Company's obligations under
the Notes in full. See "Risk Factors -- Limitations of Security."
The Trustee's ability to foreclose upon the Collateral also will be
limited by relevant gaming laws, which generally require that persons who own or
operate a casino or own equity securities of a gaming licensee (including
capital stock) or purchase, possess or sell gaming equipment hold a valid gaming
license. No person can hold a license in the State of Nevada, Colorado or
Mississippi unless the person is found qualified or suitable by the relevant
Gaming Authorities. Such Gaming Authorities have discretionary authority to
require the Trustee, any or all of the holders of the Notes or any purchaser of
the Collateral to file applications and be investigated in order to be found
qualified or suitable as an owner or operator of gaming establishments. Such
requirements may limit the number of potential bidders in any foreclosure and
may delay any sale, either of which events may have an adverse effect on the
sale price of the Collateral. Moreover, the gaming industry could become subject
to different or additional regulations during the term of the Notes, which could
further adversely affect the practical rights and remedies of the Trustee.
Therefore, the practical value of realizing on the Collateral may, without the
appropriate approvals, be limited.
Further, certain limitations exist under the Merchant Marine Act of 1936
on the ability of non-U.S. citizens to realize upon collateral, such as the
barges at Fitzgeralds Tunica, consisting of vessels documented under the laws of
the United States. To the extent that the holders of the Notes are non-U.S.
citizens, such limitation could adversely affect the ability of the Trustee to
complete foreclosure on the collateral. Also, the Trustee may be required to
foreclose through a federal court admiralty proceeding. Such a proceeding would
entail compliance with notice and other procedural requirements, and could
require posting of a substantial bond with the U.S. Marshall.
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<PAGE> 87
INTERCREDITOR AGREEMENT
The Company and its Subsidiaries are permitted, under certain
circumstances, to enter into an Eligible Credit Facility. The Collateral Agent
and the Lender providing the Eligible Credit Facility will enter into the
Intercreditor Agreement, which will provide, among other things, that (i) such
Lender's security interest in the Collateral shall be senior to the Collateral
Agent's security interest in such assets; (ii) during any insolvency
proceedings, the Lender and the Collateral Agent will coordinate their efforts
to give effect to the relative priority of their security interests in such
assets; and (iii) following an Event of Default, all decisions with respect to
such properties and assets, including the time and method of any disposition
thereof, will be made in accordance with the terms of such Intercreditor
Agreement.
The Company and the Subsidiaries also are permitted, under certain
circumstances, to incur Permitted Tunica Debt that would be secured by Liens
ranking equally in priority with the Liens securing the Notes. The relative
rights of the holders of the Notes, the Lenders under the Eligible Credit
Facility and the Lenders under the Permitted Tunica Debt would be governed by
the terms of the Intercreditor Agreement.
Generally, but subject to certain limitations set forth in the
Intercreditor Agreement, the rights of the holders of the Notes and the Lenders
under the Permitted Tunica Debt are subject to the rights of the holders of
Indebtedness under an Eligible Credit Facility. Subject to the rights of such
Lenders, the holders of a majority of the aggregate principal amount of
Indebtedness outstanding under the Notes and the Permitted Tunica Debt will be
able to direct the actions of the Collateral Agent with respect to foreclosure
and the exercise of other rights and remedies.
If the Notes become due and payable prior to the stated maturity thereof
for any reason or are not paid in full at the stated maturity thereof at a time
during which Indebtedness is outstanding under an Eligible Credit Facility, the
Collateral Agent will not have the right to foreclose upon the Collateral that
is subject to the Eligible Credit Facility except as provided in the
Intercreditor Agreement. Net proceeds from the sale of Collateral will first be
applied to repay Indebtedness outstanding under any Eligible Credit Facility and
thereafter pro rata to the holders of the Notes and the Lenders of the Permitted
Tunica Debt (with any remaining proceeds to be payable to the Company or as may
otherwise be required by law).
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required
to offer to repurchase all of the Notes then outstanding (the "Change of Control
Offer") at a purchase price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Payment"). Within 20 days following any Change of Control,
the Company must mail a notice to each holder stating, among other things: (i)
that the Change of Control Offer is being made pursuant to the relevant
provision of the Indenture and that all Notes tendered will be accepted for
payment; (ii) the purchase price and the purchase date, which will be no earlier
than 30 days nor later than 45 days from the date such notice is mailed (the
"Change of Control Payment Date"); (iii) that any Note not tendered will
continue to accrue interest; (iv) that, unless the Company defaults in the
payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest after the
Change of Control Payment Date; (v) that any holder electing to have Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the paying agent with respect to the Notes
(the "Paying Agent") at the address specified in the notice prior to the close
of business on the third business day preceding the Change of Control Payment
Date; (vi) that the holder will be entitled to withdraw such election if the
Paying Agent receives, not later than the close of business on the second
business day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
principal amount of Notes delivered for purchase, and a statement that such
holder is withdrawing its election to have such Notes purchased; and (vii) that
a holder whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof.
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<PAGE> 88
To the extent that the provisions of any securities laws or regulations
conflict with the "Change of Control" provisions of the Indenture, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the "Change of Control"
provisions of the Indenture.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment the Notes or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Notes or portions
thereof so tendered, and (iii) deliver or cause to be delivered to the Trustee
the Notes so accepted, together with an Officers' Certificate stating that the
Notes or portions thereof tendered to the Company are accepted for payment. The
Paying Agent will promptly mail to each holder of Notes so accepted payment in
an amount equal to the purchase price for such Notes, and the Trustee will
authenticate and mail to each holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided, that each such
new Note will be in the principal amount of $1,000 or an integral multiple
thereof. The Company will announce the result of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means:
(i) the sale, lease or transfer of all or substantially all of the
Company's assets (other than by way of merger or consolidation) to
any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) other than the Existing Equity Holder or his Related
Parties;
(ii) the liquidation or dissolution of the Company or the adoption of a
plan by the stockholders of the Company relating thereto;
(iii) the time that the Company first determines or reasonably should have
known that (A) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable) is or becomes the "beneficial owner" (as such term is
used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not
applicable, except that a "person" shall be deemed to have
"beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly (including as
a result of a merger or consolidation), of more than 35% of the total
voting power in the aggregate of all classes of Voting Stock of the
Company then outstanding, but excluding from the percentage of voting
power held by any group, the voting power of shares owned by the
Existing Equity Holder and his Related Parties who are deemed to be
members of the group, provided that the Existing Equity Holder and
his Related Parties beneficially own a majority of the total voting
power of Voting Stock of the Company held by such group, and (B) the
Existing Equity Holder and his Related Parties together fail to
beneficially own, directly or indirectly, at least the same
percentage of the combined voting power of such Voting Stock as the
percentage "beneficially owned" by such person or group;
(iv) the failure of the Company and its Restricted Subsidiaries to own 80%
of the total voting power in the aggregate of all classes of Voting
Stock of any Restricted Subsidiary (other than FAMI or FNYI) then
outstanding;
(v) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of
the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved or who were elected by the
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<PAGE> 89
vote of one or more of the Existing Equity Holder or his Related
Parties) cease for any reason to constitute a majority of the Board
of Directors of the Company then in office; or
(vi) if the Preferred Stock is then outstanding, a "Change of Control,"
as defined under the terms of the Preferred Stock.
The term "all or substantially all" as used in the definition of Change in
Control has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event the holders of the Notes elect to exercise their rights under the
Indenture and the Company elects to contest such election, there could be no
assurance as to how a court would interpret the phrase under New York law, which
may have the effect of preventing the Trustee or the holders of the Notes from
successfully asserting that a Change in Control has occurred.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly (i) declare
or pay any dividend or make any distribution on account of any Equity Interests
of the Company or any of its Subsidiaries (other than (A) dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or (B) dividends or distributions payable to the Company or any
Restricted Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interest of the Company, any Subsidiary or any other Affiliate
of the Company (other than any such Equity Interest owned by the Company or any
Restricted Subsidiary and other than redemption of the Preferred Stock required
as a result of an order of any Gaming Authority); (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness of the Company or any Guarantor that is pari passu with
(other than any pari passu secured Indebtedness) or subordinated in right of
payment to the Notes or such Guarantor's Subsidiary Guarantee thereof, as the
case may be, prior to any scheduled principal payment, sinking fund payment or
other payment at the stated maturity thereof, or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof, and
(b) immediately after giving effect to such Restricted Payment on a pro
forma basis, the Company could incur at least $1.00 of additional
Indebtedness under the Interest Coverage Ratio test set forth in the
covenant described under " -- Limitation on Incurrence of
Indebtedness," and
(c) such Restricted Payment (the value of any such payment, if other
than cash, being determined in good faith by the Board of Directors
and evidenced by a resolution set forth in an Officers' Certificate
delivered to the Trustee), together with the aggregate of all other
Restricted Payments made after the date of the Indenture (including
Restricted Payments permitted by clauses (i), (ii) and (vii) of the
next following paragraph and excluding Restricted Payments permitted
by the other clauses therein), is less than the sum of (1) 50% of
the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first quarter
commencing immediately after the date of the Indenture to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, 100% of such deficit), plus (2) 100% of the aggregate net
cash proceeds received by the Company from the issuance or sale,
other than to a Subsidiary, of Equity Interests of the Company
(other than Disqualified Stock) after the date of the Indenture and
on or prior to the time of such Restricted Payment, plus (3) 100% of
the aggregate net cash proceeds received by the Company from the
issuance or sale, other than to a Subsidiary, of any convertible or
exchangeable debt security of the Company that has been converted or
exchanged into Equity Interests of the Company (other than
Disqualified Stock) pursuant to the terms thereof after the date of
the Indenture and on or prior to the time of such Restricted Payment
(including any additional net proceeds received by the Company upon
such conversion or exchange).
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<PAGE> 90
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would not have been prohibited by the provisions of the Indenture;
(ii) the redemption, purchase, retirement or other acquisition of any
Equity Interests of the Company or Indebtedness of the Company or
any Restricted Subsidiary in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary)
of, other Equity Interests of the Company (other than Disqualified
Stock);
(iii) the redemption, repurchase or payoff of any Indebtedness of the
Company or a Restricted Subsidiary with proceeds of any Refinancing
Indebtedness permitted to be incurred pursuant to the provision
described under " -- Limitation on Incurrence of Indebtedness;"
(iv) the repurchase or redemption of the Preferred Stock outstanding on
the Issue Date; provided, that if such redemption or repurchase is
in connection with a Change of Control, the Company has first
complied with its obligations under the provisions of the Indenture
described under the caption " -- Repurchase Upon a Change of
Control;"
(v) the redemption, purchase or other acquisition of the Equity
Interests of FAMI or FNYI outstanding on the Issue Date and not
owned, directly or indirectly, by the Company;
(vi) Restricted Payments to acquire options or other rights with respect
to the management of Casinos by the Company or any of its
Subsidiaries; provided, that the aggregate amount of such Restricted
Payments in any calendar year shall not exceed $500,000 plus the
portion of such $500,000 that was not used in the immediately
preceding calendar year;
(vii) pro rata cash dividends paid by either FAMI or FNYI, as the case may
be, solely out of its Net Income for the quarter immediately
preceding the quarter in which such dividend is declared, to its
minority stockholders contemporaneously with a cash dividend so paid
to the Company or a Restricted Subsidiary;
(viii) the prepayment or other retirement of the Settlement Debt;
(ix) Restricted Investments in an aggregate amount not to exceed $10
million less the sum of all Other Expense of the Company for the
period (taken as one accounting period) from the beginning of the
first quarter commencing immediately after the date of the Indenture
to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of
such Restricted Investment; and
(x) other Restricted Payments in an aggregate amount not to exceed $5
million;
provided, that with respect to clauses (iv), (v),(vi), (viii), (ix) and (x)
above, no Default or Event of Default shall have occurred and be continuing at
the time, or shall occur as a consequence thereof.
Not later than the date of making any Restricted Payment, the Company will
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations may be based upon
the Company's latest available financial statements.
Limitation on Incurrence of Indebtedness. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, (i)
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable with respect to, contingently or otherwise (collectively,
"incur"), any Indebtedness or (ii) issue any Disqualified Stock; provided, that
the Company may incur Indebtedness and issue shares of Disqualified Stock (and a
Restricted Subsidiary may incur Acquired Debt) if (x) no Default or Event of
Default shall have occurred and be
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continuing at the time of, or would occur after giving effect on a pro forma
basis to such incurrence or issuance, and (y) the Interest Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least equal to the ratio set forth below opposite the period in
which such incurrence or issuance occurs, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period:
<TABLE>
<CAPTION>
PERIOD ENDING RATIO
- ------------- -----
<S> <C>
December 15, 1999................................. 2.00:1
thereafter........................................ 2.25:1;
</TABLE>
provided, that in the case of Indebtedness (other than Purchase Money
Obligations or Acquired Debt), the Weighted Average Life to Maturity and final
stated maturity of such Indebtedness is greater than the Weighted Average Life
to Maturity and final stated maturity of the Notes.
The foregoing limitations will not prohibit the incurrence of:
(a) Non-Recourse Indebtedness of a Restricted Subsidiary incurred to
finance the acquisition or lease after the Issue Date of (i)
furniture, fixtures or equipment to be used in connection with the
operations of any Significant Casino owned by such Restricted
Subsidiary or (ii) a parking structure at Fitzgeralds Reno;
provided, that (x) the aggregate amount of such Indebtedness
outstanding with respect to any such Significant Casino (including
such parking structure with respect to Fitzgeralds Reno) shall not
exceed $7.0 million at any time and (y) the aggregate amount of such
Indebtedness outstanding with respect to such parking structure
shall not exceed $3.0 million at any time;
(b) performance bonds, appeal bonds, surety bonds, insurance obligations
or bonds and other similar bonds or obligations (including
obligations under letters of credit) incurred in the ordinary course
of business;
(c) Hedging Obligations incurred to fix the interest rate on any
variable rate Indebtedness otherwise permitted by the Indenture;
(d) Indebtedness owed by the Company to any Guarantor or by any
Guarantor to the Company or any other Guarantor;
(e) Indebtedness outstanding on the date of the Indenture, including
$205 million aggregate principal amount of the Notes and the
Subsidiary Guarantees;
(f) Settlement Debt;
(g) additional Indebtedness of the Company under an Eligible Credit
Facility in an aggregate principal amount not to exceed $15 million
outstanding at any time (up to $10 million of which may be used for
working capital purposes and up to $5 million of which may be used
solely to finance capital expenditures at Fitzgeralds Black Hawk),
and the guarantee of such Indebtedness by the Guarantors;
(h) Permitted Tunica Debt; provided that the Weighted Average Life to
Maturity and final stated maturity of such Indebtedness is equal to
or greater than the Weighted Average Life to Maturity and final
stated maturity of the Notes; and
(i) Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or
refund (collectively, "Refinance"), Indebtedness referred to in
clause (e) above or this clause (i) or Indebtedness incurred
pursuant to the Interest Coverage Ratio test set forth in the
immediately preceding paragraph (the "Refinancing Indebtedness");
provided, that (1) the principal amount of such Refinancing
Indebtedness does not exceed the principal amount of Indebtedness so
Refinanced (including any required premiums and out-of-pocket
expenses reasonably incurred in connection therewith), (2) the
Refinancing Indebtedness has a final scheduled maturity that is the
same as or exceeds the final stated maturity, and a Weighted Average
Life to Maturity that is equal to or greater than the Weighted
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Average Life to Maturity, of the Indebtedness being Refinanced, and
(3) the Refinancing Indebtedness ranks, in right of payment, no more
favorable to the Notes than the Indebtedness being Refinanced.
Limitation on Asset Sales. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets subject to such Asset Sale;
(ii) at least 80% of the consideration for such Asset Sale is in the form of
cash or Cash Equivalents or liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes or any Subsidiary Guarantee) that are assumed by the transferee of such
assets (provided, that following such Asset Sale there is no further recourse to
the Company or its Restricted Subsidiaries with respect to such liabilities);
and (iii) within 180 days of such Asset Sale, the Net Proceeds thereof are (A)
invested in assets related to the business of the Company or its Restricted
Subsidiaries, (B) applied to repay Indebtedness under Purchase Money Obligations
incurred in connection with the asset so sold or (C) to the extent not used as
provided in clauses (A) or (B), applied to make an offer to purchase Notes as
described below (an "Excess Proceeds Offer"); provided, that if the amount of
Net Proceeds from any Asset Sale not invested pursuant to clause (A) above is
less than $5 million, the Company will not be required to repay indebtedness
pursuant to clause (B) or to make an offer pursuant to clause (C).
The amount of Net Proceeds not invested or applied as set forth in the
preceding clauses (A) and (B) constitutes "Excess Proceeds." If the Company
elects, or becomes obligated to make an Excess Proceeds Offer, the Company will
offer to purchase Notes having an aggregate principal amount equal to the Excess
Proceeds (the "Purchase Amount"), at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the purchase date. The Company must commence such Excess Proceeds Offer not
later than 30 days after the expiration of the 12-month period following the
Asset Sale that produced such Excess Proceeds. If the aggregate purchase price
for the Notes tendered pursuant to the Excess Proceeds Offer is less than the
Excess Proceeds, the Company and its Restricted Subsidiaries may use the portion
of the Excess Proceeds remaining after payment of such purchase price for
general corporate purposes.
The Indenture provides that each Excess Proceeds Offer will remain open
for a period of 20 business days and no longer, unless a longer period is
required by law (the "Excess Proceeds Offer Period"). Promptly after the
termination of the Excess Proceeds Offer Period (the "Excess Proceeds Payment
Date"), the Company will purchase and mail or deliver payment for the Purchase
Amount for the Notes or portions thereof tendered, pro rata or by such other
method as may be required by law, or, if less than the Purchase Amount has been
tendered, all Notes tendered pursuant to the Excess Proceeds Offer. The
principal amount of Notes to be purchased pursuant to an Excess Proceeds Offer
may be reduced by the principal amount of Notes acquired by the Company through
purchase or redemption (other than pursuant to a Change of Control Offer)
subsequent to the date of the Asset Sale and surrendered to the Trustee for
cancellation. Any Excess Proceeds Offer will be conducted in compliance with
applicable regulations under the federal securities laws, including Exchange Act
Rule 14e-1.
To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof.
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create or suffer to exist or become effective
any restriction that would impair the ability of the Company to make an Excess
Proceeds Offer upon an Asset Sale or, if such Excess Proceeds Offer is made, to
pay for the Notes tendered for purchase.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset (including, without limitation, all real,
tangible or intangible property) of the Company or any Restricted Subsidiary,
whether now owned or hereafter acquired, or on any income or profits therefrom,
or assign or convey any right to receive income therefrom, except (a) Permitted
Liens and (b) prior to the earlier of the consummation of the Exchange Offer or
the effectiveness of the Initial Shelf Registration, Liens on the Capital Stock
of FSI, FLVI and FRI.
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Limitation on Restrictions on Subsidiary Dividends. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary (i) to (A) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on such Restricted Subsidiary's Capital Stock or (2) with
respect to any other interest or participation in, or measured by, such
Restricted Subsidiary's profits or (B) pay any indebtedness owed to the Company
or any of its Restricted Subsidiaries, or (ii) to make loans or advances to the
Company or any of its Restricted Subsidiaries, or (iii) to transfer any of its
assets to the Company or any of its Restricted Subsidiaries, except for: (a)
encumbrances or restrictions (1) existing under or by reason of the Indenture,
the Notes, the Intercreditor Agreement or the Collateral Agreements, (ii)
existing under or by reason of applicable law (including restrictions imposed by
applicable Gaming Authorities); (iii) contained in Acquired Debt; provided, that
such encumbrances and restrictions are not applicable to any person, or the
properties or assets of any person, other than the person, or the property or
assets of the person, so acquired; (iv) existing under or by reason of customary
non-assignment and net worth provisions of any contract or lease entered into in
the ordinary course of business; (v) existing under or by reason of customary
restrictions on the transfer of assets subject to a Permitted Lien imposed by
the holder of such Lien; (vi) existing under or by reason of Liens imposed by or
in connection with the incurrence of Indebtedness pursuant to clause (a) of the
covenant described under " -- Limitation on Incurrence of Indebtedness,"
provided, that such Lien is applicable only to the assets acquired or leased;
and (vii) restrictions imposed pursuant to permitted Refinancing Indebtedness,
provided, that such restrictions contained in any agreement governing such
Refinancing Indebtedness are no more restrictive than those contained in any
agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets. The Company may not consolidate
or merge with or into (whether or not the Company is the surviving corporation),
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Restricted Subsidiaries) in one or more related
transactions to, any other Person, unless:
(i) the Company is the surviving Person or the Person formed by or
surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made is a corporation
organized and existing under the laws of the United States, any state
thereof or the District of Columbia;
(ii) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition has been
made assumes all the Obligations of the Company, pursuant to a
supplemental indenture and Collateral Agreements in a form reasonably
satisfactory to the Trustee and the Collateral Agent, under the
Notes, the Indenture and the Collateral Agreements;
(iii) immediately after giving effect to such transaction on a pro forma
basis no Default or Event of Default exists or would occur; and
(iv) the Company, or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made, (A) has
Consolidated Net Worth (immediately after the transaction but prior
to any purchase accounting adjustments resulting from the
transaction) equal to or greater than the Consolidated Net Worth of
the Company immediately preceding the transaction and (B) will be
permitted, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, to incur at least $1.00 of
additional Indebtedness pursuant to the Interest Coverage Ratio test
set forth in the covenant described under " -- Limitation on
Incurrence of Indebtedness."
In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person or transferee shall succeed to,
and be substituted for, and may exercise every right and power of, the Company,
and the Trustee may require any such Person to ensure, by executing and
delivering appropriate instruments and opinions of counsel, that the Trustee
continues to hold a first priority Lien on all Collateral for the benefit of the
holders of the Notes.
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Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for:
(i) Affiliate Transactions that, together with all related Affiliate
Transactions entered into after the date of the Indenture, have an
aggregate value of not more than $1.0 million, provided, that such
transactions are conducted in good faith and on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction
at such time by the Company or such Restricted Subsidiary on an
arm's-length basis from a Person that is not an Affiliate of the
Company or such Restricted Subsidiary;
(ii) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $7.0 million,
provided, that a majority of the disinterested members of the Board
of Directors of the Company determine that such transactions are
conducted in good faith and on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction at such time by
the Company or such Restricted Subsidiary on an arm's-length basis
from a Person that is not an Affiliate of the Company or such
Restricted Subsidiary; and
(iii) Affiliate Transactions for which the Company delivers to the Trustee
an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view issued by an investment
banking firm of national standing with recognized experience in the
gaming industry.
Notwithstanding the foregoing, the following will be deemed not to be
Affiliate Transactions: (a) employment agreements or arrangements entered into
by the Company or any Restricted Subsidiary in the ordinary course of business
with the approval of the disinterested members of the Company's Board of
Directors or, if none, unanimously by such Board of Directors, (b) transactions
between or among the Company and/or any or all of the Guarantors, (c) Restricted
Payments permitted by the provisions of the Indenture described above under " --
Limitations on Restricted Payments," and (d) reasonable and customary fees and
compensation paid to and indemnity provided on behalf of, directors of the
Company.
Restrictions on Sale and Issuance of Subsidiary Stock. The Company shall
not sell, and shall not permit any of its Restricted Subsidiaries to issue or
sell, any Equity Interests of any Restricted Subsidiary to any Person other than
the Company or a Wholly Owned Subsidiary of the Company; provided, that (i) the
Company and its Restricted Subsidiaries may sell all (but not less than all) of
the Capital Stock of a Restricted Subsidiary owned by the Company and its
Restricted Subsidiaries if the Net Proceeds from such sale are used in
accordance with the terms of the covenant described under " -- Limitation on
Asset Sales" and (ii) FSI may issue shares of common stock upon the exercise of
warrants outstanding on the Issue Date in accordance with the terms thereof;
provided, that immediately following such exercise the Company owns at least
94.3% of the common stock of FSI.
Line of Business. The Company will not, and will not permit any Subsidiary
to, directly or indirectly engage in any business other than a Related Business.
Without limiting the foregoing, (a) FNYI shall not engage in any activity other
than holding and collecting amounts due and payable under the Oneida Settlement
Agreement and activities incidental thereto, and (b) FAMI shall not engage in
any activity other than the management of the Cliff Castle Casino pursuant to
the FAMI Management Agreement and activities reasonably related thereto. The
Company will cause FNYI to distribute to the holders of its Capital Stock
(including FI), promptly after receipt thereof, all amounts received from time
to time under the Oneida Settlement Agreement, to the extent permitted by law.
Rule 144A Information Requirement. The Company will furnish to the holders
or beneficial holders of the Notes, upon their request, and to prospective
purchasers thereof designated by such holders, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act for so long as is
required for an offer or sale of the Notes to qualify for an exemption under
Rule 144A.
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Guarantors. Each Significant Restricted Subsidiary formed or acquired
after the Issue Date shall (i) execute and deliver to the Trustee a supplemental
indenture and Collateral Agreements in form reasonably satisfactory to the
Trustee, pursuant to which such Significant Restricted Subsidiary shall
unconditionally guarantee all of the Company's Obligations under the Notes and
the Indenture on the terms set forth in the Indenture and grant a security
interest in and/or pledge the Collateral owned by such Person to secure such
Obligations, and (ii) deliver to the Trustee an opinion of counsel that such
supplemental indenture and Collateral Agreements have been duly authorized,
executed and delivered by such Significant Restricted Subsidiary and constitute
legal, valid, binding and enforceable obligations, of such Significant
Restricted Subsidiary. Thereafter, such Significant Restricted Subsidiary shall
be a Guarantor for all purposes of the Indenture.
If all of the Capital Stock of any Guarantor is sold to a Person (other
than the Company or any of its Subsidiaries) and the Net Proceeds from such
Asset Sale are used in accordance with the terms of the covenant described under
" -- Limitation on Asset Sales," then such Guarantor will be released and
discharged from all of its Obligations under its Subsidiary Guarantee, the
Indenture and the Collateral Agreements.
The obligations of each Guarantor are, and will be, limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Subsidiary Guarantee, result in
the obligations of such Guarantor under its Subsidiary Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. See "Risk Factors -- Fraudulent Transfer Considerations."
Reports. Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any Notes are
outstanding, the Company will furnish to the Trustee and holders of Notes,
within 15 days after the Company is or would have been required to file such
with the Commission, (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's independent certified public accountants and (ii) all
information that would be required to be contained in a filing with the
Commission on Form 8-K if the Company were required to file such reports. From
and after the time the Company files a registration statement with the
Commission with respect to the Notes, the Company will file such information
with the Commission so long as the Commission will accept such filings.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default under the Indenture:
(i) default for 30 days in the payment when due of interest on the Notes; (ii)
default in payment of principal (or premium, if any) on the Notes when due at
maturity, redemption, by acceleration or otherwise; (iii) default in the
performance or breach of the provisions of " -- Certain Covenants -- Merger,
Consolidation or Sale of Assets," " -- Certain Covenants -- Limitation on
Incurrence of Indebtedness," " -- Certain Covenants --Limitation on Restricted
Payments," " -- Certain Covenants -- Limitation on Asset Sales," " -- Certain
Covenants -- Limitation on Restrictions on Subsidiary Dividends," or " --
Repurchase Upon Change of Control," and certain provisions of the Collateral
Agreements; (iv) failure by the Company or any Guarantor for 30 days after
notice to comply with certain other agreements in the Indenture, the Notes or
the Collateral Agreements; (v) default under (after giving effect to any
applicable grace periods or any extension of any maturity date) any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
Restricted Subsidiary (or the payment of which is guaranteed by the Company or
any Restricted Subsidiary), whether such Indebtedness or guarantee now exists or
is created after the date of the Indenture, if (A) either (1) such default
results from the failure to pay principal of or interest on such Indebtedness or
(2) as a result of such default the maturity of such Indebtedness has been
accelerated, and (B) either (1) such default is under an Eligible Credit
Facility or Permitted Tunica Debt or (2) the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
with respect to which such a payment default (after the expiration of any
applicable grace period or any extension of the maturity date) has occurred, or
the maturity of which has been so accelerated, exceeds $5.0 million in the
aggregate; (vi) failure by the Company or any Restricted Subsidiary to pay final
judgments (other
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than any judgment as to which a reputable insurance company has accepted full
liability) aggregating in excess of $5.0 million, which judgments are not
discharged, bonded or stayed within 60 days after their entry; (vii) repudiation
by the Company or any Restricted Subsidiary of its obligations under the
Indenture, the Notes, the Collateral Agreements or the Subsidiary Guarantees, or
the unenforceability of the Indenture, the Notes, the Collateral Agreements or
the Subsidiary Guarantees against the Company or any of the Restricted
Subsidiaries for any reason; (viii) certain events of bankruptcy or insolvency
with respect to the Company or any of the Guarantors; and (ix) the revocation or
suspension of a Gaming License resulting in the cessation of operations of a
Significant Casino for a period of 60 consecutive days or more.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare by written notice to the Company and the Trustee all the Notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power.
The holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee, may on behalf of the holders of
all of the Notes (i) waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Notes or a Default or an
Event of Default with respect to any covenant or provision which cannot be
modified or amended without the consent of the holder of each outstanding Note
affected, and/or (ii) rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree if all existing Events
of Default (except nonpayment of principal or interest that has become due
solely because of the acceleration) have been cured or waived.
The Company is required, upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, will have any liability for any obligations of the
Company or any Guarantor under the Notes, the Indenture, the Collateral
Agreements or the Registration Rights Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder of
the Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain material covenants that are described herein
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-
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payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit); (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of Notes over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the Company
or others; and (vii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating, subject to certain factual
assumptions and bankruptcy and insolvency exceptions, that all conditions
precedent provided for in the Indenture relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents, and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed. The
registered holder of a Note will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the Indenture, the
Notes and the Collateral Agreements may be amended or supplemented with the
consent of the holders of at least a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for Notes) and any existing Default or Event of Default or
compliance with any provision of the Indenture, the Notes or the Collateral
Agreements may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting holder of Notes) (i)
reduce the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of, or the premium (including,
without limitation, redemption premium) on, or change the fixed maturity of any
Note or alter the provisions with respect to the payment with respect to
redemption of the Notes or alter the price at which repurchases of the Notes may
be made
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pursuant to an Excess Proceeds Offer or Change of Control Offer; (iii) reduce
the rate of or change the time for payment of interest on any Note; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes; (v) make any Note payable in money other than that
stated in the Notes; (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults with respect to, or the rights of holders
of Notes to receive, payments of principal of or interest on the Notes; (vii)
waive a redemption payment with respect to any Note; (viii) adversely affect the
contractual ranking of the Notes or Subsidiary Guarantees; or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders of
Notes, the Company and the Trustee may amend or supplement the Indenture, the
Notes or the Collateral Agreements to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or the
Guarantors' obligations to holders of the Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of the Notes or that does not adversely affect the legal
rights of any such holder under the Indenture, the Notes or the Collateral
Agreements, to release any Subsidiary Guarantee permitted to be released under
the terms of the Indenture, or to comply with requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, that, if the Trustee acquires any conflicting interest,
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue, or resign.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture,
the Intercreditor Agreement and the Collateral Agreements without charge by
writing to the Company at 301 Fremont Street, Las Vegas, Nevada, 89101,
Attention: General Counsel.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means Indebtedness of a Person existing at the time such
Person is merged with or into the Company or a Restricted Subsidiary or becomes
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
(a) the possession, directly or indirectly, of the power to direct or cause
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the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise or (b) beneficial
ownership of 10% or more of the voting securities of such Person.
Notwithstanding the foregoing, neither of the Initial Purchasers nor any of
their respective Affiliates will be deemed to be Affiliates of the Company.
"Asset Sale" means any (i) direct or indirect sale, assignment, transfer,
lease, conveyance, or other disposition (including, without limitation, by way
of merger or consolidation) (collectively, a "transfer"), other than in the
ordinary course of business, of any assets of the Company or any Restricted
Subsidiary; or (ii) direct or indirect issuance or sale of any Capital Stock of
any Restricted Subsidiary (other than directors' qualifying shares), in each
case to any Person (other than the Company or a Restricted Subsidiary). For
purposes of this definition, (a) any series of transactions that are part of a
common plan shall be deemed a single Asset Sale and (b) the term "Asset Sale"
shall not include (1) any series of transactions that have a fair market value
(or result in gross proceeds) of less than $1 million, until the aggregate fair
market value and gross proceeds of the transactions excluded from the definition
of Asset Sale pursuant to this clause (b)(1) exceed $5 million, (2) any transfer
by the Company of the Tunica Road to the County of Tunica, Mississippi or any
agency thereof; (3) any transfer of slot machines or other gaming equipment in
connection with the acquisition of similar gaming equipment in the ordinary
course of business; or (4) any disposition of all or substantially all of the
assets of the Company that is governed under and complies with the terms of the
covenant described under " -- Certain Covenants -- Merger, Consolidation or Sale
of Assets."
"Capital Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP, and the amount of such obligations at
any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means, (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, and (ii) with respect to
any other Person, any and all partnership or other equity interests of such
Person.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $500 million and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition; (iii) investments in
money market funds substantially all of whose assets comprise securities of the
type described in clauses (i) and (ii) above; and (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (i) and (ii) above entered into with any financial
institution meeting the financial qualifications specified in clause (ii) above.
"Casino" means a gaming establishment owned, directly or indirectly, by
the Company or one of its Restricted Subsidiaries and any hotel, building,
restaurant, theater, amusement park or other entertainment facility, parking
facilities, retail shops, land, equipment and other property or asset directly
ancillary thereto and used or to be used in connection therewith.
"Casino Square Footage" means, with respect to any Casino, the floor space
of such Casino that is available and used for the generation of gaming revenues
and on which there is conducted (in a manner that is customary for comparable
gaming facilities) table games, slot machines or other gaming operations, as
applicable, but excluding bingo operations.
"Cliff Castle Casino" means the Cliff Castle Casino in Camp Verde,
Arizona, managed by FAMI.
"Consolidated EBITDA" means, with respect to any Person (the referent
Person) for any period, consolidated income (loss) from operations of such
Person and its subsidiaries for such period, determined in accordance with GAAP,
plus (to the extent such amounts are deducted in calculating such income (loss)
from operations of such
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Person for such period, and without duplication) amortization, depreciation and
other non-cash charges (including, without limitation, amortization of goodwill,
deferred financing fees and other intangibles but excluding (a) non-cash charges
incurred after the date of the Indenture that require an accrual of or a reserve
for cash charges for any future period, and (b) normally recurring accruals such
as reserves against accounts receivable); provided, that (i) the income from
operations of any Person that is not a Wholly Owned Subsidiary or that is
accounted for by the equity method of accounting will be included only to the
extent of the amount of dividends or distributions paid during such period to
the referent Person or a Wholly Owned Subsidiary of the referent Person, (ii)
the income from operations of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will be
excluded, and (iii) the income from operations of any Restricted Subsidiary will
not be included to the extent that declarations of dividends or similar
distributions by that Restricted Subsidiary are not at the time permitted,
directly or indirectly, by operation of the terms of its organization documents
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its owners.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the consolidated interest expense of such Person and its subsidiaries
for such period, whether paid or accrued (including amortization of original
issue discount, noncash interest payment, and the interest component of Capital
Lease Obligations), to the extent such expense was deducted in computing
Consolidated Net Income of such Person for such period.
"Consolidated Net Income" means, with respect to any Person (the referent
Person) for any period, the aggregate of the Net Income of such Person and its
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; provided, that (i) the Net Income of any Person that is not a Wholly
Owned Subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or distributions
paid during such period to the referent Person or a Wholly Owned Subsidiary of
the referent Person, (ii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition will
be excluded, and (iii) the Net Income of any Restricted Subsidiary will not be
included to the extent that declarations of dividends or similar distributions
by that Restricted Subsidiary are not at the time permitted, directly or
indirectly, by operation of the terms of its organization documents or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its owners.
"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' equity of such Person determined on a consolidated basis in
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity), (i) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such Person, and (ii) all upward
revaluations and other write-ups in the book value of any asset of such Person
or a consolidated subsidiary of such Person subsequent to the Issue Date, and
(iii) all Investments in subsidiaries of such Person that are not consolidated
subsidiaries and in Persons that are not subsidiaries of such Person.
"Default" means any event that is, or after notice or the passage of time
or both would be, an Event of Default.
"Disqualified Stock" means any Equity Interest that (i) either by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable) is or upon the happening of an event (other than pursuant to
gaming law requirements) would be required to be redeemed or repurchased prior
to the final stated maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such final stated maturity, or (ii) is
convertible into or exchangeable at the option of the issuer thereof or any
other Person for debt securities.
"Eligible Credit Facility" means a credit facility (and any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith) that (i) has terms and conditions (including with respect
to applicable interest rates and fees) customary for similar facilities extended
to borrowers comparable to the Company, (ii) does not permit the Company to
incur Indebtedness under all Eligible Credit Facilities in the aggregate at any
time outstanding in excess of $15 million in principal amount, up to $10 million
of which may be used for working capital purposes and up to $5 million of which
may be used solely to finance capital expenditures at Fitzgeralds Black Hawk,
and (iii) may be secured by certain assets of the Company and its Subsidiaries,
subject to the terms and conditions of the Intercreditor Agreement.
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"Equity Interests" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Equity Holder" means Philip D. Griffith.
"FAMI" means Fitzgeralds Arizona Management, Inc., a Nevada corporation.
"FI" means Fitzgeralds, Inc., a Nevada corporation.
"Fitzgeralds Black Hawk" means Fitzgeralds Casino located in Black Hawk,
Colorado.
"Fitzgeralds Las Vegas" means Fitzgeralds Casino Hotel located in downtown
Las Vegas, Nevada.
"Fitzgeralds Reno" means Fitzgeralds Casino Hotel located in Reno, Nevada.
"Fitzgeralds Tunica" means Fitzgeralds Casino Hotel located in Tunica,
Mississippi.
"FLVI" means Fitzgeralds Las Vegas, Inc., a Nevada corporation.
"FNYI" means Fitzgeralds New York, Inc., a New York corporation.
"FRI" means Fitzgeralds Reno, Inc., a Nevada corporation.
"FSI" means Fitzgeralds South, Inc., a Nevada corporation.
"gaap" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
and in the rules and regulations of the Commission.
"GAAP" means gaap as in effect on the date of the Indenture.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States of America or foreign government, any state, province or any city or
other political subdivision, whether now or hereafter existing, or any officer
or official thereof, including without limitation, the Nevada Gaming Commission,
the Nevada State Gaming Control Board, the Colorado Limited Gaming Control
Commission, the Mississippi Gaming Commission and any other agency with
authority to regulate any gaming operation (or proposed gaming operation) owned,
managed or operated by the Company or any of its Subsidiaries.
"Gaming License" means every material license, franchise or other approval
or authorization on the date of the Indenture or thereafter required to own,
lease, operate or otherwise conduct gaming in any jurisdiction in which the
Company or any of its Subsidiaries conducts or proposes in good faith to conduct
gaming business, including any applicable liquor licenses.
"Guarantee" (whether or not capitalized) means any guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness or other obligation. "Guarantee" (whether or not
capitalized), when used as a verb, has a correlative meaning.
"Guarantor" means any Restricted Subsidiary that has executed and
delivered in accordance with the Indenture an unconditional and irrevocable
Subsidiary Guarantee of the Company's obligations on the Notes on a senior
secured basis, and such Person's successors and assigns.
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"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" of any Person means (without duplication) (i) all
liabilities and obligations, contingent or otherwise, of such Person (A) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (B) evidenced
by bonds, debentures, notes or other similar instruments, (C) representing the
deferred purchase price of property or services (other than trade payables on
customary terms incurred in the ordinary course of business), (D) created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (E) as lessee under capitalized
leases, (F) under bankers' acceptance and letter of credit facilities, (G) to
purchase, redeem, retire, defease or otherwise acquire for value any
Disqualified Stock, or (H) in respect of Hedging Obligations; (ii) all
Indebtedness of others that is guaranteed by such Person; and (iii) all
Indebtedness of others that is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, provided, that the amount of such
Indebtedness shall (to the extent such Person has not assumed or become liable
for the payment of such Indebtedness) be the lesser of (x) the fair market value
of such property at the time of determination and (y) the amount of such
Indebtedness. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Intercreditor Agreement" means an agreement among the Trustee and one or
more Lenders, substantially in the form attached to the Indenture, which may be
entered into after the Issue Date.
"Interest Coverage Ratio" means, for any period, the ratio of (i)
Consolidated EBITDA of the Company for such period, over (ii) Consolidated
Interest Expense of the Company for such period. In calculating Interest
Coverage Ratio for any period, pro forma effect shall be given to: (a) the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Subsidiaries of any Indebtedness
subsequent to the commencement of the period for which the Interest Coverage
Ratio is being calculated, as if the same had occurred at the beginning of the
applicable period; and (b) the occurrence of any Asset Sale during such period
by reducing Consolidated EBITDA for such period by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets sold and
by reducing Consolidated Interest Expense by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness assumed by third
parties or repaid with the proceeds of such Asset Sale, in each case as if the
same had occurred at the beginning of the applicable period. For purposes of
making the computation referred to above, acquisitions that have been made by
the Company or any of its Restricted Subsidiaries, including all mergers and
consolidations, subsequent to the commencement of such period shall be
calculated on a pro forma basis, assuming that all such acquisitions, mergers
and consolidations had occurred on the first day of such period. Without
limiting the foregoing, the financial information of the Company with respect to
any portion of such period that falls before the Issue Date shall be adjusted to
give pro forma effect to the issuance of the Notes and the application of the
proceeds therefrom as if they had occurred at the beginning of such period.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, advances or capital contributions (excluding (i) commission, travel
and similar advances to officers and employees of such Person made in the
ordinary course of business and (ii) bona fide accounts receivable arising from
the sale of goods or services in the ordinary course of business consistent with
past practice), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, and any other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Issue Date" means the date upon which the Notes are first issued.
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"Lender" means a Person that is not an Affiliate of the Company and is a
lender under an Eligible Credit Facility or under an instrument governing the
Permitted Tunica Debt.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"NCI" means Nevada Club, Inc., a Nevada corporation.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP, excluding (i) any gain or loss, together with any related provision for
taxes on such gain or loss, realized in connection with any Asset Sales and
dispositions pursuant to sale and leaseback transactions, and (ii) any
extraordinary gain or loss, together with any related provision for taxes on
such gain or loss.
"Net Proceeds" means the aggregate proceeds received in the form of cash
or Cash Equivalents in respect of any Asset Sale (including payments in respect
of deferred payment obligations when received), net of (i) the reasonable and
customary direct out-of-pocket costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and sales
commission), other than any such costs payable to an Affiliate of the Company,
(ii) taxes actually payable directly as a result of such Asset Sale (after
taking into account any available tax credits or deductions (to the extent
reasonably allocable thereto) and any tax sharing arrangements), (iii) amounts
required to be applied to the permanent repayment of Indebtedness in connection
with such Asset Sale, and (iv) appropriate amounts provided as a reserve by the
Company or any Restricted Subsidiary, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by the Company or such
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, as applicable, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations arising from such Asset Sale.
"Non-Recourse Indebtedness" means Indebtedness of a Restricted Subsidiary
as to which none of the Company or any of its Restricted Subsidiaries, other
than the Restricted Subsidiary that is the obligor of such Indebtedness,
provides any credit support or is directly or indirectly liable for the payment
of principal or interest thereof and a default with respect to which would not
entitle any party to cause any other Indebtedness of the Company or any other
Restricted Subsidiary to be accelerated.
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other obligations and liabilities
of the Company or any of the Restricted Subsidiaries under the Indenture, the
Notes or any of the Collateral Agreements.
"Oneida Settlement Agreement" means the settlement agreement between FNYI
and the Oneida Indian Nation of New York and the related note payable to FNYI.
"Other Expenses" means cash disbursements to, or cash payments on behalf
of, unconsolidated Affiliates of the Company to the extent such amounts do not
reduce Consolidated EBITDA of the Company during the period made.
"Permitted Investments" means (i) Investments in the Company or in any
Guarantor; (ii) Investments in Cash Equivalents; (iii) Investments in a Person,
if, as a result of such Investment, such Person (A) becomes a Guarantor, or (B)
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Guarantor (iv) Hedging Obligations; (v) Investments as a result of consideration
received in connection with an Asset Sale made in compliance with the covenant
described under the caption " -- Certain Covenants -- Limitation on Asset
Sales"; (vi) Investments existing on the Issue Date; (vii) credit extensions to
gaming customers in the ordinary course of business consistent with industry
practice; and (viii) Investments paid for solely with Capital Stock (other than
Disqualified Stock) of the Company.
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"Permitted Liens" means:
(a) Liens arising by reason of any judgment, decree or order of any court
for an amount and for a period not resulting in an Event of Default
with respect thereto, so long as such Lien is being contested in good
faith and is adequately bonded, and any appropriate legal proceedings
that may have been duly initiated for the review of such judgment,
decree or order shall not have been finally adversely terminated or
the period within which such proceedings may be initiated shall not
have expired;
(b) security for the performance of bids, tenders, trade, contracts
(other than contracts for the payment of money) or leases, surety
bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business, consistent with industry
practice;
(c) Liens (other than Liens arising under ERISA) for taxes, assessments
or other governmental charges not yet due or that are being contested
in good faith and by appropriate proceedings if adequate reserves
with respect thereto are maintained on the books of the Company in
accordance with gaap;
(d) Liens of carriers, warehousemen, mechanics, landlords, material men,
repairmen or other like Liens arising by operation of law in the
ordinary course of business consistent with industry practices (other
than Liens arising under ERISA) and Liens on deposits made to obtain
the release of such Liens if (i) the underlying obligations are not
overdue for a period of more than 30 days or (ii) such Liens are
being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto are maintained on the books of
the Company in accordance with gaap;
(e) easements, rights of way, zoning and similar restrictions and other
similar encumbrances or title defects incurred in the ordinary course
of business, consistent with industry practices that, in the
aggregate, are not substantial in amount, and that do not in any case
materially detract from the value of the property subject thereto (as
such property is used by the Company or a Subsidiary) or interfere
with the ordinary conduct of the business of the Company or any of
its Subsidiaries; provided, that such Liens are not incurred in
connection with any borrowing of money or any commitment to loan any
money or to extend any credit;
(f) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security legislation;
(g) Liens securing Refinancing Indebtedness incurred in compliance with
the Indenture to refinance Indebtedness secured by Liens, provided,
(i) such Liens do not extend to any additional property or assets;
(ii) if the Liens securing the Indebtedness being refinanced were
subordinated to or pari passu with the Liens securing the Notes, the
Subsidiary Guarantees or any intercompany loan, as applicable, such
new Liens are subordinated to or pari passu with such Liens to the
same extent, and any related subordination or intercreditor agreement
is confirmed; and (iii) such Liens are no more adverse to the
interests of holders of the Notes than the Liens replaced or extended
thereby;
(h) Liens that secure Acquired Debt, provided, that such Liens do not
extend to or cover any property or assets other than those of the
Person being acquired and were not put in place in anticipation of
such acquisition;
(i) Liens that secure Purchase Money Obligations or Capital Lease
Obligations permitted to be incurred under the Indenture, provided
that such Liens do not extend to or cover any property or assets
other than those being acquired;
(j) Liens under the Collateral Documents;
(k) Liens in favor of the Company or any Guarantor, which are assigned to
the Trustee as Collateral for the Notes or a Subsidiary Guarantee, as
applicable;
(l) Liens of the Company or its Restricted Subsidiaries in existence on
the Issue Date, and set forth in a schedule to the Indenture;
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(m) with respect to any vessel included in the Collateral, certain
maritime liens, including liens for crew's wages and salvage;
(n) Liens that secure Indebtedness incurred under clause (a) of the
covenant " -- Certain Covenants -- Limitation on Incurrence of
Indebtedness," which Liens shall not attach to any assets other than
the assets financed thereby;
(o) Liens on assets of the Company and its Subsidiaries securing
Permitted Tunica Debt; provided, that (i) the Indebtedness under
outstanding Notes are equally and ratably secured by such assets and
(ii) the Lender thereunder and the Trustee enter into the
Intercreditor Agreement; and
(p) Liens securing Indebtedness of the Company under an Eligible Credit
Facility; provided that the Lender thereunder and the Trustee enter
into the Intercreditor Agreement.
"Permitted Tunica Debt" means Indebtedness incurred solely to finance
construction of a hotel at Fitzgeralds Tunica to be owned by the Company or any
Guarantor in an aggregate principal amount not to exceed the lesser of (i) $30
million and (ii) 80% of the total actual out-of-pocket cost of such construction
(including the cost of all permits, approvals, assessments, fees and other
expenses); provided, that immediately after giving effect to the incurrence of
such Indebtedness, on a pro forma basis as if such transaction had occurred at
the beginning of the applicable four-quarter period, the Company would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Interest Coverage Ratio test set forth in the first paragraph of the covenant
described under " -- Limitation on Incurrence of Indebtedness."
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof, or any other entity.
"Preferred Stock" means the 800,000 shares of preferred stock, par value
$0.01 per share, of Fitzgeralds Gaming Corporation, issued in December 1995.
"Public Equity Offering" means a bona fide underwritten public offering of
Qualified Capital Stock of the Company, pursuant to a registration statement
filed with and declared effective by the Commission in accordance with the
Securities Act.
"Purchase Money Obligations" means Indebtedness representing, or incurred
to finance, the cost (i) of acquiring any assets and (ii) of construction or
build-out of facilities (including Purchase Money Obligations of any other
Person at the time such other Person is merged with or into or is otherwise
acquired by the Company); provided, that (x) the principal amount of such
Indebtedness does not exceed 80% of such cost, including construction charges,
(y) any Lien securing such Indebtedness does not extend to or cover any other
asset or property other than the asset or property being so acquired and (z)
such Indebtedness is incurred, and any Liens with respect thereto are granted,
within 180 days of the acquisition of such property or asset.
"Qualified Capital Stock" means, with respect to any Person, Capital Stock
of such Person other than Disqualified Capital Stock.
"Related Business" means gaming operations and the development of games
and marketing activities relating thereto conducted or proposed in good faith to
be conducted by the Company or any Subsidiary and any and all materially related
businesses conducted or proposed in good faith to be conducted by the Company or
any Subsidiary in support of and ancillary to the foregoing.
"Related Party" means (i) any spouse or immediate family member of the
Existing Equity Holder, (ii) any trust set up for the benefit of the Existing
Equity Holder or any of the Persons specified in clause (i), or (iii) in the
case of the death of the Existing Equity Holder, his estate.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"Settlement Debt" means Indebtedness of FRI in an aggregate amount not to
exceed $2 million issued in consideration for, and concurrently with, a
dismissal with prejudice of all claims against FRI arising out of FRI's purchase
and subsequent sale of Harolds Club.
"Significant Casino" means any Casino that has a Casino Square Footage of
at least 9,000 square feet.
"Significant Restricted Subsidiary" means any Restricted Subsidiary (i)
that, at any time, has (A) assets with a book or fair market value of $1,000,000
or more or (B) net income, for the last four full fiscal quarters for which
internal financial statements are available immediately preceding such time, of
$250,000 or more, or (ii) in which the Company and the Restricted Subsidiaries
have made Investments aggregating $250,000 or more. Notwithstanding the
foregoing, neither FAMI nor FNYI shall be a Significant Restricted Subsidiary so
long as it is not a Wholly Owned Subsidiary.
"Subsidiary" means any subsidiary of the Company.
"subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity (including a limited liability company) of
which more than 50% of the total voting power of shares of Voting Stock thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other subsidiaries of that Person or a combination thereof
and (ii) any partnership in which such Person or any of its subsidiaries is a
general partner.
"Subsidiary Guarantee" means the unconditional and irrevocable guarantees
by the Guarantors of the obligations of the Company under the Notes as contained
in the Indenture, as amended from time to time as permitted by the Indenture.
"Tunica Road" means that certain road connecting Fitzgeralds Tunica to
Highway 304 in Tunica, Mississippi.
"Unrestricted Subsidiary" means NCI and any Subsidiary of the Company
that, at or prior to the time of determination, shall have been designated by
the Board of Directors of the Company as an Unrestricted Subsidiary; provided
that such Subsidiary (i) is not a Subsidiary in existence on the Issue Date,
(ii) does not hold any Indebtedness or Capital Stock of, or any Lien on any
assets of, the Company or any Restricted Subsidiary, and (iii) does not own or
operate or possess any material asset license, franchise or right used in
connection with the ownership or operation of any material portion of
Fitzgeralds Las Vegas, Fitzgeralds Reno, Fitzgeralds Tunica or Fitzgeralds Black
Hawk. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date. The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption " -- Certain Covenants -- Limitation on Incurrence of
Indebtedness" calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
The Company shall be deemed to make an Investment in each Subsidiary designated
as an Unrestricted Subsidiary immediately following such designation in an
amount equal to the Investment in such Subsidiary and its subsidiaries
immediately prior to such designation; provided, that if such Subsidiary is
subsequently redesignated as a Restricted Subsidiary, the amount of such
Investment shall be deemed to be reduced (but not below zero) by the fair market
value of the net consolidated assets of such Subsidiary on the date of such
redesignation. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complies with the foregoing conditions and is
permitted by the covenant described above under the caption " -- Certain
Covenants -- Limitation on Incurrence of Indebtedness."
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"Voting Stock" means, with respect to any Person, (i) one or more classes
of the Capital Stock of such Person having general voting power to elect at
least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency) and (ii) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (i) above.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (i) the then outstanding principal amount of
such Indebtedness into (ii) the total of the product obtained by multiplying (A)
the amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (B) the number of years (calculated to the nearest one-
twelfth) that will elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
outstanding Capital Stock of which (other than directors' qualifying shares) is
owned by the Company or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes to be sold
as set forth herein in the United States will initially be issued in the form of
two registered global Notes (the "Global Notes"), each of which will be
deposited on the date of the acceptance for exchange of the Old Notes and the
issuance of the New Notes (the "Closing Date") with, or on behalf of, the
Depository and registered in the name of Cede & Co. (the Depository's nominee).
The following are summaries of certain rules and operating procedures of the
Depository which affect the Global Notes.
The Notes that are issued as described under " -- Certificated
Securities," will be issued in registered form (the "Certificated Securities").
Upon the transfer of Certificated Securities, such Certificated Securities will,
unless the applicable Global Note has previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global Note representing the
principal amount of Notes being transferred.
The Depository has advised the Company that it is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depository's Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depository's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depository's Participants or the Depository's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants with an interest in the Global Notes; and (ii)
ownership of the Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by the Depository (with
respect to the interests of the Depository's Participants), the Depository's
Participants and the Depository's Indirect Participants. The laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Notes will be
limited to such extent.
So long as the Depository or its nominee is the registered owner of any
Global Notes, the Depository or its nominee, as the case may be, will be
considered the sole owner of such Notes outstanding under the Indenture. Except
as provided below, owners of beneficial interests in a Global Note will not be
entitled to have Notes represented by such Global Note registered in their
names, will not receive or be entitled to receive physical delivery
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of Certificated Securities, and will not be considered the owners or Holders
thereof under the Indenture for any purpose. As a result, the ability of a
person having a beneficial interest in Notes represented by a Global Note to
pledge such interest to persons or entities that do not participate in the
Depository's system or to otherwise take actions in respect of such interest,
may be affected by the lack of a physical certificate evidencing such interest.
Accordingly, each person owning a beneficial interest in a Global Note must rely
on the procedures of the Depository and, if such person is not a Participant or
an Indirect Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder under such Global
Note or the Indenture.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Depository or its nominee on the
applicable record date will be payable by the Trustee to or at the direction of
such holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names the Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company nor the Trustee has or
will have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes (including principal, premium, if any, and interest),
or to immediately credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of the Depository.
Payments by the Depository's Participants and the Depository's Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Depository's Participants or the Depository's Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Notes in definitive form under the Indenture, then, upon surrender by the
relevant Global Holder of its Global Note, Notes in such form will be issued to
each person that such Global Holder and the Depository identifies as the
beneficial owner of the related Notes. In addition, subject to certain
conditions, any person having a beneficial interest in the Global Note may, upon
request to the Trustee, exchange such beneficial interest for Notes in
definitive form. Upon any such issuance, the Trustee is required to register
such Notes in the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof). Such Notes will be issued in fully
registered form.
Neither the Company nor the Trustee shall be liable for any delay by the
related Global Holder or the Depository in identifying the beneficial owners of
the related securities, and each such person may conclusively rely on, and shall
be protected in relying on, instructions from such Global Holder or the
Depository for all purposes.
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of certain United States federal income tax
consequences applicable to the exchange of the Old Notes for New Notes pursuant
to the Exchange Offer, and to the ownership and disposition of the New Notes by
an initial purchaser of Old Notes that, for United States federal income tax
purposes, is not a "United States person" as defined below (a "Non-U.S.
Holder"). This summary is based upon existing United States federal income tax
law, which is subject to change, possibly with retroactive effect. This summary
does not discuss all aspects of United States federal income taxation which may
be important to particular Non-U.S. Holders of Old Notes in light of their
individual circumstances, such as investors subject to special tax rules (e.g.,
financial institutions, insurance companies, broker-dealers, and tax-exempt
organizations) or persons that hold the Old Notes as part of a straddle, hedge,
or synthetic security transaction for United States federal income tax purposes
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or that have a functional currency other than the United States dollar, all of
whom may be subject to tax rules that differ significantly from those summarized
below. In addition, this summary does not discuss any foreign, state, or local
tax considerations. This summary assumes that investors hold their Old Notes as
"capital assets" (generally, property held for investment) under the United
States Internal Revenue Code of 1986, as amended (the "Code"). Holders of Old
Notes are urged to consult their tax advisors regarding the United States
federal, state, local, and foreign income and other tax considerations
applicable to the exchange of the Old Notes for News Notes pursuant to the
Exchange Offer, and to the ownership and disposition of the Notes.
For purposes of this summary, a "United States person" is (i) an
individual who is a citizen or resident of the United States, (ii) a
corporation, partnership, or other entity created or organized under the laws of
the United States or any state or political subdivision thereof, (iii) an estate
that is subject to United States federal income taxation without regard to the
source of its income, or (iv) a trust whose administration is subject to the
primary supervision of a United States court and which has one or more United
States persons who have the authority to control all substantial decisions of
the trust.
EXCHANGE
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer should not be treated as a taxable transaction for federal income tax
purposes because the New Notes do not differ materially in kind or extent from
the Old Notes. Accordingly, no gain or loss should be recognized by a holder who
exchanges Old Notes for New Notes pursuant to the Exchange Offer, and each New
Note should be viewed as a continuation of the corresponding Old Note. For
purposes of determining gain or loss upon a subsequent sale of exchange of the
New Notes, a holder's initial basis in each New Note will be the same as such
holder's adjusted basis in the Old Note exchanged therefor, and the holding
period of each New Note should include the period during which such
holder held such corresponding Old Note exchanged therefor.
PAYMENTS OF INTEREST
Interest paid by the Company to Non-U.S. Holders will not be subject to
United States federal income or withholding tax provided that (i) such holder
does not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (ii) such holder
is not a controlled foreign corporation that is related to the Company through
stock ownership, a foreign tax-exempt organization or foreign private foundation
for United States federal income tax purposes, and (iii) the requirements of
section 871(h) or 881(c) of the Code are satisfied as described below under the
heading "Owner Statement Requirement." Notwithstanding the above, a Non-U.S.
Holder that is engaged in the conduct of a United States trade or business will
be subject to (i) United States Federal income tax on interest that is
effectively connected with the conduct of such trade or business and (ii) if the
Non-U.S. Holder is a corporation, a United States branch profits tax equal to
30% of its "effectively connected earnings and profits" as adjusted for the
taxable year, unless the holder qualifies for an exemption from such tax or a
lower tax rate under an applicable treaty.
GAIN IN DISPOSITION
A Non-U.S. Holder will generally not be subject to United States federal
income tax on gain recognized on a sale, redemption, or other disposition of New
Notes unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-U.S. Holder or (ii) in the case
of a Non-U.S. Holder who is a nonresident alien individual, such holder is
present in the United States for 183 or more days during the taxable year and
certain other requirements are met. Any such gain that is effectively connected
with the conduct of a United States trade or business by a Non-U.S. Holder will
be subject to United States Federal income tax on a net income basis in the same
manner as if such holder were a United States person and, if such Non-U.S.
Holder is a corporation, such gain may also be subject to the 30% United States
branch profits tax described above.
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FEDERAL ESTATE TAXES
New Notes held by an individual who is not a citizen or resident alien of
the United States at the time of his death will not be subject to United States
federal estate tax as a result of such individual's death, provided that the
individual does not own, actually or constructively, 10 percent or more of the
total combined voting power of all classes of stock of the company entitled to
vote and, at the time of such individual's death, payments with respect to such
New Notes would not have been effectively connected to the conduct by such
individual of a trade or business in the United States.
OWNER STATEMENT REQUIREMENT
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of New Notes or a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution") and that holds New Notes on
behalf of such owner file a statement with the Company or its agent to the
effect that the beneficial owner is not a United States person in order to avoid
withholding of United States federal income tax. Under current Treasury
regulations, this requirement will be satisfied if the Company or its agent
receives (i) a statement (an "Owner's Statement") from the beneficial owner of
New Notes in which such owner certifies, under penalties of perjury, that such
owner is not a United States person and provides such owner's name and address
or (ii) a statement from the Financial Institution holding the New Notes on
behalf of the beneficial owner in which the Financial Institution certifies,
under penalties of perjury, that it has received the Owner's Statement together
with a copy of the Owner's Statement. The beneficial owner must inform the
Company or its agent (or, in the case of a statement described in clause (ii) of
the immediately preceding sentence, the Financial Institution) within 30 days of
any change in information on the Owner's Statement.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Current United States federal income tax law provides that in the case of
payments of interest to Non-U.S. Holders, the 31% backup withholding tax will
not apply to payments by the Company or a paying agent on a New Note if an
Owner's Statement is received or an exemption has otherwise been established;
provided in each case that the Company or the paying agent, as the case may be,
does not have actual knowledge that the payee is a United States person.
Under current Treasury Regulations, payments of the proceeds on the sale,
exchange or retirement of Notes to or through a foreign office of a broker
generally will not be subject to backup withholding. However, if such broker is
a United States person, a controlled foreign corporation for United States
federal income tax purposes, a foreign person 50 percent or more of whose gross
income is effectively connected with a United States trade or business for a
specified three-year period or another United States related person described in
Section 1.6049-5(c)(5) of the Treasury Regulations, information reporting will
be required unless the broker has in its records documentary evidence that the
beneficial owner is not a United States person and certain other conditions are
met or the beneficial owner otherwise establishes an exemption. Under Treasury
Regulations issued October 6, 1997, and a recent Internal Revenue Service notice
announcing amendments to such regulations, backup withholding may apply to any
payment made after December 31, 1999, which such broker is required to report if
such broker has actual knowledge that the payee is a United States person.
Payments to or through the United States office of a broker will be subject to
backup withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a United States person or otherwise
establishes an exemption. Also, in the case of payments to foreign partnerships
(other than payments to foreign partnerships that qualify as "withholding
foreign partnerships" within the meaning of such Treasury Regulations and
payments to foreign partnerships that are effectively connected with the conduct
of a trade or business in the United States), the partners of such partnership
will be required to provide the certification discussed above in order to
establish an exemption from backup withholding tax and information reporting
requirements.
Non-U.S. Holders of Notes should consult their tax advisors regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom and the procedure for
obtaining such an exemption, if available. Any amounts withheld from a payment
to a Non-U.S. Holder under the backup withholding rules will be allowed as a
credit against such Non-U.S. Holder's United States federal
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income tax liability and may entitle such Non-U.S. Holder to a refund, provided
that the required information is furnished to the Internal Revenue Service.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30 million shares,
$.01 par value per share.
COMMON STOCK
The terms of any Common Stock, or any series thereof, may be determined by
the Board of Directors. Holders of currently outstanding Common Stock have one
vote per share of record on each matter submitted to a vote of stockholders, the
right to receive such dividends, if any, as may be declared by the Board of
Directors out of assets legally available therefor and the right to receive net
assets in liquidation after payment of all amounts due to creditors and all
preferential amounts due to holders of any preferred stock. Holders of such
Common Stock have no conversion rights and are not entitled to any preemptive or
subscription rights. Such Common Stock is not subject to redemption or any
further calls or assessments. Such Common Stock has noncumulative voting rights
in the election of directors. All of the outstanding shares of Common Stock are
fully paid and nonassessable.
PREFERRED STOCK
The terms of any preferred stock, or any series thereof, may be determined
from time to time by the Board of Directors. Shares of preferred stock may be
issued from time to time by authorization of the Board of Directors without
submitting a proposal regarding the issuance of such shares to a vote of holders
of Common Stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the rights of holders of Common Stock and under
certain circumstances make it more difficult for a third party to gain control
of the Company.
In connection with the 1995 offering, the Company issued 800,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"). The
Preferred Stock was issued with a liquidation preference of $20 million ($25 per
share), plus accrued and unpaid dividends (the "Liquidation Preference"). Cash
dividends on the Preferred Stock are payable quarterly out of funds legally
available therefor (when and if declared by the Board) in an amount equal to 15%
of the Liquidation Preference. Dividends if not paid (whether or not declared)
are cumulative from December 19, 1995, the date of initial issuance, and will be
compounded quarterly. The Company has not paid any dividends to date and 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 on the date of
redemption and is also subject to redemption as may be required by applicable
gaming laws and regulations. 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 on the date of redemption.
In the event that the Company consummates a firm commitment underwritten
public offering of the Common Stock 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 (a "Qualified Public
Offering"), it will be required to offer to repurchase 35% of the Preferred
Stock then outstanding out of the proceeds of the Qualified Public Offering at a
repurchase price equal to 100% of the Liquidation Preference on the date of
repurchase. If a change of control (as defined in the Certificate of Designation
with respect to the Preferred Stock) occurs, each holder of Preferred Stock will
have the right to require the Company to repurchase all of such holder's
Preferred Stock at a redemption price equal to 100% of the Liquidation
Preference on the date of redemption. Holders of shares of the Preferred Stock
will have no voting rights except as provided by law and as to certain limited
additional matters.
The Company has no current plans to issue any additional shares of
preferred stock.
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WARRANTS
In connection with the 1995 offering and the issuance of the Preferred
Stock, the Company issued warrants (the "Warrants"), originally entitling the
holders thereof to purchase in the aggregate 2,675,237 shares of Common Stock,
representing an aggregate of 40% of the outstanding Common Stock, on a fully
diluted basis. However, in connection with the issuance of the Notes, the
Company redeemed 703,402 Warrants. The remaining 1,971,835 Warrants are freely
transferable and exercisable, are subject to anti-dilution provisions and expire
on December 19, 1998. In addition, the Warrants are subject to redemption as may
be required by applicable gaming laws and regulations.
AVAILABILITY OF SHARES OF CAPITAL STOCK FOR FUTURE ISSUANCE
The availability of shares of Common Stock and preferred stock for
issuance without further action by stockholders could be viewed as enabling the
Board of Directors to make more difficult a change in control of the Company,
including by issuing warrants or rights to acquire shares of Common Stock or
preferred stock to discourage or defeat unsolicited stock accumulation programs
and acquisition proposals and by issuing shares to dilute or deter stock
ownership of persons seeking to obtain control of the Company. The Company has
no present plans to issue any additional shares of Common Stock or preferred
stock, other than as contemplated under the Company's employee benefit plans.
CHARTER AND BYLAW PROVISIONS
The Company's Articles of Incorporation provide that no officer or
director will be personally liable to the Company or any stockholder for damages
for breach of fiduciary duty as a director or officer, except for (i) acts or
omissions that involve intentional misconduct, fraud or a knowing violation of
law, or (ii) the payment of dividends in violation of Chapter 78 of the Nevada
Revised Statutes (the "Corporation Law"). If the Corporation Law is amended or
interpreted to eliminate or limit further the personal liability of directors or
officers, then the liability of all directors and officers automatically will be
eliminated or limited to the full extent then so permitted. These provisions in
the Articles of Incorporation or By-laws do not eliminate the fiduciary duties
of the directors and officers and, in appropriate circumstances, equitable
remedies such as injunctive relief or other forms of non-monetary relief will
remain available under Nevada law. In addition, these provisions do not affect
responsibilities imposed under any other law, such as the federal securities
laws or state or federal environmental laws.
In addition, the Company's By-laws provide that the Company will indemnify
its directors and officers to the fullest extent permitted under the Corporation
Law. The Company believes that indemnification under its By-laws covers at least
negligence and gross negligence by indemnified parties and permits the Company
to advance litigation expenses in the case of stockholder derivative actions or
other actions, against an undertaking by the indemnified party to repay such
advances if it is ultimately determined that the indemnified party is not
entitled to indemnification. The Company intends to seek liability insurance for
its officers and directors.
The Company has entered into separate indemnification agreements with each
of its directors and officers. These agreements require the Company, among other
things, to indemnify such persons against certain liabilities that may arise by
reason of their status or service as directors or officers (other than
liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be opposed to the best interests of the Company), to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified and to obtain directors' and officers' liability
insurance if available on terms deemed reasonable by the Board of Directors.
These indemnification agreements are separate and independent of the
indemnification rights under the By-laws and will be irrevocable.
The Company believes that these Articles of Incorporation and By-law
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers. Insofar as indemnification pursuant
to the foregoing provisions against liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company, the
Company has been informed that, in the opinion of the Securities
-108-
<PAGE> 113
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Company requires that in order for stockholders to take action by
written consent in lieu of a meeting, the holders of all of the outstanding
shares must participate in such consent. The foregoing provision could have the
effect of delaying or making it more difficult to effect a change in control of
management of the Company, even though such a change may be beneficial to the
Company and its stockholders.
NEVADA STATUTORY RESTRICTIONS ON BUSINESS COMBINATIONS/CORPORATE CONTROL
The Nevada Combinations With Interested Stockholders Statutes (the
"Business Combinations Act") and the Nevada Acquisition of Controlling Interest
Statutes (the "Control Shares Act") may have the effect of delaying or making it
more difficult to effect a change in control of the Company.
The Business Combinations Act prohibits an "interested stockholder" and a
Nevada corporation with 200 or more stockholders (hereinafter, "corporation")
from entering into a "combination," unless certain conditions are met. A
"combination" means any merger or consolidation of a corporation or any of its
subsidiaries with an "interested stockholder," or any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets of the corporation, in
one transaction or a series of transactions, to or with an "interested
stockholder" having: (i) an aggregate market value equal to 5% or more of the
aggregate market value of the assets of a corporation, (ii) an aggregate market
value equal to 5% or more of the aggregate market value of all outstanding
shares of a corporation or (iii) representing 10% or more of the earning power
or net income of a corporation. An "interested stockholder" means (a) the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the corporation, or (b) an affiliate or associate of the corporation, that, at
any time within the three years immediately before the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the corporation. A corporation may not engage in a "combination" with any
"interested stockholder" within three years after the interested stockholder
first became an interested stockholder unless the combination or purchase of
shares first making such person an interested stockholder is approved by the
board of directors before the interested stockholder first became an interested
stockholder. If this approval is not obtained, then after the expiration of the
three-year period, the business combination may only be consummated with the
approval of the board of directors or a majority of the voting power held by
disinterested stockholders, or after certain minimum statutory consideration
requirements have been met with respect to the acquisition of all the capital
stock of the corporation held by the disinterested stockholders immediately
before the date the interested stockholder acquired such shares.
The Control Shares Act prohibits an acquirer, under certain circumstances,
from voting newly acquired shares of a Nevada corporation with 200 or more
stockholders, 100 of whom are stockholders of record and Nevada residents
(hereinafter, "target corporation") when such acquisition causes the number of
shares held by the acquirer to exceed certain threshold ownership percentages,
unless the acquirer obtains the approval of the target corporation's
disinterested stockholders. The Control Shares Act specifies three ownership
thresholds: (i) one-fifth or more but less than one-third, (ii) one-third but
less than a majority and (iii) a majority or more, of the outstanding voting
power of the corporation. Once an acquirer crosses one of these thresholds,
those shares in an offer or acquisition and acquired within 90 days immediately
preceding the date when the acquiring person became an acquiring person, become
"control shares" and are deprived of the right to vote until disinterested
stockholders restore that right. The Control Shares Act also provides that in
the event "control shares" are accorded full voting rights and the acquiring
person has acquired a majority or more of all voting power, all other
stockholders who do not vote in favor of authorizing voting rights to the
"control shares" are entitled to payment for the fair value of their shares in
accordance with statutory procedures established for dissenters' rights.
-109-
<PAGE> 114
PLAN OF DISTRIBUTION
Any broker-dealer who holds an Old Note that has not (i) been exchanged in
the Exchange Offer for a New Note and become entitled to be resold to the public
without complying with the prospectus delivery requirements of the Securities
Act, (ii) been effectively registered under the Securities Act and disposed of
in accordance with a Shelf Registration Statement, (iii) been distributed to the
public pursuant to Rule 144 under the Securities Act or by a broker-dealer
pursuant to the provisions described herein (including delivery of a copy of
this Prospectus), or (iv) become salable pursuant to Rule 144(k) under the
Securities Act (a "Transfer Restricted Security") that was acquired for its own
account as a result of market-mailing activities or other trading activities
(other than Old Notes acquired directly from the Company) may exchange such Old
Note pursuant to the Exchange Offer; however, such broker-dealer may be deemed
to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resales of the New Notes received by such broker-dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such broker-dealer of a copy of this Prospectus. The Company has
agreed that for a period of 120 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until 90 days after
commencement of the Exchange Offer, all dealers effecting transactions in the
New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act.
For a period of 120 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay the expenses
incident to the Exchange Offer and will indemnify the Holders of the Old Notes
against certain liabilities, including liabilities under the Securities Act, in
connection with the Exchange Offer.
LEGAL MATTERS
Certain legal matters in connection with the legality of the Notes offered
hereby will be passed on for the Company by Hughes Hubbard & Reed LLP, Los
Angeles, California.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1997 and for each of the three years in the period ended December 31,
1997 and the related financial statement schedule included in this Prospectus
and elsewhere in this Registration Statement, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement, and are included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The Statements of Operations and Cash Flows of 101 Main Street Limited
Liability Company for each of the three years in the period ended December 31,
1996 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-110-
<PAGE> 115
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FITZGERALDS GAMING CORPORATION CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report F - 2
Balance Sheets as of December 31, 1996 and 1997 and March 29, 1998 (unaudited) F - 3
Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997
and the Quarters ended March 30, 1997 (unaudited) and March 29, 1998 (unaudited) F - 5
Statements of Stockholders' Equity (Deficiency) for the Years Ended
December 31, 1995, 1996 and 1997 and the Quarter ended March 29, 1998 (unaudited) F - 6
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997
and the Quarters ended March 30, 1997 (unaudited) and March 29, 1998 (unaudited) F - 7
Notes to Consolidated Financial Statements F - 9
101 MAIN STREET LIMITED LIABILITY COMPANY
Report of Independent Auditors F - 41
Audited Financial Statements:
Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 and the Three Quarters Ended
September 29, 1996 (unaudited) and September 28, 1997 (unaudited) F - 42
Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 and the Three Quarters Ended
September 29, 1996 (unaudited) and September 28, 1997 (unaudited) F - 43
Notes to Financial Statements F - 44
FITZGERALDS GAMING CORPORATION PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
Pro Forma Consolidated Statement of Operations F - 49
Notes to Pro Forma Consolidated Statement of Operations F - 51
</TABLE>
F-1
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Fitzgeralds Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Fitzgeralds
Gaming Corporation and subsidiaries (the "Company") as of December 31, 1996 and
1997, 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. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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, 1996
and 1997, 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.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 27, 1998
F-2
<PAGE> 117
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,349,497 $ 14,809,617 $ 16,818,973
Accounts receivable, net of allowance for doubtful
accounts of $253,942, $411,881 and $475,883 2,056,841 2,060,045 2,139,984
Accounts and notes receivable - related parties 2,209,188 136,173 137,476
Inventories 1,545,661 1,313,611 1,159,937
Prepaid expenses:
Gaming taxes 1,374,319 1,163,342 1,058,986
Other 1,694,320 1,734,186 1,712,544
------------ ------------ ------------
Total current assets 22,229,826 21,216,974 23,027,900
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net 151,883,083 163,704,715 162,933,204
------------ ------------ ------------
OTHER ASSETS:
Estimated realizable value of Nevada Club assets
held for sale -- 3,979,228 3,979,227
Restricted cash - construction 2,254,323 393,987 273,519
Restricted investment 1,000,000 1,000,000 1,000,000
Investments 5,014,175 1,347,813 1,175,063
Debt offering costs 7,013,894 8,724,936 8,681,572
Goodwill, net -- 14,046,231 13,960,533
Other assets 1,783,273 1,206,356 1,197,408
------------ ------------ ------------
Total other assets 17,065,665 30,698,551 30,267,322
------------ ------------ ------------
MINORITY INTEREST -- 75,199 --
------------ ------------ ------------
TOTAL $191,178,574 $215,695,439 $216,228,426
============ ============ ============
</TABLE>
(Continued)
F-3
<PAGE> 118
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
----------------------------- -------------
1996 1997 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 25,637,728 $ 7,285,897 $ 5,882,244
Current portion of notes payable - related parties 2,111,892 304,637 304,637
Accounts payable 11,518,602 7,236,856 4,131,837
Accrued and other:
Payroll and related 3,290,264 4,061,565 5,236,287
Progressive jackpots 733,800 979,449 1,118,482
Outstanding chips and tokens 843,162 768,633 894,412
Interest 459,326 175,432 6,415,405
Offering costs 1,048,611 660,775 233,990
Other 3,619,451 6,262,740 5,827,550
------------- ------------- -------------
Total current liabilities 49,262,836 27,735,984 30,044,844
LONG-TERM DEBT, net of current portion 127,856,487 206,191,485 206,978,022
NOTES PAYABLE - RELATED PARTIES,
net of current portion 25,903 -- --
------------- ------------- -------------
Total liabilities 177,145,226 233,927,469 237,022,866
------------- ------------- -------------
MINORITY INTEREST 587,837 -- 17,748
------------- ------------- -------------
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 $3,288,873, $6,983,663 and $7,995,550 recorded at
liquidation preference value, net of unamortized offering costs and
discount of $7,800,091, $7,352,266 and $7,229,620, respectively 15,488,782 19,631,397 20,765,930
------------- ------------- -------------
STOCKHOLDERS' DEFICIENCY:
Common stock, $.01 par value; 29,200,000 shares
authorized; 4,012,846 shares issued and outstanding 40,128 40,128 40,128
Additional paid-in capital 23,785,603 23,649,582 23,649,582
Accumulated deficit (25,869,002) (61,553,137) (65,267,828)
------------- ------------- -------------
Total stockholders' deficiency (2,043,271) (37,863,427) (41,578,118)
------------- ------------- -------------
TOTAL $ 191,178,574 $ 215,695,439 $ 216,228,426
============= ============= =============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 119
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, QUARTERS ENDED
--------------------------------------------- -----------------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ 115,048,414 $ 111,284,884 $ 141,215,071 $ 30,617,232 $ 38,809,468
Food and beverage 18,276,813 18,551,978 22,499,113 5,285,837 5,931,651
Rooms 13,116,906 15,875,829 21,318,538 4,870,739 4,786,502
Other 6,869,141 7,405,998 9,965,508 2,109,503 2,172,458
------------- ------------- ------------- ------------- -------------
Total 153,311,274 153,118,689 194,998,230 42,883,311 51,700,079
Less promotional allowances 11,914,178 12,588,342 15,296,497 3,465,925 4,281,723
------------- ------------- ------------- ------------- -------------
Net 141,397,096 140,530,347 179,701,733 39,417,386 47,418,356
------------- ------------- ------------- ------------- -------------
OPERATING COSTS AND EXPENSES:
Casino 57,158,020 58,323,360 69,674,986 15,555,957 19,086,529
Food and beverage 12,496,888 13,330,471 17,214,885 3,978,337 4,140,180
Rooms 7,120,826 9,644,494 12,512,496 2,880,444 2,813,508
Other operating 1,821,157 1,543,516 1,681,063 352,429 482,350
Selling, general and administrative 41,021,687 44,920,756 48,933,178 11,027,173 13,185,522
Depreciation and amortization 8,010,498 8,896,951 12,053,777 2,834,482 3,250,680
Write down of assets and lease settlement -- -- 4,009,832 -- --
------------- ------------- ------------- ------------- -------------
Total 127,629,076 136,659,548 166,080,217 36,628,822 42,958,769
------------- ------------- ------------- ------------- -------------
INCOME FROM OPERATIONS 13,768,020 3,870,799 13,621,516 2,788,564 4,459,587
OTHER INCOME (EXPENSE):
Interest income 292,567 1,822,964 383,469 82,262 78,211
Interest income - stockholders 28,218 237,524 78,708 19,479 --
Interest expense (14,711,618) (20,208,230) (25,368,844) (5,752,214) (6,815,532)
Interest expense - stockholders (315,234) (38,899) (126,259) (36,452) (4,583)
Other income (expense) (490,896) (662,251) (882,182) (524,284) (297,841)
------------- ------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (1,428,943) (14,978,093) (12,293,592) (3,422,645) (2,580,158)
INCOME TAX (PROVISION) BENEFIT (2,825,746) 1,484,167 -- -- --
------------- ------------- ------------- ------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (4,254,689) (13,493,926) (12,293,592) (3,422,645) (2,580,158)
EXTRAORDINARY ITEM -
LOSS ON EARLY RETIREMENT OF DEBT -- -- (19,247,928) -- --
------------- ------------- ------------- ------------- -------------
NET LOSS (4,254,689) (13,493,926) (31,541,520) (3,422,645) (2,580,158)
PREFERRED STOCK DIVIDENDS (98,497) (3,536,152) (4,142,615) (979,184) (1,134,533)
------------- ------------- ------------- ------------- -------------
NET LOSS APPLICABLE TO
COMMON STOCK $ (4,353,186) $ (17,030,078) $ (35,684,135) $ (4,401,829) $ (3,714,691)
============= ============= ============= ============= =============
NET LOSS PER COMMON SHARE:
Before extraordinary item $ (1.09) $ (4.26) $ (4.09) $ (1.10) $ (0.93)
Extraordinary item -- -- (4.80) -- --
------------- ------------- ------------- ------------- -------------
NET LOSS PER COMMON SHARE - BASIC $ (1.09) $ (4.26) $ (8.89) $ (1.10) $ (0.93)
============= ============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,989,655 3,998,877 4,012,846 4,012,846 4,012,846
============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 120
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDERS'
COMMON STOCK PAID-IN (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT) (DEFICIENCY)
------------ ------------ ------------ ------------ ------------
<S> <C> <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)
Net loss (Unaudited) (2,580,158) (2,580,158)
Preferred stock dividends
(Unaudited) (1,134,533) (1,134,533)
------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 29, 1998
(UNAUDITED) 4,012,846 $ 40,128 $ 23,649,582 $(65,267,828) $(41,578,118)
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 121
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, QUARTERS ENDED
------------------------------------------ ---------------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,254,689) $(13,493,926) $(31,541,520) $ (3,422,645) $ (2,580,158)
Adjustments to reconcile net loss to net
cash provided by operating activities, net
of effects of acquisition:
Depreciation and amortization 8,010,498 8,896,951 12,053,777 2,834,482 3,250,680
Amortization of note discount
and offering costs 1,824,577 1,998,619 3,062,020 709,188 279,418
Write down of assets and lease settlement -- -- 3,982,000 -- --
Recovery of bad debt from related party -- -- (510,439) (510,439) --
Loss on early retirement of debt -- -- 17,537,928 -- --
Deferred income taxes 2,825,796 (1,484,167) -- -- --
Other 822,421 995,058 634,993 194,198 297,953
(Increase) decrease in accounts
receivable, net (1,059,536) 369,954 92,655 (294,486) (79,939)
(Increase) decrease in accounts
receivable - related parties 218,362 (221,174) (74,173) 461,569 (1,304)
(Increase) decrease in inventories (171,798) (177,431) 345,880 121,896 121,524
(Increase) decrease in prepaid expenses 219,080 (376,545) 283,887 165,200 113,157
(Increase) decrease in other assets (37,897) (464,318) 204,922 170,694 (32,051)
Increase (decrease) in accounts payable 1,161,211 5,579,952 (4,369,705) (4,771,086) (3,105,017)
Increase (decrease) in accrued and other
liabilities (1,090,030) (864,374) (414,968) 5,125,681 7,244,317
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities 8,467,995 758,599 1,287,257 784,252 5,508,580
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 9,708,331 372,529 129,948 6,000 473,487
Repayments from related parties 219,466 86,664 2,518,805 -- --
Purchase of treasury stock (333,333) -- -- -- --
Acquisition of property and equipment (9,830,127) (53,263,739) (3,642,878) (1,460,328) (1,198,616)
(Increase) decrease in restricted cash -
construction (49,100,000) 46,845,677 1,860,336 1,694,534 120,468
Increase in advances receivable (541,650) -- -- -- --
Purchase of business, net of cash acquired -- -- (25,747,169) -- --
Other (526,678) (408,999) 224,406 283,834 (203,872)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities (50,403,991) (6,367,868) (24,656,552) 524,040 (808,533)
------------ ------------ ------------ ------------ ------------
</TABLE>
(Continued)
F-7
<PAGE> 122
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, QUARTERS ENDED
--------------------------------------------- -----------------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <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 (9,983,915) (275,625) (11,308,428) -- (580,111)
Proceeds from issuance of stock -- 1,350 -- -- --
Advances from related parties 868,195 -- -- -- --
Proceeds from issuance of debt 7,200,963 9,643,064 38,221,811 328,203 --
Repayment of long-term debt (78,954,240) (10,222,261) (202,573,620) (1,953,611) (2,044,788)
Common stock dividends
and dividends to minority stockholders (1,018,292) (405,148) (337,393) (99,441) (65,792)
Repayments to related parties (3,113,317) -- (1,807,255) -- --
(Increase) decrease in restricted cash (120,415) 471,569 -- -- --
Other -- (98,007) -- -- --
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 49,893,819 (885,058) 24,829,415 (1,724,849) (2,690,691)
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,957,823 (6,494,327) 1,460,120 (416,557) 2,009,356
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 11,886,001 19,843,824 13,349,497 13,349,497 14,809,617
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 19,843,824 $ 13,349,497 $ 14,809,617 $ 12,932,940 $ 16,818,973
============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 123
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, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Operating Revenues:
FGC $ -- $ -- $ --
FSI:
Fitzgeralds Las Vegas 42,652,710 43,482,777 46,540,155
Fitzgeralds Tunica 46,465,895 48,747,813 68,734,152
FRI:
Harolds Club 1,520,244 -- --
Fitzgeralds Reno 40,212,715 37,076,390 39,803,326
NCI 7,036,701 6,432,276 6,237,697
FI:
Fitzgeralds Black Hawk -- -- 12,691,475
Other 3,508,831 4,791,091 5,694,928
------------ ------------ ------------
Consolidated net operating revenues $141,397,096 $140,530,347 $179,701,733
============ ============ ============
</TABLE>
F-9
<PAGE> 124
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Income (Loss):
FGC $ (39,570) $ (410,264) $(18,423,409)
FSI:
Fitzgeralds Las Vegas (1,721,655) (8,219,859) (8,980,159)
Fitzgeralds Tunica (1,379,339) (9,462,003) (4,692,512)
FRI:
Harolds Club (1,896,510) -- (1,852,832)
Fitzgeralds Reno (428,503) 2,604,333 3,377,213
NCI (328,470) (842,312) (2,074,365)
FI:
Fitzgeralds Black Hawk -- -- (1,926,503)
Other 1,539,358 2,836,179 3,031,047
------------ ------------ ------------
Consolidated net loss $ (4,254,689) $(13,493,926) $(31,541,520)
============ ============ ============
</TABLE>
RECENT DEVELOPMENTS - CLIFF CASTLE (UNAUDITED)
On June 9, 1998, FAMI, as manager of Cliff Castle Casino ("Cliff
Castle"), entered into a termination agreement with the Yavapai-Apache
Indian Nation (the "Nation"), wherein the parties mutually agreed to
terminate the agreement to manage Cliff Castle (the "Management
Agreement"). In exchange for terminating the Management Agreement, the
Nation agreed to pay FAMI a lump sum of $8.2 million, which was received
by FAMI on June 10, 1998.
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, 1996 and 1997, the Company had bank deposits in excess of federally
insured limits of approximately $3,740,000 and $7,764,000, 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 $868,168 and $699,989 of base stock inventories
at December 31, 1996 and 1997.
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> 125
CAPITALIZED INTEREST - Interest costs totaling $7,340 and $1,814,195 were
capitalized into property and equipment for the years ended December 31,
1995 and 1996, 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, 1996
and 1997 are presented net of accumulated amortization of $636,190 and
$2,160, 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>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Hotel $ 1,109,155 $ 1,635,213 $ 2,104,907
Food and beverage 8,828,648 9,543,492 10,684,329
Other 91,037 102,951 223,949
----------- ----------- -----------
Total $10,028,840 $11,281,656 $13,013,185
=========== =========== ===========
</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 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.
F-11
<PAGE> 126
INTERIM FINANCIAL INFORMATION (UNAUDITED) - The accompanying unaudited
financial statements as of March 29, 1998 and for the quarters ended
March 30, 1997 and March 29, 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (consisting
only of normal, recurring adjustments) necessary for a fair presentation
have been included. Results for the interim periods are not necessarily
indicative of the results to be expected for a full 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 1995 and 1996 loss per share calculations.
During the years ended December 31, 1995, 1996, and 1997, 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 526,561 shares of common stock at prices
ranging from $1.00 to $4.50 per share, 450,051 shares of common stock at
prices ranging from $1.00 to $4.50 per share and 676,974 shares of common
stock at prices ranging from $1.00 to $1.10 per share, and warrants to
purchase 2,675,237, 2,675,237 and 1,971,835, shares of common stock at
$.01 per share were outstanding at December 31, 1995, 1996 and 1997,
respectively. Such options and warrants 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
F-12
<PAGE> 127
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 1995 and 1996 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,
1995, 1996 and 1997:
Cash paid for interest, net of amounts capitalized, during the years
ended December 31, 1995, 1996 and 1997 was $10,041,419, $22,363,448 and
$22,590,718, respectively.
Long-term contracts payable of $2,624,160 in 1995, $3,762,425 in 1996 and
$300,863 in 1997, were incurred with the acquisition of new equipment.
During 1995, 1996 and 1997, accumulated deficit was increased by $98,497,
$3,536,152 and $4,142,615, for preferred stock dividends consisting of
$92,983, $3,195,890 and $3,694,790, accrued dividends and $5,514,
$340,262 and $447,825, accretion of discount on preferred stock.
During 1996 and 1997 additional paid in capital decreased and the note
payable to a former stockholder increased by $636,020 and $136,021,
respectively, pursuant to an adjustment to the purchase price of treasury
stock.
In 1995, accrued offering costs of $2,596,799 were incurred in connection
with the 1995 Offering. In 1997, accrued offering costs of $660,775 were
incurred in connection with the 1997 Offering.
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.
During 1996 advances receivable of $2,500,000 were transferred to
investments.
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.
During 1997, the Company acquired the remaining 78% membership interest
in 101 Main with the allocation of the purchase price as follows:
F-13
<PAGE> 128
<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>
The following unaudited supplemental disclosures are provided as part of
the unaudited consolidated statements of cash flows for the quarters
ended March 30, 1997 and March 29, 1998:
Cash paid for interest, net of amounts capitalized, during the
quarters ended March 30, 1997 and March 29, 1998 was $678,457 and
$286,258, respectively.
Long-term contracts payable of $38,729 during the quarter ended
March 30, 1997 and $1,344,944 during the quarter ended March 29,
1998 were incurred with the acquisition of new equipment.
During the quarters ended March 30, 1997 and March 29, 1998,
accumulated deficit was increased by $979,184 and $1,134,533 for
preferred stock dividends consisting of accrued dividends of
$873,332 and $1,011,885 and accretion of discount on preferred
stock of $105,852 and $122,648.
During the quarter ended March 29, 1998, accrued offering costs of
$153,326 were incurred in connection with the 1997 Offering.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
ESTIMATED
SERVICE
DECEMBER 31, MARCH 29, LIFE
-----------------------------
1996 1997 1998 (YEARS)
------------- ------------- ------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land used in casino operations $ 12,961,120 $ 15,606,209 $ 15,578,653
Buildings and improvements 103,360,569 116,588,374 116,817,920 7-40
Site improvements 14,331,622 14,383,100 14,383,100 20
Barge and improvements 12,885,433 12,896,235 12,896,235 15
Furniture, fixtures and equipment 57,503,519 61,974,234 60,601,476 3-12
------------- ------------- -------------
201,042,263 221,448,152 220,277,384
Less accumulated depreciation
and amortization (49,335,270) (57,976,447) (58,101,778)
------------- ------------- -------------
151,706,993 163,471,705 162,175,606
Construction in progress 176,090 233,010 757,598
------------- ------------- -------------
Total $ 151,883,083 $ 163,704,715 $ 162,933,204
============= ============= =============
</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 Fremont Street Experience is an urban
theater which
F-14
<PAGE> 129
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.
The Company accounts for this investment using the equity method.
Condensed financial information of the limited liability corporation as
of December 31, 1996 and 1997 and for the years then ended is summarized
below.
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Current assets $ 2,102,692 $ 128,943
Non current assets 16,295,965 13,283,314
Current liabilities 848,586 910,312
Non current liabilities 1,358,723 141,669
Net assets 16,191,348 12,360,276
Revenues $ 2,508,049 $ 3,224,995
Operating loss (10,069,775) (8,142,487)
Net loss (10,069,775) (8,142,487)
</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>
YEAR ENDED PERIOD ENDED
DECEMBER 31, AUGUST 15,
1996 1997
----------- -----------
<S> <C> <C>
Summarized Statement of Operations Information
Revenues $27,944,135 $21,295,752
Operating income 7,777,331 5,398,745
Income before extraordinary item 6,084,598 4,378,932
Net income 6,084,598 4,130,769
</TABLE>
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,
F-15
<PAGE> 130
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:
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
============
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, DECEMBER 31,
1996 1997
------------- -------------
<S> <C> <C>
Net revenues $ 167,893,638 $ 200,454,134
Loss before extraordinary item (8,478,690) (9,003,978)
Net loss (8,478,690) (28,500,069)
Net loss applicable to common stock (12,014,842) (32,642,684)
Net loss per common share (3.00) (8.13)
</TABLE>
F-16
<PAGE> 131
7. LONG-TERM DEBT
Long-term debt is as follows at:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
----------------------------- -------------
1996 1997 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <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 $0, $2,364,697
and $2,281,969) $ -- $ 202,635,303 $ 202,718,031
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 1,351,620 1,050,616 971,782
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 3,047,088 2,658,356 2,559,888
Notes payable secured by gaming equipment; due in aggregate monthly
installments of $108,708, including interest at 11.5%; remaining
principal due August 1998 1,969,947 833,294 608,469
Contract payable secured by gaming equipment, due in monthly principal
installments of $133,333 plus interest at 10.83%; remaining
principal due March 1998 2,000,000 533,333 --
</TABLE>
F-17
<PAGE> 132
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
----------------------------- -------------
1996 1997 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Contracts payable, collateralized by certain equipment, due in
maximum aggregate monthly installments of $309,552, with
varying maturity dates through 2001 4,702,490 3,810,696 4,227,872
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% 328,034 273,965 156,787
Other 1,166,744 1,681,819 1,617,437
------------- ------------- -------------
Total long-term debt 153,494,215 213,477,382 212,860,266
Less current portion (25,637,728) (7,285,897) (5,882,244)
------------- ------------- -------------
Long-term portion $ 127,856,487 $ 206,191,485 $ 206,978,022
============= ============= =============
</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.
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.
F-18
<PAGE> 133
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.
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.
F-19
<PAGE> 134
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.
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 exercisable, 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>
F-20
<PAGE> 135
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, 1995,
1996 and 1997 was $2,034,061, $1,989,321 and $2,211,745, 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>
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.
F-21
<PAGE> 136
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.
RECENT DEVELOPMENTS - HAROLDS CLUB/NEVADA CLUB (UNAUDITED)
On June 8, 1998, the Company and an undisclosed purchaser executed an
Asset Purchase Agreement (the "Asset Purchase Agreement") for the sale of
the Nevada Club property in the amount of $3,768,750. The effectiveness
of the Asset Purchase Agreement is contingent upon the execution and
delivery of (i) certain other settlement and lease termination agreements
(collectively, the "Settlement Agreements") with the current and prior
Harolds Club land lessees (the "Lessees") and the Harolds Club land
owners (the "Landlords") and (ii) certain asset purchase agreements
between the Landlords and the undisclosed purchaser. Additionally, each
of the above agreements is conditioned upon the approval by the Federal
Bankruptcy Court (the "Court") of the transactions involving the Harolds
Club. The Company is currently engaged in negotiations with the Landlords
and the Lessees and the undisclosed purchaser is currently engaged in
negotiations with the Landlords.
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.
10. RELATED PARTY TRANSACTIONS
Accounts and notes receivable - related parties consist of the following
at:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
-------------------------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <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 114,096 136,173 137,476
----------- ----------- -----------
Total 2,219,941 136,173 137,476
Less current portion (2,209,188) (136,173) (137,476)
----------- ----------- -----------
Long-term portion (included in other assets) $ 10,753 $ -- $ --
=========== =========== ===========
</TABLE>
F-22
<PAGE> 137
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, MARCH 29,
-------------------------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured notes payable to stockholders; interest at 6.24%;
payable on demand $ 304,637 $ 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 -- --
----------- ----------- -----------
2,137,795 304,637 304,637
Less current portion (2,111,892) (304,637) (304,637)
----------- ----------- -----------
Long-term portion $ 25,903 $ -- $ --
=========== =========== ===========
</TABLE>
Accrued interest payable on notes payable - related parties, included in
accrued interest payable, was $4,191, $23,104 and $27,687 at December 31,
1996 and 1997 and March 29, 1998 (unaudited).
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 participants. Plan contributions, excluding
matching contributions described below, were $301,585, $0 and $0 for the
years ended December 31, 1995, 1996 and 1997.
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 $197,006, $390,237 and $277,941 for the years
ended December 31, 1995, 1996 and 1997.
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 $314,963, $322,405 and
$386,975 for the years ended December 31, 1995, 1996 and 1997.
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.
F-23
<PAGE> 138
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.
EMPLOYEE MEALS - On September 30, 1997 the United States Tax Court issued
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.
F-24
<PAGE> 139
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.
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
F-25
<PAGE> 140
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.
A summary of the status of the Company's stock option grants as of
December 31, 1995, 1996 and 1997 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 $215,042, $63,666 and $0 for 1995, 1996
and 1997, 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>
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C> <C>
Net loss As reported $ (4,254,689) $(13,493,926) $ (31,541,520)
Proforma (4,243,296) (13,599,207) (31,598,880)
Loss per common share As reported $ (1.09) $ (4.26) $ (8.89)
Proforma (1.09) (4.29) (8.91)
</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 1995, 1996 and
1997; risk-free interest rates of 5.45 percent, 5.91 percent and 6.2
percent, respectively, with expected lives of three years, three years
and four years, respectively. The weighted-average fair value of options
granted during 1995, 1996 and 1997 were $1.32, $0.71 and $1.00,
respectively.
F-26
<PAGE> 141
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>
1995 1996 1997
----------- ----------- ------
<S> <C> <C> <C>
Deferred (provision) benefit $(2,825,746) $ 1,484,167 $ --
----------- ----------- ------
Total $(2,825,746) $ 1,484,167 $ --
=========== =========== ======
</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>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Tax benefit at U.S. statutory rate $ 502,060 $ 5,242,297 $ 11,073,695
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 303,922 (3,567,514) (10,981,971)
Other (127,996) (190,616) (91,724)
------------ ------------ ------------
Total $ (2,825,746) $ 1,484,167 $ --
============ ============ ============
</TABLE>
F-27
<PAGE> 142
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
------------ ------------ ------------
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>
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>
F-28
<PAGE> 143
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.
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 $12,920,340, $13,337,368
and $14,653,112 at December 31, 1996 and 1997 and March 29, 1998
(unaudited), respectively; (ii) furniture, fixtures and equipment with a
net book value of $12,940,965, $11,439,196 and $8,730,381 at December 31,
1996 and 1997 and March 29, 1998 (unaudited), 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-29
<PAGE> 144
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
MARCH 29, 1998
(UNAUDITED)
<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 $ 1,405,286 $ 13,247,826 $ 2,165,861 $ -- $ 16,818,973
Accounts and notes receivable, net 39,644 1,674,110 563,706 -- 2,277,460
Inventories -- 1,159,937 -- -- 1,159,937
Prepaid and other current assets 80,074 2,575,825 115,631 -- 2,771,530
------------- ------------- ------------- ------------- -------------
Total current assets 1,525,004 18,657,698 2,845,198 -- 23,027,900
------------- ------------- ------------- ------------- -------------
PROPERTY AND EQUIPMENT, net 76,885 162,856,319 -- -- 162,933,204
OTHER ASSETS 193,946,363 29,893,204 4,800,376 (198,372,621)(b) 30,267,322
------------- ------------- ------------- ------------- -------------
TOTAL $ 195,548,252 $ 211,407,221 $ 7,645,574 $(198,372,621) $ 216,228,426
============= ============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 3,626,993 $ 2,559,888 $ -- $ 6,186,881
Accounts payable, accrued and other 8,933,622 16,415,186 211,971 (1,702,816)(c) 23,857,963
------------- ------------- ------------- ------------- -------------
Total current liabilities 8,933,622 20,042,179 2,771,859 (1,702,816) 30,044,844
LONG TERM DEBT,
net of current portion 209,153,317 216,758,859 6,206,730 (225,140,884)(a) 206,978,022
------------- ------------- ------------- ------------- -------------
Total liabilities 218,086,939 236,801,038 8,978,589 (226,843,700) 237,022,866
------------- ------------- ------------- ------------- -------------
MINORITY INTEREST -- -- 17,748 -- 17,748
CUMULATIVE REDEEMABLE
PREFERRED STOCK 20,765,930 -- -- -- 20,765,930
STOCKHOLDERS' DEFICIENCY (43,304,617) (25,393,817) (1,350,763) 28,471,079 (d) (41,578,118)
------------- ------------- ------------- ------------- -------------
TOTAL $ 195,548,252 $ 211,407,221 $ 7,645,574 $(198,372,621) $ 216,228,426
============= ============= ============= ============= =============
</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-30
<PAGE> 145
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> 146
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> 147
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE QUARTER ENDED MARCH 29, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $ 38,809,468 $ -- $ -- $ 38,809,468
Food and beverage -- 5,931,651 -- -- 5,931,651
Rooms -- 4,786,502 -- -- 4,786,502
Other -- 818,380 1,354,078 -- 2,172,458
------------ ------------ ------------ ------------ ------------
Total -- 50,346,001 1,354,078 -- 51,700,079
Less promotional allowances -- 4,281,723 -- -- 4,281,723
------------ ------------ ------------ ------------ ------------
Net -- 46,064,278 1,354,078 -- 47,418,356
------------ ------------ ------------ ------------ ------------
OPERATING COSTS AND
EXPENSES:
Casino -- 18,905,614 180,915 -- 19,086,529
Food and beverage -- 4,135,397 4,783 -- 4,140,180
Rooms -- 2,813,508 -- -- 2,813,508
Other operating -- 482,350 -- -- 482,350
Selling, general and
administrative 1,187,980 12,774,223 283,403 (1,060,084)(g) 13,185,522
Depreciation and amortization 5,725 3,220,856 24,099 -- 3,250,680
------------ ------------ ------------ ------------ ------------
Total 1,193,705 42,331,948 493,200 (1,060,084) 42,958,769
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS (1,193,705) 3,732,330 860,878 1,060,084 4,459,587
OTHER INCOME (EXPENSE):
Interest income 7,500,074 56,502 6,982 (7,485,347)(e) 78,211
Interest expense (6,573,170) (7,633,453) (81,004) 7,467,512 (e) (6,820,115)
Other income (expense) (2,319,203) 516,086 97,015 1,408,261 (f) (297,841)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS)
BEFORE TAXES (2,586,004) (3,328,535) 883,871 2,450,510 (2,580,158)
INCOME TAX (PROVISION)
BENEFIT -- -- (215,270) 215,270 --
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (2,586,004) $ (3,328,535) $ 668,601 $ 2,665,780 $ (2,580,158)
============ ============ ============ ============ ============
</TABLE>
(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-33
<PAGE> 148
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 extra-
ordinary 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 income.
(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-34
<PAGE> 149
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-35
<PAGE> 150
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-36
<PAGE> 151
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
FOR THE QUARTER ENDED MARCH 29, 1998
(UNAUDITED)
<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 $ (493,148) $ 5,205,528 $ 796,200 $ -- $ 5,508,580
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of assets -- 38,995 434,492 -- 473,487
Acquisition of property and
equipment (201) (1,198,415) -- -- (1,198,616)
(Increase) decrease in
restricted cash-construction 93,000 27,468 -- -- 120,468
Dividends received -- 372,820 -- (372,820)(a) --
Other -- (203,872) -- -- (203,872)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities 92,799 (963,004) 434,492 (372,820) (808,533)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payment of debt offering costs (580,111) -- -- -- (580,111)
Repayment of long-term debt -- (1,946,320) (98,468) -- (2,044,788)
Dividends -- -- (438,612) 372,820 (a) (65,792)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (580,111) (1,946,320) (537,080) 372,820 (2,690,691)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (980,460) 2,296,204 693,612 -- 2,009,356
CASH AND CASH
EQUIVALENTS,
BEGINNING OF YEAR 2,385,746 10,951,622 1,472,249 -- 14,809,617
------------ ------------ ------------ ------------ ------------
CASH AND CASH
EQUIVALENTS,
END OF YEAR $ 1,405,286 $ 13,247,826 $ 2,165,861 $ -- $ 16,818,973
============ ============ ============ ============ ============
</TABLE>
(a) To eliminate intercompany dividends.
F-37
<PAGE> 152
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-38
<PAGE> 153
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-39
<PAGE> 154
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) --
Other -- (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-40
<PAGE> 155
Report of Independent Auditors
Owner
101 Main Street Limited Liability Company
We have audited the accompanying Statements of Operations and Cash Flows of 101
Main Street Limited Liability Company for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of 101 Main
Street Limited Liability Company for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
September 30, 1997
F-41
<PAGE> 156
101 MAIN STREET LIMITED LIABILITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
YEAR ENDED DECEMBER 31, -------------------------------
------------------------------------------------ SEPTEMBER 29, SEPTEMBER 28,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Casino ............................ $ -- $ 11,186,186 $ 26,943,596 $ 20,025,066 $ 24,860,811
Food and beverage ................. -- 858,387 2,046,377 1,530,343 1,943,524
Other ............................. 2,743 122,713 219,922 140,866 214,692
------------ ------------ ------------ ------------ ------------
Total ................................. 2,743 12,167,286 29,209,895 21,696,275 27,019,027
Less promotional allowances ........... -- 517,089 1,265,760 938,349 1,239,849
------------ ------------ ------------ ------------ ------------
Net operating revenues ................ 2,743 11,650,197 27,944,135 20,757,926 25,779,178
Operating expenses:
Casino ............................ -- 3,849,467 10,310,860 8,265,162 10,395,627
Food and beverage ................. -- 1,112,166 2,279,482 840,721 1,078,072
Other Operating ................... -- 313,148 438,483 317,885 428,176
Selling, general and administrative 32,557 3,799,835 5,899,859 4,468,570 5,601,058
Depreciation and amortization ..... -- 539,348 1,238,120 826,098 1,014,846
Preopening costs .................. -- 2,597,185 -- -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses .............. 32,557 12,211,149 20,166,804 14,718,436 18,517,779
------------ ------------ ------------ ------------ ------------
Income (loss) from operations ......... (29,814) (560,952) 7,777,331 6,039,490 7,261,399
Other income (expense):
Interest income ................... 8,173 2,640 41,600 31,996 42,983
Interest expense, net of amounts
capitalized ...................... (122,987) (776,363) (1,734,333) (1,200,521) (2,014,612)
Gain on sale of assets ............ -- -- -- -- 7,047
------------ ------------ ------------ ------------ ------------
Net income (loss) ..................... $ (144,628) $ (1,334,675) $ 6,084,598 $ 4,870,965 $ 5,296,817
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-42
<PAGE> 157
101 MAIN STREET LIMITED LIABILITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
----------------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 29, SEPTEMBER 28,
------------------------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .................................. $ (144,628) $ (1,334,675) $ 6,084,598 $ 4,870,965 $ 5,296,817
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization .............. -- 539,348 1,238,120 826,098 1,014,846
Amortization and write-off of loan costs ... -- 100,028 346,539 164,715 319,806
Loss(gain) on disposition of assets ........ -- 70,129 -- -- (7,047)
Preopening costs ........................... -- 2,597,185 -- -- --
Changes in operating assets and liabilities:
Accounts receivable ..................... 239 (99,633) (90,115) 57,635 100,266
Interest receivable ..................... -- -- -- -- (3,321)
Inventory ............................... -- (122,953) 31,013 25,292 (3,650)
Prepaid expenses and other assets ....... (31,175) (172,239) 98,587 16,527 (57,020)
Accounts payable ........................ 664,325 (454,703) (291,378) (224,014) 160,632
Accrued expenses ........................ 158,641 1,195,818 702,976 56,424 (22,983)
Due to related parties .................. 74,688 374,910 (650,523) (425,839) 72,741
Other liabilities ....................... -- 112,684 10,771 90,678 (89,892)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities .......... 722,090 2,805,899 7,480,588 5,458,481 6,781,195
INVESTING ACTIVITIES
Acquisition of property and equipment .............. (4,954,528) (9,599,020) (1,381,197) (1,123,289) (162,950)
Preopening costs ................................... (424,692) (1,658,889) -- -- --
Note Receivable-related party ...................... -- -- -- -- (500,000)
Purchase of majority interest by parent
company ........................................ -- -- -- -- (27,300,000)
Proceeds from sale of property and equipment ....... -- 30,691 -- -- 168,440
------------ ------------ ------------ ------------ ------------
Net cash used by investing activities .............. (5,379,220) (11,227,218) (1,381,197) (1,123,289) (27,794,510)
FINANCING ACTIVITIES
Proceeds from debt ................................. 6,489,329 10,842,533 393,851 393,851 39,000,000
Repayments of long-term debt ....................... (1,819,167) (934,372) (2,951,307) (2,114,757) (9,760,805)
Distribution to owners ............................. -- -- (2,700,000) (1,600,000) (4,700,000)
Increase in deferred loan costs .................... -- (448,135) -- -- (2,033,734)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities ..................................... 4,670,162 9,460,026 (5,257,456) (3,320,906) 22,505,461
------------ ------------ ------------ ------------ ------------
Net increase in cash ............................... 13,032 1,038,707 841,935 1,014,286 1,492,146
Cash at beginning of year .......................... (9,657) 3,375 1,042,082 1,042,082 1,884,017
------------ ------------ ------------ ------------ ------------
Cash at end of year ................................ $ 3,375 $ 1,042,082 $ 1,884,017 $ 2,056,368 $ 3,376,163
============ ============ ============ ============ ============
</TABLE>
Supplemental disclosures:
Total interest paid during the years ended December 31, 1994, 1995 and 1996
and for the three quarters ended September 30, 1996 and 1997 was $109,628,
$661,852, $1,796,946, $965,167, and $1,510,511, respectively.
On February 16, 1996, a note payable in the amount of $2.5 million was
converted to equity. During 1997, the Company acquired equipment totaling
$78,979 from the proceeds of long-term debt.
See accompanying notes.
F-43
<PAGE> 158
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION FOR THE THREE QUARTERS ENDED SEPTEMBER 29, 1996 AND
SEPTEMBER 28, 1997 IS UNAUDITED)
1. BUSINESS AND ORGANIZATION
101 Main Street Limited Liability Company (the "Company"), a Colorado
limited liability company, is engaged in the business of owning and operating
Fitzgeralds Casino Black Hawk (the "Casino"), located in the limited stakes
gaming area of Black Hawk, Colorado. The Company was formed effective March 31,
1993, pursuant to the Joint Development Agreement (the "Development Agreement")
between Main Street Gaming House Partners, L.P. ("Main Street") and Hawkeye
Gaming Ventures, L.L.C. ("Hawkeye"). In accordance with the Development
Agreement, Main Street contributed an operating casino, property, and gaming
equipment subject to related debt and substantially all of its other net assets
with a net book value of approximately $751,000, and Hawkeye contributed cash of
approximately $3,195,000, deposits to acquire land of $45,000, irrevocable
letters of credit totaling $875,000 which were released upon receipt of cash,
and other assets of approximately $485,000 for equal ownership interests in the
Company. Operations of the Casino commenced May 23, 1995. Prior to this time,
the Casino was under construction.
On November 17, 1995, Dry Gulch Investments, L.C. ("Dry Gulch")
purchased a 14.3% membership interest in the Company for $2,000,000 by
converting funds previously advanced to the Company.
On February 16, 1996, Fitzgeralds Black Hawk, Inc. ("FBHI") purchased a
22% membership interest in the Company for $2,500,000 by converting funds
previously advanced to the Company. On August 15, 1997, a wholly-owned
subsidiary of FBHI, Fitzgeralds Black Hawk II, Inc. ("FBHI-II"), exercised an
option to purchase the remaining 78% membership interest of the Company from the
existing owners (see Note 3).
As a limited liability company, the owners of the Company are not liable
under judgment, decree or order of a court or in any other manner for debt,
obligations or any other liabilities of the Company. The Company has a finite
life and, unless extended, will cease to exist on March 11, 2022.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim financial information
Financial information as of September 28, 1997 and for the three
quarters ended September 28, 1997 and September 29, 1996 is unaudited, but
includes all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary to present fairly the
financial position at September 28, 1997 and the results of operations and cash
flows for the periods ended September 28, 1997 and September 29, 1996. Interim
results are not necessarily indicative of the results which may be expected for
any other interim period or for a full year.
Cash
Cash consists of cash on hand and cash in bank accounts.
Inventory
Inventory consists of food and beverage stock and merchandise held for
promotion. Inventory is stated at the lower of cost (first-in, first-out method)
or market.
F-44
<PAGE> 159
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Acquisitions of property and equipment are recorded at cost.
Depreciation is calculated using the straight-line method over the following
estimated useful lives:
Buildings and improvements 10-39 years
Gaming equipment 7 years
Other equipment 5 to 7 years
Interest costs related to property construction are capitalized during
the construction period and are amortized over the useful life of the asset.
Preopening Costs
Preopening costs relate to the acquisition, development and opening of
the Casino. These costs were capitalized prior to the opening of the Casino and
were charged to expense at the commencement of operations. Costs totaling
$424,692 and $1,658,889 were capitalized during the years ended December 31,
1994 and 1995, respectively.
Loan Costs
Loan costs are amortized on a straight-line basis over the lives of the
respective loans, which approximates amortization calculated by the effective
interest method. Upon repayment of debt in advance, the associated loan costs
and accumulated amortization are written off. Amortization and write-off of loan
costs, included in interest expense, were $0, $100,028, $346,539, $164,715 and
$319,806 for 1994, 1995 and 1996 and for the three quarters ended September 29,
1996 and September 28, 1997, respectively.
Income Taxes
The Company is a limited liability company formed under the laws of the
state of Colorado and, as such, is classified as a partnership for federal and
state income tax purposes.
Accordingly, no provision for federal or state income taxes was recorded
in the financial statements because any taxable income or loss is included on
the individual income tax returns of the owners.
Casino Revenues
In accordance with industry practice, the Company recognizes as gaming
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
Promotional Allowances
Food and beverages provided on a complimentary basis to customers and
other promotional allowances are included in gross revenues and charged to
promotional allowances.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense
for the years ending December 31, 1994, 1995, 1996 and for the three quarters
ended September 29, 1996 and September 28, 1997 was approximately $0, $579,000,
$934,000, $667,000 and $747,000, respectively.
F-45
<PAGE> 160
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Financial Instruments
The carrying value of substantially all of the Company's financial
instruments approximates fair value, including cash, accounts receivable and
payable, and long-term debt. Substantially all of these financial instruments
either have short-term settlement periods or bear interest at market rates.
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified
to conform with the 1996 presentation. These reclassifications had no impact on
the reported results of operations.
New Accounting Standard
During 1996, the Company implemented Financial Accounting Standards
Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. This statement prescribes the
accounting for the impairment of long-lived assets, such as property and
equipment, and requires assets to be recorded at the lower of the assets'
carrying amount or fair value when events or circumstances indicate an
impairment may exist. Implementation had no effect on the financial statements.
3. PURCHASE AGREEMENT
On August 13, 1997, the Company completed a private placement of $38
million 13% First Mortgage Notes due 2000 (the "101 Main Notes"). Of the net
proceeds, $27.3 million was loaned to FBHI-II to acquire the remaining 78%
membership interest in the Company on terms similar to the 101 Main Notes.
Concurrent with this acquisition, FBHI contributed to FBHI-II substantially all
of its assets, including the 22% membership interest in the Company, its
Management Agreement (see Note 4), and its option to acquire the remaining 78%
membership interest in the Company. As a result, the Company became a wholly
owned subsidiary of FBHI-II. FBHI-II is a holding company, the only significant
assets of which are the equity interest in the Company and the Management
Agreement to manage the Casino.
The Acquisition of the remaining 78% membership interest in the Company
was recorded as a purchase by FBHI-II. The purchase price accounting and related
$27.3 million of intercompany debt was pushed down to the Company's financial
statements. The Company's basis in its assets and liabilities was recorded at
fair value. The remaining 22% membership interest remains at historical cost.
As a result of the new valuation, land and buildings and improvements
were increased by approximately $5.4 million. Goodwill of approximately $14.2
million was also recorded. The difference of approximately $7.7 million between
the purchase price, the step-up in basis of assets and goodwill, was treated as
a return of capital to the former majority members.
The $27.3 million in intercompany debt payable to the Company by FBHI-II
was also pushed down to the Company and offset by a receivable of a like amount
on the books of the Company.
F-46
<PAGE> 161
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. MANAGEMENT AGREEMENT
During 1995, the Company entered into a ten-year management agreement
with FBHI requiring the payment of a monthly fee for management services (the
"Management Agreement"). The fee was $75,000 per month beginning on the
commencement date of operations through September 1995 and $37,500 per month for
October 1995 through July 1996. Beginning in August 1996, the fee became 8% of
earnings before interest, depreciation and amortization. The Company incurred
approximately $434,000, $580,000, $393,000 and $726,000 for management services
for the years ended December 31, 1995 and 1996 and for the three quarters ended
September 30, 1996 and September 30, 1997, respectively.
5. LONG-TERM DEBT
During 1994 and 1995, interest costs totaling $175,702 and $372,852,
respectively, were capitalized in buildings and improvements, and preopening
costs (see Note 2). The Company did not capitalize any interest during 1996 or
1997.
In June 1996, the Executive Management Committee of the Company approved
a resolution to compensate those individuals who have guaranteed the payment of
its $5.5 million mortgage loan. The compensation is due quarterly in arrears at
a rate of 2% per annum on the average monthly outstanding loan balance. During
1996, the compensation expense for this guarantee totaled approximately
$166,000, which included a retroactive adjustment for the monthly outstanding
loan balance during 1995.
6. EMPLOYEE BENEFIT PLAN
During 1996, the Company adopted a defined contribution plan (401(k))
for employees not subject to a collective bargaining agreement. Employees may
contribute a maximum of 15% of their salary up to the amount allowable under
current federal tax regulations. The Company will match 25% of the employee
contribution, up to a maximum of 6% of the employee's compensation. Expense for
the plan for the year ended December 31, 1996 and for the three quarters ended
September 29, 1996 and September 28, 1997 was approximately $15,000, $6,358 and
$31,559, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company has been named in a lawsuit relating to injuries received by
an individual in connection with construction of the Casino's parking garage.
The Company has been informed by its legal counsel that it is likely the
liability rests solely with the subcontractor performing the construction work.
The Company is subject to the licensing and regulatory requirements of
the Colorado Limited Gaming Control Commission ("Commission"), which performs
its day-to-day activities through the Division. The Company's license was
renewed by the Commission and is currently valid through July 21, 1998, at which
time the Company expects its license to be renewed.
F-47
<PAGE> 162
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's casino revenues, adjusted for various gaming-related
activities, are taxed at graduated rates established by the Commission.
Effective October 1, 1994, the Commission approved rates which remained in
effect until September 30, 1996, at which time an adjusted tax structure was
established. The applicable tax rates for these periods are as follows:
<TABLE>
<CAPTION>
TAX RATES
EFFECTIVE AS OF OCTOBER 1,
ADJUSTED GROSS PROCEEDS 1994 1996
<S> <C> <C>
$ 0 - $2,000,000.................................... 2% 2%
$2,000,001 - $4,000,000.................................... 8 4
$4,000,001 - $5,000,000.................................... 15 14
$5,000,001 - $10,000,000................................... 18 18
Thereafter............................................... 18 20
</TABLE>
The tax rate structure effective October 1, 1996 will remain in effect
through September 30, 1998, at which time the Commission will make a
determination as to the tax structure for subsequent periods.
The Company entered into an agreement with an equipment provider whereby
certain slot machines are supplied to the Company. The Company receives 70% of
the net win from these machines and the equipment provider receives the
remaining 30%. The agreement is for thirty days and renews automatically unless
either party provides written notice to terminate.
8. SUBSEQUENT EVENTS
From January 1, 1997 through August 15, 1997, the Company made
distributions to owners totaling $4,700,000.
On August 12, 1997, the Company advanced $500,000 to Fitzgeralds Gaming
Corporation in the form of a demand note. This note is payable in a single
installment upon written demand by the Company together with accrued interest at
an annual rate of 5.5%.
F-48
<PAGE> 163
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The accompanying pro forma consolidated statement of operations of the
Company presents pro forma information giving effect to the purchase of the
remaining 78% membership interest in 101 Main. The pro forma consolidated
statement of operations for the year ended December 31, 1997 has been presented
assuming the purchase of the remaining 78% membership interest in 101 Main
occurred on January 1, 1997.
The pro forma consolidated statement of operations should be read in
conjunction with the Consolidated Financial Statements of the Company, including
the notes thereto, included elsewhere in this Prospectus. The pro forma
consolidated statement of operations does not purport to represent what the
Company's operating results for the year ended December 31, 1997 would actually
have been had the transaction occurred or been completed on January 1, 1997, or
to project the Company's operating results or financial position for any future
period or date.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances.
F-49
<PAGE> 164
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
101 MAIN
ACTUAL FOR
THE THREE
QUARTERS
ENDED ADJUSTMENTS
COMPANY SEPTEMBER 28, FOR PURCHASE
ACTUAL 1997 OF 101 MAIN PRO FORMA
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ 141,215 $ 24,861 $ (4,328)(b) $ 161,748
Food and beverage 22,499 1,944 (330)(b) 24,113
Rooms 21,319 -- 21,319
Other 9,965 214 (568)(b) 9,611
----------- -------- ----------- ---------
Total 194,998 27,019 (5,226) 216,791
Less promotional allowances 15,296 1,240 (199)(b) 16,337
----------- -------- ----------- ---------
Net 179,702 25,779 (5,027) 200,454
----------- -------- ----------- ---------
OPERATING COSTS AND EXPENSES:
Casino 69,675 10,396 (1,159)(b) 78,912
Food and beverage 17,215 1,078 (155)(b) 18,138
Rooms 12,512 -- 12,512
Other operating 1,681 428 (72)(b) 2,037
Selling, general and administrative 48,933 5,601 (1,577)(b) 52,957
Depreciation and amortization 12,054 1,015 (202)(b) 13,136
269 (c)
Write down of assets and lease settlement 4,010 -- 4,010
----------- -------- ----------- ---------
Total 166,080 18,518 (2,896) 181,702
----------- -------- ----------- ---------
INCOME FROM OPERATIONS 13,622 7,261 (2,131) 18,752
OTHER INCOME (EXPENSE):
Interest income 462 43 (21)(b) 484
Interest expense (25,495) (2,015) 973 (b) (26,537)
Other income (expense) (882) 8 (829)(b) (1,703)
----------- -------- ----------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (12,293) 5,297 (2,008) (9,004)
PREFERRED STOCK DIVIDENDS (4,143) -- (4,143)
----------- -------- ----------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM APPLICABLE TO COMMON STOCK
$ (16,436) $ 5,297 $ (2,008) $ (13,147)
=========== ======== =========== =========
INCOME (LOSS) PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM
$ (4.09) $ 1.32(a) $ (0.51)(d) $ (3.28)
=========== ======== =========== =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,012,846 -- 4,012,846
=========== ======== =========== =========
</TABLE>
F-50
<PAGE> 165
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
PURCHASE 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. At the same time, 101 Main loaned approximately $27.3 million of the
$38.0 million proceeds of 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 between
FBHI-II and 101 Main, guaranteed the obligations of 101 Main under the 101 Main
Notes. The remainder of the proceeds form 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 resulted in the recording of
goodwill of approximately $14.2 million.
ADJUSTMENTS FOR PURCHASE OF 101 MAIN
The accompanying pro forma consolidated statement of operations reflects
the following eliminations and adjustments:
a) To decrease loss per common share before extraordinary item to
give effect to the income before extraordinary item of 101 Main
for the three quarters ended September 28, 1997.
b) To eliminate the revenues and expenses of 101 Main for the
period from August 16, 1997 to September 28, 1997 which have
been included in the consolidated actual amounts of the Company
for the year ended December 31, 1997 and to eliminate
intercompany revenues and expenses.
c) To record the additional depreciation of property and equipment
and the amortization of goodwill of 101 Main.
d) To increase the loss per common share before extraordinary item
to give effect to the additional depreciation of property and
equipment and the amortization of goodwill of 101 Main and the
elimination of intercompany revenues and expenses.
F-51
<PAGE> 166
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
OF THE NOTES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF FOR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................... 5
Risk Factors................................................................ 18
Use of Proceeds............................................................. 26
Capitalization.............................................................. 26
The Exchange Offer.......................................................... 27
Selected Consolidated Financial and Other Data.............................. 36
Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 37
Business.................................................................... 49
Management.................................................................. 61
Certain Transactions........................................................ 67
Security Ownership of Certain Beneficial Owners and Management.............. 68
Regulation and Licensing.................................................... 69
Description of Notes........................................................ 79
Certain United States Federal Income Tax
Consequences to Non-U.S. Holders............................................ 104
Description of Capital Stock................................................ 107
Plan of Distribution........................................................ 110
Legal Matters............................................................... 110
Experts..................................................................... 110
Index to Financial Statements............................................... F-1
</TABLE>
$205,000,000
FITZGERALDS GAMING
CORPORATION
OFFER TO EXCHANGE
12-1/4% SENIOR SECURED NOTES
DUE 2004, SERIES B
FOR ANY AND ALL
OUTSTANDING 12-1/4% SENIOR
SECURED NOTES
DUE 2004, SERIES A
-----------------------
PROSPECTUS
-----------------------
June 19, 1998
================================================================================
<PAGE> 167
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection 1 of Section 78.751 of the Nevada Revised Statutes (the
"Nevada Law") empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise
(an "Indemnified Party"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Indemnified Party in connection with such action, suit or proceeding if
the Indemnified Party acted in good faith and in a manner the Indemnified Party
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe the Indemnified Party's conduct was unlawful.
Subsection 2 of Section 78.751 of the Nevada Law empowers a corporation
to indemnify any Indemnified Party who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that such person acted in the capacity of an Indemnified Party against
expenses, including amounts paid in settlement and attorneys' fees, actually and
reasonably incurred by the Indemnified Party in connection with the defense or
settlement of such action or suit if the Indemnified Party acted under standards
similar to those set forth above, except that no indemnification may be made in
respect of any claim, issue or matter as to which the Indemnified Party shall
have been adjudged to be liable to the corporation or for amounts paid in
settlement to the corporation unless and only to the extent that the court in
which such action or suit was brought determines upon application that despite
the adjudication of liability the Indemnified Party is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 78.751 of the Nevada Law further provides: that to the extent an
Indemnified Party has been successful in the defense of any action, suit or
proceeding referred to in subsection (1) or (2) or in the defense of any claim,
issue or matter therein, the Indemnified Party shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by the
Indemnified Party in connection therewith; that indemnification provided for by
Section 78.751 shall not be deemed exclusive of any other rights to which the
Indemnified Party may be entitled; that indemnification, unless ordered by the
court or for the advancement of certain expenses, may not be made to or on
behalf of any director or officer of the corporation if a final adjudication
establishes that his or her acts or omissions involved intentional misconduct,
fraud or a knowing violation of the law and was material to the cause of action;
and that the scope of indemnification shall continue as to an Indemnified Party
who has ceased to hold one of positions specified above, and to his or her
heirs, executors and administrators.
Section 78.752 of the Nevada Law empowers a corporation to purchase and
maintain insurance on behalf of an Indemnified Party against any liability
(other than intentional misconduct, fraud or a knowing violation of the law,
except for advancement of expenses or if ordered by a court) asserted against
such person or incurred by such person in his or her capacity as an Indemnified
Party or arising out of such person's status as an Indemnified Party whether or
not the corporation would have the power to indemnify such person against such
liabilities under Section 78.751.
Some of the wholly owned subsidiaries of Fitzgeralds Gaming Corporation
("FGC") that are also registrants under this Registration Statement are
incorporated under the laws of the State of Nevada and are subject to the
provisions of the Nevada Law described above. Certain other of FGC's wholly
owned subsidiaries that are also registrants under this Registration Statement
are incorporated under the laws of the States of Colorado and Mississippi. As
Indemnified Parties, the directors and officers of the Colorado and Mississippi
subsidiaries are entitled to the rights under the Nevada Law described above. In
addition, such directors and officers are also entitled to certain similar
rights under the corporate laws of the States of Iowa and Mississippi,
respectively.
II-1
<PAGE> 168
The Articles of Incorporation of FGC provide that the personal liability
of its directors and officers for damages for breach of fiduciary duty shall be
limited to the maximum extent permitted under the Nevada Law and that any repeal
or modification of such provision shall be prospective only.
The Bylaws of FGC provide for indemnification of Indemnified Parties ,
substantially identical in scope to that permitted under Section 78.751 of the
Nevada Law. Such Bylaws provide that the expenses of directors and officers of
FGC incurred in defending any action, suit or proceeding, whether civil,
criminal, administrative or investigative, must be paid by FGC as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of such director or
officer to repay all amounts so advanced if it is ultimately determined by a
court of competent jurisdiction that the director or officer is not entitled to
be indemnified by FGC.
The Articles of Incorporation and Bylaws of each of the wholly owned
subsidiaries of FGC that are also registrants under this Registration Statement
include similar provisions to those described above.
FGC has a contract for insurance coverage under which FGC and certain
Indemnified Parties (including the directors and officers of FGC) are
indemnified under certain circumstances with respect to litigation and other
costs and liabilities arising out of actual or alleged misconduct of such
Indemnified Parties. In addition, FGC has entered into indemnification
agreements with its directors and officers that require FGC to indemnify such
directors and officers to the fullest extent permitted by applicable provisions
of Nevada law, subject to amounts paid by insurance.
The above-described provisions relating to the indemnification of
directors and officers are sufficiently broad to permit the indemnification of
such persons in certain circumstances against liabilities (including
reimbursement of expenses incurred) arising under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <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)
</TABLE>
II-2
<PAGE> 169
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
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 dated as of December 30, 1997, 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 dated as of December 30, 1997,
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)
4(c) Form of Security and Pledge Agreement dated as of December 30, 1997,
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, dated as of December 30, 1997, 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 dated as of December 30, 1997, 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 dated as of December
30, 1997, 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)
</TABLE>
II-3
<PAGE> 170
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
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)
5.1 Legal Opinion of Hughes Hubbard & Reed LLP re the validity of the
issuance of the 12-1/4% Senior Secured Notes due 2004 of Fitzgeralds
Gaming Corporation. (5)
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 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)
</TABLE>
II-4
<PAGE> 171
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
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)
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)
</TABLE>
II-5
<PAGE> 172
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
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)
</TABLE>
II-6
<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
10(hh) (i) Loan and Security Agreement, dated March 13, 1996, between the
CIT 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. (1)
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)
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(oo) Form of Shareholders' Agreement among the Shareholders listed
therein, Fitzgeralds Gaming Corporation and First Interstate Bank of
Nevada, N.A.(1)
12 Ratio of Earnings to Fixed Charges.(5)
21 List of subsidiaries of the Company.(3)
23.1 Consent of Deloitte & Touche LLP.(5)
23.2 Consent of Ernst & Young LLP.(5)
24 Powers of Attorney for certain directors (included on page II-10)
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The Bank of New York.(4)
99(c) Financial data schedule.(3)
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.(4)
99.2 Form of Notice of Guaranteed Delivery.(4)
99.3 Form of Letter to Security Dealers, Commercial Banks, Trust
Companies, and other Nominees.(4)
</TABLE>
II-7
<PAGE> 174
EXHIBIT
NUMBER DOCUMENT
- ------- --------
99.4 Form of Letter to Clients.(4)
- ----------
(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) Incorporated by reference to the Company's Report on Form 10-K, SEC File
No. 000-26518, filed March 31, 1998.
(4) Previously filed.
(5) Filed herewith.
(b) Financial Statement Schedules.
FITZGERALDS GAMING CORPORATION
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS SCHEDULE
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
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) 411,881
</TABLE>
ALLOWANCE FOR DOUBTFUL RELATED PARTY NOTES RECEIVABLE:
<TABLE>
<CAPTION>
YEAR ENDED BEGINNING BALANCE PROVISIONS RECOVERIES ENDING BALANCE
---------- ----------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
12/31/95 $510,439 $ -- $ -- $ 510,439
12/31/96 510,439 -- -- 510,439
12/31/97 510,439 -- (510,439) --
</TABLE>
ALLOWANCE TO WRITE DOWN ASSETS HELD FOR SALE TO ESTIMATED REALIZABLE VALUE:
<TABLE>
<CAPTION>
YEAR ENDED BEGINNING BALANCE ADDITIONS DELETIONS ENDING BALANCE
---------- ----------------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
12/31/95 $1,401,262 $ -- $ (1,401,262) $ --
12/31/96 -- -- -- --
12/31/97 -- 2,157,000 -- 2,157,000
</TABLE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of any of
the registrants pursuant to the provisions described under Item 20 above, or
otherwise, the registrants has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by any of the registrants of expenses incurred or paid by a director,
officer or controlling person of a registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrants will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(a) The undersigned Registrants hereby undertake as follows:
(1) To file during any period in which offers and sales are being
made, a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of this Registration
II-8
<PAGE> 175
Statement (or the most-recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; or (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake to respond to requests
for information, if any, that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-9
<PAGE> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the undersigned registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Las Vegas, State of Nevada, on June 19, 1998.
Fitzgeralds Gaming Corporation
By: /s/ MICHAEL E. MCPHERSON
-------------------------------------
Michael E. McPherson
Senior Vice President
Chief Financial Officer
Treasurer and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below on this Registration Statement hereby constitutes and appoints
Philip D. Griffith and Michael E. McPherson, and each of them, with full power
to act without the other, his or her true and lawful attorneys-in-fact and
agents, each with the full power of substitution, for him or her in any and all
capacities, to sign any amendments to this Registration Statement 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>
/s/ PHILIP D. GRIFFITH Chairman, President, Chief Executive June 19, 1998
- ------------------------------- Officer, and Director
Philip D. Griffith (Principal Executive Officer)
/s/ MICHAEL E. MCPHERSON Senior Vice President, Chief Financial June 19, 1998
- ------------------------------- Officer, Treasurer and Secretary
Michael E. McPherson (Principal Financial and Accounting Officer)
/s/ MICHAEL A. FICARO Director June 19, 1998
- --------------------------------
Michael A. Ficaro
/s/ PATRICIA W. BECKER Director June 19, 1998
- --------------------------------
Patricia W. Becker
/s/ MAX L. PAGE Director June 19, 1998
- --------------------------------
Max L. Page
</TABLE>
II-10
<PAGE> 1
EXHIBIT 5.1
June 19, 1998
6650.1250
Fitzgeralds Gaming Corporation
301 Fremont Street
Las Vegas, Nevada 89101
RE: Fitzgeralds Gaming Corporation
Registration Statement on Form S-4
File No. 333-51273
Gentlemen:
We have represented Fitzgeralds Gaming Corporation ("FGC") and certain of
its subsidiaries, as special securities counsel, in connection with the offer
by FGC to exchange $1,000 principal amount of its 12 1/4% Senior Secured Notes
due 2004, Series B (the "New Notes"), for each $1,000 principal amount of its
12 1/4% Senior Secured Notes due 2004, Series A (the "Old Notes"), and the
issuance by the guarantors (as defined below) of the guarantees of the New
Notes (the "Guarantees"). The New Notes will be issued pursuant to an Indenture
dated as of December 30, 1997 (the "Indenture") among FGC, as issuer, the
subsidiaries named therein, as guarantors (the "Guarantors"), and the Bank of
New York, as trustee and collateral agent. The exchange of the New Notes and
the Guarantees is being registered by FGC and the Guarantors, respectively,
pursuant to a Registration Statement of Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), File No. 333-51273
which has been filed with the Securities and Exchange Commission (the
"Commission").
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Registration Statement, in the form filed with the Commission and as
amended through the date hereof; (ii) the Certificates of Incorporation of FGC
and each of the Guarantors, as currently in effect; (iii) the By-laws of FGC
and each of the Guarantors, as currently in effect; (iv) the Indenture; (v) the
form of the New Notes; and (vi) resolutions of the Boards of Directors of FGC
and each of the Guarantors relating to, among other things, the issuance of the
New Notes, the exchange of the New Notes for the Old Notes, the issuance of the
Guarantees and the filing of the Registration Statement.
We have obtained from officers of FGC and the Guarantors and have
examined the originals, or copies identified to our satisfaction, of such
certificates, agreements and other assurances as we consider necessary for the
purpose of rendering the opinion hereinafter expressed. We have additionally
consulted with officers and other representatives of FGC and the Guarantors and
have obtained such representations with respect to matters of fact as we deem
necessary or advisable; however, we have not necessarily independently verified
the content of factual statements made to us in connection therewith, or the
veracity of such representations.
<PAGE> 2
Fitzgeralds Gaming Corporation
June 19, 1998
Page 2
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based on the foregoing and on such other instruments, documents and
matters as we have deemed necessary for the purpose of rendering this opinion,
it is our opinion that the New Notes and the Guarantees, when issued in exchange
for the Old Notes as provided in the Registration Statement, will be legal,
valid and binding obligations of FGC or the Guarantors, as the case may be,
except to the extent limited by the effect of (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent transfer,
preferential transfer or other similar laws now or hereafter in effect relating
to or affecting the rights and remedies of creditors generally, (b) general
principals of equity, including but not limited to concepts of materiality,
reasonableness, good faith and fair dealing, the possible unavailability of
specific performance, the unenforceability of waivers of certain rights or
defenses, penalty provisions or choice of law provisions, whether enforcement is
considered in proceedings in equity or at law, and the discretion of the court
before which any proceeding therefor may be brought, (c) usury or similar laws
and (d) laws or policies relating to the nonenforceability of indemnification or
contribution provision, as to which we express no opinion.
We hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus and to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. In giving such consent,
we do not concede that we are experts within the meaning of the Securities Act
or the rules and regulations thereunder or that this consent is required by
Section 7 of the Securities Act.
Very truly yours,
HUGHES HUBBARD & REED LLP
<PAGE> 1
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
FOR THE YEARS ENDED DECEMBER 31, ----------------------
---------------------------------------------------- MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
----- ------ ----- ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pre-tax income (loss)(1) 4,186 (7,285) (582) (13,703) (10,580) (2,799) (2,204)
Fixed charges(2) 7,725 12,574 15,712 22,724 26,232 6,031 7,028
Less: capitalized interest -- (964) (7) (1,814) -- -- --
------ ----- ------ ----- ------ ------ ------
Earnings available for fixed charges 11,911 4,325 15,123 7,207 15,652 3,232 4,824
====== ===== ====== ===== ====== ====== ======
Ratio of earnings to fixed charges 1.5 (3) (3) (3) (3) (3) (3)
====== ===== ====== ===== ====== ====== ======
</TABLE>
- ----------------------------
(1) Excludes the equity in net losses of unconsolidated affiliates.
(2) Includes interest expense, amortization of debt issue costs and capitalized
interest.
(3) Earnings were insufficient to cover fixed charges by $8,249, $590, $15,517
and $10,580 for the years ended December 31, 1994, 1995, 1996 and 1997,
respectively, by $2,799 for the quarter ended March 30, 1997 and $2,204 for
the quarter ended March 29, 1998.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Fitzgeralds Gaming Corporation
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-51273 of Fitzgeralds Gaming Corporation (the "Company") on Form S-4 of our
report dated February 27, 1998, appearing in the Prospectus, which is a part of
this Registration Statement; to the incorporation by reference of our report
dated February 27, 1998, appearing in the Annual Report on Form 10-K of
Fitzgeralds Gaming Corporation for the year ended December 31, 1997; and to the
references to us under the headings "Selected Consolidated Financial and Other
Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of the Company, listed in Item
21(b). This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
June 19, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 30, 1997, with respect to the financial
statements of 101 Main Street Limited Liability Company included in Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-51273) and related
Prospectus of Fitzgeralds Gaming Corporation for the registration of
$205,000,000 12 1/4% Senior Secured Notes due 2004, Series B.
ERNST & YOUNG LLP
June 19, 1998
