SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
X Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required) For Fiscal Year Ended
December 31, 1996
or
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) For the transition period from ______________ to
___________
Commission File No. 0-20712
CASINO MAGIC CORP.
(Exact name of Registrant as specified in its charter)
MINNESOTA 64-0817483
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
711 CASINO MAGIC DRIVE, BAY SAINT LOUIS, MS 39520
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 466-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
The undersigned Registrant amends the following items on its Annual Report
on Form 10-K for the year ended December 31, 1996:
Part III. Items 10, 11, 12 and 13 are hereby included in such Annual
Report previously filed on March 28, 1997.
(i)
INDEX
TO
FORM 10-K/A
AMENDMENT NO. 1
PART I
Item 1. BUSINESS
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............. 1
Item 11. EXECUTIVE COMPENSATION ......................................... 6
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . 15
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 16
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
CONSOLIDATED FINANCIAL STATEMENTS
EXHIBITS
The Items under Parts I, II and IV and the Consolidated Financial
Statements are included in the Company's Form 10-K for the period ending
December 31, 1996, previously filed on March 28, 1997.
(ii)
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The names, ages and respective positions of the directors of Casino Magic
Corp. (the "Company") are as follows:
NAME AGE POSITION
----- ---- ---------
Marlin F. Torguson(4)........52 Chairman of the Board
James E. Ernst .............46 President, Chief Executive Officer
and a Director
Allen Kokesch(2).............45 Director
Roger H. Frommelt(1)(3)(4)...60 Director and Assistant Secretary
E. Thomas Welch(1)(2)(3)(4)..58 Director
_______________________________
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Stock Option Committee
(4) Member of the Nominating Committee
Each director was elected at the last annual meeting of the shareholders
held on May 9, 1996, to serve until the next annual meeting of shareholders.
The business experience, principal occupations and directorships in
publicly-held companies for the nominated directors of the Company are set
forth below.
MARLIN F. TORGUSON has been the Company's Chairman of the Board since
December 1, 1994. Mr. Torguson was President and Chief Executive Officer of
the Company from April 1992 through November 1994. From April 1992 to
February 1993, Mr. Torguson also served as the Company's Chief Financial
Officer and Treasurer. Mr. Torguson was a 50 percent owner and a Vice
President of G.M.T. Management Co. from December 1983 to December 1994.
G.M.T. Management Co. was responsible for the operation and management of
Jackpot Junction Casino, located in Morton, Minnesota, from December 1983
until January 1, 1992.
JAMES E. ERNST became the Company's President and Chief Executive Officer
in December 1995. From June 1992 until September 1995, Mr. Ernst served as
President and Chief Executive Officer of Casino America, Inc., a casino
developer and operator which has gaming operations in Mississippi and
Louisiana. From June 1991 to June 1992, Mr. Ernst was President of Steamboat
Development Co., an operator of riverboat casinos in Iowa. From 1976 to 1991,
Mr. Ernst was with the public accounting firm of McGladrey & Pullen in its
Davenport, Iowa office.
ALLEN J. KOKESCH served as Executive Vice President of the Company from
December 1992 through December 1994, and as the Company's general manager from
April 1992 to December 1992. From September 1984 to April
1
1992, Mr. Kokesch was the general manager of Jackpot Junction Casino
located in Morton, Minnesota. Since January 1995, Mr. Kokesch has engaged in
managing his own investments.
ROGER H. FROMMELT is the President and a principal shareholder of Frommelt
& Eide, Ltd., a law firm located in Minneapolis, Minnesota. He has been
engaged in the private practice of law in Minneapolis, Minnesota since 1965,
practicing with Frommelt & Eide, Ltd. and its predecessor partnership since
1974. Mr. Frommelt served as the Company's Secretary from May 1993 until
December 1994, when he was appointed the Company's Assistant Secretary.
E. THOMAS WELCH has been the President and a member of the Board of
Directors of Resource Trust Company, located in Minneapolis, Minnesota since
March 1987. Mr. Welch is also a member of the Board of Directors of Eastcliff
Funds, Inc., a mutual fund company located in Minneapolis, Minnesota.
Executive Officers
The names, ages, positions and business experience of the Company's
non-director executive officers are as follows:
Name Age Position
Jay S. Osman 36 Executive Vice President, Treasurer and
Chief Financial Officer
Robert A. Callaway 49 Vice President/General Counsel and Secretary
Juris Basens 42 Vice President/Chief Operating Officer
David L. Paltzik 54 Vice President/Marketing
Kenneth N. Schultz 47 Vice President/Construction
JAY S. OSMAN became the Company's Executive Vice President, Chief Financial
Officer and Treasurer in October 1995. From August 1995 through October 1995
Mr. Osman served as Corporate Director of Financial Planning, Budgets and
Analysis at Boyd Gaming Corporation, a casino developer and operator based in
Las Vegas, Nevada. Mr. Osman served as Vice President of Finance and
Administration, Chief Financial Officer and Assistant Secretary of Belle
Casinos, Inc., a casino developer and operator based in Biloxi, Mississippi
from June 1993 through August 1995. From December 1989 through May 1993, Mr.
Osman acted as Manager of Financial Analysis for Bally's Park Place, an
Atlantic City, New Jersey-based casino operator and developer which was a
subsidiary of Bally Entertainment, Inc.
ROBERT A. CALLAWAY has been the Company's Vice President/General Counsel
since September 1994 and its Secretary since December 1994. From 1987 until
August 1994, Mr. Callaway was a partner in the law firm of Beckley, Singleton,
DeLanoy, Jemison & List, located in Reno and Las Vegas, Nevada, where his
2
practice focused on legal and regulatory issues relating to the gaming
industry. For the five years immediately prior to joining such firm, Mr.
Callaway served with the office of the Attorney General of the state of Nevada
as counsel for the Nevada State Gaming Control Board and the Nevada Gaming
Commission.
JURIS BASENS became the Company's Vice President/Chief Operating Officer on
July 24, 1996, and has served the Company in this capacity since that date.
Prior to joining the Company, Mr. Basens served as Vice President and Chief
Operating Officer of Casino America, Inc. from July 1994 until July 1996.
From March 1993 through June 1994, Mr. Basens was the General Manager of the
Isle of Capri Casino in Bossier City. From October 1991 to March 1993, Mr.
Basens was the General Manager of the Par-A-Dice Riverboat Casino in East
Peoria, Illinois. For over twelve years prior to 1991, Mr. Basens held
management positions with three other corporations engaged in gaming.
DAVID L. PALTZIK was employed by the Company as Vice President/Marketing in
July 1996, and has served in this capacity since that date. Beginning in May
1991, Mr. Paltzik was employed by Casino America, Inc., where he served as
Vice President-Marketing from June 1992 until July 1996.
KENNETH N. SCHULTZ joined the Company as Vice President/Construction and
Development in June 1996 and has served the Company in this capacity since
that date. Mr. Schultz served as Vice President of Construction and
Development for Casino America, Inc. from July 1995 to June 1996. Prior to
joining Casino America, Inc., Mr. Schultz was involved in the development and
construction of the Isle of Capri Casino-Bossier City, Louisiana, the Isle of
Capri Casino-Lake Charles, Louisiana, and the Isle of Capri Casino Crowne
Plaza Resort-Biloxi, Mississippi through DeBartolo Property Management, Inc.,
where he was employed as Vice President of Construction Services from 1989
until July 1995.
Employment, Termination and Change-in-Control Arrangements
MARLIN F. TORGUSON, the Company's Chairman of the Board, originally entered
into an employment agreement with the Company in June 1992, which has since
been amended. Salaries and bonuses under the agreement became discretionary
in 1994, and the Company's Compensation Committee authorized Mr. Torguson to
receive a salary at the annual rate of $425,000 in 1996, and through May 30,
1997. The Compensation Committee has established Mr. Torguson's salary at
$200,000 per annum commencing June 1, 1997. Mr. Torguson is also entitled to
(i) an annual family travel allowance and (ii) a bonus payable in such
amounts, and under such terms and conditions, as the Board of Directors or the
Compensation Committee may determine. The Company also provides Mr. Torguson
with an automobile allowance. Mr. Torguson's employment agreement is
terminable by the Company or by Mr. Torguson upon four weeks' prior written
notice. If the employment agreement is terminated by the Company without
cause, however, the Company will be obligated to pay Mr. Torguson a severance
allowance equal to one years' salary at the rate being paid at termination.
JAMES E. ERNST, the Company's President and Chief Executive Officer,
entered into an employment agreement dated December 20, 1995 which provided
for, among other things, an initial annual base salary of $425,000, and a
$500,000 loan which is subject to partial repayment by Mr. Ernst based on the
number of days
3
he is employed by the Company during the two-year period which began December
20, 1995. Under the terms of the repayment formula, approximately $684 of the
original $500,000 loan to Mr. Ernst is forgiven by the Company each day over
the two-year period. Interest at an annual rate of 8% is payable on the
outstanding balance of the loan beginning as of the date Mr. Ernst's
employment is terminated. Additionally, pursuant to Mr. Ernst's employment
agreement, the Company granted to Mr. Ernst a non-statutory option to purchase
up to 490,000 shares of the Company's Common Stock at a price of $3.625 per
share which vests over a 5-year period at the rate of 98,000 shares per year.
Mr. Ernst also received an incentive stock option to purchase up to 100,000
shares of the Company's Common Stock at a price of $3.625 per share which
vests over a five-year period at the rate of 20,000 shares per year. The
initial term of Mr. Ernst's employment agreement is two years, but is
terminable by the Company or by Mr. Ernst upon 30 days' prior written notice.
If the employment agreement is terminated by the Company without cause,
however, the Company will be obligated to pay Mr. Ernst a severance allowance
equal to six months' base salary at the annual rate being paid at termination.
As of April 1, 1997, Mr. Ernst's base salary, by agreement with the Company,
was reduced to $375,000 for the remainder of 1997, with an opportunity to
receive a bonus of $100,000 if certain prescribed performance criteria are
met.
JAY S. OSMAN, the Company's Executive Vice President, Treasurer and Chief
Financial Officer entered into an employment agreement in October 1995. The
employment agreement provided for, among other things, an initial annual
salary of $200,000. Mr. Osman's current annual base salary is $210,000, and
his term of employment has been extended through October 10, 1998. Mr.
Osman's agreement is terminable by the Company at any time after October 10,
1998.
ROBERT A. CALLAWAY, the Company's Vice President/General Counsel and
Secretary, entered into an employment agreement with the Company in September
1994. The employment agreement provided for, among other things, an initial
annual salary of $165,000, a one-time bonus of $10,000 and the right to
participate in any bonus plan established by the Company for its employees.
Mr. Callaway's current annual base salary is $210,000, and his term of
employment has been extended through September 18, 1997. Mr. Callaway's
employment agreement is terminable by the Company or Mr. Callaway at any time
after September 18, 1996 upon 30 days' prior written notice.
JURIS BASENS, the Company's Vice President and Chief Operating Officer,
entered into an employment agreement with the Company as of July 1996. The
employment agreement, among other things, provided for an initial annual base
salary of $200,000, and a lump sum bonus of $20,000 paid upon the commencement
of his employment. Under his employment agreement, Mr. Basens' term of
employment runs through December 31, 1998. Mr. Basens' employment may be
terminated immediately for good cause described in the employment agreement,
and upon 30 days notice following December 31, 1998. As additional
compensation, the Company has agreed to issue 25,000 shares of the Company's
common stock to Mr. Basens which are deliverable over a four year period, with
3,750 shares scheduled for delivery in July 1997. The Company has also agreed
to grant Mr. Basens options for the purchase of 75,000 shares of the Company's
common stock. Those options, which have not yet been granted, will be granted
under the Company's Incentive Stock Option Plan.
4
KENNETH SCHULTZ, the Company's Vice President/Construction, entered into an
employment agreement with the Company as of June 1996. The employment
agreement, among other things, provided for an initial annual base salary of
$200,000, and a lump sum bonus of $82,500 paid upon the commencement of his
employment. Under his employment agreement, Mr. Schultz's term of employment
runs through December 31, 1998. Mr. Schultz's employment may be terminated
immediately for good cause described in the employment agreement, and upon 30
days notice following December 31, 1998. As additional compensation, the
Company has agreed to issue 25,000 shares of the Company's common stock to Mr.
Schultz which are deliverable over a four year period, with 3,750 shares
scheduled for delivery in June 1997. The Company has also agreed to grant Mr.
Schultz options for the purchase of 75,000 shares of the Company's common
stock. Those options, which have not yet been granted, will be granted under
the Company's Incentive Stock Option Plan.
DAVID L. PALTZIK, the Company's Vice President/Marketing, entered into an
employment agreement with the Company as of July 1996. The employment
agreement, among other things, provides for an initial annual base salary of
$200,000, and a lump sum bonus of $20,000 paid by the Company upon the
commencement of his employment. Under his employment agreement, Mr. Paltzik's
term of employment runs through December 31, 1998. Mr. Paltzik's employment
may be terminated immediately for good cause described in the employment
agreement, and upon 30 days notice following December 31, 1998. As additional
compensation, the Company has agreed to issue 25,000 shares of the Company's
common stock to Mr. Paltzik which are deliverable over a four year period,
with 3,750 shares scheduled for delivery in July 1997. The Company has also
agreed to grant Mr. Paltzik options for the purchase of 75,000 shares of the
Company's common stock. Those options, which have not yet been granted, will
be granted under the Company's Incentive Stock Option Plan.
Reporting Under Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires executive officers and directors of the Company, and persons who
beneficially own more than 10 percent of the Company's outstanding shares of
Common Stock, to file initial reports of ownership and reports of changes in
ownership of securities of the Company with the Securities and Exchange
Commission ("SEC") and The Nasdaq Stock Market. Officers, directors and
persons owning more than 10 percent of the Company's outstanding Common Stock
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms filed. Based solely on a review of the copies of such
reports and amendments thereto furnished to or obtained by the Company or
written representations that no other reports were required, the Company
believes that during the year ended December 31, 1996, all filing requirements
applicable to its directors, officers or beneficial owners of more than 10
percent of the Company's outstanding shares of Common Stock were complied
with, except that Marlin F. Torguson filed a Form 4 on August 1, 1996 with
respect to the sale of 180,000 shares of common stock in May 1996, which was
due on June 10, 1996, and filed a Form 4 on September 17, 1996, with respect
to the sale of 77,000 shares of common stock in August 1996, which was due on
September 10, 1996. In addition, three newly-elected officers, Juris Basens,
David L. Paltzik and Kenneth N. Schultz, each filed a Form 3 in February 1997,
which was due on August 6, 1996.
5
ITEM 11. EXECUTIVE COMPENSATION11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth certain compensation information for the
Company's Chief Executive Officer who served in such capacity during the year
ended December 31, 1996, and the Company's six most highly compensated
executive officers, other than the Chief Executive Officer, who served as
executive officers at December 31, 1996. The foregoing persons are
collectively referred to as the "Named Executive Officers". Compensation
information is shown for fiscal years 1994, 1995 and 1996.
Long-Term
Compensation
Awards
Annual Other Securities All
Compen- Annual Restricted Underlying Other
Name/ sations Compen- Stock Options/ Compen-
Principal Salary Bonus sation Awards SARs sation
Position Year ($) ($) ($) ($) (#) ($)
- --------- ----- ------- ----- ------- ------- ------- --------
James E. Ernst.. 1996 425,000 -- 58,813(2) -- 590,000(5) 272,886(10)
President and 1995(1) 16,923 -- --(4) -- 590,000(6) 9,839(11)
Chief Executive
Officer
Marlin F. Torguson
Chairman of 1996 425,000 -- 191,522(3) -- -- 6,695(11)
the Board 1995 425,000 -- --(4) -- -- 2,832(12)
1994 423,833 -- --(4) -- -- 1,500(13)
Jay S. Osman 1996 208,654 -- --(4) -- 90,000(7) 4,330(14)
Executive 1995(1) 38,512 20,000 --(4) 132,500(9) 75,000(8) --
Vice President
Treasurer and
Chief Financial
Officer
Robert A. Callaway 1996 208,654 -- --(4) 135,938(9) 90,000(7) 7,245(15)
Vice President/ 1995 181,154 -- --(4) -- 40,000(8) 481(13)
General Counsel 1994 51,040 -- --(4) -- 35,000(9) 4,650(16)
and Secretary
Juris Basens 1996(1) 78,462 20,000 (4) -- -- 2,713(17)
Vice President/
Chief Operating
Officer
David L. Paltzik 1996(1) 78,462 20,000 --(4) -- -- 3,100(18)
Vice President/
Marketing
Kenneth N. Schultz 1996(1) 95,385 82,000 --(4) -- -- 11,190(19)
Vice President/Construction
______________________________
(1) No compensation information is provided for any prior year as the Named
Executive Officer was employed by the Company only during the years for which
compensation information is provided.
6
(2) Amount allocated as income relating to personal use of corporate
airplane in 1996. The airplane was sold in February 1997.
(3) $188,672 of this amount was allocated as income relating to personal use
of corporate airplane in 1996. The airplane was sold in February 1997.
(4) Did not receive perquisites or other personal benefits from the Company
in excess of $50,000 or 10 percent of the Named Executive Officer's total
annual salary and bonus paid for the years indicated.
(5) The exercise price of options to purchase the Company's Common Stock
granted in 1995 was reduced to $3.625 per share in 1996.
(6) Same as the 590,000 share options which were repriced in 1996 as
reflected in Note 5.
(7) An option to purchase 15,000 shares of the Company's Common Stock was
granted in 1996 exercisable at $3.625 per share, and the exercise price of
options previously granted for 75,000 shares was reduced to $3.625 per share.
(8) Options are included in the 90,000 share options which were repriced in
1996 as reflected in Note 7.
(9) Messrs. Osman and Callaway were each awarded a total of 25,000
restricted shares of the Company's Common Stock that vest over a four year
period. As of December 31, 1996, 3,750 shares having a value of $9,258 (based
on the closing trade price on that date) had vested in favor of each of
Messrs. Osman and Callaway, but have not yet been delivered.
(10) Partial forgiveness of indebtedness owed by Mr. Ernst to the Company in
the amount of $239,542 in 1996 and $8,208 in 1995, and $37,328 in 1996 and
$1,631 in 1995, in compensation resulting from an interest-free loan made by
the Company to Mr. Ernst which assumes a 10% annual market rate of interest.
See "Employment, Termination and Change in Control Arrangements."
(11) Contribution of $2,375 made by the Company to 401(k) plan and payment of
$4,320 premium on group term life insurance policy.
(12) Contribution of $1,500 made by the Company to 401(k) plan and automobile
allowance of $1,332.
(13) Contributions to 401(k) plan made by the Company.
(14) Automobile allowance of $4,000 and payment of $330 premium on group term
life insurance policy.
(15) Automobile allowance of $4,000, contribution of $2,375 made by the
Company to 401(k) plan, and payment of $870 premium on group term life
insurance policy.
(16) Living allowance.
(17) Automobile allowance of $2,500 and payment of $213 premium on group term
life insurance policy.
(18) Automobile allowance of $2,500 and payment of $600 premium on group term
life insurance policy.
(19) Automobile allowance of $3,000, reimbursement for moving expenses of
$7,827 and payment of $363 premium on group term life insurance policy.
Option/SAR Grants in Last Fiscal Year
The following table provides certain information regarding the number of stock
options to purchase shares of Casino Magic's common stock granted to the Named
Executive Officers during the year ended December 31, 1996.
7
Percentage of
Total Options
Granted to Potential Realizable
Number of Employees Value at Assumed
Securities in Per Share Annual Rates of Stock
Underlying Fiscal Exercise Price Appreciation
Options Year or Base Expiration for Option Term
Name Granted 1995 Price(1) Date 5% 10%
----- -------- ----- ------- -------- -------------------
James E. Ernst 490,000(1) 36.5% $3.625 12/19/01 $490,745 1,084,418
100,000(1) 7.5% $3.625 12/20/01 $100,152 221,310
Jay S. Osman 75,000(2) 5.6% $3.625 10/10/01 $ 75,114 165,982
15,000 1.1% $3.625 4/23/01 $ 15,023 33,196
Robert A. Callaway 35,000(3) 2.6% $3.625 10/10/01 $ 35,053 77,458
40,000(2) 3.0% $3.625 9/18/00 $ 40,061 88,524
15,000 1.1% $3.625 4/23/01 $ 15,023 33,196
_____________________________
(1) Options were originally granted in 1995, exercisable at $4.75 per share,
and were repriced at $3.625 per share in July 1996.
(2) Options were originally granted in 1995, exercisable at $5.30 per share,
and were repriced at $3.625 per share in July 1996.
(3) Options were originally granted in 1994, exercisable at $7.8125 per
share, and were repriced at $3.625 per share in July 1996.
(4) Includes the repricing of outstanding stock options for 849,600 shares
granted under the Company's Incentive Stock Option Plan and held by all
employees of the Company as of July 26, 1996.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
The following table provides certain information regarding the exercise of
stock options to purchase shares of Casino Magic's common stock during the
year ended December 31, 1996, by the Named Executive Officers, and the fiscal
year-end value of stock options held by such officers.
8
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options/SARs at the-Money Options/SARs
Number of Shares Fiscal Year End (#) at Fiscal Year End ($)
Acquired
Name On Exercise Exercisable Unexercisable Exercisable Unexercisable
------ ----------- ----------- ------------- --------- -------------
Marlin F. Torguson None 600,000 -- $631,250 --
James E. Ernst None 118,000 472,000 -- --
Jay S. Osman None 15,000 75,000 -- --
Robert A. Callaway None 23,750 66,250 -- --
Juris Basens None None None -- --
David L. Paltzik None None None -- --
Kenneth N. Schultz None None None -- --
(1) Based on a fiscal year end of December 31, 1996 and a closing Common
Stock trade price of $2.46875 per share on December 31, 1996. The value of
in-the-money options is calculated as the difference between the fair market
value of the Common Stock underlying the options at fiscal year end and the
exercise price of the options. Exercisable options refer to those options
that are exercisable as of December 31, 1996, while unexercisable options
refer to those options that become exercisable at various times thereafter.
Director Compensation
Each non-employee member of the Board of Directors is entitled to receive
$2,000 for attendance at each Board of Directors meeting and $500 for
attendance at each meeting of a Committee of the Board of Directors, provided
that if a meeting of the Board of Directors and a Committee or non-employee
director meeting were attended by a director on the same day, the maximum
compensation for attendance at such meetings was $2,000. In the past, the
Company has granted stock options to non-employee members of the Board of
Directors, however, no such grants were made in 1996.
Fees have been paid, and are expected to be paid in the future, to Roger H.
Frommelt's law firm, Frommelt & Eide, Ltd. for services rendered to the
Company (See "Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
Repricing of Options
The following table sets forth information regarding the establishment of
lower exercise prices under options previously granted to executive officers
to purchase common stock of the Company, from the inception of the Company's
business through December 31, 1996.
9
Length of
Market Exercise Original
Number of Price of Price at Option
Securities Stock at Time of Term
Underlying Time of Repricing Remaining
Options/SARs Repricing or New at Date
Repriced or or Amendment Exercise of
Date of Amended Amendment ($) Price Repricing
Name Repricing (#) ($) or Amendment
______________________________________________________________________________
James E. Ernst 7/26/96 490,000 3.5625 4.75 3.625 12/19/01
President and 7/26/96 100,000 3.5625 4.75 3.625 12/20/01
Chief Executive
Officer
Jay S. Osman 7/26/96 75,000 3.5625 5.30 3.625 10/10/01
Treasurer and
Chief Financial
Officer
Robert A. 7/26/96 35,000 3.5625 7.8125 3.625 9/18/00
Callaway 7/26/96 40,000 3.5625 5.30 3.625 10/10/01
Secretary and 7/26/96 15,000 3.5625 4.875 3.625 4/23/01
General
Counsel
Dual B. Cooper 7/27/94 31,000 6.50 15.75 7.20 3/27/00
Vice President
and Chief
Operating
Officer(1)
Patrick M. 7/27/94 31,000 6.50 16.00 7.20 3/11/00
Sidders(2)
Treasurer and
Chief Financial
Officer
Hugh J. 7/29/94 31,000 6.50 13.50 7.20 1/03/99
Shaddick(3)
Executive Vice
President/Development
_____________________________
10
(1) Terminated his employment on December 18, 1995 without exercising
options.
(2) Terminated his employment on August 31, 1995 without exercising options.
(3) Terminated his employment on December 31, 1995 without exercising
options.
Stock Option Committee Report on Repricing of Stock Options
This report is being provided by the Stock Option Committee of the Board of
Directors of the Company (the "Option Committee") to assist shareholders to
understand the objectives of the Option Committee in repricing stock options
previously granted to executive officers of the Company.
Stock options were repriced for executive officers on two occasions; in
July 1994 and July 1996. In each case the repricing of options was effected
for all employees of the Company, regardless of status. In addition, all
repriced options, except for a 490,000 share option granted to the Company's
President and Chief Executive Officer in December 1995, were originally
granted under the Company's Incentive Stock Option Plan.
The Option Committee's primary objective in granting stock options is to
tie the employees' future compensation to the success of the Company, and to
provide an incentive to the Company's employees to work in the best interest
of the shareholders. The Option Committee believes that if the stock option
prices are too high, the incentive is lost. It is the Option Committee's
further belief that if the exercise price of the option is significantly
higher than the market price, the existence of that disparity acts to reduce
employee morale, not enhance it. In taking its action to reprice stock
options, the Option Committee also took into consideration the impact that an
executive officer's actions might have had on the operating results of the
Company, and how that impact might have resulted in any decline in the market
value of the Company's common stock. The Option Committee concluded that, in
the case of each executive officer whose options were repriced, that the
officer had either been employed by the Company for too short of a period, or
was employed in a position which would not enable that employee, to adversely
impact the market price of the Company's common stock. Finally, the Company's
Option Committee believes that harmony and morale among the Company's
executive officers is improved where there are no material discrepancies in
the exercise price of their respective stock options.
Respectfully Submitted,
Roger H. Frommelt
E. Thomas Welch
Casino Magic Corp. Stock Option Committee
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1996, E. Thomas Welch and Allen J.
Kokesch served as members of the Company's Compensation Committee. During
1996 no member of the Company's Compensation Committee was an officer, former
officer or employee of the Company or any of its subsidiaries, except Mr.
11
Kokesch, who was an employee and Executive Vice President of the Company from
December 1992 through December 1994. No executive officer of the Company
served as a member of (i) the compensation committee of another entity in
which one of the executive officers of such entity served on the Company's
Compensation Committee, (ii) the Board of Directors of another entity in which
one of the executive officers of such entity served on the Company's
Compensation Committee, or (iii) the compensation committee of another entity
in which one of the executive officers of such entity served as a member of
the Company's Board of Directors, during the year ended December 31, 1996.
Compensation Committee Report on Executive Compensation
Introduction. This report is provided by the Compensation Committee of the
Board of Directors of the Company (the "Committee") to assist shareholders in
understanding the Committee's objectives and procedures in establishing
compensation programs for the Company's Chief Executive Officer and other
executive officers. The Committee, which consists solely of non-employee
directors, is responsible for establishing and administering the Company's
executive compensation program. The members of the Committee do not receive
awards under the Company's incentive compensation programs.
Compensation Policies. Consistent with the Committee's responsibility for
establishing, implementing and monitoring the Company's executive compensation
program, the Committee has developed several policies. These policies are:
(i) to establish compensation programs designed to attract and retain
highly-qualified executives; (ii) to provide motivation to the Company's
executives through compensation that is correlated to the performance of the
executive officer and to the performance of the Company; (iii) to compensate
executives in a manner which awards both current and long-term performance;
and (iv) to provide executives with a financial interest in the success of the
Company similar to the interests of the Company's shareholders.
Consistent with the aforementioned policies, the Company's current
executive compensation program involves a combination of base salary,
short-term incentive awards and long-term incentive awards. The Committee
uses executive officer base salaries to attract and retain highly-qualified
executives. The grant of bonuses to executive officers rewards short-term
performance, and the grant of stock options by the Company's Stock Option
Committee and restricted stock by the Company's Board of Directors encourages
and rewards executive officers based upon the Company's long-term performance
and provides those executive officers with a financial interest in the success
of the Company which aligns their interests with the interests of the
Company's shareholders.
Base Salary. The Committee periodically reviews salaries paid to executive
officers of other companies in the gaming industry and believes that the
salaries of the Company's executive officers are at levels that are
competitive within the gaming industry. The Committee has the authority to
determine the salaries of the Company's Chief Executive Officer and other
executive officers, subject to the terms of pre-existing employment contracts.
Executive salaries are based on individual performance, level of
responsibility and experience.
Short-Term Incentive Awards. The key performance criterion in determining
bonus payments is the level of income attained by the Company. In April 1996
12
the Company established an executive officer bonus pool. The dollar amount of
the pool for fiscal year 1996 was equal to a percentage of the Company's
pre-tax net income for the year. Only executive officers were eligible to
receive bonuses from the pool. In determining the allocation of bonus
payments among the Company's executives, the Committee evaluates the levels of
supervisory or management responsibilities and considers a number of factors
which include initiative, business judgement, technical expertise and
management skills. Because of the Company's losses in 1996, no bonuses were
paid from the bonus pool for that year.
Long-Term Incentive Awards. The Company's long-term incentive program
consists of stock option and restricted stock grants which are intended to
encourage achievement of long-term goals and objectives consistent with
enhancing shareholder value. These objectives include, but are not limited
to, earnings per share growth, return on invested capital, return on
stockholders' equity and profitability. The Stock Option Committee's awards
of stock options and the Board of Directors' grants of restricted stock are
intended to provide executive officers with increased motivation and incentive
to exert their best efforts on behalf of the Company by increasing their
personal stake in the Company's success through the opportunity to acquire a
greater equity interest in the Company and to benefit from appreciation in the
value of the Company's Common Stock. The Stock Option Committee issues all
stock options at an exercise price of not less than the market value of the
Company's Common Stock on the date of grant, thereby ensuring that any value
derived from such options is dependent upon subsequent increases in share
value which will be realized by shareholders generally. The grant of
restricted stock to executives provides incentive to act in the Company's
long-term interest. Restricted stock is also granted for the purpose of
obtaining and retaining highly-skilled executive officers possessing extensive
experience in gaming or in other areas of specialty. Executives must be
employed continually in order for shares of restricted stock and stock options
to vest and become exercisable.
Compensation of the Chief Executive Officer. James E. Ernst became the
Company's Chief Executive Officer on December 18, 1995. Under the terms of an
employment agreement originally entered into between the Company and Mr. Ernst
dated December 20, 1995, Mr. Ernst was to receive an initial annual base
salary of $425,000 and in December 1995 he received a $500,000 loan which is
subject to partial repayment if Mr. Ernst's employment with the Company is
terminated under certain circumstances prior to December 21, 1997.
Additionally, to induce Mr. Ernst to join the Company and to align his
interests with those of the Company's shareholders, the Company granted to Mr.
Ernst a non-statutory option to purchase up to 490,000 shares of the Company's
Common Stock and an incentive stock option to purchase up to 100,000 shares of
the Company's Common Stock. See "Item 11. EXECUTIVE COMPENSATION." The
Committee believes Mr. Ernst's compensation to be reasonable based on the
compensation paid to executives in other gaming companies of similar size and
operation, and the Company's need to retain highly qualified and experienced
executive officers.
Deductibility of Compensation. Internal Revenue Code Section 162(m)
provides, generally, that compensation paid to certain executive officers of
publicly-held corporation in excess of $1 million in a year is not deductible
as an expense of the Company unless certain conditions are met, including
having at least two outside directors as members of the compensation
committee.
13
Only one of the two current members of the Committee is an "outside director"
as that term is defined by Internal Revenue Service regulations. As described
more fully in the Summary Compensation Table, none of the Company's executive
officers received compensation which exceeded $1 million in 1996 and the
Committee believes the annual compensation of each of the Company's executive
officers will be less than $1 million in 1997. The Committee intends to
maximize the deductibility of executive officer compensation, however, it is
conceivable that the Company's compensation arrangements with executive
officers may result in the payment of compensation which is not deductible.
Respectfully Submitted,
E. Thomas Welch
Allen J. Kokesch
Casino Magic Corp. Compensation Committee
Performance Graph
The following graph provides a comparison of cumulative total returns for
the Company, the Dow Jones Equity Market Index (which is considered an
indicator of the overall stock market performance) and the Dow Jones
Entertainment & Leisure - Casinos Total Return Index (which is a published
industry index) for the period October 23, 1992 through December 31, 1996.
The Company's Common Stock was registered under Section 12 of the Securities
Exchange Act of 1934 on October 23, 1992. The total return indices assume the
investment of $100 in the Company's Common Stock, the Dow Jones Equity Market
Index and the Dow Jones Entertainment & Leisure -Casinos Index on October 23,
1992, reflect reinvested dividends and are weighted on a market capitalization
basis at the time of each reported data point.
The historical stock price performance of the Company's Common Stock shown
below is not necessarily indicative of future price performance.
COMPARISON OF ANNUAL CUMULATIVE TOTAL RETURN
Among Casino Magic Corp., Dow Jones Equity Market Index and Dow Jones
Entertainment & Leisure - Casinos Total Return Index
The line graph depicts the return of a $100 investment in Casino Magic Corp.
common stock as opposed to a $100 investment in Dow Jones Equity Index or the
Dow Jones Entertainment and Leisure-Casino total return index. Investment
dollars are indicated on the left axis indicate the value of each investment
type, the bottom axis indicates the respective dates from October 23, 1992
through December 31, 1996. The table below is the information used to create
the chart.
10-23- 12-31 12-31- 12-31- 12- 12-31-
92 92 93 94 31-95 96
______________________________________________________________________________
Casino Magic Corp. 100 236 415 165 96 76
______________________________________________________________________________
Dow Jones Equity Market 100 106 117 118 163 201
Index
____________________________________________________________________________
Dow Jones E&L - 100 114 174 134 177 193
Casinos Total Return Index
______________________________________________________________________________
14Assumes $100 invested on October 23,
1992, in Casino Magic Corp. Common Stock, the Dow Jones Equity Market Index
and Dow Jones Entertainment & Leisure - Casinos Total Return Index.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Share Ownership of Management
The following table sets forth certain information as of the record date
with respect to the shares of Common Stock beneficially owned by: (i) each
director; (ii) the Named Executive Officers; and (iii) all current executive
officers (regardless of salary and bonus level) and directors as a group.
Unless otherwise indicated, the shareholders listed in the table below have
sole voting and investment powers with respect to the shares indicated.
Number of
Shares of Casino Magic Percentage of
Name and Address Common Shares Outstanding
of Beneficial Owner Beneficially Owned Shares(12)
- ------------------------ -------------------- ------------------------
Marlin F. Torguson ......... 8,854,500 (1) 24.2%
James E. Ernst ............. 233,000 (2) *
Allen Kokesch .............. 1,087,000 (3) 3.1%
Roger H. Frommelt .......... 103,000 (4) *
E. Thomas Welch ............ 75,000 (5) *
Jay S. Osman ............... 55,450 (6) *
Robert A Callaway .......... 29,000 (7) *
Juris Basens ................ None *
David L. Paltzik ............ 1,600 *
Kenneth N. Schultz .......... None *
All current executive ...... 10,443,550 (8) 28.4%
officers and directors
as a group (8 persons)
_______________________________
* Less than one percent.
(1) Includes 600,000 shares that Mr. Torguson has the right to acquire upon
exercise of outstanding stock options.
(2) Includes 118,000 shares that Mr. Ernst has the right to acquire upon
exercise of outstanding stock options.
(3) Includes 201,500 shares owned of record by the spouse of Mr. Kokesch of
which Mr. Kokesch disclaims beneficial ownership.
(4) Includes 100,000 shares that Mr. Frommelt has the right to acquire upon
exercise of outstanding stock options.
(5) Includes 72,000 shares that Mr. Welch has the right to acquire upon
exercise of outstanding stock options and 3,000 shares held beneficially by
Mr. Welch under a 401(k) Plan.
(6) Includes 18,750 shares that Mr. Osman has the right to acquire upon
exercise of outstanding stock options.
(7) Includes 27,500 shares that Mr. Callaway has the right to acquire upon
exercise of outstanding stock options.
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(8) The percentage of outstanding shares of Common Stock as shown in the
table above is calculated based upon 35,637,083 shares outstanding as of the
close of business on March 21, 1997 and assumes that in each case the person
only, or the group only, currently exercised his or its rights to acquire all
shares under outstanding stock options which have vested or will vest on or
before May 20, 1997, except as otherwise stated.
Share Ownership of Certain Beneficial Owners
The following table sets forth certain information as of the record date
with respect to the shares of Common Stock beneficially owned by all persons
known by the Company to be the owner of more than five percent of the
Company's outstanding Common Stock.
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS COMMON SHARES OUTSTANDING
OF BENEFICIAL OWNER BENEFICIALLY SHARES(3)
OWNED
_____________________________________________________________________________
Marlin F. Torguson 8,854,500(1) 24.4%
1003 Hillsboro Mile
Hillsboro, FL 33062
Grand Casinos, Inc.(2) 2,125,000 6.0%
13705 First Avenue North
Minneapolis, MN 55441
_______________________________
(1) Includes 600,000 shares that Mr. Torguson has the right to acquire upon
exercise of outstanding stock options.
(2) The shares are held of record by GCA Acquisition Subsidiary, Inc., a
wholly-owned subsidiary of Grand Casinos, Inc.
(3) The percentage of outstanding shares of Common Stock as shown in the
table above is calculated based upon 35,637,083 shares outstanding as of the
close of business on March 21, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
Transportation Services Provided by an Affiliate of the Chairman of the
Board
Through February 1996, a company, wholly owned and operated by Marlin F.
Torguson, provided charter airplane services to the Company for which the
Company was charged an hourly rate. The total amount of charter service
expenses paid by the Company to Mr. Torguson's charter service company was
$219,800 during the year ended December 31, 1996.
16
Purchase of Aircraft from Chairman of the Board
In February 1996, the Company acquired a Falcon 10 aircraft from Marlin
F. Torguson for a purchase price of approximately $1.7 million, which the
Company believes approximated the fair value of the aircraft as of the
purchase date. The purchase price was determined by a third-party aircraft
appraiser engaged by the Company at the direction of the Audit Committee. In
making this determination the third-party appraiser analyzed information which
included prices paid by purchasers of similar aircraft in recent transactions
with standard adjustments for modifications, and for airframe and engine
usage. Mr. Torguson originally purchased the aircraft in June 1995 for
approximately $1.8 million. The Company sold the aircraft in February 1997
for $1.4 million.
Indebtedness of Chief Executive Officer
As of December 20, 1995, James E. Ernst, the Company's President and
Chief Executive Officer and a member of the Company's Board of Directors, was
indebted to the Company in the amount of $500,000 pursuant to the terms of an
employment agreement entered into between Mr. Ernst and the Company. Each day
during the initial two-year term of Mr. Ernst's employment, approximately $684
of the loan is forgiven. As of March 31, 1997 the outstanding balance of the
loan was approximately $180,575. The loan to Mr. Ernst was reported in the
Company's 1995 financial statements as a compensation expense of $500,000 and
a corresponding receivable of $500,000. Adjustments to the balance of the
receivable are made by the Company on a quarterly basis to reflect the amount
of the loan periodically forgiven by the Company. See "Item 11. EXECUTIVE
COMPENSATION."
Architectural Services
Mardi Gras Casino Corp., which operates the Company's Bay Saint Louis
casino entered into an agreement dated June 18, 1992 with Lund Associates,
Inc. of Rapid City, South Dakota, to provide architectural services for the
construction of the casino barge and support building on the Bay Saint Louis
property. Biloxi Casino Corp., which operates the Company's Biloxi casino,
also entered into an agreement dated November 23, 1992 with Lund Associates,
Inc. to provide architectural services for the construction of the casino
barge and support buildings on the Biloxi property. Wayne K. Lund, a director
of the Company from October 1992 until he resigned on December 1, 1996, is the
President and principal shareholder of Lund Associates, Inc. The agreements
are substantially a Standard Form of Agreement Between Owner and Architect
(AIA Document B141), and provide for complete architectural services,
including periodic inspection of the contract work. The contracts provide for
a base fee of 6% of the construction costs, and an hourly rate for additional
services, which can range from $80 per hour for principal architects to $30
per hour for clerical personnel. The contracts also provided for
reimbursement of expenses, at cost. The total cost of architectural services
paid by the Company to Mr. Lund's firm in 1996 was $1,346,861. These
architectural services are not expected to continue after December 31, 1996.
17
Legal Services
The law firm of Frommelt & Eide, Ltd. rendered legal services to the
Company during the year ended December 31, 1996. Roger H. Frommelt, a
shareholder and a director of the Company, is the President and a principal
shareholder of Frommelt & Eide, Ltd. The total cost of such legal services
incurred by the Company during 1996 was approximately $107,000. It is
anticipated that Mr. Frommelt's law firm will provide legal services to the
Company in the future.
Employment Contracts with Executive Officers
Marlin F. Torguson, James E. Ernst, Jay S. Osman, Robert A. Callaway,
Juris Basens, Kenneth N. Schultz and David L. Paltzik, who are executive
officers of the Company, have each entered into employment agreements with the
Company. See "Item 11. EXECUTIVE COMPENSATION."
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated April 30, 1997 CASINO MAGIC CORP.
By: /s/ James E. Ernst
_______________________
James E. Ernst, President
and Chief Executive
Officer
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