As filed with the Securities and Exchange Commission on March 26, 1999.
Registration No. 333-73235
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
HOLLYWOOD PARK, INC.
and Other Registrants
(See Table of Other Registrants Below)
(Exact name of each Registrant as specified in its charter)
Delaware 7999 95-3667491
(state or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
1050 South Prairie Avenue, Inglewood, California 90301
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------
G. MICHAEL FINNIGAN
Chief Financial Officer
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
(310) 419-1500
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
copy to:
ALVIN G. SEGEL, ESQ.
ASHOK W. MUKHEY, ESQ.
Irell & Manella LLP
1800 Avenue of the Stars
Los Angeles, California 90067
(310) 277-1010
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the 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. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Proposed
Proposed maximum
Amount maximum aggregate Amount of
Title of each class of to be offering price offering registration
securities to be registered registered per unit(1) price(1) fee
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9 1/4% Series B Senior Subordinated
Notes due 2007...................... $350,000,000 100% $350,000,000 $97,300(2)
- -------------------------------------------------------------------------------------------------
Guaranties of 9 1/4% Series B Senior
Subordinated Notes due 2007......... $350,000,000 None(3) None(3) None(3)
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(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457.
(2) Previously paid with March 2, 1999 filing.
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
is payable for the Guaranties.
---------------
The Registrants hereby amend the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
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 said
Section 8(a), may determine.
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OTHER REGISTRANTS
State or Other I.R.S.
Jurisdiction of Employer
Exact Name of Registrant Incorporation Identification
as Specified in its Charter or Organization Number
- --------------------------- --------------- --------------
Hollywood Park Operating Company............... Delaware 95-3667220
Hollywood Park Fall Operating Company.......... Delaware 95-4093972
HP Yakama Consulting, Inc. .................... Delaware 94-4651282
HP Yakama, Inc. ............................... Delaware 95-4636368
Boomtown, Inc. ................................ Delaware 94-3044204
Hollywood Park Food Services, Inc. ............ California 95-2844591
HP/Compton, Inc. .............................. California 95-4545471
HP Casino, Inc. ............................... California 95-4548638
Crystal Park Hotel and Casino Development
Company, LLC.................................. California 95-4595453
Louisiana Gaming Enterprises, Inc. ............ Louisiana 72-1229201
Louisiana-I Gaming, a Louisiana Partnership in
Commendam..................................... Louisiana 72-1238179
Casino Magic Corp. ............................ Minnesota 64-0817483
Casino Magic American Corp. ................... Minnesota 41-1779346
Bayview Yacht Club, Inc. ...................... Mississippi 64-0824102
Mississippi-I Gaming, L.P. .................... Mississippi 64-0828954
Biloxi Casino Corp. ........................... Mississippi 64-0814408
Casino Magic Finance Corp. .................... Mississippi 64-0835473
Casino One Corporation......................... Mississippi 64-0814345
Bay St. Louis Casino Corp. .................... Mississippi 64-0814409
Mardi Gras Casino Corp. ....................... Mississippi 64-0793787
Boomtown Hotel & Casino, Inc. ................. Nevada 88-0101849
Boomtown Hoosier, Inc. ........................ Nevada 88-0355622
Indiana Ventures LLC........................... Nevada 93-1199012
Switzerland County Development Corp. .......... Nevada 95-4355039
Pinnacle Gaming Development Corp. ............. Colorado 84-1242274
Turf Paradise, Inc. ........................... Arizona 86-0114029
PROSPECTUS
[LOGO OF HOLLYWOOD PARK, INC.]
HOLLYWOOD PARK, INC.
OFFER TO EXCHANGE 9 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007 FOR ANY
AND ALL OUTSTANDING 9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
TERMS OF EXCHANGE OFFER
. Expires 5:00 p.m., New York City time, May 3, 1999, unless extended
. Subject to certain customary conditions, which we may waive
. All outstanding notes that are validly tendered and not withdrawn will be
exchanged
. Tenders of outstanding notes may be withdrawn any time prior to the
expiration of the exchange offer
. The exchange of notes should not be a taxable exchange for U.S. Federal
income tax purposes
. We will not receive any proceeds from the exchange offer
. The terms of the notes we will issue in the exchange offer are substantially
identical to the outstanding notes, except that certain transfer restrictions
and registration rights relating to the outstanding notes will not apply to
the registered notes
. Each broker-dealer that receives registered 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 notes. See "Plan of
Distribution".
For a discussion of certain factors that you should consider before
participating in this exchange offer, see "Risk Factors" commencing on page 12.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of those notes to be issued in the
exchange offer, nor have any of these organizations passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
Neither the California Attorney General's office, the Nevada Gaming
Commission, the Nevada State Gaming Control Board, the Mississippi Gaming
Commission, the Louisiana Gaming Control Board, the Indiana Gaming Commission
nor any other regulatory agency of any other state has passed upon the adequacy
or accuracy of this Prospectus or the investment merits of the securities
offered hereby. Any representation to the contrary is unlawful.
The date of this prospectus is March 29, 1999.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information...................................... i
Disclosure Regarding Forward-Looking Statements.......................... ii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 12
Use of Proceeds.......................................................... 22
Capitalization........................................................... 22
Unaudited Pro Forma Combined Consolidated Financial Statements........... 23
Selected Historical Financial and Other Data............................. 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 35
Business................................................................. 48
Page
----
Management................................................................. 73
Security Ownership of Certain Beneficial Owners and Management............. 81
Certain Relationships and Related
Transactions.............................................................. 83
Description of Certain Indebtedness........................................ 84
The Exchange Offer......................................................... 87
Description of Notes....................................................... 98
Certain United States Federal Income Tax Consequences...................... 141
Plan of Distribution....................................................... 144
Legal Matters.............................................................. 145
Experts.................................................................... 145
Index to Financial Statements.............................................. F-1
----------------
WHERE YOU CAN FIND MORE INFORMATION
In connection with the exchange offer, we have filed with the Securities and
Exchange Commission (the "SEC" or the "Commission") a Registration Statement on
Form S-4 (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the 9 1/4% Series B Senior
Subordinated Notes. As permitted by SEC rules, this prospectus does not contain
all of the information set forth in the Registration Statement. For further
information about us and the 9 1/4% Series B Senior Subordinated Notes, you
should refer to the Registration Statement. This prospectus summarizes material
provisions of contracts and other documents to which we refer you. Since this
prospectus may not contain all of the information that you may find important,
you should review the full text of these documents. We have included copies of
these documents as exhibits to our Registration Statement.
We also file annual, quarterly and special reports, proxy statements and
other information with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). You may read and copy the Registration Statement
and our other SEC filings can be inspected and copied at the Public Reference
Section of the Commission located at Room 1024, Judiciary Plaza, 450 Fifth
Street, NW, Washington D.C. 20549. You may also obtain copies of such
materials, including copies of all or any portion of the Registration
Statement, from the Public Reference Section of the Commission at prescribed
rates. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference room. Such materials are also available on
the Commission's home page on the Internet (http://www.sec.gov). These
documents are also available for viewing at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. These incorporated documents contain
important business and financial information about us that is not included in
or delivered with this prospectus. The information incorporated by reference is
considered to be part of this prospectus, and earlier information incorporated
by reference may be updated and superseded by information in the prospectus,
and later information filed with the SEC will update and supersede the
information in this prospectus. We incorporate by reference the following:
(1) pages F-55 through F-84 of Amendment No. 4 to our Registration
Statement on Form S-4 filed February 6, 1998 (registration no. 333-34471);
i
(2) our Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
(3) our Quarterly Report on Form 10-Q for the quarter ended March 31,
1998;
(4) our Quarterly Report on Form 10-Q for the quarter ended June 30,
1998;
(5) our Quarterly Report on Form 10-Q for the quarter ended September 30,
1998;
(6) our Current Report on Form 8-K filed October 30, 1998;
(7) the description of our common stock set forth in our Registration
Statement on Form 8-A filed with the Commission on June 29, 1994; and
(8) all documents filed by us or our subsidiaries pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the date of this prospectus and prior to the expiration date of the
exchange offer shall be deemed to be incorporated by reference into this
prospectus from the date of filing of such documents.
THESE FILINGS ARE AVAILABLE WITHOUT CHARGE TO HOLDERS OF EXISTING NOTES. YOU
MAY REQUEST A COPY OF THESE FILINGS BY WRITING OR TELEPHONING US AT HOLLYWOOD
PARK, INC., ATTENTION: INVESTOR RELATIONS, 1050 SOUTH PRAIRIE AVENUE,
INGLEWOOD, CALIFORNIA 90301 (TELEPHONE (310) 419-1610). TO OBTAIN TIMELY
DELIVERY OF ANY COPIES OF FILINGS REQUESTED FROM US, PLEASE WRITE OR TELEPHONE
US NO LATER THAN APRIL 26, 1999.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document includes or incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
regarding, among other things, our business strategy, our prospects and our
financial position. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, they are inherently subject to
risks, uncertainties and assumptions about us and our subsidiaries. Important
factors that could cause actual results to differ materially from our
expectations are disclosed or incorporated by reference in this document, and
include, without limitation:
. the failure to complete or successfully operate planned expansion
projects;
. the failure to obtain adequate financing to meet our strategic goals;
. difficulties in completing the integration of Hollywood Park and Casino
Magic;
. the failure to obtain or retain licenses or regulatory approvals;
. and the other factors set forth under "Risk Factors."
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements included in this document. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
document might not occur.
ii
PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer.
It likely does not contain all the information that may be important to you.
For a more complete understanding of this exchange offer, we encourage you to
read this entire document and the documents we have referred you to, including
the financial data and the information set forth under the heading "Risk
Factors."
Unless the context may otherwise require, "we," "us," "our" and similar
terms, as well as references to "Hollywood Park" and the "Company" refer to
Hollywood Park, Inc. and its subsidiaries, except that all non-financial data
(1) for periods prior to October 15, 1998 do not include Casino Magic Corp.
("Casino Magic") (which we acquired on that date) and (2) for periods prior to
June 30, 1997 do not include Boomtown, Inc. (which we acquired on that date).
Certain information in this document is given for Hollywood Park, Inc. and its
"Restricted Subsidiaries" under the Indenture governing the 9 1/4% Senior
Subordinated Notes, on a consolidated basis, excluding the "Unrestricted
Subsidiaries" (the "Restricted Group").
The Company
General
We are a diversified gaming company that owns and/or operates eight casinos,
two pari-mutuel horse racing facilities, and two card club casinos at twelve
locations in Nevada, Mississippi, Louisiana, California, Arizona and Argentina.
We have also been approved to receive the final license to conduct riverboat
gaming on the Ohio River in Indiana and have begun development of a $150
million hotel/casino and golf resort at a site in Switzerland County, Indiana,
35 miles southwest of Cincinnati, Ohio. In addition to our operating
properties, we have significant excess land available for future sale or
development at four of our properties.
As part of our business strategy, we acquired Boomtown on June 30, 1997 and
Casino Magic on October 15, 1998. These companies own strategically located
properties in growing and established gaming markets and, at the time we
acquired them, were for the most part underperforming and had limited access to
capital for expansion. We recently hired four members of the senior management
team of Horseshoe Gaming to actively participate in the overall execution of
our business and operating strategies, including re-positioning the Boomtown
and Casino Magic properties and overseeing the construction and operations of
the Indiana Hotel and Casino Resort.
In light of the Boomtown and Casino Magic acquisitions, the following may be
helpful to give you an idea of the current size of our company. If the
acquisitions and related transactions had occurred on January 1, 1997 (which we
refer to as being on a "pro forma" basis), our total revenues would have been
approximately $610.8 million for the year ended December 31, 1997 and
approximately $495.2 million for the nine months ended September 30, 1998. On a
pro forma basis, earnings before interest, taxes, depreciation and amortization
(abbreviated as "EBITDA") would have totaled approximately $104.6 million for
the year ended December 31, 1997 and approximately $93.2 million for the nine
months ended September 30, 1998. On this basis, and giving effect to the
issuance of the 9 1/4% Senior Subordinated Notes on a pro forma basis, net loss
would have totaled $6.6 million for the year ended December 31, 1997 and net
income of approximately $4.0 million for the nine months ended September 30,
1998. In addition, on a pro forma basis, as of September 30, 1998, we would
have had total assets of approximately $966.4 million. On a pro forma basis,
after giving effect to the issuance of the 9 1/4% Senior Subordinated Notes,
including our use of proceeds from the sale of the 9 1/4% Series A Senior
Subordinated Notes, we would have had total indebtedness of approximately
$623.2 million as of September 30, 1998.
1
Here is an overview of our gaming properties:
Gaming Excess
Type of Square Slot Table Hotel Developable
Location/Property Gaming Facility Footage Machines Games Rooms Land (acres)
- ----------------- ------------------ ------- -------- ----- ----- ------------
Bossier City, Louisiana
Casino Magic
Bossier(1)........... Dockside Riverboat 30,000 980 44 188 --
Harvey, Louisiana
Boomtown New Orleans.. Cruising Riverboat 30,000 1,089 49 -- --
Bay St. Louis,
Mississippi
Casino Magic Bay St.
Louis................ Dockside 39,500 1,132 42 201 50
Biloxi, Mississippi
Boomtown Biloxi....... Dockside 33,632 1,308 35 -- --
Casino Magic Biloxi... Dockside 47,700 1,174 41 378 --
Verdi, Nevada
Boomtown Reno......... Land-based 40,000 1,320 44 322 250
Los Angeles, California
Hollywood Park Race
Track................ Horse Racing -- -- -- -- 160
Hollywood Park-
Casino............... Card Club 30,000 -- 145 -- --
Crystal Park(2)....... Card Club 30,000 -- 60 226 --
Phoenix, Arizona
Turf Paradise......... Horse Racing -- -- -- -- 100
Neuquen Province,
Argentina(3)
Casino Magic Neuquen.. Land-based 27,000 398 40 -- --
Casino Magic San
Martin de los Andes.. Land-based 2,500 75 16 -- --
------- ----- --- ----- ---
SUBTOTAL ........... 310,332 7,476 516 1,315 560
Development Project
- -------------------
Switzerland County,
Indiana
Indiana Hotel/Casino
Resort (4)........... Cruising Riverboat 38,000 1,300 55 309 --
------- ----- --- ----- ---
TOTAL .............. 348,332 8,776 571 1,624 560
======= ===== === ===== ===
- --------
(1) Casino Magic Bossier is owned by our wholly-owned subsidiary, Casino Magic
of Louisiana, Corp., which is an unrestricted subsidiary under the
Indenture governing the 9 1/4% Senior Subordinated Notes and does not
guarantee the 9 1/4% Senior Subordinated Notes.
(2) We own Crystal Park and lease it to an unaffiliated operator.
(3) We own 51% of Casino Magic's Neuquen Province casinos.
(4) We own 97% of the Indiana Hotel/Casino Resort, which we expect to complete
within 18 to 24 months.
2
Business Strategy
Our strategic plan is to develop a broad base of regionally diversified
casino entertainment facilities by making selected acquisitions in the non-Las
Vegas, non-Atlantic City gaming markets and achieving economies of scale. In
the realization of this strategy, we acquired Boomtown on June 30, 1997, and
Casino Magic on October 15, 1998. Our management seeks to develop its casinos
and maximize profitability by:
. refinancing expensive debt;
. fostering customer loyalty by offering a value oriented, quality customer
service gaming experience;
. providing gaming and entertainment facilities uniquely designed for each
property and target customer base; and
. using focused direct marketing incentives.
Specific growth initiatives vary by property type:
. Boomtown Casinos. Since the acquisition, we refinanced Boomtown's
expensive debt and undertook various capital expenditure programs to
enlarge and enhance the facilities. The three Boomtown casinos are now
fully developed facilities that serve their local markets in a relaxed
and customer-friendly environment. The goal for our new management team
with respect to the Boomtown casinos is to maximize profitability through
cost control and increase market share through improved marketing.
. Casino Magic Properties. We believe the Casino Magic properties offer
significant growth potential through improved management and re-
positioning of the brand to a more upscale and exciting image. The
properties are well-located and have ample room for limited and focused
capital spending to make them more attractive and customer-friendly via
parking and room additions, casino expansion and renovation, and
additional entertainment amenities. We have already refinanced some high
cost debt at Casino Magic and completed a hotel development at Casino
Magic Bossier.
. Indiana Hotel/Casino Resort. On September 14, 1998, the Indiana Gaming
Commission approved us to receive the final riverboat gaming license on
the Ohio River in Indiana. We own 97% of the project, which is located on
a 197-acre site only 35 miles southwest of Cincinnati, Ohio and will be
the most accessible gaming facility from Lexington and other parts of
northern Kentucky. The project is expected to cost approximately $150
million (including land and pre-opening expenses but excluding
capitalized interest) and will include a cruising riverboat with 38,000
square feet of gaming space, a land-based facility with a 309-room hotel,
restaurants, convention space, an 18-hole championship golf course and
related amenities. The Indiana Hotel/Casino Resort is currently scheduled
to open in 18 to 24 months; however, there can be no assurance that
construction, regulatory or other issues will not delay the opening.
. Excess Land. There is significant excess land surrounding the Hollywood
Park and Turf Paradise properties. The land at these sites, totaling
approximately 653 acres, has a book value of $13.1 million. Management
believes the fair market value of the land is approximately $230 million.
Of the total acreage, approximately 260 acres are available for sale or
development. We also have excess land at our Reno and Bay St. Louis
properties. While this land offers extensive expansion opportunity at
each of these properties, we will aggressively pursue realization of
value through sale and/or development (including joint venture
arrangements).
. Additional Acquisitions. We continually evaluate opportunities to expand
and diversify our operations through acquisitions of gaming entities
operating in markets outside Las Vegas and Atlantic City, including
entities that are unable to maximize their potential due to capital
constraints or operating inefficiencies. We believe that our financial
and management resources can significantly improve the operations of
acquired entities. We have applied this strategy in both our recent
acquisition of Casino Magic and our earlier acquisition of Boomtown. In
both cases, we have streamlined operations, implemented expansion
projects and refinanced expensive debt.
3
Recent Developments
Acquisition of Casino Magic
On October 15, 1998, we acquired Casino Magic for approximately $80.9
million in cash. In addition, Casino Magic had approximately $268.4 million of
indebtedness. For the nine months ended September 30, 1998, on a pro forma
basis Casino Magic had EBITDA of approximately $45.1 million. In keeping with
our business strategy, following the acquisition, we (1) eliminated redundant
management positions to streamline operations; (2) accelerated completion of
the 188-room hotel under construction at Casino Magic Bossier; and (3) reduced
interest expense by redeeming $135 million aggregate principal amount of Casino
Magic's 11 1/2% First Mortgage Notes at a redemption price of 103.833% of
principal amount plus accrued interest.
Bank Credit Facility
In connection with the Casino Magic acquisition, we executed an Amended and
Restated Reducing Revolving Loan Agreement ("Bank Credit Facility") with a
group of banks led by Bank of America National Trust and Savings Association
("Bank of America NT&SA") as Administrative Agent. This facility provides for a
reducing revolving line of credit of up to $300 million, with an option to
increase the facility by an additional $75 million, and expires on December 31,
2003. The facility is secured by liens on substantially all of our assets and
those of our material subsidiaries, except for Casino Magic of Louisiana, Corp.
and our Argentina subsidiaries. At December 31, 1998, the weighted average
interest rate under the Bank Credit Facility was 7.3%.
Consent Solicitation
We solicited consents to amend the indenture governing the 9 1/2% Senior
Subordinated Notes due 2007 (which we refer to as the "9 1/2% Notes") to create
more flexibility in certain of the covenants and to conform certain of the
covenants in the 9 1/2% Notes indenture to the covenants then proposed for the
indenture governing the 9 1/4% Senior Subordinated Notes. We received such
consents from the holders of a majority of the principal amount of the 9 1/2%
Notes and on February 5, 1999, we executed a supplemental indenture which,
among other things, lowers the required minimum consolidated coverage ratio to
2.00:1.00 and increases the size of our allowed borrowings under our Bank
Credit Facility from $100 million to $350 million. We paid holders of the 9
1/2% Notes $50.00 for each $1,000 principal amount of the 9 1/2% Notes for
which consents were obtained.
----------------
Our principal executive offices are located at 1050 South Prairie Avenue,
Inglewood, California, 90301. Our telephone number is (310) 419-1500.
4
Summary of the Exchange Offer
The Exchange Offer.......... We are offering to exchange up to $350,000,000
aggregate principal amount of our new 9 1/4%
Series B Senior Subordinated Notes due 2007 which
have been registered under the Securities Act
(the "Exchange Notes") for a like amount of our
outstanding 9 1/4% Series A Senior Subordinated
Notes due 2007 which were issued in February 1999
in a private offering (the "Old Notes" and
together with the Exchange Notes, the "Notes").
The Exchange Notes are substantially identical to
the Old Notes, except that the Exchange Notes are
freely transferable by their holders (other than
as provided herein), and are not subject to any
covenant regarding registration under the
Securities Act.
Interest Payments........... The Exchange Notes will bear interest from their
date of issuance. Interest will accrue on the Old
Notes that are tendered in exchange for the
Exchange Notes through the issue date of the
Exchange Notes. Holders of Old Notes that are
accepted for exchange will not receive interest
on the Old Notes that is accrued but unpaid at
the time of exchange, but such interest will be
payable, together with interest on the Exchange
Notes, on the first interest payment date after
the expiration date.
Minimum Condition........... We are not conditioning the exchange offer on any
minimum aggregate principal amount of Old Notes
being tendered for exchange.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on May 3, 1999, unless we decide
to extend the exchange offer, in which case the
term "expiration date" shall mean the latest date
and time to which the exchange offer is extended.
Withdrawal Rights........... You may withdraw your tender at any time prior to
5:00 p.m., New York City time, on the expiration
date.
Exchange Date............... The date of acceptance for exchange of the Old
Notes will be as soon as practicable after the
expiration date.
Conditions to the Exchange
Offer...................... The exchange offer is subject to certain
customary conditions, which we may waive. In
addition, the issuance of the Exchange Notes in
the exchange offer requires the approval of the
Indiana Gaming Commission. We currently expect
that each of the conditions will be satisfied and
that no waivers will be necessary. See "The
Exchange Offer--Certain Conditions to the
Exchange Offer". We reserve the right to
terminate or amend the exchange offer at any time
before the expiration date if any such condition
occurs.
Procedures for Tendering
Old Notes.................. If you are a holder of Old Notes who wishes to
accept the exchange offer, you must complete,
sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, or arrange
for The Depository Trust Company ("DTC") to
transmit certain required information to the
exchange agent in connection with a book-entry
transfer or
5
mail or otherwise deliver such documentation,
together with your Old Notes, to the exchange
agent at the address set forth under "The
Exchange Offer--Exchange Agent".
By tendering your Old Notes in this manner, you
will be representing among other things, that:
. the Exchange Notes you acquire pursuant to the
exchange offer are being acquired in the
ordinary course of your business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the Exchange Notes
issued to you in the exchange offer; and
. you are not an "affiliate" of ours.
Use of Proceeds............. We will not receive any proceeds from the
issuance of Exchange Notes pursuant to the
exchange offer. We will pay all our expenses
incident to the exchange offer.
Certain United States
Federal Income Tax
Consequences............... The exchange of notes pursuant to the exchange
offer should not be a taxable event for federal
income tax purposes. See "Certain United States
Federal Income Tax Consequences".
Special Procedures for
Beneficial Owners.......... If you beneficially own Old Notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender your Old Notes in the exchange offer, you
should contact such registered holder promptly
and instruct it to tender on your behalf. If you
wish to tender on your own behalf, you must,
prior to completing and executing the Letter of
Transmittal and delivering your Old Notes, either
arrange to have your Notes registered in your
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable time.
Guaranteed Delivery
Procedures................. If you wish to tender your Old Notes and time
will not permit your required documents to reach
the exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be
completed on time, you may tender your Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for
Tendering Old Notes".
Acceptance of Old Notes and
Delivery of Exchange
Notes...................... We will accept for exchange 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 Exchange Notes issued
pursuant to the exchange offer will be delivered
promptly following the expiration date. See "The
Exchange Offer--Acceptance of Old Notes for
Exchange; Delivery of Exchange Notes".
Effect on Holders of Old
Notes...................... As a result of this exchange offer, we will have
fulfilled a covenant contained in the
Registration Rights Agreement (the "Registration
Rights Agreement") dated as of February 18, 1999
among
6
Hollywood Park, Inc., each of the subsidiary
guarantors named therein and Lehman Brothers
Inc., CIBC Oppenheimer Corp., Morgan Stanley &
Co. Incorporated, NationsBanc Montgomery
Securities LLC, SG Cowen Securities Corporation
and Wasserstein Perella Securities, Inc. (the
"Initial Purchasers") and, accordingly, there
will be no liquidated damages paid on the Old
Notes. If you do not tender your Old Notes in the
exchange offer, you will continue to hold such
Old Notes and will be entitled to all the rights
and limitations applicable thereto under the
Indenture dated as of February 18, 1999 among
Hollywood Park, Inc., the subsidiary guarantors
named therein and The Bank of New York as trustee
(the "Trustee") relating to the Old Notes and the
Exchange Notes (the "Indenture"), except for any
rights under the Registration Rights Agreement
that terminate as a result of the acceptance for
exchange of validly tendered Old Notes pursuant
to the exchange offer. If you do not tender your
Old Notes, you will not have any further
registration or exchange rights and your Old
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
trading market for untendered Old Notes could be
adversely affected.
Exchange Agent.............. The Bank of New York is serving as exchange agent
in connection with the exchange offer.
7
Summary of Terms of the Exchange Notes
Capitalized terms used under this heading "Summary of Terms of the Exchange
Notes" have been defined under the heading "Description of Notes--Certain
Definitions." The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indenture. The following summary of
terms applies equally to the Exchange Notes and the Old Notes.
Issuer...................... Hollywood Park, Inc.
Securities Offered.......... $350,000,000 in principal amount of 9 1/4% Senior
Subordinated Notes due 2007.
Maturity.................... February 15, 2007.
Interest.................... Annual Rate -- 9 1/4%.
Payment frequency -- every six months on February
15 and August 15.
First payment -- August 15, 1999.
Subsidiary Guarantors....... Each guarantor is our subsidiary. However, not
all of our subsidiaries are guarantors of these
Notes. In particular, the following subsidiaries
are not guarantors: Casino Magic of Louisiana,
Corp., which owns our casino in Bossier City; its
immediate parent entity, Jefferson Casino
Corporation; Casino Magic Management Services
Corp., which provides management services at
Casino Magic Bossier; and Casino Magic Neuquen,
the company that owns our casinos in Argentina,
and its subsidiary. If we cannot make payments on
the Notes when they are due, the guarantor
subsidiaries must make them instead.
Optional Redemption......... On or after February 15, 2003, we may redeem some
or all of the Notes at any time at the redemption
prices listed in the section "Description of
Notes" under the heading "Optional Redemption."
Before February 15, 2002, we may redeem up to 25%
of the Notes initially issued with the proceeds
of certain offerings of equity in our Company at
109.25% of principal amount, plus accrued and
unpaid interest. See "Optional Redemption" in
"Description of Notes."
Change of Control Offer and
Asset Sale Offer........... If we experience specific kinds of changes of
control, we must offer to repurchase the Notes at
101% of their principal amount, plus accrued and
unpaid interest through, but not including, the
date of purchase. If we sell certain assets,
under certain circumstances we must offer to
repurchase the Notes at 100% of their principal
amount, plus accrued and unpaid interest through,
but not including, the date of purchase. See
"Repurchase at the Option of Holders-- Change of
Control" and "--Asset Sales" in the section
"Description of Notes."
Ranking..................... These Notes and the subsidiary guarantees are
senior subordinated debts.
8
They rank behind all of our and our guarantor
subsidiaries' current and future senior debt,
which includes all borrowings under our Bank
Credit Facility and all other indebtedness, other
than our $125 million of 9 1/2% Notes, our trade
payables and any indebtedness that expressly
provides that it is not senior to these Notes and
the subsidiary guarantees.
Assuming we had completed this offering on
September 30, 1998 and applied the proceeds as
intended, these Notes and the subsidiary
guarantees:
. would have been subordinated to approximately
$31.1 million of senior debt;
. would have been effectively junior to
approximately $140.5 million of liabilities of
our unrestricted subsidiaries; and
. would have ranked equally with the $125 million
aggregate principal amount of 9 1/2% Notes.
Basic Covenants of
Indenture................... The Indenture restricts our ability and the
ability of our restricted subsidiaries to, among
other things:
. borrow money;
. pay dividends on or purchase our stock or our
restricted subsidiaries' stock;
. make investments;
. use assets as security in other transactions;
. sell certain assets or merge with or into other
companies; and
. enter into transactions with affiliates.
Certain of our subsidiaries are not subject to
the covenants in the Indenture. For more details,
see the section "Description of Notes" under the
heading "Certain Covenants."
For a discussion of certain factors that should be considered in connection
with an investment in the Notes, see "Risk Factors."
9
Unaudited Summary Pro Forma Financial Data
The following unaudited summary pro forma combined consolidated statement of
operations for the year ended December 31, 1997 was prepared by combining
Hollywood Park's results with the following and reflects: (1) Boomtown's
results prior to Hollywood Park's June 30, 1997 acquisition of Boomtown
(exclusive of approximately a $1.9 million net loss, associated with Boomtown's
Las Vegas property, which was sold on July 1, 1997), including the early
retirement of $102.2 million principal amount of the Boomtown first mortgage
notes, (2) Hollywood Park's issuance of the 9 1/2% Notes; (3) Casino Magic's
results for the full year 1997 (Casino Magic was acquired on October 15, 1998),
including the redemption of $135 million principal amount of Casino Magic's 11
1/2% First Mortgage Notes; (4) the issuance of the Notes; and (5) the consent
fee paid to holders of the 9 1/2% Notes in the consent solicitation.
The following unaudited summary pro forma combined consolidated statement of
operations for the nine months ended September 30, 1998, was prepared by
combining Hollywood Park's results of operations with those of Casino Magic and
reflects: (1) the acquisition of Casino Magic (acquired on October 15, 1998),
including the redemption of $135 million principal amount of Casino Magic's 11
1/2% First Mortgage Notes; (2) the issuance of the Notes; and (3) the consent
fee paid to holders of the 9 1/2% Notes in the consent solicitation.
The following unaudited pro forma combined consolidated balance sheet has
been prepared by combining the unaudited balance sheets of Hollywood Park and
Casino Magic, both as of September 30, 1998, and reflects: (1) acquisition of
Casino Magic (acquired on October 15, 1998), including the redemption of
$135 million principal amount of Casino Magic's 11 1/2% First Mortgage Notes;
(2) the issuance of the Notes; and (3) the consent fee paid to holders of the 9
1/2% Notes in the consent solicitation.
The following financial information is based on, and should be read in
conjunction with, the historical consolidated financial statements and related
notes of Hollywood Park and Casino Magic and the unaudited pro forma combined
consolidated financial statements included elsewhere in this prospectus. This
pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that
would have occurred if the Casino Magic acquisition and the issuance of the
Notes had occurred in an earlier period, nor is it necessarily indicative of
the future operating results or financial position.
Under the Indenture governing the Notes, the following subsidiaries have
been initially designated as "Unrestricted Subsidiaries": Casino Magic of
Louisiana, Corp., Jefferson Casino Corporation (the parent company of Casino
Magic of Louisiana, Corp.), Casino Magic Management Services Corp., and two
Argentina subsidiaries, Casino Magic Neuquen SA and Casino Magic Support
Services SA. Pro forma information under the heading "Total Company Pro Forma"
is provided for Hollywood Park and its subsidiaries, on a consolidated basis,
including the Unrestricted Subsidiaries (and is sometimes referred to as the
"Total Company"). Pro forma information under the heading "Restricted Group Pro
Forma" excludes the Unrestricted Subsidiaries and is provided for Hollywood
Park and its "Restricted Subsidiaries" under the Indenture, on a consolidated
basis (and is sometimes referred to as the "Restricted Group"). Hollywood
Park's Restricted Subsidiaries are all of its subsidiaries except for the
Unrestricted Subsidiaries.
10
Summary Unaudited Pro Forma Financial Data
Total Company Pro Forma Restricted Group Pro Forma
-------------------------- --------------------------
Nine months Nine months
Year ended ended Year ended ended
December 31, September 30, December 31, September 30,
1997 1998 1997 1998
------------ ------------- ------------ -------------
(in thousands, except ratios)
Income statement data:
Revenues............... $610,831 $495,175 $499,580 $395,060
Operating expenses..... 555,262 439,200 455,197 357,349
Operating income....... 55,569 55,975 44,383 37,711
Interest expense....... 61,154 46,749 44,227 34,118
Income (loss) before
extraordinary item.... (6,582) 3,999 675 997
Dividends on
convertible preferred
stock(a).............. 1,520 0 1,520 0
Income (loss) before
extraordinary item
allocated to common
shareholders.......... (8,102) 3,999 (845) 997
Other data:
Operating income......... $ 55,569 $ 55,975 $ 44,383 $ 37,711
Depreciation and
amortization............ 49,002 37,210 41,830 31,315
-------- -------- -------- --------
EBITDA(b)................ 104,571 93,185 86,213 69,026
Non-recurring expenses:
REIT restructuring..... 2,483 0 2,483 0
Hollywood Park/Boomtown
merger costs.......... 1,487 0 1,487 0
Hollywood Park/Casino
Magic merger costs.... 0 4,838 0 3,084
-------- -------- -------- --------
Adjusted EBITDA.......... $108,541 $ 98,023 $ 90,183 $ 72,110
======== ======== ======== ========
Ratio of Adjusted
EBITDA to interest
expense............... 1.77x 2.10x 2.04x 2.11x
Ratio of earnings to
fixed charges(c)...... 0.85x 1.06x 0.91x 0.97x
Balance sheet data:
Cash and cash
equivalents........... -- $104,837 -- $ 97,356
Total assets........... -- 966,418 -- 815,662
Total debt (current and
long term)............ -- 623,228 -- 506,088
Net debt(d)............ -- 514,932 -- 406,872
Stockholders' equity... -- 225,624 -- 218,907
- --------
(a) As of August 28, 1997 Hollywood Park had caused conversion of all
convertible preferred stock, into 2,291,492 shares of Hollywood Park common
stock, and eliminated the future quarterly dividends.
(b) EBITDA is not a measure of financial performance under GAAP, but is used by
some investors to determine a company's ability to service or incur
indebtedness. EBITDA and Adjusted EBITDA are not calculated in the same
manner by all entities and accordingly, may not be appropriate measures for
performance. Neither EBITDA nor Adjusted EBITDA should be considered in
isolation from, or as a substitute for, net income (loss), cash flows from
operations or cash flow data prepared in accordance with GAAP.
(c) In computing the ratio of earnings to fixed charges: (1) earnings were
calculated from income from continuing operations, before income taxes and
fixed charges, and excluding capitalized interest and; (2) fixed charges
were computed from interest expense, amortization of debt issuance costs,
capitalized interest, and the estimated interest included in rental
expense. Hollywood Park's total company pro forma earnings for the year
ended December 31, 1997, were not sufficient to cover its pro forma fixed
charge requirement by $9.9 million. Hollywood Park's restricted group pro
forma earnings for the year ended December 31, 1997, and for the nine
months ended September 30, 1998, were not sufficient to cover its pro forma
fixed charge requirements by $4.1 million and $1.1 million, respectively.
(d) Net debt is total debt (current and long term) less cash and cash
equivalents and short term investments.
11
RISK FACTORS
In addition to the other matters described in this prospectus, you should
carefully consider the following factors in connection with your decision to
accept the exchange offer. Many of the risk factors set forth below are equally
applicable to the Old Notes.
Old Notes Outstanding After the Exchange Offer Will Not Have Registration
Rights and We Expect the Market for such Old Notes to be Illiquid
If you do not exchange your Old Notes for Exchange Notes pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of such Old Notes. In general, you may not offer or sell Old Notes unless they
are registered under the Securities Act, except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. We do not currently intend
to register the Old Notes under the Securities Act. Based on interpretations by
the staff of the Commission, we believe that Exchange Notes issued pursuant to
the exchange offer may be offered for resale, resold or otherwise transferred
by their holders (unless such holder is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, so long
as the Old Notes were acquired in the ordinary course of the holders' business
and such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
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 Exchange Notes. See "Plan of Distribution."
To the extent that Old Notes are tendered and accepted in the exchange offer,
the trading market for untendered and tendered but unacceptable Old Notes will
be adversely affected.
You Cannot Be Sure that an Active Trading Market Will Develop for the Exchange
Notes
We are offering the Exchange Notes to the holders of the Old Notes. The Old
Notes were offered and sold in February 1999 to institutional investors and are
eligible for trading in the Private Offerings, Resale and Trading through
Automatic Linkages (PORTAL) Market.
We do not intend to apply for a listing of the Exchange Notes on a
securities exchange or on any automated dealer quotation system. There is
currently no established market for the Exchange Notes and we cannot assure you
as to the liquidity of markets that may develop for the Exchange Notes, your
ability to sell the Exchange Notes or the price at which you would be able to
sell the Exchange Notes. If such markets were to exist, the Exchange Notes
could trade at prices that may be lower than their principal amount or purchase
price depending on many factors, including prevailing interest rates and the
markets for similar securities. We expect that the Exchange Notes will be
designated for trading in the PORTAL market. The Initial Purchasers have
advised us that they currently intend to make a market with respect to the
Exchange Notes. However, the Initial Purchasers are not obligated to do so, and
any market making with respect to the Exchange Notes may be discontinued at any
time without notice. In addition, such market making activity will be subject
to the limits imposed under the Exchange Act. Moreover, you cannot be sure that
the Exchange Notes will trade as one class with the Old Notes.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of our financial performance and prospects.
12
We Have a Significant Amount of Debt
We have a significant amount of debt. The following chart shows certain
important credit statistics and is presented assuming we had completed the Old
Notes offering as of the dates or at the beginning of the periods specified
below and applied the proceeds as intended:
Total Company
Pro Forma as of
September 30, 1998
-------------------------
(in thousands, unaudited)
Total debt......................................... $623,228
Stockholders' equity............................... $225,624
Debt to equity ratio............................... 2.76x
Total Company Pro Forma
--------------------------------------------
For the Year Ended For the Nine Months Ended
December 31, 1997 September 30, 1998
------------------ -------------------------
Ratio of earnings to fixed
charges......................... 0.85x 1.06x
Based upon our current level of operations and anticipated improvements, we
believe that our cash flow from operations, together with proceeds from this
offering and amounts we are able to borrow under our Bank Credit Facility, will
be adequate to meet our anticipated requirements for working capital, capital
expenditures, planned expansion costs and project development and acquisition
efforts, interest payments and scheduled principal payments for the foreseeable
future, and in any event for at least the next twelve months. Our ability to
make scheduled payments of principal and interest on and to refinance our debt,
including these Notes, and to fund planned expansion costs and project
development and acquisition efforts will depend on our ability to generate cash
in the future. We do not have complete control over our future performance
because it is subject to economic, financial, competitive, regulatory and other
factors affecting the gaming industry. It is possible that in the future our
business may not generate sufficient cash flow from operations to allow us to
service our debt and make necessary capital expenditures. If this situation
occurs, we may have to sell assets, restructure debt or obtain additional
equity capital. We cannot be sure that we would be able to do so or do so
without additional expense. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
Our level of debt may have important consequences on your investment in the
Notes. These consequences include:
. requiring a substantial portion of our cash flow from operations to be
used to pay interest and principal on our debt and therefore be
unavailable for other purposes including capital expenditures, project
expansion, development and acquisition efforts;
. limiting our ability to obtain additional financing;
. incurring higher interest expense in the event of increases in interest
rates on our borrowings which have variable interest rates;
. heightening our vulnerability to downturns in our business or in the
general economy and restricting us from making improvements or
acquisitions, or exploiting business opportunities; and
. limiting our ability to dispose of assets or pay cash dividends.
Failure to comply with these limitations could result in an event of default
under our debt agreements which, if not cured or waived, could result in a
significant portion of our debt becoming due and payable. We are not certain
that in such event we would have, or be able to obtain, sufficient funds to
make such accelerated payments, including payments on the Notes.
13
We May Still Be Able to Incur Substantially More Debt
We and our subsidiaries may be able to incur substantial additional debt in
the future. The terms of the Indenture do not fully prohibit us or our
subsidiaries from doing so. Subject to satisfying the conditions for borrowing
under our Bank Credit Facility, the full amount remains fully available to us
even after completion of the Old Notes offering and all borrowings under our
Bank Credit Facility would be senior to the Notes and the subsidiary
guarantees. If new debt is added to our and our subsidiaries' current debt
levels, the related risks that we and they now face could intensify.
See "Capitalization," "Selected Financial Data," "Description of Notes--
Repurchase at Option of Holder--Change of Control" and "Description of Certain
Indebtedness--The Bank Credit Facility."
These Notes are Subordinated to Senior Debt and Effectively Subordinated to
Debt of Our Non-Guarantor Subsidiaries
These Notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing debt (other than our 9 1/2% Notes and trade
payables) and all of our and their future borrowings (other than trade
payables), except any future debt that expressly provides that it ranks equal
with, or subordinated in right of payment to, the Notes and the guarantees. As
a result, upon any distribution to our creditors or the creditors of the
guarantors in a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or the guarantors or our or their property, the holders of
senior debt of Hollywood Park and the guarantors will be entitled to be paid in
full before any payment may be made with respect to these Notes or the
subsidiary guarantees. Further, our Bank Credit Facility is secured by
substantially all of our assets and those of our material subsidiaries, except
for Jefferson Casino Corporation, Casino Magic of Louisiana, Corp. and our
Argentina subsidiaries, Casino Magic Neuquen SA and Casino Magic Support
Services SA.
In addition, all payments on the Notes and the guarantees will be blocked in
the event of a payment default on senior debt and may be blocked for up to 179
of 360 consecutive days in the event of certain non-payment defaults on senior
debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the Notes will
participate with the holders of the 9 1/2% Notes, trade creditors and all other
holders of our subordinated debt and that of the guarantors in the assets
remaining after we and the subsidiary guarantors have paid all of the senior
debt. However, because the Indenture requires that amounts otherwise payable to
holders of the Notes in a bankruptcy or similar proceeding be paid to holders
of senior debt instead, holders of the Notes may receive less, ratably, than
holders of trade payables in any such proceeding. In any of these cases, we and
the subsidiary guarantors may not have sufficient funds to pay all of our
creditors. In addition, any amounts that holders of the Notes would become
entitled to in a bankruptcy or a similar proceeding would have to be shared
with the holders of the 9 1/2% Notes.
Assuming we had completed the Old Notes offering on September 30, 1998,
these Notes and the subsidiary guarantees would have been subordinated to $31.1
million of senior debt. We are permitted to borrow substantial additional debt,
including senior debt, in the future under the terms of the Indenture.
Moreover, some but not all of our subsidiaries guarantee the Notes. For
example, Casino Magic of Louisiana, Corp., which owns Casino Magic Bossier, and
Casino Magic Neuquen, the entity that operates the casinos in Argentina, are
not guarantors. In the event of a bankruptcy, liquidation or reorganization of
any of the non-guarantor subsidiaries, holders of their debt and their trade
creditors will generally be entitled to payment of their claims from the assets
of those subsidiaries before any assets are made available for distribution to
us. Assuming we had completed the Old Notes offering on September 30, 1998,
these Notes would have been effectively junior to approximately $140.5 million
of debt and other liabilities (including trade payables) of these non-guarantor
subsidiaries. On a pro forma basis, the non-guarantor subsidiaries generated
20.2% of our consolidated revenues in the nine-month period ended September 30,
1998 and held 15.6% of our consolidated assets as of September 30, 1998.
14
We Face Significant Competition From Other Gaming Operations
We face significant competition in each of the jurisdictions in which we
have gaming operations. We expect this competition to intensify as new gaming
operators enter our markets and existing competitors expand their operations.
Our properties compete directly with other gaming properties in Louisiana,
Mississippi, Nevada, California and Arizona. To a lesser extent, we also
compete for customers with other casino operators in North American markets,
including casinos located on Indian reservations, and other forms of gaming
such as lotteries. Several of our competitors have substantially greater name
recognition and marketing resources as well as access to lower-cost sources of
financing.
Competition in the Gulf Coast Markets. Our casinos in the Gulf Coast area
have experienced intense competition. In Mississippi, competing casino
operations have expanded and, as a result, a number of casinos in the Gulf
Coast market have failed. Further, Mississippi law does not limit the number of
gaming licenses that may be granted. Mirage Resorts is constructing a $650
million, 1,800-room hotel and casino in Biloxi and, in Bay St. Louis, Circus
Circus has announced plans to construct a $225 million, 1,500-room hotel and
casino at a location on Interstate 10 that would compete with our Bay St. Louis
property. Additionally, Park Place Entertainment has acquired and expects to
further develop Grand Casino's Biloxi property, and expects to complete Grand
Casino's construction of a 600-room expansion to its Gulfport facility, located
near Bay St. Louis, in June 1999.
In the Bossier City/Shreveport market, our 188-room, 30,000 gaming square
foot Casino Magic hotel/casino competes with three other properties. Two of
these properties are substantially similar to ours in size. The third,
Horseshoe Casino, recently completed construction of a 606-room luxury hotel
and 62,400 square foot, four-deck riverboat with approximately 30,000 square
feet of gaming space, making it the largest in the Bossier City/Shreveport
market. Additionally, Isle of Capri Casinos is currently constructing a 305-
room suite hotel, which is expected to open in the second quarter of 1999. A
consortium led by Hollywood Casino (which is not affiliated with Hollywood
Park, Inc.) recently received approval for a $185 million riverboat casino and
hotel in Shreveport. Finally, Harrah's announced a 500-room hotel at its
existing property in Shreveport.
In the New Orleans market, Harrah's is currently constructing a land-based
casino entertainment facility. The casino, which is scheduled to open in the
third quarter of 1999, will be the only land-based casino entertainment
facility in New Orleans.
While we believe we have been able to effectively compete in these markets
to date, increasing competition may adversely affect our gaming operations in
the future. We believe that increased legalized gaming in other states,
particularly in areas close to some of our existing gaming properties, such as
in Texas and Alabama, could adversely affect our operations.
Proposition 5; Competition in our California and Reno Markets. Indian tribes
have operated casinos in California for approximately ten years. There are
about 40 gambling halls currently operated by Indian tribes in California, but
most are significantly smaller than typical casinos in Las Vegas. In November
1998, California voters passed Proposition 5, a ballot initiative that, upon
becoming effective, would allow Indian tribes to conduct various gaming
activities including horse race wagering, gaming devices (including slot
machines), banked card games (i.e., where the casino has a stake in the amount
wagered or the outcome of the game), and lotteries. On December 2, 1998, the
California Supreme Court issued a stay on Proposition 5 based on the State of
California's position that the initiative violates the state constitution. We
are not certain if or when Proposition 5 will become effective or how it will
affect us; however, if Proposition 5 is implemented, increased competition from
Indian gaming could adversely affect our gaming operations in California and
Reno.
The Hollywood Park-Casino and Crystal Park also face competition from other
card club casinos in neighboring cities.
15
We May Experience Difficulty Integrating Operations of Our Acquired Companies
and Managing Our Overall Growth
We may not be able to manage the combined operations of Hollywood Park and
Casino Magic effectively or realize any of the anticipated benefits of the
acquisition of this company, including streamlining operations or gaining
efficiencies from the elimination of duplicative functions. We acquired Casino
Magic in October 1998 and are continuing to integrate its operations with ours.
This integration will require continued dedication of management resources and
may temporarily detract from attention to our day-to-day business.
In addition, because we plan to continue pursuing expansion opportunities
aggressively, we face significant challenges not only in managing and
integrating Casino Magic's operations, but also in managing our expansion
projects and any other gaming operations we may acquire in the future.
Management of these new projects will require increased managerial resources,
and we intend to continue our efforts to enhance our gaming management team.
However, there can be no assurance that we will succeed in doing so. Failure to
manage our growth effectively could materially adversely affect our operating
results.
We Depend on the Mississippi and Louisiana Markets
Our operating strategy emphasizes attracting and retaining customers from
the local and repeat visitor market. All of our casinos in Mississippi and
Louisiana are dependent upon attracting customers within their respective
geographic markets. Moreover, with our acquisitions of Boomtown and Casino
Magic, we have three casinos in Mississippi, two in Biloxi and one in nearby
Bay St. Louis. We also have two casinos in Louisiana, one in Bossier City and
one in Harvey near New Orleans (though our Louisiana properties are located 320
miles apart). We cannot be sure that we will be able to continue to attract a
sufficient number of guests, gaming customers and other visitors in Mississippi
and Louisiana to make our operations profitable. In addition, adverse
regulatory changes or changes in the gaming environment in the Gulf Coast
states could have a material adverse effect on our operations.
We May Not be Able to Complete Expansion Projects on Time, on Budget or as
Planned
Our strategic plan involves significant future expansion, including the
development of the Indiana Hotel/Casino Resort in Switzerland County and
possible expansion of our other gaming properties. We also plan to sell or
develop certain unimproved acreage, principally at our racing facilities in
California and Arizona. We may not be successful in completing any currently
contemplated or future expansion projects and, even if they are completed, the
projects may not be successful. Numerous factors, including regulatory or
financial constraints, could intervene and cause us to alter, delay or abandon
our expansion plans.
Construction and Land Use Risks. If we proceed with a proposed expansion
project, we will face numerous risks which could require substantial changes to
proposed plans or otherwise alter the time frames or budgets initially
contemplated. Such risks include the ability to secure all required permits and
resolution of potential land use issues, as well as risks typically associated
with any construction project, including possible shortages of materials or
skilled labor, unforeseen engineering or environmental or geological problems,
work stoppages, weather interference and unanticipated cost overruns.
Risks in Expanding Operations to Additional Sites. Our ability to expand our
operations to additional gaming jurisdictions will depend upon a number of
factors, including our success in (1) identifying available suitable locations
and negotiating acceptable purchase or lease terms; (2) securing required state
and local licenses, permits and approvals, which in some jurisdictions may be
limited in number, and in certain cases may require legislative relief from
existing laws; and (3) obtaining necessary financing for the projects.
Political factors, such as the proposed referenda in Mississippi that were
declared invalid by a lower court which would have banned gaming in the state,
or other referenda or proposed legislation seeking to restrict or prohibit
gaming, may also inhibit our expansion. In addition, there can be no assurance
that gaming will remain a growth industry with opportunities for expansion. We
may incur significant costs, which it is our policy to expense as incurred,
with respect to proposed ventures that do not materialize.
16
Weather and Other Conditions Could Seriously Disrupt Our Operations
Riverboat and Dockside Gaming Operations. Our riverboat and dockside
facilities in Mississippi and Louisiana, as well as any additional riverboats
that might be developed or acquired in the future such as the riverboat for the
Indiana Hotel/Casino Resort, are subject to risks in addition to those
associated with land-based casinos, including loss of service due to casualty,
mechanical failure, extended or extraordinary maintenance, flood, hurricane or
other severe weather conditions. For riverboats that cruise there are
additional risks associated with the movement of vessels on inland waterways,
including risks of casualty due to river turbulence and severe weather
conditions.
For example, in September 1998, Hurricane Georges struck the Gulf Coast
region and caused Boomtown Biloxi, Casino Magic Biloxi, Casino Magic Bay St.
Louis and Boomtown New Orleans to shut down for approximately one week, though
none of our properties sustained significant damage. The loss of a riverboat
casino or a dockside casino from service for any period of time could adversely
affect our results of operations.
Boomtown Reno. Boomtown Reno's primary customer base is drawn from the
traffic flow on Interstate 80. If traffic on Interstate 80 is significantly
reduced for an extended period, as a result of inclement weather or otherwise,
or the off-ramps providing access to Boomtown Reno are impaired for an extended
period due to poor weather conditions, road modifications and repairs or other
factors, Boomtown Reno's results of operations will be adversely affected. In
the Winters of 1994/1995 and 1996/1997, severe storms, together with road
repairs to Interstate 80 on the corridor between California and Reno, resulted
in road closures or substantially reduced traffic flow on Interstate 80 for
extended periods. Such road closures and repairs had an adverse effect on the
related quarters' and years' results of operations for Boomtown Reno.
We Experience Significant Quarterly and Annual Fluctuations in Operating
Results
We experience significant fluctuations in our quarterly and annual operating
results, due to seasonality and other factors. Historically, our subsidiaries
have generated a substantial majority of the income from operations before non-
recurring items in the quarters ending June 30 and September 30, with the
summer months being the strongest period. Conversely, the winter months, which
primarily cover the quarter ending March 31, are our slowest periods and have
historically resulted, and may in the future result, in losses in this quarter.
The gaming industry historically has experienced a general slowdown in the
fourth quarter of the calendar year with revenues typically declining during
this period. In addition, our Argentina operations experience seasonal
variation due to reliance on tourism.
We Face Extensive Regulation from Gaming Authorities
Licensing Requirements. The ownership and operation of gaming facilities are
subject to extensive state and local regulation. The states and localities in
which we and our subsidiaries conduct gaming operations require us to hold
various licenses, findings of suitability, registrations, permits and
approvals. The various regulatory authorities, including the Nevada State
Gaming Control Board, the Nevada Gaming Commission, the Mississippi Gaming
Commission, the Louisiana Gaming Control Board and the Indiana Gaming
Commission may, among other things, limit, condition, suspend or revoke a
license or approval to own the securities of any of our gaming subsidiaries for
any cause deemed reasonable by such licensing authorities. Substantial fines or
forfeiture of assets for violations of gaming laws or regulations may be levied
against us, our subsidiaries and the persons involved. The suspension or
revocation of any of our licenses or the levy on us of substantial fines or
forfeiture of assets would have a material adverse effect on our business.
To date, we have obtained all governmental licenses, findings of
suitability, registrations, permits and approvals necessary for the operation
of our gaming facilities. However, there can be no assurance that we can obtain
any new licenses, findings of suitability, registrations, permits and approvals
that may be required in the future or that existing ones will not be suspended
or revoked. Any expansion of our gaming operations in Nevada, Mississippi,
Louisiana, California or Arizona or into new jurisdictions will require various
additional
17
licenses, findings of suitability, registrations, permits and approvals of the
gaming authorities. The approval process can be time consuming and costly and
has no assurance of success.
The Hollywood Park-Casino and Crystal Park have been and are currently
operating under provisional licenses in accordance with California law. In each
case, permanent licenses will not be granted until the newly formed California
Gambling Control Commission is fully constituted and commences operations. No
assurance can be given that permanent licenses will be obtained.
Gaming authorities have the authority generally to require that any
beneficial owner of our securities, including the Old Notes, the Exchange Notes
and the 9 1/2% Notes, file an application and be investigated for a finding of
suitability. If a record or beneficial owner of an Old Note, an Exchange Note
or a 9 1/2% Note is required by any gaming authority to be found suitable, such
owner will be required to apply for a finding of suitability within 30 days
after request of such gaming authority or within such earlier time prescribed
by such gaming authority. The applicant for a finding of suitability must pay
all costs of the investigation for such finding of suitability. If a record or
beneficial owner is required to be found suitable and is not found suitable, it
may be required pursuant to the terms of the Notes or law to dispose of the
Notes. See "Regulation and Licensing" and "Description of Notes--Optional
Redemption."
Other Regulatory Restrictions. Restrictions on transfers of, agreements not
to encumber or pledges of equity securities issued by a corporation which is
registered as an intermediary company by, or holds a gaming license issued by
the Nevada Gaming Commission, the Mississippi Gaming Commission, or the Indiana
Gaming Commission, or which is registered by the Nevada Gaming Commission or
the Mississippi Gaming Commission as an intermediary company, are ineffective
unless approved in advance by the Nevada Gaming Commission, the Mississippi
Gaming Commission or the Indiana Gaming Commission, as applicable.
Potential Changes in Regulatory Requirements. The regulatory environment in
any particular jurisdiction may change in the future and any such change may
have a material adverse effect on the combined company's results of operations.
For example, in 1996, the State of Louisiana adopted a statute pursuant to
which voter referenda on the continuation of gaming were held locally where
gaming operations are conducted and which, had the continuation of gaming been
rejected by the voters, might have resulted in the termination of Boomtown New
Orleans' and Casino Magic Bossier's operations at the end of their current
license terms. The parishes in which Boomtown New Orleans and Casino Magic
Bossier operate voted to continue gaming, but there can be no assurance that
similar referenda might not produce unfavorable results in the future.
Moreover, in Mississippi, two referenda were proposed in 1998 that would have,
if passed, banned gaming in Mississippi and required all currently legal gaming
entities to cease operations within two years of the ban. The referenda were
challenged in court and declared improper on constitutional and procedural
grounds. A third referendum similar to the prior proposals was recently filed
with the Mississippi Secretary of State. These referenda are discussed in more
detail below. In addition, unless and until California enacts legislation
permitting the operation generally of card club casinos by public companies,
our involvement in other card club casino projects (such as Crystal Park) will
be similarly limited to leasing the facility to an unaffiliated operator. The
returns from such arrangements could be substantially less than if we operated
such facilities directly.
National Gambling Impact Study Commission. The United States Congress has
established a National Gambling Impact Study Commission to conduct a
comprehensive study of the social and economic impact of gaming in the United
States. The National Commission is required to issue a report containing its
findings and conclusions, together with recommendations for legislation and
administrative actions, within two years after its first meeting, which
occurred on June 20, 1997. Any recommendations which may be made by the
National Commission could result in the enactment of new laws and/or the
adoption of new regulations which could adversely impact the gaming industry in
general. We are unable at this time to determine what recommendations, if any,
the National Commission will make, or the ultimate disposition of any such
recommendations.
From time to time, certain legislators have proposed the imposition of a
federal tax on gross gaming revenues. Any such tax could have a material
adverse effect on our business, financial condition or results of operations.
18
Uncertain Status of Mississippi Anti-Gaming Initiatives
During 1998, two referenda were proposed which, if approved, would have
amended the Mississippi Constitution to ban gaming in Mississippi and would
have required all currently legal gaming operations to cease two years
thereafter. A Mississippi State Circuit Court judge ruled that the first of the
proposed referenda was invalid because, among other reasons, it failed to
include required information regarding its anticipated effect on government
revenues. The Mississippi Supreme Court affirmed the Circuit Court ruling on
procedural and other grounds. The second referendum proposal included the same
language on government revenues as the first referendum and was struck down by
another Mississippi State Circuit Court judge on the same grounds as the first.
On March 22, 1999, another such referendum was filed with the Mississippi
Secretary of State. The language of this most recent proposal also fails to
include information regarding its anticipated effect on government revenues and
may be subject to legal challenge on the same bases that the earlier proposals
were challenged successfully. Any such referendum must be approved by the
Mississippi Secretary of State and signatures of approximately 98,000
registered voters must be gathered and certified in order for such a proposal
to be included on a statewide ballot for consideration by the voters. The next
election for which the proponents could attempt successfully to place such a
proposal on the ballot would be in November 2000. It is likely at some point
that a revised initiative will be filed which will adequately address the
issues regarding the effect on government revenues of a prohibition of gaming
in Mississippi. However, it is too early in the process for us to make any
predictions with respect to whether the most recent proposal or another such
referendum will appear on a ballot or the likelihood of such a referendum being
approved by the voters. If such a referendum were passed and gaming were
prohibited in Mississippi, it would have a material adverse effect on us.
The Indenture Permits Substantial Disposition of Undeveloped Real Estate
We have significant excess developable land at four of our properties. The
terms of the Indenture permit us to sell or dispose of this land under certain
exceptions from the general Indenture restrictions on the disposition of assets
and restricted payments. In general, proceeds from the sale of undeveloped land
will not require us to make an offer to repurchase Notes no matter how the
proceeds are used as long as 60% of the consideration received for the sale is
in cash. In addition, the covenant entitled "Restricted Payments" permits
substantial conveyances of undeveloped real estate to unrestricted subsidiaries
and joint ventures. See "Description of Notes" under the heading "Repurchase at
the Option of Holders--Asset Sales" and related definitions, and "Certain
Covenants--Restricted Payments."
This Prospectus Contains Forward Looking Statements
Certain of the matters discussed concerning our operations, economic
performance and financial condition, including in particular the likelihood of
our success in developing and expanding our business, include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Statements that are
predictive in nature, that depend upon or refer to future events or conditions
or that include words such as "expects", "anticipates", "intends", "plans",
"believes", "estimates" and similar expressions are forward-looking statements.
Although we believe that these statements are based upon reasonable
assumptions, we can give no assurance that their goals will be achieved.
Guaranties Could be Voided and Payments from Guarantors Could be Returned Under
Fraudulent Conveyance Laws
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, an obligation such as a guarantee could be voided, or
claims in respect of an obligation such as a guarantee could be subordinated to
all other debts of that guarantor if, among other things, the guarantor, at the
time it incurred the debt evidenced by its guarantee:
. received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; or
. was insolvent or rendered insolvent by reason of such incurrence; or
19
. was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be required to be returned to the guarantor, or to a fund for the benefit of
the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
. it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history,
estimated values of assets and liabilities of each guarantor and other factors,
we believe that each guarantor, after giving effect to its guarantee of these
Notes, will not be insolvent, will not have unreasonably small capital for the
business in which it is engaged and will not have incurred debts beyond its
ability to pay such debts as they mature. There can be no assurance, however,
as to what standard a court would apply in making such determinations or that a
court would agree with our conclusions in this regard.
Our Year 2000 Compliance Efforts May Require Substantial Resources and Failure
by Us or Certain Third Parties to Be Year 2000 Compliant Poses Certain Risks
The inability of business processes to continue to function correctly after
the beginning of the Year 2000 could have serious adverse effects on companies
and entities throughout the world. Our business operations are also dependent
on the Year 2000 readiness of our customers and infrastructure suppliers in
areas such as utilities, communications, transportation and other services.
We have assembled a committee composed of individuals from each business
unit and each corporate function to identify and mitigate Year 2000 issues in
our information systems, products, facilities, suppliers and customers. We
believe we have identified all of the internal hardware and software
applications that will need to be upgraded or replaced. We are currently in the
process of procuring and installing hardware and software to make the necessary
repairs to all affected internal systems. As to external systems, we have been
assured by the lessors of our pari-mutuel racing services that those systems
will be Year 2000 compatible by March 1999.
We estimate that the total cost of addressing our Year 2000 issues will be
approximately $2 million. This cost estimate is based on numerous assumptions,
including the assumptions that we have already identified our most significant
Year 2000 issues and that our third party suppliers will timely complete their
Year 2000 programs without cost to us. However, there can be no guarantee that
these assumptions are accurate, and actual results could differ materially from
those anticipated.
We cannot assure you that our Year 2000 program will be effective, that our
estimates about the timing and cost of completing our program will be accurate,
or that our third party suppliers will timely resolve any or all Year 2000
problems with their systems. We have no alternative software system to handle
pari-mutuel wagering if the third party provided services fail. Any failure of
the third party suppliers to timely resolve their Year 2000 issues could result
in material disruption to our business. Such disruption could have a material
adverse effect on our business, financial condition and results of operations.
20
Inability to Repurchase Notes Upon Change of Control Offer
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding Notes. However, it
is possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of Notes or that restrictions in our
Bank Credit Facility will not allow such repurchases or that the change of
control may result in a default under our Bank Credit Facility, which in turn
could delay or prevent repurchase of the Notes. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a "Change of Control" under the
Indenture. See "Description of Notes--Repurchase at the Option of Holders."
We Face Environmental Regulation of Our Real Estate
Our business is subject to a variety of federal, state and local
governmental regulations relating to the use, storage, discharge, emission and
disposal of hazardous materials. We believe that we are presently in material
compliance with applicable environmental laws. However, failure to comply with
such laws could result in the imposition of severe penalties or restrictions on
our operations by government agencies or courts of law. We currently do not
have environmental impairment liability insurance, and a material fine or
penalty or a severe restriction would adversely affect our business.
21
USE OF PROCEEDS
We will receive no proceeds from the exchange of Notes pursuant to the
exchange offer.
The net proceeds to us from the Old Notes offering, approximately $339.9
million after deducting the Initial Purchasers' discounts and commissions and
other estimated offering expenses which aggregated $10.1 million, were used to
repay outstanding borrowings under the Bank Credit Facility of approximately
$287 million. Remaining proceeds have been, and will continue to be, used for
general corporate purposes, primarily for 1999 capital expenditures.
The maturity date of borrowings under the Bank Credit Facility repaid with
the proceeds of the Old Notes offering was December 31, 2003 and, at December
31, 1998, the weighted average interest rate under the Bank Credit Facility was
7.3%. Of the $287 million of outstanding borrowings under the Bank Credit
Facility repaid with the proceeds of the Old Notes offering, we had borrowed
$222.6 million on October 15, 1998 to fund the purchase price of the
acquisition of Casino Magic and to redeem Casino Magic's 11 1/2% First Mortgage
Notes. The repayment of amounts outstanding under our Bank Credit Facility with
proceeds from the Old Notes offering did not reduce the size of the banks'
commitment to lend and, if we meet the relevant conditions for borrowing, we
could borrow the full amount available under the facility in the future,
including the amounts we repaid with the proceeds of the Old Notes offering.
CAPITALIZATION
The following table sets forth our unaudited actual and pro forma cash and
cash equivalents, debt and capitalization as of September 30, 1998, for the
Total Company on an actual and pro forma basis, and for the Restricted Group on
a pro forma basis, and includes the effect of the sale of the Old Notes and the
application of the associated proceeds. This table should be read in
conjunction with the Unaudited Pro Forma Combined Consolidated Financial
Statements, Management's Discussion and Analysis of Financial Condition and
Results of Operations, and Hollywood Park's and Casino Magic's historical
financial statements and associated notes.
As of September 30, 1998
-----------------------------
Total Company Restricted
------------------ Group
Actual Pro Forma Pro Forma
-------- --------- ----------
(in thousands, unaudited)
Cash and cash equivalents.................... $ 20,126 $104,837 $ 97,356
======== ======== ========
Current maturities of long term debt......... $ 2,058 $ 10,079 $ 6,472
Long term debt:
Secured notes payable, Bank Credit
Facility.................................. 40,000 0 0
9 1/4% Senior Subordinated Notes due 2007.. 0 350,000 350,000
9 1/2% Senior Subordinated Notes due 2007.. 125,000 125,000 125,000
Casino Magic of Louisiana, Corp. 13% First
Mortgage Notes due 2003................... 0 112,875 0
Other...................................... 3,574 25,274 24,616
-------- -------- --------
Total long term debt, including current
maturities.............................. 170,632 623,228 506,088
Total stockholders' equity............... 225,624 225,624 218,907
-------- -------- --------
Total capitalization..................... $396,256 $848,852 $724,995
======== ======== ========
- --------
Senior debt calculated:
Current maturities of long-term debt....... $ 2,058 $ 10,079 $ 6,472
Secured notes payable, Bank Credit
facility.................................. 40,000 0 0
Other long-term debt....................... 3,574 25,274 24,616
-------- -------- --------
$ 45,632 $ 35,353 $ 31,088
======== ======== ========
22
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined consolidated statement of
operations for the year ended December 31, 1997 was prepared by combining
Hollywood Park's results with the following and reflects: (1) Boomtown's
results prior to Hollywood Park's June 30, 1997 acquisition (exclusive of an
approximately $1.9 million net loss, associated with Boomtown's Las Vegas
property, which was sold on July 1, 1997) including the early retirement of
$102.2 million principal amount of the Boomtown first mortgage notes, and the
issuance of the 9 1/2% Notes; (2) Casino Magic's results for the full year 1997
(Casino Magic was acquired on October 15, 1998), including the redemption of
$135 million principal amount of Casino Magic's 11 1/2% First Mortgage Notes;
(3) the issuance of the Notes; and (4) the consent fee paid to holders of the 9
1/2% Notes in the consent solicitation.
The following unaudited pro forma combined consolidated statement of
operations for the nine months ended September 30, 1998 was prepared by
combining Hollywood Park's results of operations with those of Casino Magic and
reflects: (1) the acquisition of Casino Magic (acquired on October 15, 1998),
including the redemption of $135 million principal amount of Casino Magic's 11
1/2% First Mortgage Notes; (2) the issuance of the Notes; and (3) the consent
fee paid to holders of the 9 1/2% Notes in the consent solicitation.
The following unaudited pro forma combined consolidated balance sheet has
been prepared by combining the unaudited balance sheets of Hollywood Park and
Casino Magic, both as of September 30, 1998, and reflects: (1) the acquisition
of Casino Magic (acquired on October 15, 1998), including the redemption of
$135 million principal amount of Casino Magic's 11 1/2% First Mortgage Notes;
(2) the issuance of the Notes; and (3) the consent fee paid to holders of the 9
1/2% Notes in the consent solicitation.
Under the Indenture, the following subsidiaries have been initially
designated as "Unrestricted Subsidiaries": Casino Magic of Louisiana, Corp.,
Jefferson Casino Corporation (the parent company of Casino Magic of Louisiana,
Corp.), Casino Magic Management Services Corp., and two Argentina subsidiaries,
Casino Magic Neuquen SA and Casino Magic Support Services SA. Pro forma
information under the heading "Pro Forma Combined Consolidated" is provided for
Hollywood Park and its subsidiaries, on a consolidated basis, including the
Unrestricted Subsidiaries. Pro forma information under the heading "Pro Forma
Combined Consolidated Restricted Group" excludes the Unrestricted Subsidiaries
and is provided for Hollywood Park and its "Restricted Subsidiaries" under the
Indenture, on a consolidated basis. Hollywood Park's Restricted Subsidiaries
are all of its subsidiaries except for the Unrestricted Subsidiaries.
Both the acquisitions of Boomtown and Casino Magic were accounted for under
the purchase method of accounting for a business combination. The following
unaudited pro forma combined consolidated financial statements should be read
in conjunction with the accompanying notes.
This pro forma financial information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if Boomtown and Casino Magic had been
acquired as of January 1, 1997, or if the issuance of the Notes or the 9 1/2%
Notes had been completed in an earlier period, nor is it necessarily indicative
of future operating results or financial position.
The pro forma financial statements are based on, and should be read in
conjunction with, Hollywood Park's and Casino Magic's historical consolidated
financial statements and the related notes.
23
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is the calculation of the pro forma purchase price and pro
forma preliminary purchase price allocation for the Casino Magic acquisition.
The preliminary purchase price allocation is based on currently available
information as of September 30, 1998 and is subject to change.
(in thousands)
Pro forma purchase price:
Cost to purchase Casino
Magic common stock at
$2.27 per share........ $ 80,904
Transaction costs....... 2,810
Assumption of Casino
Magic debt............. 260,907
--------
$344,621
========
Pro forma preliminary
purchase price
allocation:
Property, plant and
equipment.............. $282,939
Other, net.............. 9,351
Goodwill................ 52,331
--------
$344,621
========
24
HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
Pro Forma Pro Forma
Boomtown, Hollywood Adjustments
Pro Forma Inc. Park, ---------------------- Elimination
Hollywood Adjusted Acquisition Inc. and Casino Casino Issuance Pro Forma of
Park, Boomtown, Pro Forma Boomtown, Magic Magic Corp. of the Combined Unrestricted
Inc. Inc. Adjustments Inc. Corp. Acquisition Notes Consolidated Group
--------- --------- ----------- --------- -------- ----------- -------- ------------ ------------
(in thousands, except per share data)
Revenues:
Gaming.......... $137,659 $83,349 $ 0 $221,008 $246,320 $ 0 $ 0 $467,328 $105,781
Racing.......... 68,844 0 0 68,844 0 0 0 68,844 0
Food and
beverage........ 19,894 4,921 0 24,815 9,414 0 0 34,229 4,064
Hotel and
recreational
vehicle park.... 937 795 0 1,732 1,724 0 0 3,456 0
Truck stop and
service
station......... 8,633 6,570 0 15,203 0 0 0 15,203 0
Other income.... 12,161 5,321 0 17,482 4,289 0 0 21,771 1,406
-------- ------- ------- -------- -------- ------- -------- -------- --------
248,128 100,956 0 349,084 261,747 0 0 610,831 111,251
-------- ------- ------- -------- -------- ------- -------- -------- --------
Expenses:
Gaming.......... 74,733 42,886 0 117,619 155,885 0 0 273,504 66,630
Racing.......... 30,304 0 0 30,304 0 0 0 30,304 0
Food and
beverage........ 25,745 6,583 0 32,328 10,757 0 0 43,085 4,633
Hotel and
recreational
vehicle park.... 356 334 0 690 834 0 0 1,524 0
Truck stop and
service
station......... 7,969 6,046 0 14,015 0 0 0 14,015 0
Administration.. 61,514 23,596 0 85,110 45,099 (1,183)(g) 0 128,896 21,630
-- -- 0 -- -- (130)(h) -- -- --
Other........... 5,048 1,816 0 6,864 4,098 0 0 10,962 0
REIT
restructuring... 2,483 0 0 2,483 0 0 0 2,483 0
Hollywood
Park/Boomtown
merger costs.... 0 1,487 0 1,487 0 0 0 1,487 0
Depreciation and
amortization.... 18,157 8,522 264 (a) 26,943 20,751 1,308 (i) 0 49,002 7,172
-------- ------- ------- -------- -------- ------- -------- -------- --------
226,309 91,270 264 317,843 237,424 (5) 0 555,262 100,065
-------- ------- ------- -------- -------- ------- -------- -------- --------
Operating income
(loss)........... 21,819 9,686 (264) 31,241 24,323 5 0 55,569 11,186
Loss (gain) on
sale of assets.. 0 357 0 357 (2,632) 1,440 (j) 0 (835) (1,440)
Write off of
available for
sale
securities...... 0 0 0 0 1,350 0 0 1,350 0
Interest
expense......... 7,302 6,850 (108)(b) 14,406 31,385 (1,871)(k) (16,764)(m) 61,154 16,927
-- -- (5,922)(c) -- -- (319)(l) 32,375 (n) -- --
-- -- 5,938 (d) -- -- -- 1,264 (o) -- --
-- -- 346 (e) -- -- -- 678 (p) -- --
-------- ------- ------- -------- -------- ------- -------- -------- --------
Income (loss)
before minority
interests and
taxes............ 14,517 2,479 (518) 16,478 (5,780) 755 (17,533) (6,100) (4,301)
Minority
interests....... (3) 0 0 (3) 1,404 0 0 1,401 1,404
Income tax
expense
(benefit)....... 5,850 1,464 (102)(f) 7,212 (1,935) 825 (f) (7,021) (919) 1,552
-------- ------- ------- -------- -------- ------- -------- -------- --------
Income (loss)
before
extraordinary
item............. $ 8,670 $ 1,015 $ (416) $ 9,269 $ (5,249) $ (70) $(10,532) $ (6,582) $ (7,257)
======== ======= ======= ======== ======== ======= ======== ======== ========
Dividend
requirements on
convertible
preferred stock.. $ 1,520
Loss before
extraordinary
item allocated to
common
shareholders..... $ (8,102)
Per common share:
Loss before
extraordinary
item--basic..... $ (0.37)
Loss before
extraordinary
item--diluted... $ (0.37)
Number of
shares--basic... 22,010
Number of
shares--
diluted......... 22,340
Pro Forma
Combined
Consolidated
Restricted
Group
------------
Revenues:
Gaming.......... $361,547
Racing.......... 68,844
Food and
beverage........ 30,165
Hotel and
recreational
vehicle park.... 3,456
Truck stop and
service
station......... 15,203
Other income.... 20,365
------------
499,580
------------
Expenses:
Gaming.......... 206,874
Racing.......... 30,304
Food and
beverage........ 38,452
Hotel and
recreational
vehicle park.... 1,524
Truck stop and
service
station......... 14,015
Administration.. 107,266
--
Other........... 10,962
REIT
restructuring... 2,483
Hollywood
Park/Boomtown
merger costs.... 1,487
Depreciation and
amortization.... 41,830
------------
455,197
------------
Operating income
(loss)........... 44,383
Loss (gain) on
sale of assets.. 605
Write off of
available for
sale
securities...... 1,350
Interest
expense......... 44,227
--
--
--
------------
Income (loss)
before minority
interests and
taxes............ (1,799)
Minority
interests....... (3)
Income tax
expense
(benefit)....... (2,471)
------------
Income (loss)
before
extraordinary
item............. $ 675
============
Dividend
requirements on
convertible
preferred stock..
Loss before
extraordinary
item allocated to
common
shareholders.....
Per common share:
Loss before
extraordinary
item--basic.....
Loss before
extraordinary
item--diluted...
Number of
shares--basic...
Number of
shares--
diluted.........
25
HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 1998
Pro Forma
Adjustments Pro Forma
---------------------- Combined
Hollywood Casino Casino Issuance Pro Forma Elimination of Consolidated
Park, Magic Magic Corp. of the Combined Unrestricted Restricted
Inc. Corp. Acquisition Notes Consolidated Group Group
--------- -------- ----------- -------- ------------ -------------- ------------
(in thousands, except per share data)
Revenues:
Gaming................ $173,552 $210,889 $ 0 $ 0 $384,441 $96,096 $288,345
Racing................ 48,085 0 0 0 48,085 0 48,085
Food and beverage..... 21,245 7,739 0 0 28,984 2,805 26,179
Hotel and recreational
vehicle park......... 1,362 3,196 0 0 4,558 0 4,558
Truck stop and service
station.............. 11,071 0 0 0 11,071 0 11,071
Other income.......... 13,434 4,602 0 0 18,036 1,214 16,822
-------- -------- ------- -------- -------- ------- --------
268,749 226,426 0 0 495,175 100,115 395,060
-------- -------- ------- -------- -------- ------- --------
Expenses:
Gaming................ 93,920 124,133 0 0 218,053 54,635 163,418
Racing................ 21,244 0 0 0 21,244 0 21,244
Food and beverage..... 27,601 8,587 0 0 36,188 3,303 32,885
Hotel and recreational
vehicle park......... 499 1,367 0 0 1,866 0 1,866
Truck stop and service
station.............. 10,164 0 0 0 10,164 0 10,164
Administration........ 62,678 40,291 (874)(g) 0 101,952 16,264 85,688
-- -- (143)(h) -- -- -- --
Other................. 5,586 2,099 0 0 7,685 0 7,685
Hollywood Park/Casino
Magic merger......... 0 4,838 0 0 4,838 1,754 3,084
Depreciation and
amortization......... 19,874 16,355 981 (i) 0 37,210 5,895 31,315
-------- -------- ------- -------- -------- ------- --------
241,566 197,670 (36) 0 439,200 81,851 357,349
-------- -------- ------- -------- -------- ------- --------
Operating income........ 27,183 28,756 36 0 55,975 18,264 37,711
Loss on write off of
assets............... 1,586 29 0 0 1,615 0 1,615
Interest expense...... 11,827 24,340 (1,403)(k) (11,748)(m) 46,749 12,631 34,118
-- -- (239)(l) 24,281 (n) -- -- --
-- -- -- 948 (o) -- -- --
-- -- -- 509 (p) -- -- --
-- -- -- (1,766)(q) -- -- --
-------- -------- ------- -------- -------- ------- --------
Income (loss) before
minority
interests and taxes.... 13,770 4,387 1,678 (12,224) 7,611 5,633 1,978
Minority interests...... 0 1,082 0 0 1,082 1,082 0
Income tax expense
(benefit).............. 4,903 1,453 1,064 (f) (4,890) 2,530 1,549 981
-------- -------- ------- -------- -------- ------- --------
Income (loss) before
extraordinary items.... $ 8,867 $ 1,852 $ 614 $ (7,334) $ 3,999 $ 3,002 $ 997
======== ======== ======= ======== ======== ======= ========
Per common share:
Income before
extraordinary item--
basic................ $ 0.15
Income before
extraordinary item--
diluted.............. $ 0.15
Number of shares--
basic................ 26,115
Number of shares--
diluted.............. 26,277
26
HOLLYWOOD PARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF OPERATIONS
Assumptions The unaudited pro forma combined consolidated statements of
operations for the year ended December 31, 1997 and the nine months ended
September 30, 1998, were prepared as if the following had taken place on
January 1, 1997: (1) the acquisition of Boomtown, including Boomtown's sale of
its Las Vegas property, the early retirement of the Boomtown first mortgage
notes; (2) the issuance of the 9 1/2% Notes; (3) the acquisition of Casino
Magic, including the redemption of $135 million principal amount of Casino
Magic's 11 1/2% First Mortgage Notes; (4) the issuance of the Notes; and (5)
the consent fee paid to holders of the 9 1/2% Notes in the consent
solicitation.
Pro Forma Adjustments The following adjustments have been made to the
unaudited pro forma combined consolidated statements of operations:
(a) To record six months of amortization of the approximately $20.5 million of
Boomtown excess purchase price over net assets acquired. This goodwill is
being amortized over 40 years.
(b) To eliminate the amortization of the discount associated with the Boomtown
first mortgage notes that were redeemed just subsequent to the close of the
June 30, 1997 acquisition.
(c) To eliminate the interest expense associated with the Boomtown first
mortgage notes that were redeemed just subsequent to the June 30, 1997
acquisition.
(d) To record the interest expense associated with the 9 1/2% Notes.
(e) To amortize the approximately $4.0 million of up-front loan fees associated
with the bank credit facility Hollywood Park executed in conjunction with
the acquisition of Boomtown.
(f) To record the tax expense or benefit associated with the net of the pro
forma adjustments, after adding back the amortization of goodwill (when
appropriate), which is not deductible for income tax purposes.
(g) To eliminate the compensation expense associated with three Casino Magic
corporate level executives who resigned and will not be replaced.
(h) To eliminate Casino Magic's directors fees and expenses. Casino Magic's
board was dissolved at the close of the acquisition.
(i) To amortize the approximately $52.3 million of Casino Magic excess purchase
price over net assets acquired. This goodwill will be amortized over 40
years.
(j) To eliminate the gain Casino Magic recorded upon selling a riverboat to
Hollywood Park.
(k) To record the amortization of the premium associated with the purchase
accounting write-up of the Casino Magic of Louisiana, Corp. $115 million
principal amount of 13% First Mortgage Notes to their fair market value at
the date of the Casino Magic acquisition. This premium will be amortized
over the remaining 59 months that these 13% First Mortgage Notes are
scheduled to be outstanding.
(l) To eliminate the interest expense associated with approximately $2.1
million principal amount of the Casino Magic of Louisiana, Corp. 13% First
Mortgage Notes tendered upon the required change in control offer, leaving
the Casino Magic of Louisiana, Corp. 13% First Mortgage Notes at a
principal balance of $112.9 million.
(m) To eliminate the interest expense associated with the $135 million
principal amount of Casino Magic 11 1/2% First Mortgage Notes that were
called on October 15, 1998.
(n) To record the interest expense associated with the Notes.
(o) To amortize the assumed debt issuance costs associated with the Notes.
(p) To amortize the assumed costs associated with modifying the indenture
governing the 9 1/2% Notes pursuant to the consent solicitation.
(q) To eliminate the interest expense associated with $40 million of borrowings
under the Bank Credit Facility repaid from the proceeds of the offering of
the Old Notes.
27
HOLLYWOOD PARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF OPERATIONS--(Continued)
Reclassifications Certain reclassifications have been made to the Casino
Magic historical consolidated statements of operations to conform to the pro
forma combined consolidated statements of operations presentation.
Extraordinary Item The pro forma statement of operations for the year ended
December 31, 1997, excludes the extraordinary loss of $14.2 million (or
approximately $8.4 million, net of tax effect) related to the early retirement
of the Boomtown first mortgage notes. The approximate cost for the tender and
consent and the write off of debt issuance costs was $9.0 million and $5.2
million, respectively.
28
HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
As of September 30, 1998
Pro Forma Adjustments Pro Forma
-------------------------- Combined
Hollywood Casino Pro Forma Elimination of Consolidated
Park, Casino Magic Corp. Issuance of Combined Unrestricted Restricted
Inc. Magic Corp. Acquisition the Notes Consolidated Group Group
--------- ----------- ----------- ----------- ------------ -------------- ------------
ASSETS
------
Current Assets:
Cash and cash
equivalents........... $ 20,126 $ 26,809 $(12,480)(a) $70,382(k) $104,837 $ 7,481 $ 97,356
Restricted cash........ 798 85 0 0 883 0 883
Short term
investments........... 3,459 0 0 0 3,459 1,599 1,860
Other receivables,
net................... 7,061 2,792 609 (b) 0 10,462 640 9,822
Prepaid expenses and
other assets.......... 15,884 4,627 0 0 20,511 838 19,673
Deferred tax assets.... 10,250 0 6,974 (c) 0 17,224 0 17,224
Current portion of
notes receivable...... 2,340 0 0 0 2,340 0 2,340
-------- -------- -------- ------- -------- -------- --------
Total current assets... 59,918 34,313 (4,897) 70,382 159,716 10,558 149,158
Notes receivable....... 18,250 0 0 0 18,250 0 18,250
Property, plant and
equipment, net........ 301,125 290,070 (7,131)(d) 0 584,064 90,363 493,701
Land held for sale or
development........... 0 6,146 0 0 6,146 0 6,146
Foreign casino
concession agreement,
net................... 0 7,828 0 0 7,828 7,828 0
Debt related costs,
net................... 4,840 9,306 (1,617)(e) 16,894(l) 29,423 4,106 25,317
Gaming license costs,
net................... 0 36,847 0 0 36,847 36,847 0
Goodwill, net.......... 50,341 0 52,331 (f) 0 102,672 0 102,672
Other assets........... 18,445 3,027 0 0 21,472 1,054 20,418
-------- -------- -------- ------- -------- -------- --------
$452,919 $387,537 $ 38,686 $87,276 $966,418 $150,756 $815,662
======== ======== ======== ======= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
---------------------
Current Liabilities:
Accounts payable....... $ 8,848 $ 13,201 $ 0 $ 0 $ 22,049 $ 6,469 $ 15,580
Accrued compensation... 7,620 9,605 0 0 17,225 3,420 13,805
Accrued liabilities.... 26,986 14,048 10,251 (g) 0 51,285 5,101 46,184
Accrued interest....... 2,642 9,468 (5,643)(h) (109)(m) 6,358 3,540 2,818
Gaming liabilities..... 3,698 1,786 0 0 5,484 737 4,747
Racing liabilities..... 263 0 0 0 263 0 263
Current portion of
notes payable......... 2,058 8,021 0 0 10,079 3,607 6,472
-------- -------- -------- ------- -------- -------- --------
Total current
liabilities........... 52,115 56,129 4,608 (109) 112,743 22,874 89,869
Notes payable.......... 168,574 260,907 96,283 (i) 87,385 (n) 613,149 113,533 499,616
Deferred tax
liabilities........... 6,606 1,065 0 0 7,671 4,050 3,621
Other liabilities...... 0 3,649 0 0 3,649 0 3,649
-------- -------- -------- ------- -------- -------- --------
Total liabilities...... 227,295 321,750 100,891 82,276 737,212 140,457 596,755
Minority interests..... 0 3,582 0 0 3,582 3,582 0
Stockholders' Equity:
Capital stock--
Preferred.............. 0 0 0 0 0 0 0
Common................. 2,580 357 (357)(j) 0 2,580 1 2,579
Capital in excess of
par value............. 218,023 67,123 (67,123)(j) 0 218,023 0 218,023
Retained earnings
(accumulated
deficit).............. 5,338 (5,275) 5,275 (j) 0 5,338 6,716 (1,378)
Accumulated other
comprehensive income
(loss)................ (317) 0 0 0 (317) 0 (317)
-------- -------- -------- ------- -------- -------- --------
Total stockholders'
equity................ 225,624 62,205 (62,205) 0 225,624 6,717 218,907
-------- -------- -------- ------- -------- -------- --------
$452,919 $387,537 $ 38,686 $87,276 $966,418 $150,756 $815,662
======== ======== ======== ======= ======== ======== ========
29
HOLLYWOOD PARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED
BALANCE SHEET
Assumptions The acquisition of Casino Magic was accounted for under the
purchase method of accounting for a business combination. The unaudited
combined consolidated balance sheet is presented as if the following had taken
place as of September 30, 1998: (1) the acquisition of Casino Magic, including
the redemption of $135 million principal amount of Casino Magic's 11 1/2% First
Mortgage Notes; (2) the issuance of the Notes; and (3) the consent fee paid to
holders of the 9 1/2% Notes in the consent solicitation.
Pro Forma Adjustments The following pro forma adjustments have been made to
the unaudited pro forma combined consolidated balance sheet:
(a) To record the net reduction in cash associated with the acquisition of
Casino Magic, the redemption of $135 million principal amount of the Casino
Magic 11 1/2% First Mortgage Notes, and the redemption of $2.1 million
principal amount of Casino Magic of Louisiana, Corp. 13% First Mortgage
Notes.
(b) To record the estimated interest receivable earned on the funds deposited
to retire $135 million principal amount of the Casino Magic 11 1/2% First
Mortgage Notes.
(c) To record the estimated 40% deferred tax asset associated with Casino
Magic's purchase accounting adjustments of approximately $17.4 million.
(d) To record Casino Magic's purchase accounting adjustment to write down
certain property and equipment to its fair market value.
(e) To eliminate the prepaid debt issuance costs associated with redemption of
$135 million principal amount of the Casino Magic 11 1/2% First Mortgage
Notes and $2.1 million principal amount of the Casino Magic of Louisiana,
Corp. 13% First Mortgage Notes, and to record debt issuance costs on the
Hollywood Park's bank borrowings incurred to acquire Casino Magic.
(f) To record the goodwill associated with the acquisition of Casino Magic.
(g) To record Casino Magic purchase accounting adjustments of $2.3 million, and
to accrue for Casino Magic's transaction and other costs of $8.0 million.
(h) To record interest payable associated with the redemption of $135 million
principal amount of Casino Magic's 11 1/2% First Mortgage Notes on October
15, 1998.
(i) To record the net increase in Hollywood Park's bank debt of $81.1 million
incurred to acquire Casino Magic, $141.5 to redeem $135 million principal
amount of the Casino Magic 11 1/2% First Mortgage Notes, and $2.1 million
principal amount of the Casino Magic of Louisiana, Corp. 13% First Mortgage
Notes tendered in the change of control offer. To record the purchase
accounting adjustment of $9.2 million, to record the Casino Magic of
Louisiana, Corp. 13% First Mortgage Notes at their fair market value, and
to record the write off of the balance of the original issued discount of
$1.6 million, associated with the $135 million principal amount of the
Casino Magic 11 1/2% First Mortgage Notes.
(j) To eliminate Casino Magic's equity accounts.
(k) To record the net cash proceeds of the offering of the Notes.
(l) To record the assumed debt issuance costs associated with the offering of
the Notes, and the costs associated with modifying the indenture governing
the 9 1/2% Notes pursuant to the consent solicitation.
(m) To eliminate the accrued interest payable on the Hollywood Park bank debt
repaid with the proceeds from the Old Notes offering.
(n) To record the net increase in debt in connection with the offering of the
Old Notes.
Reclassifications Certain reclassifications have been made to both the
Hollywood Park and the Casino Magic historical consolidated balance sheets to
conform to the pro forma combined consolidated balance sheet presentation.
30
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The following selected historical financial information of Hollywood Park
and Casino Magic has been derived from their respective historical financial
statements and should be read in conjunction with such consolidated financial
statements and the notes thereto included herein. The Hollywood Park and Casino
Magic historical financial statement data as of and for the nine months ended
September 30, 1998 and 1997 has been prepared on the same basis as the
historical information derived from the audited financial statements and, in
the opinion of management, contains all adjustments, consisting only of normal
recurring accruals, necessary for the fair presentation of the results of
operations for such periods and financial positions as of such dates.
The selected unaudited pro forma financial data is derived from the
Unaudited Pro Forma Combined Consolidated Financial Statements, appearing
elsewhere in this prospectus, which give effect to the acquisition of Casino
Magic as a purchase, shown also as adjusted to reflect the issuance of the
Notes and the application of the proceeds therefrom, and should be read in
conjunction with such pro forma statements and the notes thereto.
Certain amounts from the Hollywood Park and Casino Magic Historical Selected
Financial Data have been reclassified to conform with the selected presentation
hereto.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred had the acquisition of Casino Magic been consummated in an
earlier period, nor is it necessarily indicative of future operating results or
financial position.
31
HOLLYWOOD PARK, INC.
SELECTED HISTORICAL FINANCIAL DATA
Nine months ended
Years ended December 31, September 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997(a) 1997 1998
-------- -------- -------- -------- -------- -------- --------
(unaudited)
(in thousands, except per share data and
ratios)
Statement of operations
data:
Revenues:
Gaming................. $ 0 $ 11,745 $ 26,656 $ 50,717 $137,659 $ 83,990 $173,552
Racing................. 63,850 78,719 77,036 71,308 68,844 48,084 48,085
Food and beverage...... 10,908 20,540 19,783 13,947 19,894 13,016 21,245
Other.................. 4,227 6,320 7,097 7,253 21,731 13,259 25,867
-------- -------- -------- -------- -------- -------- --------
78,985 117,324 130,572 143,225 248,128 158,349 268,749
-------- -------- -------- -------- -------- -------- --------
Expenses:
Gaming................. 0 0 5,291 27,249 74,733 45,117 93,920
Racing................. 20,860 23,393 30,960 30,167 30,304 21,615 21,244
Food and beverage...... 9,400 21,852 24,749 19,573 25,745 16,920 27,601
Administrative and
other................. 32,538 51,151 48,647 43,962 74,887 46,544 78,458
Depreciation and
amortization.......... 6,402 9,563 11,384 10,695 18,157 11,939 19,874
Non-recurring
expenses.............. 850 2,964 6,088 11,412 2,483 609 469
-------- -------- -------- -------- -------- -------- --------
70,050 108,923 127,119 143,058 226,309 142,744 241,566
-------- -------- -------- -------- -------- -------- --------
Operating income....... 8,935 8,401 3,453 167 21,819 15,605 27,183
Loss on write off of
assets................ 0 0 0 0 0 0 1,586
Interest expense....... 1,517 3,061 3,922 942 7,302 3,782 11,827
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
minority interests.... 7,418 5,340 (469) (775) 14,517 11,823 13,770
Minority interests..... 0 0 0 15 (3) 80 0
Income tax expense
(benefit)............. 1,025 1,568 693 3,459 5,850 4,624 4,903
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 6,393 $ 3,772 $ (1,162) $ (4,249) $ 8,670 $ 7,119 $ 8,867
======== ======== ======== ======== ======== ======== ========
Dividend requirements
on convertible
preferred stock....... $ 1,718 $ 1,925 $ 1,925 $ 1,925 $ 1,520 $ 1,520 $ 0
Net income (loss)
attributable to
(allocated to) common
shareholders.......... $ 4,675 $ 1,847 $ (3,087) $ (6,174) $ 7,150 $ 5,599 $ 8,867
======== ======== ======== ======== ======== ======== ========
Per common share:
Net income (loss)--
basic................. $ 0.30 $ 0.10 $ (0.17) $ (0.33) $ 0.33 $ 0.27 $ 0.34
Net income (loss)--
diluted............... $ 0.30 $ 0.10 $ (0.17) $ (0.33) $ 0.32 $ 0.27 $ 0.34
Number of common
shares--basic......... 15,418 18,224 18,399 18,505 22,010 20,596 26,115
Number of common
shares--diluted....... 17,465 20,516 20,691 20,797 22,340 20,596 26,277
Other data:
Cash flows provided by
(used in):
Operating activities... $ 13,280 $ (7,287) $ 20,291 $ 13,677 $ 18,454 $ 6,059 $ 14,790
Investing activities... (32,677) (7,331) (32,922) (19,893) (16,236) (5,884) (49,140)
Financing activities... 74,391 (8,877) (2,085) (4,268) 9,609 9,910 30,727
Capital expenditures... 12,902 27,584 25,150 23,786 32,505 (23,059) (34,981)
Ratio of earnings to
fixed charges(b)...... 5.89x 2.74x -- -- 2.74x 3.86x 2.00x
Balance sheet data:
Total assets........... $176,424 $246,573 $283,303 $205,886 $419,029 $413,379 $452,919
Other liabilities...... 21,876 36,518 101,928 47,444 65,573 61,741 58,721
Long term obligations.. 348 42,800 15,629 282 132,102 132,163 168,574
Stockholders' equity... 154,200 167,255 165,746 158,160 221,354 219,475 225,624
Operating income
(loss)................. $ 8,935 $ 8,401 $ 3,453 $ 167 $ 21,819 $ 15,605 $ 27,183
Add back depreciation
and amortization....... 6,402 9,563 11,384 10,695 18,157 11,939 19,874
-------- -------- -------- -------- -------- -------- --------
EBITDA................. 15,337 17,964 14,837 10,862 39,976 27,544 47,057
Add back:
Casino pre-opening and
training expenses..... 850 2,337 0 0 0 0 0
Turf Paradise
acquisition costs..... 0 627 0 0 0 0 0
Lawsuit settlement..... 0 0 6,088 0 0 0 0
Write off of investment
in a business......... 0 0 0 11,412 0 0 0
REIT restructuring..... 0 0 0 0 2,483 609 469
-------- -------- -------- -------- -------- -------- --------
Adjusted EBITDA........ $ 16,187 $ 20,928 $ 20,925 $ 22,274 $ 42,459 $ 28,153 $ 47,526
======== ======== ======== ======== ======== ======== ========
- -------
Management believes that the following calculation of EBITDA and Adjusted
EBITDA are relevant to the note holders:
EBITDA is not a measure of financial performance under GAAP, but is used by
some investors to determine our ability to service or incur indebtedness.
EBITDA and Adjusted EBITDA are not calculated by all entities in the same
fashion and accordingly, may not be an appropriate measure of our performance.
Neither EBITDA nor Adjusted EBITDA should be considered in isolation from, or
as a substitute for, net income (loss), cash flows from operations, or cash
flow data prepared in accordance with GAAP.
(a) Inclusive of Boomtown's financial results as of the June 30, 1997,
acquisition forward.
(b) In computing the ratio of earnings to fixed charges: (1) earnings were
calculated from income from continuing operations, before income taxes and
fixed charges, and excluding capitalized interest; and (2) fixed charges
were computed from interest expense, amortization of debt issuance costs,
capitalized interest, and the estimated interest included in rental
expense. For the years ended December 31, 1995 and 1996, earnings were
insufficient to cover fixed charges by $1.1 million and $2.2 million,
respectively.
32
CASINO MAGIC CORP.
SELECTED HISTORICAL FINANCIAL DATA
Nine months ended
Years ended December 31, September 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(unaudited)
(in thousands, except per share data and
ratios)
Statement of operations
data:
Revenues:
Casino................. $195,899 $178,337 $165,998 $167,153 $246,320 $186,411 $210,889
Food, beverage and
rooms................. 5,697 5,625 8,393 8,080 10,785 8,496 10,687
Royalty and management
fees.................. 0 0 2,224 3,100 0 0 0
Other.................. 808 1,056 1,108 1,945 4,369 3,327 3,813
-------- -------- -------- -------- -------- -------- --------
202,404 185,018 177,723 180,278 261,474 198,234 225,389
-------- -------- -------- -------- -------- -------- --------
Expenses:
Casino................. 66,142 73,213 69,655 74,943 118,467 88,899 100,673
Food and beverage and
rooms................. 7,309 6,610 8,020 8,391 11,396 8,874 10,389
Advertising and
marketing............. 17,457 25,097 25,874 20,902 36,427 28,517 26,593
Administrative and
other................. 35,096 42,474 38,206 40,448 49,820 38,124 38,083
Hollywood Park/Casino
Magic merger costs.... 0 0 0 0 0 0 4,838
Development............ 2,521 10,244 2,228 1,850 562 512 431
Depreciation and
amortization.......... 6,357 10,669 15,769 18,346 20,247 15,259 16,058
Non-recurring
expenses.............. 2,114 5,479 13,201 6,555 0 0 0
-------- -------- -------- -------- -------- -------- --------
136,996 173,786 172,953 171,435 236,919 180,185 197,065
-------- -------- -------- -------- -------- -------- --------
Operating income....... 65,408 11,232 4,770 8,843 24,555 18,049 28,324
Loss from
unconsolidated
subsidiary............ 0 408 112 26,502 505 405 349
Write off of
capitalized costs..... (3) 107 2,415 689 (1,555) (2,823) 155
Interest expense....... 5,680 13,935 15,766 17,917 31,385 23,704 23,433
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
minority interests.... 59,731 (3,218) (13,523) (36,265) (5,780) (3,237) 4,387
Minority interests..... 0 0 0 0 1,404 917 1,453
Income tax expense
(benefit)............. 21,225 (188) (3,231) (4,676) (1,935) (1,935) 1,082
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 38,506 $ (3,030) $(10,292) $(31,589) $ (5,249) $ (2,219) $ 1,852
Per common share:
Net income (loss)--
basic................. $ 1.32 $ (0.10) $ (0.31) $ (0.89) $ (0.15) $ (0.06) $ 0.05
Net income (loss)--
diluted............... $ 1.32 $ (0.11) $ (0.31) $ (0.89) $ (0.15) $ (0.06) $ 0.05
Number of common
shares--basic......... 29,079 28,934 33,261 35,448 35,663 35,643 35,722
Number of common
shares--diluted....... 29,088 27,314 33,261 35,448 35,663 35,643 35,722
Other data:
Cash flows provided by
(used in):
Operating activities... $ 54,077 $ 17,906 $ 15,348 $ 24,126 $ 23,781 $ 18,085 $ 23,192
Investing activities... (87,589) (56,470) (10,533) (86,778) (31,219) (9,017) (22,691)
Financing activities... 67,643 16,445 5,454 66,442 (6,122) (6,117) 3,807
Capital expenditures... (54,859) (27,445) (11,396) (67,850) (37,177) (28,996) (33,789)
Ratio of earnings to
fixed charges(a)...... 8.23x 0.74x 0.20x --x 0.74x 1.58x 1.02x
Balance sheet data:
Total assets........... $222,892 $252,623 $268,431 $369,800 $372,705 $368,118 $387,538
Other liabilities...... 24,050 37,404 36,412 47,914 59,780 52,995 64,426
Long term obligations.. 131,984 135,643 136,840 258,261 253,471 253,484 260,907
Stockholders' equity... 66,858 79,576 95,179 63,625 59,454 61,639 62,205
Operating income
(loss)................. $ 65,408 $ 11,232 $ 4,770 $ 8,843 $ 24,555 $ 18,049 $ 28,324
Add back depreciation
and amortization....... 6,357 10,669 15,769 18,346 20,247 15,259 16,058
-------- -------- -------- -------- -------- -------- --------
EBITDA................. 71,765 21,901 20,539 27,189 44,802 33,308 44,382
Add back:
Pre-opening costs...... 2,114 0 1,819 6,555 0 0 0
Abandoned project
costs................. 0 5,479 11,382 0 0 0 0
Hollywood Park/Casino
Magic merger.......... 0 0 0 0 0 0 4,838
-------- -------- -------- -------- -------- -------- --------
Adjusted EBITDA........ $ 73,879 $ 27,380 $ 33,740 $ 33,744 $ 44,802 $ 33,308 $ 49,220
======== ======== ======== ======== ======== ======== ========
- --------
Management believes that the following calculation of EBITDA and Adjusted
EBITDA are relevant to note holders:
EBITDA is not a measure of financial performance under GAAP, but is used by
some investors to determine a company's ability to service or incur
indebtedness. EBITDA and Adjusted EBITDA are not calculated by all entities in
the same fashion and accordingly, may not be an appropriate measure of
performance. Neither EBITDA nor Adjusted EBITDA should be considered in
isolation from, or as a substitute for, net income (loss), cash flows from
operations, or cash flow data prepared in accordance with GAAP.
(a) In computing the ratio of earnings to fixed charges: (1) earnings were
calculated from income from continuing operations, before income taxes and
fixed charges, and excluding capitalized interest; and (2) fixed charges
were computed from interest expense, amortization of debt issuance costs,
capitalized interest, and the estimated interest included in rental
expense. Casino Magic's ratio of earnings to fixed charges were
insufficient to cover fixed charges by $4.5 million in 1994, $14.4 million
in 1995, $42.0 million in 1996, $9.1 million in 1997, and $5.3 million for
the nine months ended September 30, 1997.
33
HOLLYWOOD PARK, INC.
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
Total Company Pro Forma Restricted Group Pro Forma
-------------------------- --------------------------
Nine months Nine months
Year ended ended Year ended ended
December 31, September 30, December 31, September 30,
1997 1998 1997 1998
------------ ------------- ------------ -------------
(in thousands, except per share data and ratios)
Statement of operations
data:
Revenues:
Gaming................. $467,328 $384,441 $361,547 $288,345
Racing................. 68,844 48,085 68,844 48,085
Food and beverage...... 34,229 28,984 30,165 26,179
Other.................. 40,430 33,665 39,024 32,451
-------- -------- -------- --------
610,831 495,175 499,580 395,060
-------- -------- -------- --------
Expenses:
Gaming................. 273,504 218,053 206,874 163,418
Racing................. 30,304 21,244 30,304 21,244
Food and beverage...... 43,085 36,188 38,452 32,885
Administrative and
other................. 155,397 121,667 133,767 105,403
Depreciation and
amortization.......... 49,002 37,210 41,830 31,315
Non-recurring
expenses.............. 3,970 4,838 3,970 3,084
-------- -------- -------- --------
555,262 439,200 455,197 357,349
-------- -------- -------- --------
Operating income....... 55,569 55,975 44,383 37,711
(Gain)loss on write off
of assets............. (835) 1,615 605 1,615
Write off of available
for sale securities... 1,350 0 1,350 0
Interest expense....... 61,154 46,749 44,227 34,118
-------- -------- -------- --------
Income (loss) before
income taxes and
minority interests..... (6,100) 7,611 (1,799) 1,978
Minority interests...... 1,401 1,082 (3) 0
Income tax expense
(benefit).............. (919) 2,530 (2,471) 981
-------- -------- -------- --------
Net income (loss)....... $ (6,582) $ 3,999 $ 675 $ 997
======== ======== ======== ========
Dividend requirements on
convertible preferred
stock.................. $ 1,520 $ 0 $ 1,520 $ 0
Net income (loss)
attributable to
(allocated to) common
shareholders........... $ (8,102) $ 3,999 $ (845) $ 997
======== ======== ======== ========
Other data:
Ratio of Adjusted
EBITDA to interest
expense............... 1.77x 2.10x 2.04x 2.11x
Ratio of earnings to
fixed charges (a)..... 0.85x 1.06x 0.91x 0.97x
Balance sheet data:
Total assets........... -- $966,418 -- $815,662
Other liabilities...... -- 127,645 -- 97,139
Long term obligations.. -- 613,149 -- 499,616
Stockholders' equity... -- 225,624 -- 218,907
Operating income
(loss)................. $ 55,569 $ 55,975 $ 44,383 $ 37,711
Add back depreciation
and amortization....... 49,002 37,210 41,830 31,315
-------- -------- -------- --------
EBITDA................. 104,571 93,185 86,213 69,026
Add back:
REIT restructuring..... 2,483 0 2,483 0
Hollywood Park/Boomtown
merger costs.......... 1,487 0 1,487 0
Hollywood Park/Casino
Magic merger costs.... 0 4,838 0 3,084
-------- -------- -------- --------
Adjusted EBITDA........ $108,541 $ 98,023 $ 90,183 $ 72,110
======== ======== ======== ========
- --------
Management believes that the following calculation of EBITDA and Adjusted
EBITDA are relevant to the noteholders:
(a) Hollywood Park's total company pro forma earnings for the year ended
December 31, 1997, were not sufficient to cover its pro forma fixed charge
requirement by $9.9 million. Hollywood Park's restricted group pro forma
earnings for the year ended December 31, 1997, and for the nine months
ended September 30, 1998, were not sufficient to cover its pro forma fixed
charge requirements by $4.1 million and $1.1 million, respectively.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial
statements, including the related notes, and the other financial information
appearing elsewhere in this prospectus, as well as the risks described in the
"Risk Factors" section. This discussion reflects the historical operations of
Hollywood Park and Casino Magic which, prior to the Casino Magic acquisition,
had operated separately. Results of operations of the acquired businesses,
Casino Magic and Boomtown, are included in the consolidated financial
statements for periods after the relevant acquisition date. As such, our
results of operations for the year ended December 31, 1997 are not comparable
to our results of operations for the year ended December 31, 1996, and our
results for the nine months ended September 30, 1998 are not comparable to the
nine months ended September 30, 1997.
History of Hollywood Park
Our predecessor, the Hollywood Park Turf Club, was organized in 1938 and
incorporated in Delaware in 1981. Historically, our operations focused on
thoroughbred racing facilities, principally at the Hollywood Park Race Track,
located in the Los Angeles metropolitan area. The Hollywood Park Race Track
remains one of the premier thoroughbred racing facilities in the United States.
Since 1991, we have expanded our gaming operations beyond the single
thoroughbred racing operation to become a diversified gaming company with
operations in many jurisdictions. We significantly expanded our casino
operations with the June 30, 1997 acquisition of Boomtown and its three
casinos, and the October 15, 1998 acquisition of Casino Magic and its five
casinos. The following is an overview of our gaming properties:
Gaming Excess
Type of Square Slot Table Hotel Developable
Location/Property Gaming Facility Footage Machines Games Rooms Land (acres)
- ----------------- ------------------ ------- -------- ----- ----- ------------
Bossier City, Louisiana
Casino Magic Bossier(1).. Dockside Riverboat 30,000 980 44 188 --
Harvey, Louisiana
Boomtown New Orleans..... Cruising Riverboat 30,000 1,089 49 -- --
Bay St. Louis, Mississippi
Casino Magic Bay
St. Louis................ Dockside 39,500 1,132 42 201 50
Biloxi, Mississippi
Boomtown Biloxi.......... Dockside 33,632 1,308 35 -- --
Casino Magic Biloxi...... Dockside 47,700 1,174 41 378 --
Verdi, Nevada
Boomtown Reno............ Land-based 40,000 1,320 44 322 250
Los Angeles, California
Hollywood Park Race
Track................... Horse Racing -- -- -- -- 160
Hollywood Park-Casino.... Card Club 30,000 -- 145 -- --
Crystal Park(2).......... Card Club 30,000 -- 60 226 --
Phoenix, Arizona
Turf Paradise............ Horse Racing -- -- -- -- 100
Neuquen Province,
Argentina(3) Casino Magic
Neuquen.................. Land-based 27,000 398 40 -- --
Casino Magic San Martin
de los Andes............ Land-based 2,500 75 16 -- --
------- ----- --- ----- ---
SUBTOTAL................ 310,332 7,476 516 1,315 560
Development Project
- -------------------
Switzerland County,
Indiana
Indiana Hotel/Casino
Resort(4)................ Cruising Riverboat 38,000 1,300 55 309 --
------- ----- --- ----- ---
TOTAL................... 348,332 8,776 571 1,624 560
======= ===== === ===== ===
35
- --------
(1) Casino Magic Bossier is owned by our wholly-owned subsidiary, Casino Magic
of Louisiana, Corp., which is an unrestricted subsidiary under the
Indenture governing the Notes and does not guarantee the Notes.
(2) We own Crystal Park and lease it to an unaffiliated operator.
(3) We own 51% of Casino Magic's Neuquen Province casinos.
(4) We own 97% of the Indiana Hotel/Casino Resort, which we expect to complete
within 18 to 24 months.
Results of Operations
The following discussion relates to historical results of operations for
Hollywood Park (excluding Casino Magic) and for Casino Magic separately.
Hollywood Park
For periods before June 30, 1997, Hollywood Park's financial results
consisted primarily of gaming revenues from the Hollywood Park Race Track, Turf
Paradise, Hollywood Park-Casino, and lease payments from the operator of
Crystal Park. For periods after June 30, 1997, when Hollywood Park acquired
Boomtown, Hollywood Park's financial results also included those of Boomtown.
Hollywood Park's acquisition of Boomtown was accounted for under the purchase
method of accounting for a business combination.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended
September 30, 1997
Results of operations for the nine months ended September 30, 1998 included
the results of operations of Boomtown, which was acquired by Hollywood Park on
June 30, 1997, and accounted for under the purchase method of accounting for a
business combination. As required under the rules of purchase accounting,
Boomtown's results of operations, prior to the acquisition, were not combined
with those of Hollywood Park, and therefore, the results of operations for the
nine months ended September 30, 1997 did not include Boomtown's results of
operations for the first two quarters of 1997, accounting for significant
differences when comparing the results of operations for the nine months ended
September 30, 1998 to the nine months ended September 30, 1997.
Total revenues increased by approximately $110,400,000, or 69.7%, for the
nine months ended September 30, 1998, as compared to the nine months ended
September 30, 1997. Included in the revenues for the 1998 period was
approximately $110,454,000 of revenues attributable to Boomtown through June
1998, for which there are no corresponding revenues in the 1997 period. Gaming
revenues increased by approximately $89,562,000, or 106.6% for the nine-month
period, with approximately $90,989,000 attributable to the inclusion of
Boomtown results through June 1998 with no corresponding Boomtown revenues in
the first six months of the 1997 period, netted against gaming revenue declines
of approximately $3,364,000 at the Hollywood Park-Casino primarily a result of
the ban on indoor smoking and recent economic problems in various Asian
countries (a significant portion of Hollywood Park-Casino's patrons are Asian).
Gaming revenues also declined by approximately $1,152,000 at the Crystal Park
Casino, which in 1998 was leased to a new operator with lower rent to allow
time to grow the business. The prior operator defaulted on the lease. As of
July 1, 1998, rent payable to the Company on the Crystal Park facility was
scheduled to increase to $350,000 per month, but the Company has agreed to
accept rent of $150,000 per month through January 1999. In present market
conditions, it is expected that the rent will remain between $100,000 and
$150,000 rather than increase as scheduled in the lease.
Food and beverage revenues increased by approximately $8,229,000, or 63.2%
for the nine-month period, due primarily to the inclusion of Boomtown revenues
of $7,031,000 through June 1998 with no corresponding Boomtown revenues in the
first six months of 1997, with the balance of the increase attributable to
increased
36
sales at the three Boomtown properties due to the opening of new food service
outlets. Hotel and recreational vehicle park revenues (all of which were
attributable to Boomtown Reno) increased by $781,000, or 134.4%, due to there
being just three months of revenues in the 1997 amounts compared to nine months
of revenues in the 1998 results. Truck stop and service station revenues (all
of which were attributable to Boomtown Reno) increased by $6,174,000 for the
nine-month period, or 126.1%, due primarily to the inclusion of $6,546,000 of
revenues through June 1998 with no corresponding revenues in the first six
months of 1997, netted against a revenue decrease due to price competition in
the Reno market. Other income increased by $5,653,000, or 72.7%, for the nine-
month period, due to the inclusion of $5,163,000 of Boomtown revenues through
June 1998 with no corresponding revenues in the first six months of 1997, and
increased revenues associated with Boomtown New Orleans' Great Escape arcade,
which opened in July 1998.
Total operating expenses increased by $98,822,000, or 69.2%, during the nine
months ended September 30, 1998, as compared to the nine months ended September
30, 1997, due in part to the inclusion of approximately $96,966,000 of Boomtown
operating expenses through June 1998 for which there are no corresponding
amounts in the operating expenses for the first six months of 1997. Gaming
expenses increased by $48,803,000, or 108.2%, for the nine-month period,
primarily due to the inclusion of $49,855,000 of Boomtown expenses through June
1998 and no corresponding expenses in the 1997 period, netted against
$1,461,000 of expense savings at the Hollywood Park-Casino, a corresponding
result of the decrease in revenues.
Food and beverage expenses increased by $10,681,000, or 63.1%, for the nine-
month period, due in part to the inclusion of $8,593,000 of Boomtown expenses
through June 1998 with no corresponding expenses in the 1997 period, and cost
increases at the Boomtown properties in relation to increased food and beverage
sales, due to the opening of new food service outlets. Hotel and recreational
vehicle park expenses (all of which were attributable to Boomtown Reno)
increased by $300,000, or 150.8%, for the nine-month period, due to the
inclusion of $287,000 of expenses through June 1998 for which there are no
corresponding expenses in 1997. Truck stop and service station expenses (all of
which were attributable to Boomtown Reno) increased by $5,703,000, or 127.8%,
for the nine-month period, due primarily to the inclusion of $5,987,000 of
expenses through June 1998 with no corresponding expenses in the 1997 period,
netted against fuel cost decreases during 1998.
Administrative expenses increased by $23,587,000, or 61.1%, for the nine-
month period, due primarily to the inclusion of $22,829,000 of Boomtown
expenses through June 1998, with the balance of the increase primarily due to
additional staffing at the Hollywood Park corporate level and other expansion
related expense increases. Other expenses increased by $2,324,000, or 71.2%,
for the nine-month period, and included Boomtown costs through June 1998 of
$2,280,000 for which there are no corresponding costs in the 1997 results.
Depreciation and amortization increased by $7,935,000, or 66.5%, for the nine-
month period, with $7,165,000 of the increase attributable to the inclusion of
Boomtown expenses through June 1998 with no corresponding expenses in the 1997
period, with the balance of the increase due to Boomtown New Orleans' February
1998 placement of the new riverboat into service and the July 1998 opening of
the land-based Great Escape arcade and restaurant. Loss on write off of assets
related to the closing of the Hollywood Park Golf Center, and the associated
$1,086,000 write off of the Hollywood Park Golf Center assets, and the write
off of $500,000 related to an abandoned project in Kansas. Interest expense
increased by $8,045,000, or 212.7%, due to interest on the 9 1/2% Notes, which
were issued in August 1997, and interest on bank borrowings. Income tax expense
increased by $279,000, or 6.0%, due to increased pre-tax income in 1998 and
certain non-recurring tax benefits recorded in 1998.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
As mentioned above, Boomtown's results of operations are not consolidated
with those of Hollywood Park's prior to June 30, 1997. As of April 1, 1996, the
results of operations of Sunflower Racing, Inc., a former subsidiary of the
Company, were no longer consolidated with Hollywood Park's results. Thus, the
results of operations for the year ended December 31, 1997 are exclusive of
Sunflower's results of operations, but the
37
financial results for the year ended December 31, 1996 included Sunflower's
results of operations through March 31, 1996. Also included in the results of
operations for the year ended December 31, 1996 was the $11,412,000 one time,
non-cash write off of Hollywood Park's investment in Sunflower. See the
discussion in the following section for information on Sunflower.
Total revenues for the year ended December 31, 1997, increased by
$104,903,000 or 73.2%, as compared to the year ended December 31, 1996,
primarily due to the inclusion of $105,781,000 of Boomtown revenues in 1997,
with no corresponding revenues recorded in 1996. Gaming revenues increased by
$86,942,000, or 171.4%, due primarily to Boomtown gaming revenues of
$84,620,000, and Crystal Park rent revenues of $2,222,000, in 1997, with no
corresponding Boomtown revenues in 1996. Crystal Park opened in late October
1996. As of December 19, 1997, Hollywood Park had leased Crystal Park to
California Casino Management, Inc., an unaffiliated third party. Previously,
Crystal Park was under lease to Compton Entertainment, Inc. On November 4,
1997, Hollywood Park obtained a judgment in an action for unlawful detainer
against Compton Entertainment, due to Compton Entertainment's failure to pay a
portion of the June 1997 rent and to make required additional rent payments. In
October 1997, the California Attorney General revoked Compton Entertainment's
conditional gaming registration, and the City of Compton revoked Compton
Entertainment's city gaming license.
Gaming revenues from racing decreased by $2,464,000, or 3.5%, due primarily
to one fewer live race day at the Hollywood Park Race Track, and the inclusion
of $1,317,000 of revenues from racing attributable to Sunflower in 1996, with
no corresponding Sunflower revenues in 1997.
Food and beverage revenues increased by $5,947,000, or 42.6%, due primarily
to the inclusion of Boomtown food and beverage revenues in 1997, with no
corresponding revenues in 1996. Hotel and recreational vehicle park and truck
stop and service station revenues related to Boomtown Reno, and there are no
corresponding revenues in 1996. Other income increased by $4,908,000, or 67.7%,
due primarily to the inclusion of Boomtown revenues in 1997 with no
corresponding revenues in 1996.
Total operating expenses (inclusive of approximately $93,072,000 of Boomtown
expenses in 1997, with no corresponding expenses in 1996) increased by
$83,251,000, or 58.2%, during the year ended December 31, 1997, as compared to
the year ended December 31, 1996. Gaming expenses increased by $47,484,000, or
174.3%, primarily due to the inclusion of Boomtown expenses of $46,380,000, and
increased tournament costs at the Hollywood Park-Casino.
Food and beverage expenses increased by $6,172,000, or 31.5%, due primarily
to Boomtown food and beverage expenses of $7,510,000, netted against expense
reductions at the Hollywood Park-Casino, that included labor savings due to the
closing of some food service outlets. Hotel and recreational vehicle park
expenses and truck stop and service station expenses related to Boomtown Reno,
and there are no corresponding expenses in 1996.
Administrative expenses increased by $20,037,000, or 48.3%, which included
$22,054,000 of Boomtown expenses, netted against Sunflower related
administrative costs included in the 1996 financial results, for which there
are no similar costs in the 1997 results. Other expenses increased by
$2,563,000, or 103.1%, due primarily to the inclusion of Boomtown expenses in
1997 with no corresponding expenses in 1996. Depreciation and amortization
increased by $7,462,000, or 69.8%, primarily due to the Boomtown and Crystal
Park LLC depreciation expense in 1997, with no corresponding expenses in 1996.
REIT restructuring expenses consisted primarily of legal and tax consulting
expenses incurred by Hollywood Park with respect to the preparation of
reinstatement of Hollywood Park's paired share REIT status, which was not
implemented. Interest expense increased by $6,360,000, due to interest on
Hollywood Park's $125,000,000 in principal amount of 9 1/2% Senior Subordinated
Notes that were issued in August 1997, short term bank borrowings (all of which
had been repaid as of December 31, 1997), and bank commitment fees. Income tax
expense increased by $2,391,000, or 69.1%, due to increased income before
income taxes in 1997 as compared to 1996.
38
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
The results of operations for the year ended December 31, 1996 included the
results of Hollywood Park operating all aspects of the Hollywood Park-Casino,
including the Casino gaming floors. Hollywood Park acquired the Hollywood Park-
Casino gaming floor business from Pacific Casino Management on November 17,
1995; therefore, the results of operations for the year ended December 31, 1995
do not include the operating results of the Hollywood Park-Casino gaming floor
business prior to November 17, 1995 but rather are reflective of the lease
arrangement then in place. The results of operations for the year ended
December 31, 1996 included Sunflower's results of operations for the three
months ended March 31, 1996, only. As of March 31, 1996, Sunflower's results of
operations were no longer consolidated with Hollywood Park's due to Sunflower's
May 17, 1996 filing for reorganization under Chapter 11 of the Bankruptcy Code.
Sunflower's results of operations are consolidated in the financial statements
for the year ended December 31, 1995.
Total revenues increased by $12,653,000, or 9.7%, for the year ended
December 31, 1996, as compared to the year ended December 31,1995, primarily
due to Hollywood Park-Casino gaming revenues. Gaming revenues of $50,717,000
were generated from the Hollywood Park-Casino gaming activities, which
Hollywood Park acquired from Pacific Casino Management on November 17, 1995.
During the year ended December 31,1995, Hollywood Park recorded $20,624,000 of
lease revenues, $6,032,000 of gaming revenues (covering the period November 17,
1995, through December 31,1995), and concession sales to Pacific Casino
Management of approximately $2,773,000, or total 1995 Hollywood Park-Casino
gaming and lease related revenues of $29,429,000. On October 25, 1996, Crystal
Park opened under a triple net lease between Hollywood Park and Compton
Entertainment (the operator of Crystal Park). Racing revenues decreased by
$5,728,000, or 7.4%, primarily due to the exclusion of Sunflower's gaming
revenues from racing for the nine months ended December 31, 1996. Food and
beverage sales decreased by $5,836,000, or 29.5%, with approximately $2,773,000
of the difference attributable to the inclusion of sales to Pacific Casino
Management in 1995 with no corresponding sales in 1996, approximately
$2,414,000 of the difference due to the inclusion of a full year of food and
beverage sales recorded for Sunflower in 1995 and just three months of
Sunflower sales recorded in 1996, and the balance of the difference primarily
due to lower on-track attendance at Hollywood Park.
Total operating expenses increased by $15,939,000, or 12.5%, for the year
ended December 31, 1996, compared to the year ended December 31, 1995,
primarily due to the inclusion of $27,249,000 of Hollywood Park-Casino gaming
floor expenses (with corresponding gaming floor expenses of $5,291,000 in 1995)
which more than offset a $7,476,000 reduction in expenses arising from the
exclusion in 1996 of Sunflower's expenses. Food and beverage expenses decreased
by $5,176,000, or 20.9%, with $2,089,000 of the savings attributable to the
exclusion of Sunflower's expenses subsequent to the first quarter of 1996, and
the balance of the savings primarily attributable to cost savings programs
implemented at the Hollywood Park-Casino. Administrative expenses decreased by
$3,970,000, or 8.7%, due to the inclusion of a full year of Sunflower expenses
in 1995 and just three months of corresponding costs recorded in 1996.
Included in the 1996 results of operations was the $11,412,000 one time,
non-cash write off of Hollywood Park's investment in Sunflower. On May 2, 1996,
the Kansas Legislature adjourned without passing legislation that would have
allowed additional gaming at Sunflower, thereby allowing Sunflower to compete
with Missouri riverboat gaming. On May 17, 1996, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code. Sunflower's case has
been converted to a Chapter 7 liquidation under the Bankruptcy Code and final
sale of the property occurred in December 1998.
Included in the 1995 results of operations was $6,088,000 of expenses (with
no corresponding expenses in 1996) related to the settlement of certain claims
in connection with a shareholder class action and related shareholder
derivative suit, as more fully described in the Company's 1996 Annual Report on
Form 10-K.
Depreciation and amortization expenses decreased by $689,000, or 6.1%,
primarily due to the exclusion of Sunflower's expenses for the nine months
ended December 31, 1996, netted against the amortization of the
39
goodwill associated with the November 17, 1995, acquisition of Pacific Casino
Management. Interest expense decreased by $2,980,000, or 76.0%, due to the
exclusion of Sunflower's interest expense for the nine months ended December
31, 1996.
Income tax expense increased by $2,766,000, due primarily to the
establishment of certain tax reserves.
Casino Magic
Casino Magic commenced operations on the Mississippi Gulf Coast in
September 1992 at Casino Magic Bay St. Louis. In 1993, Casino Magic opened
Casino Magic Biloxi. In 1995, Casino Magic opened two gaming facilities in the
Province of Neuquen, Argentina and, in 1997, Casino Magic sold 49% of its
Argentina subsidiary. In 1996, Casino Magic opened Casino Magic Bossier.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended
September 30, 1997
Consolidated revenues increased $27.2 million, or 13.7%, to $225.4 million
in the first nine months of 1998, compared to $198.2 million in the first nine
months of 1997. The increase in consolidated revenues was attributable to
increased revenues at all five casinos. The largest individual increase of
$15.4 million, or 22.5%, between the comparable periods, occurred at Casino
Magic Bossier. The increase at Casino Magic Bossier was attributable to
improved marketing efforts drawing more patrons to the property. Revenues at
Casino Magic Biloxi increased $9.0 million, or 18.6%, between the comparable
periods. Casino Magic Argentina's revenues increased $2.4 million, or 17.8%,
between the comparable periods. The increase resulted from the continuing
improvements in slot machine revenues due to an increase in the number of slot
machines.
Operating costs and expenses increased $16.9 million, or 9.4%, to $197.1
million in the first nine months of 1998 as compared to $180.2 million in the
first nine months of 1997. Casino expenses increased by $11.8 million, or
13.2%, due to increases in gaming taxes related to increased gaming revenues,
increased personnel costs related to the increased gaming volume and an
increase in slot point redemption values. Advertising and marketing costs
declined $1.9 million, to $26.6 million in the first nine months of 1998,
compared to $28.5 million in the first nine months of 1997. During the first
nine months of 1997 Casino Magic Bossier attempted to increase market share
and revenue with expensive promotions which were significantly less successful
than anticipated. In May 1997, the promotional programs of Casino Magic
Bossier were significantly reduced. Operating expenses for the nine months
ended September 30, 1998 include approximately $4.8 million of costs related
to the merger with Hollywood Park. These costs primarily related to conforming
accounting policies of Casino Magic with those of Hollywood Park.
Other (income) expense (non-operating income and expenses) increased to a
net expense of $23.9 million in the first nine months of 1998 as compared to
$21.3 million in the first nine months of 1997. In 1997 there was a non-
recurring net $2.6 million gain on sale of assets which included a $1.4
million gain on the sale of a riverboat to Hollywood Park, and a $1.3 million
gain on the sale of 49% of Casino Magic Argentina, netted against losses on
the sale of miscellaneous gaming and other equipment.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Consolidated revenues increased $81.2 million, or 45.0%, to $261.5 million
in 1997 compared to $180.3 million in 1996. The increase in 1997 consolidated
revenues is attributable to $93.2 million in revenues from Casino Magic's new
facility, Casino Magic Bossier, which opened on October 4, 1996.
Casino Magic Bossier revenues increased by $80.5 million in 1997 as compared
to 1996. This increase in revenues is the result of the facility opening in
late 1996 using a temporary facility and the completion of the permanent land
based pavilion, including restaurants, a gift shop and entertainment areas, on
December 31, 1996. Casino Magic Biloxi revenues declined $1.6 million, or
2.5%, from 1996 to 1997. This decline is primarily the result of competition
from other casinos with greater amenities than Casino Magic Biloxi. While
competitive pressures will likely continue to adversely affect Casino Magic
Biloxi's revenues and operating
40
margins, management believes that the hotel completed in May 1998 at Casino
Magic Biloxi will help offset or reverse these declines in revenues.
Additionally, Casino Magic Biloxi may experience reduced revenues in 1998 due
to customer inconveniences, particularly those related to the construction of
the hotel entrance areas. However, management has taken precautions to minimize
the impact of the construction on the customer and will continue to do so.
Other fluctuations in revenues when comparing the periods ended December 31,
1997 to December 31, 1996 include: the loss of $3.1 million in royalties and
management fees from Greece in 1997 due to the termination of operations in
Greece in December 1996; loss of $0.8 million in revenues as a result of the
sale of Goldiggers in June 1996; revenues at Casino Magic Bay St. Louis
increased $4.5 million as the result of increased direct mail efforts and
improved amenities, which include a golf course and expanded buffet; and an
increase in revenues at Casino Magic Argentina of $1.7 million attributable to
the addition of seventy-five slot machines during the latter half of 1997 and
the continued popularity of slot machines at Casino Magic Argentina.
Total operating expenses increased $65.5 million, or 38.2%, to $236.9
million in 1997 compared to $171.4 million in 1996. Of this increase, $67.4
million is related to Casino Magic Bossier, which opened in October 1996 and
the closure of Goldiggers in June 1996, which decreased operating expenses, by
$1.2 million. Excluding the effects of Casino Magic Bossier and Goldiggers,
operating expenses in 1997 decreased by $0.7 million, or 0.5%, as compared to
operating expenses in 1996. Although total operating expenses remained flat
between the comparable periods for 1997 and 1996, there were significant
fluctuations in various categories. Casino expenses increased by $4.0 million
in 1997 as compared to 1996 as a result of increased expenses associated with
increases in player's club slot point redemption values, the increased use of
complimentaries in marketing efforts and increased gaming taxes due to
increased revenues. Other operating costs and expenses increased by $1.0
million as a result of the opening of a golf course at Casino Magic Bay St.
Louis in February 1997. Advertising and marketing expenses increased by $2.3
million due to increased motorcoach based marketing efforts at Casino Magic
Biloxi and the associated commission and giveaways expenses. The increases in
advertising and marketing expenses resulted from attempts to stabilize revenues
in Biloxi and offset the effects of the disruption caused by the hotel
construction. General and administrative expenses decreased by $2.7 million as
a result of efforts to contain expenses and staff reductions. The majority of
this decrease, $2.3 million, was at the corporate management level. Development
expenses decreased by $1.2 million as a result of decreased efforts to pursue
new gaming opportunities. Depreciation expenses decreased by $1.9 million due
to the sale of various assets held by Casino Magic including a jet airplane and
slot machines that were previously leased in Argentina. It is anticipated that
depreciation expense will increase after the opening of the hotel in Biloxi.
Consolidated "Other (income) expense" (non-operating income and expenses)
improved by $14.8 million, to a net expense of $30.3 million in 1997, compared
to a net expense of $45.1 million in 1996. Approximately $27.0 million of the
additional expenses in 1996 were attributable to management's decision to write
off its 49% equity interest in a gaming facility in Porto Carras, Greece. Net
interest expense increased by $13.5 million in 1997 compared to the same period
in 1996. This was due to the increased debt from the issuance of the
$115,000,000 principal amount of 13% Louisiana First Mortgage Notes by Casino
Magic of Louisiana, Corp. (a wholly-owned subsidiary of Casino Magic) in late
August 1996, and a reduction of $3.7 million in capitalized interest due to the
completion of the Casino Magic Bossier facility and the golf course at Casino
Magic Bay St. Louis. Other income increased by $2.3 million in 1997 compared to
the same period in 1996 due to a gain on the sale of the Crescent City
Riverboat and the gain on the sale of a 49% interest in Casino Magic Argentina.
Casino Magic's effective tax rates for 1997 and 1996 of approximately (26.9%)
and (12.9%), respectively, are the result of an allowance against deferred tax
assets. This allowance reduces net deferred tax assets to approximately zero.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Consolidated revenues increased $2.6 million, or 1.4%, to $180.3 million in
1996 compared to $177.7 million in 1995. The increase in 1996 consolidated
revenues is attributable to $12.7 million in revenues
41
from Casino Magic Bossier, which opened using a temporary facility on October
4, 1996, and increased revenues from Casino Magic Argentina of $2.8 million, or
21.4%. The majority of the increase in revenues at Casino Magic Argentina
resulted from the increase in slot machine revenues of $3.4 million. Slot
machine revenues increased in 1996 compared to the same period in 1995 due to
an increase in the number of slot machines at Casino Magic Argentina from 89 to
400 in May 1995. The rest of the increase resulted from increased customer
counts and their influence on food and beverage revenues. These increases in
revenues at Casino Magic Argentina were partially offset by lower revenues from
table games. These increases in consolidated revenues were offset by lower
revenues at Casino Magic Bay St. Louis, Casino Magic Biloxi, and the loss of
approximately six months of revenues from the sale of a gaming facility in
Deadwood, South Dakota, which Casino Magic sold in June 1996. Casino Magic
Biloxi revenues declined $8.9 million, or 12.2%, from 1995 to 1996. This
decline was primarily the result of adjacent hotel/casino operations on both
sides of Casino Magic Biloxi that offer significantly greater amenities than
Casino Magic Biloxi. While competitive pressures will likely continue to
adversely affect Casino Magic Biloxi's revenues and operating margins,
management believes that the hotel completed in May 1998 at Casino Magic Biloxi
will help offset or reverse these declines in revenues. The combination of
construction disruption caused by the development of a new buffet and kitchen
and increased overall competition in the Gulf Coast and New Orleans markets,
both of which Casino Magic Bay St. Louis competes in, caused the $3.6 million,
or 4.1%, decline in revenues at Casino Magic Bay St. Louis. The loss of $1.4
million in corporate and other revenues is due to the sale of a gaming facility
located in Deadwood, South Dakota in June 1996. Although royalty and management
fee revenues increased by $0.9 million, or 39.3%, to $3.1 million in 1996,
Casino Magic has divested itself of all operations in Greece during 1996 where
the majority of all royalties and management fee revenues were generated.
Total operating costs and expenses were down $1.5 million, or 1.0%, in 1996
compared to 1995. Casino expenses increased $5.3 million, or 7.6%, during the
same period principally as a result of the opening of a new gaming facility in
Bossier City, Louisiana, which had $7.1 million in casino expenses in 1996.
This increase in casino expenses relating to Casino Magic Bossier was offset by
reduced expenses at Casino Magic Biloxi as a result of reduced revenues, and
the sale of Casino Magic's gaming facility at Deadwood, South Dakota in June
1996. Food and beverage costs increased $0.6 million, or 8.1%, as a result of
increased customer traffic at Casino Magic Argentina. Casino Magic Argentina
relies on its food and beverage facilities at the casino to promote casino
operations. Other operating costs and expenses increased $1.5 million, or
110.5%, to $2.8 million in 1996 compared to 1995. This increase was the result
of additions to amenities at Casino Magic Bay St. Louis, and the transfer of
the gift shop operations at Casino Magic Bay St. Louis and Casino Magic Biloxi
from a third party to Casino Magic. During 1996, Casino Magic Bay St. Louis
added amenities relating to the Arnold Palmer-designed golf course, such as the
pro shop, the Arnold Palmer Golf Academy and the groundskeeping department. In
addition, Casino Magic Bay St. Louis began operating a child-care facility for
casino patrons in 1996. Advertising and marketing expenses decreased by $5.0
million, or 19.2%, in 1996 as compared to 1995. This decrease was due to
several factors: a reduction in the use of air charters to attract customers;
the use of more cost efficient promotions concerning give-aways through the
Magic Money Players Club Card; and an overall reduction in marketing and
advertising costs during 1996. This decrease was offset by the opening of
Casino Magic's new facility, Casino Magic Bossier, in October 1996.
General and administrative expenses decreased $4.3 million, or 15.0%, in
1996 as compared to the same period of 1995. The decline resulted from cost
reduction measures implemented in early 1996, including the elimination of
several corporate officer positions. Property operation, maintenance and energy
costs increased by $3.4 million, or 83.2%, in 1996 as compared to 1995 as a
result of the addition of Casino Magic Bossier, the continued aging of the
facilities at Casino Magic Bay St. Louis and Casino Magic Biloxi which required
more maintenance in 1996, and the addition of the golf facility at Casino Magic
Bay St. Louis in 1996. Rents, property taxes and insurance costs increased by
$1.7 million, or 38.9%, in 1996 as compared to 1995. The increase was in part a
result of the addition of Casino Magic Bossier. Depreciation and amortization
increased $2.6 million, or 16.3%, in 1996 as compared to the same period in
1995. This increase resulted from the
42
addition of tangible depreciable property, the amortization of the investment
costs in excess of equity interest in the 49% owned Greek gaming facility which
was amortized for 105 days in 1995 and for nine months in 1996, and a change in
1996 in the method used to amortize Casino Magic's land option deposits over
the life of the option. During 1996, management wrote-off the excess of equity
interest in the Greek gaming facility. Furthermore, the addition of Casino
Magic Bossier increased depreciation expense, while the divesting of Casino
Magic's gaming facility in Deadwood, South Dakota, decreased depreciation
expense. Preopening costs increased by $4.7 million, or 260.0%, in 1996 from
1995. This was a result of the opening of Casino Magic Bossier in October
1996. In 1995, Casino Magic opened the Greek gaming facility in which it had a
49% ownership.
Consolidated other (income) expense (non-operating income and expenses)
increased $26.8 million from a net expense of $18.3 million to a net expense of
$45.1 million over the comparative periods. Of this increase, $26.1 million was
due to Casino Magic's decision to write off its 49% equity interest in the
Greek gaming facility. Management's decision was based on the results from
Casino Magic's Greek gaming facilities after the opening of a competing casino
by Hyatt Corporation. Although Casino Magic anticipated some revenue loss as a
result of this increased competition, the actual effects were greater than
anticipated and resulted in a $2.0 million loss in operations at the Greek
gaming facility for the month of September 1996. Net interest expense (interest
expense less capitalized interest and interest income) increased $2.1 million
from 1995 to 1996. The increase reflects the cost of funding the development of
Casino Magic Bossier. In August 1996, the Company, through a wholly-owned
subsidiary, issued $115 million in first mortgage notes to fund Casino Magic
Bossier. In 1995, Casino Magic expensed capitalized costs relating to
development joint ventures in the amount of $2.2 million. In 1996, no such
expense was incurred. Casino Magic's effective tax rate for 1996 of
approximately (13.0%) resulted from an allowance against deferred tax assets of
approximately $8.2 million. This valuation allowance was recorded in
recognition of the Company's recent operating results. The effective tax rate
for 1995 of (24.0%) was due to significant permanent tax differences.
Year 2000 Issues
We are actively evaluating and resolving any potential impact of the Year
2000 problem on the processing of date-sensitive information by our information
systems, and the information systems of vendors upon whom we are dependent. The
Year 2000 problem exists because computer systems and applications were
historically designed to use two digit fields (rather than four) to designate a
year, and date sensitive systems may not properly recognize year 2000, which
could result in miscalculations or system failures. We have established a Year
2000 project team to evaluate the impact of the problem on our computer systems
and on enterprises with which we have significant business relationships. The
team, which is comprised of individuals from each business unit and each
corporate function, meets monthly to identify potential Year 2000 issues and to
develop and implement plans to fix any non-compliant aspects of our system.
Internal Computer Systems. We believe that our various financial reporting
software and associated hardware are Year 2000 compatible. We have become aware
that point of sale cash register systems, personal computer networks, and
gaming patron player tracking systems will need to be upgraded or replaced. We
are currently in the process of procuring and installing hardware and software
to make the necessary repairs to all affected internal systems.
External Computer Systems. We have sent Year 2000 compliance questionnaires
to all of our significant external goods and service providers. To date, other
than with respect to pari-mutuel wagering software and hardware, we are not
aware of any potential Year 2000 problems that would have a material effect on
us. We lease pari-mutuel wagering software and associated hardware. Our service
providers of this software and hardware have given us written assurance that
such software and hardware will be Year 2000 compatible by March 1999. We do
not have alternative systems to handle our pari-mutuel wagering. If such
service providers are unable to timely overcome any potential Year 2000 issues,
it would have a materially adverse effect on our racing operations.
43
Estimated Cost of Year 2000 Compliance Efforts. We estimate that the total
cost of addressing our Year 2000 issues will be approximately $2,000,000. This
cost estimate is based on numerous assumptions, including the assumptions that
we have already identified our most significant Year 2000 issues and that our
third party suppliers will timely complete their Year 2000 programs without
cost to us. However, there can be no guarantee that these assumptions are
accurate, and actual results could differ materially from those anticipated.
Liquidity and Capital Resources
Hollywood Park's principal source of liquidity as of September 30, 1998,
excluding Casino Magic, was cash and cash equivalents of $20,126,000. Cash and
cash equivalents decreased by $3,623,000 during the nine months ended September
30, 1998. Net cash of $14,790,000 was provided by operating activities. Net
cash of $49,140,000 was used in investing activities. Cash of $33,375,000 was
used to purchase capital assets, including amounts spent for the Boomtown Reno
and Boomtown New Orleans construction projects. Cash of $8,012,000 was lent in
connection with the HP Yakama project. Cash of $3,232,000 was lent to Paul
Alanis, the Company's new President and Chief Operating Officer, for which the
Company holds a promissory note. Cash was used for short term investing (for
the purchase of Casino Magic common stock), and the Company, through its
wholly-owned subsidiary HP Casino, Inc., used cash of $1,946,000 to acquire the
remaining minority interest in Crystal Park. Net cash provided by financing
activities was $30,727,000, which included short term borrowings of $40,000,000
under the Company's Bank Credit Facility.
On October 14, 1998, the Company executed the Bank Credit Facility with a
group of banks with Bank of America NT&SA as Administrative Agent for up to
$300,000,000, with an option to increase this amount to $375,000,000. The Bank
Credit Facility also provides for sub-facilities for letters of credit of up to
$30,000,000, and swing line loans of up to $10,000,000. Prior to the execution
of the Bank Credit Facility, the Company was operating with a bank credit
facility (the "Old Bank Credit Facility") which was initially for $225,000,000,
and was reduced to $100,000,000 with the August 1997 issuance of the 9 1/2%
Notes. The Bank Credit Facility extended the maturity of the Old Bank Credit
Facility to December 31, 2003, reduced interest and commitment fee rates, and
amended certain covenants, as compared to the previous Old Bank Credit
Facility.
As of September 30, 1998, the Company had outstanding borrowings under the
Old Bank Credit Facility of $40,000,000 at a weighted average interest rate of
7.79%. On October 13, 1998, the Company borrowed an additional $5,000,000 under
the Old Bank Credit Facility. On October 15, 1998, the Company borrowed
$225,000,000 under the Bank Credit Facility with respect to the acquisition of
Casino Magic. The funds were utilized as follows: approximately $80,900,000 to
purchase Casino Magic's outstanding common stock; $141,515,000 to redeem Casino
Magic's 11 1/2% First Mortgage Notes due October 15, 2001 (the "Casino Magic
Notes"); and $2,125,000 to purchase the 13% First Mortgage Notes due 2003
issued by Casino Magic of Louisiana, Corp. tendered in the change of control
offer made in connection with the acquisition of Casino Magic. The Company
borrowed $5,000,000 on January 7, 1999, $5,000,000 on January 28, 1999 and
$7,000,000 on February 8, 1999 under the Bank Credit Facility for general
corporate purposes.
Under the Bank Credit Facility, the Company is not required to make any
principal payments prior to March 31, 2001, but must make monthly interest
payments. Starting March 31, 2001, and on the last day of each subsequent
calendar quarter, through December 31, 2002, the amount available under the
Bank Credit Facility will decrease by $15,000,000, and on the last day of each
calendar quarter for the period March 31, 2003, through September 30, 2003, it
will decrease by $25,000,000, with the balance of any principal outstanding due
on December 31, 2003. If the Bank Credit Facility has been increased, then the
amount of the reduction will increase proportionately. If the Company has
borrowings in excess of the reduced availability of the Bank Credit Facility,
these amounts are due on the same day as the scheduled reductions.
The annual interest rate under the Bank Credit Facility is determined, at
the Company's election, by reference to the "Eurodollar Rate" (for Eurodollar
loans) (for interest periods of one, two, three or six months) or the
"Alternate Base Rate" (for Base Rate loans), as these terms are defined in the
Bank Credit Facility, plus
44
margins that vary depending on the Company's ratio of funded debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"). With a funded
debt to EBITDA ratio of less than 2.00 to 1.00, the margin for Eurodollar loans
is 1.00% and nothing for Base Rate loans. The margin for each type of loan will
increase by 25 basis points (except the initial increase in the margin for Base
Rate loans, which increases by 12.5 basis points) for each 50 basis point
increase in the funded debt to EBITDA ratio. The maximum margin for Eurodollar
loans is 2.25%, and for Base Rate loans is 1.125%. The margin for the period
October 15, 1998, through November 30, 1998, for Eurodollar loans was 2.00% and
0.875% for Base Rate loans. Effective December 1, 1998 through February 28,
1999, the margins are 2.25% and 1.125% for Eurodollar and Base Rate loans,
respectively. After giving effect to this offering, the margins would continue
to be 2.25% and 1.125% for Eurodollar and Base Rate loans, respectively.
The Bank Credit Facility requires the payment of a quarterly commitment fee,
based on the Company's ratio of funded debt to EBITDA, applied to the average
amount of the unused portion of the Bank Credit Facility. The commitment fee
starts at 25 basis points when the ratio of funded debt to EBITDA is less than
2.00 to 1.00, and increases by 6.25 basis points for the first two increases in
the ratio of 50 basis points, then remains unchanged for the next 50 basis
point increase in the ratio, and thereafter increases by 6.25 basis points for
each 50 basis points increase in the ratio, up to a maximum of 50 basis points.
The commitment fee for the period October 15, 1998 through November 30, 1998
was 43.75 basis points, and for the period December 1, 1998 through February
28, 1999 is 50 basis points. After giving effect to this offering, the
commitment fee would continue to be 50 basis points.
The Bank Credit Facility allows for interest rate swap agreements, or other
interest rate protection agreements, up to a maximum notional amount of
$300,000,000. Presently, the Company does not use such financial instruments.
The net proceeds of the Old Notes offering were first used to repay
borrowings under the Bank Credit Facility. We have used, and will continue to
use, the remaining proceeds for general corporate purposes, primarily for 1999
capital expenditures.
The Company has entered into an agreement to sell 12 acres of land at its
Phoenix, Arizona based Turf Paradise racing facility, for approximately
$4,574,000. The purchaser, a national retailer, intends to construct a major
retail outlet at the site. The sale is expected to be completed in the first
quarter of 1999.
On August 6, 1997, Hollywood Park and Hollywood Park Operating Company co-
issued $125,000,000 aggregate principal amount of 9 1/2% Notes. The Company
paid liquidated damages at an annual rate of 0.5% of the principal amount of
the 9 1/2% Notes for the period January 27, 1998 to March 20, 1998 (the date of
consummation of a registered exchange offer for the 9 1/2% Notes).
Hollywood Park, through its wholly-owned subsidiary HP Yakama, loaned
approximately $9,618,000 to the Yakama Tribal Corporation to construct the
Legends Casino. The Tribal Corporation gave HP Yakama a promissory note for the
$9,618,000, payable in 84 equal installments at a 10% rate of interest.
As of September 30, 1998, the Company had invested approximately $3,845,000
(net of an unrealized loss of approximately $386,000) in equity securities
(including Casino Magic common stock), which were being held as available-for-
sale. Effective upon the completion of the Casino Magic acquisition, those
shares of Casino Magic common stock held by Hollywood Park were cancelled.
In October 1993, a wholly-owned subsidiary of Casino Magic issued and sold,
and Casino Magic guaranteed, $135,000,000 aggregate principal amount of the
Casino Magic Notes. On October 15, 1998, concurrent with the completion of the
Casino Magic acquisition, Casino Magic elected to redeem the Casino Magic Notes
at the optional redemption price of 103.833% and therefore deposited
approximately $141,515,000 with the trustee of the Casino Magic Notes.
Effective with the deposit, Casino Magic and the issuer were discharged from
further obligations for the Casino Magic Notes. The deposit was from proceeds
from borrowings under the Bank Credit Facility.
45
In August 1996, Casino Magic of Louisiana, Corp., a wholly-owned subsidiary
of Casino Magic and the owner of Casino Magic Bossier, issued and sold
$115,000,000 aggregate principal amount of 13% First Mortgage Notes due August
15, 2003 (the "Louisiana Notes"). The Louisiana Notes provide for interest at
13% per year and for contingent interest in the amount of 5% of Casino Magic of
Louisiana's adjusted consolidated cash flow under certain circumstances. The
Louisiana Notes are secured by a first priority lien and security interest in
substantially all of the assets of Casino Magic of Louisiana, including the
Bossier Riverboat. Jefferson Casino Corporation, the immediate parent of Casino
Magic of Louisiana, guarantees the Louisiana Notes and the guarantee is secured
by all of the assets of Jefferson Casino Corporation, including all of the
capital stock of Casino Magic of Louisiana, Corp.
On November 13, 1998, due to the acquisition of Casino Magic by Hollywood
Park, Casino Magic of Louisiana, Corp. initiated a change in control purchase
offer at a price of $1,010 for each $1,000 principal amount of Louisiana Notes
outstanding. The change in control purchase offer expired December 23, 1998 and
$2,125,000 in principal amount of the Louisiana Notes were tendered.
As of September 30, 1998, Casino Magic and its subsidiaries (excluding
Casino Magic of Louisiana, Corp.) had other secured and unsecured debt
obligations as follows: (a) six secured notes aggregating approximately
$6,932,000, secured by certain furniture and fixtures at Casino Magic Biloxi,
with interest ranging from 9.5% to 10.3%, and maturity dates ranging from May
2002 to November 2002; (b) a note payable for approximately $2,727,000, secured
by land, bearing interest at prime, due March 2003; (c) an unsecured term note
payable for approximately $1,600,000, bearing interest at 8.25%, due September
1999; (d) an unsecured note payable for approximately $1,214,000, bearing
interest at prime rate plus 1% (9.5% as of September 30, 1998), due February
2000; (e) five other secured notes totaling approximately $1,236,000, with
interest rates ranging from 8.0% to 11.0%, and maturity dates ranging from
April 1999 to June 2004; and (f) various capital lease obligations, secured by
certain equipment, totaling approximately $630,000.
As of September 30, 1998, Casino Magic of Louisiana, Corp. had other secured
and unsecured debt obligations as follows: (a) a note payable for approximately
$1,540,000, secured by certain gaming equipment, bearing interest at 8.75%, due
September 1999; (b) a note payable for approximately $746,000, secured by
certain gaming equipment, bearing interest at 10.5%, due October 1999; (c) two
capital leases for slot machines aggregating $1,769,000; and (d) various other
capital lease obligations, totaling approximately $198,000.
Capital Commitments
As previously discussed, the Company was approved to receive a gaming
license to own and operate a riverboat casino in Indiana. As a result, the
Company has capital commitments of approximately $3,700,000 for the purchase of
the common stock of Pinnacle Gaming Development Corporation (the entity that
initially applied for the Indiana gaming license). The Indiana riverboat
project is expected to cost approximately $150,000,000 (including land and pre-
opening expenses but excluding capitalized interest), to be spent over the next
18 to 24 months. The Company believes that the Bank Credit Facility and
available future cash flow will be sufficient to fund the construction of the
Indiana Hotel/Casino Resort; however, there can be no assurance that additional
funds will not be required.
The Company anticipates spending approximately $26,000,000 in 1999 in
maintenance capital expenditures.
Expansion Costs
In addition to the current capital commitments discussed, Hollywood Park has
other capital needs with respect to Boomtown Reno and Casino Magic Bossier. As
of September 30, 1998, the Company had spent approximately $14,000,000 of the
estimated $25,000,000 on the expansion and renovation of Boomtown Reno,
including additional hotel rooms, expanded gaming space and other amenities.
The hotel opened in late December 1998. As of September 30, 1998, Casino Magic
had spent approximately $14,500,000 of the
46
estimated $21,000,000 on the construction of a 188-room hotel and full service
restaurants which opened in December 1998 at Casino Magic Bossier.
General
Hollywood Park is continually evaluating future growth opportunities in the
gaming business. Hollywood Park expects that funding for the Indiana
Hotel/Casino Resort, payment of interest on the Notes and the 9 1/2% Notes,
payment of notes payable, and normal and necessary capital expenditure needs
will come from existing cash balances generated from operating activities and
borrowings from the Bank Credit Facility. In the opinion of management, these
resources will be sufficient to meet Hollywood Park's anticipated cash
requirements for the foreseeable future and in any event for at least the next
twelve months.
47
BUSINESS
Hollywood Park
We are a diversified gaming company that owns and/or operates eight casinos,
two pari-mutuel horse racing facilities, and two card club casinos at twelve
locations in Nevada, Mississippi, Louisiana, California, Arizona and Argentina.
We have also been approved to receive the final license to conduct riverboat
gaming on the Ohio River in Indiana and have begun development of a $150
million hotel/casino and golf resort at a site in Switzerland County, Indiana,
35 miles southwest of Cincinnati, Ohio. In addition to our operating
properties, we have significant excess land available for future sale or
development at four of our properties.
In October 1998, we acquired Casino Magic and now own and operate Casino
Magic Bay St. Louis and Casino Magic Biloxi in Mississippi, Casino Magic
Bossier in Louisiana, and two Casino Magic casinos in Argentina. In 1997, we
acquired Boomtown and now own and operate Boomtown Reno in Verdi, Nevada,
Boomtown Biloxi in Biloxi, Mississippi, and Boomtown New Orleans in Harvey,
Louisiana. These companies own strategically located properties in growing and
established gaming markets and, at the time we acquired them, were for the most
part underperforming and had limited access to capital for expansion. In both
acquisitions, we have been able to use our financial and management resources
to streamline operations, implement expansion projects and enable the acquired
companies to refinance expensive debt.
Our two card club casinos in the Los Angeles metropolitan area, the
Hollywood Park-Casino and Crystal Park, offer a variety of card games,
including Poker, Pai Gow and California Blackjack, but by law may not
participate in the wagers made or the outcome of any card games, or offer other
games that are permitted in Nevada and other traditional jurisdictions. We own
and operate the Hollywood Park-Casino, and own and lease Crystal Park to an
unaffiliated third party operator.
Finally, we own and operate two pari-mutuel gaming facilities: Hollywood
Park Race Track, a premier thoroughbred racing facility located on a 378-acre
parcel within three miles of the Los Angeles International Airport, and Turf
Paradise Race Track in Phoenix, Arizona. Hollywood Park Race Track has been the
site of the prestigious Breeders' Cup on three occasions, the most recent in
1997.
In January 1999, we strengthened our gaming management team by hiring Paul
Alanis as our President and Chief Operating Officer and J. Michael Allen as
Senior Vice President-Gaming Operations. Both Mr. Alanis and Mr. Allen held
similar positions with Horseshoe Gaming Inc. Mr. Alanis and Mr. Allen were
hired to actively participate in the overall execution of our business and
operating strategies, including re-positioning the Boomtown and Casino Magic
properties and overseeing the construction and operations of the Indiana Hotel
and Casino Resort.
In light of the Boomtown and Casino Magic acquisitions, the following may be
helpful to give you an idea of the current size of our company. If the
acquisitions and related transactions had occurred on January 1, 1997 (which we
refer to as being on a "pro forma" basis), our revenues would have totaled
approximately $610.8 million for the year ended December 31, 1997 and
approximately $495.2 million for the nine months ended September 30, 1998. On a
pro forma basis, earnings before interest, taxes, depreciation and amortization
(abbreviated as "EBITDA") would have totaled approximately $104.6 million for
the year ended December 31, 1997 and approximately $93.2 million for the nine
months ended September 30, 1998. On this basis, and giving effect to the Old
Notes offering on a pro forma basis, net loss would have totaled $6.6 million
for the year ended December 31, 1997 and net income of approximately $4.0
million for the nine months ended September 30, 1998. In addition, on a pro
forma basis, as of September 30, 1998, we would have had total assets of
approximately $966.4 million. On a pro forma basis, giving effect to the Old
Notes offering, including our use of proceeds from that offering, we would have
had total indebtedness of approximately $623.2 million as of September 30,
1998.
48
Corporate Structure
The following chart illustrates the organizational structure of our
principal operations. It is designed to depict how our various operations
relate to one another and our ownership interest in them. It does not contain
all of our subsidiaries and, in some cases for presentation purposes, we have
combined separate entities to indicate operational relationships. We have also
indicated the principal subsidiaries that initially are "Unrestricted
Subsidiaries" under the Indenture, i.e., the subsidiaries that are not
guarantors and are not subject to the Indenture covenants.
[CORPORATE ORGANIZATIONAL CHART APPEARS HERE]
49
Business Strategy
Our strategic plan is to develop a broad base of regionally diversified
casino entertainment facilities by making selected acquisitions in the non-Las
Vegas, non-Atlantic City gaming markets and achieving economies of scale. In
the realization of this strategy, we acquired Boomtown on June 30, 1997, and
Casino Magic on October 15, 1998. Our management seeks to develop its casinos
and maximize profitability by:
.refinancing expensive debt;
.fostering customer loyalty by offering a value oriented, quality customer
service gaming experience;
. providing gaming and entertainment facilities uniquely designed for each
property and target customer base; and
.using focused direct marketing incentives.
Specific growth initiatives vary by property type:
Boomtown Casinos. Since the acquisition, we refinanced Boomtown's expensive
debt and undertook various capital expenditure programs to enlarge and enhance
the facilities. The three Boomtown casinos are now fully developed facilities
that serve their local markets in a relaxed and customer-friendly environment.
The goal for our new management team with respect to the Boomtown casinos is
to maximize profitability through cost control and increase market share
through improved marketing. We seek to enhance customer loyalty through direct
customer marketing and by providing customers a high value gaming experience.
Property enhancements and financial restructuring already undertaken at
Boomtown include the following:
Property Enhancements .Boomtown New Orleans: Replacement of existing
riverboat with the Boomtown Belle II, a
$16.4 million riverboat (including
installation and renovation) which is
bigger and has a more elegant decor (opened
February 1998)
.Boomtown New Orleans: $10 million expansion
of land-based premier, adult-oriented
dining and entertainment complex called
"The Great Escape" (opened July 1998)
.Boomtown Reno: $25 million expansion and
renovation, including 200 additional hotel
rooms, a complete renovation of existing
gaming floors, addition of 13,000 square
feet of gaming space (including 200 slot
machines) and 10,000 square feet of meeting
space, additional parking, a new buffet
restaurant, and other amenities (hotel
opened December 1998; other aspects of the
project expected to be completed in the
first quarter of 1999)
Financial Restructuring .Repurchase of $103.5 million principal amount
of Boomtown 11 1/2% First Mortgage Notes
.Repurchase of minority interests in Boomtown
New Orleans for $5.7 million and in
Boomtown Biloxi for $400,000
.Restructure high-cost operating leases
.Prepayment of $2 million note bearing 13%
interest and secured by the existing
Boomtown New Orleans riverboat
.Purchase of dockside barge at Boomtown Biloxi
for $5.3 million
Casino Magic Properties. We believe the Casino Magic properties offer
significant growth potential through improved management and re-positioning of
the brand to a more upscale and exciting image. The
50
properties are well-located and have ample room for limited and focused capital
spending to make them more attractive and customer-friendly via parking and
room additions, casino expansion and renovation, and additional entertainment
amenities. Property enhancements and financial restructuring already undertaken
at Casino Magic include the following:
Property Enhancements .Casino Magic Bossier: Accelerated the $21
million construction of an 188-room hotel
with four master suites, 88 junior suites
and additional full service restaurants
(opened December 1998)
Financial Restructuring .Redemption of $135 million principal amount
of Casino Magic 11 1/2% First Mortgage
Notes
We are also considering the following expansion projects at existing Casino
Magic properties:
Possible Expansion .Casino Magic Biloxi: Renovation of the casino
Projects gaming area and its attendant amenities
.Casino Magic Bay St. Louis: Construction of a
300-room hotel next to the casino
.Casino Magic Bossier: Construction of a
second hotel tower consisting of 200
rooms--Our decision to pursue this project
will be made after we have evaluated the
results from the initial 188-room addition
completed in December 1998
Indiana Hotel/Casino Resort. On September 14, 1998, the Indiana Gaming
Commission approved us to receive the last available license to conduct
riverboat gaming operations on the Ohio River in Indiana. We expect to spend
approximately $150 million (including land and pre-opening expenses but
excluding capitalized interest) to develop a new gaming facility approximately
35 miles southwest of Cincinnati, Ohio in Switzerland County, Indiana. This
site will be the most accessible gaming facility from Lexington and other parts
of northern Kentucky. The project will include a cruising riverboat with 38,000
square feet of casino space, as well as a land-based facility with a 309-room
hotel, an 18-hole golf course, convention space, restaurants, and other related
amenities. We own 97% of the Indiana Hotel/Casino Resort; the remaining
interest is held by a non-voting local partner. While we expect to complete the
Indiana Hotel/Casino Resort in 18 to 24 months, construction matters or other
issues may delay the facility's opening.
Excess Land. We are exploring the development of our 378-acre Hollywood Park
Race Track property and our 275-acre Turf Paradise Race Track property. This
land has a combined book value of $13.1 million. Management believes the fair
market value of the land is approximately $230 million. The Hollywood Park Race
Track property has approximately 160 undeveloped acres and Turf Paradise has
approximately 100 undeveloped acres on which we seek to develop multi-use
retail, entertainment and/or sports venues. We have entered an agreement to
sell 12 acres of land at Turf Paradise on which the purchaser intends to
construct a major retail outlet.
We also have excess land at our Reno and Bay St. Louis properties. While the
excess land offers extensive expansion opportunity at each of these properties,
we will aggressively pursue realization of value through sale and/or
development (including joint venture arrangements).
Additional Acquisitions. We continually evaluate opportunities to expand and
diversify our operations through gaming acquisitions in markets outside Las
Vegas and Atlantic City, including entities which are unable to maximize their
potential due to operating inefficiencies or capital constraints. We believe
that by matching our financial and management resources with the opportunities
of the acquired entities, we can significantly improve their operations. We
have applied this strategy in our recent acquisition of Casino Magic and our
earlier acquisition of Boomtown. In both cases, since making the acquisitions,
we have used our resources to streamline operations, implement expansion
projects and refinance expensive debt.
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Louisiana Properties
Louisiana legalized riverboat and dockside gaming in 1991 and gaming
operations began in Louisiana in September 1993.
Casino Magic Bossier
Casino Magic Bossier opened in October 1996, with gaming operations
conducted from a dockside riverboat. The property includes 23 acres of land in
the Shreveport/Bossier City metropolitan area, approximately 180 miles east of
the Dallas-Fort Worth area. The site is highly visible with convenient access
from Interstate Highway 20, the major east-west artery connecting Dallas-Fort
Worth and Bossier City. Most of the customers at Casino Magic Bossier come from
eastern Texas.
The Casino Magic Bossier riverboat contains approximately 30,000 square feet
of gaming space, and offers 980 slot machines and 44 table games. The Casino
Magic Bossier facility includes a 55,000 square foot entertainment pavilion
with a 350-seat buffet, a gift shop, and live entertainment theater. We
recently completed a 188-room luxury hotel with four master suites, 88 junior
suites and a full service restaurant.
Casino Magic Bossier is owned and operated by Casino Magic of Louisiana,
Corp., an indirect wholly-owned subsidiary which will be an Unrestricted
Subsidiary under the Indenture governing the Notes.
Boomtown New Orleans
Boomtown New Orleans began operations in August 1994 on a 50-acre site in
Harvey, Louisiana, approximately ten miles from the French Quarter of New
Orleans. Three riverboats, including our Boomtown New Orleans casino, currently
operate in the New Orleans area. Boomtown New Orleans is located on the "West
Bank" in Jefferson Parish. The West Bank has approximately 300,000 local
residents who comprise a large majority of the Boomtown New Orleans customers.
In mid-February 1998, Boomtown New Orleans began conducting gaming
operations on the Boomtown Belle II, a 380-foot riverboat containing 30,000
square feet of gaming space. The new casino offers 1,089 slot machines and 49
table games. The Boomtown Belle II replaced a smaller riverboat that offered
911 slot machines and 55 table games. Boomtown New Orleans also includes a
land-based facility adjacent to the riverboat dock. The first floor of the
building offers patrons a buffet and a western saloon/dancehall. On July 1,
1998, we opened "The Great Escape," a $10 million expansion project located on
the second floor of the land-based facility. The Great Escape, a premier dining
and entertainment complex, features a 160-seat casual dining restaurant, 500-
person capacity banquet facilities and a state-of-the-art adult-oriented arcade
style amusement center offering numerous attractions, including a 3-D giant
screen thrill ride, virtual reality rides, golf simulators, and a billiard
center.
Mississippi Properties
Mississippi legalized dockside gaming in June 1990 and gaming operations
began in Mississippi in August 1992. We operate three of the eleven casinos in
the Mississippi Gulf Coast market. The Mississippi Gulf Coast is a traditional
vacation destination. The region draws an estimated 6.5 million visitors
annually, primarily from Louisiana, Mississippi, Alabama, Florida and Georgia.
Casino Magic Bay St. Louis
Casino Magic Bay St. Louis began operations in September 1992 as the first
dockside casino in Mississippi to utilize a fixed barge rather than a
traditional riverboat, which allowed for larger contiguous gaming areas and a
more spacious casino environment. Casino Magic Bay St. Louis is approximately
46 miles east of New Orleans, Louisiana. While Casino Magic Bay St. Louis
primarily serves the 4.1 million adults residing within 150 miles of Bay St.
Louis, approximately 50% of these customers come from the greater New Orleans
area.
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Casino Magic Bay St. Louis conducts gaming operations on a permanently
moored barge in a 17-acre marina with the adjoining land based facilities
situated on 591 acres. Casino Magic Bay St. Louis offers approximately 39,500
square feet of gaming space, with 1,132 slot machines and 42 table games. The
three story land-based building houses a restaurant, buffet, snack bar, gift
shop and live entertainment lounge. The property has a 201-room hotel, an 1,800
seat arena for concerts and sporting events, and an 18-hole golf course.
Casino Magic Biloxi
Casino Magic Biloxi, which opened in June 1993, is located on the Front Bay
of Biloxi in a strip with two other casinos on the major highway running
through the Mississippi Gulf Coast. Biloxi is approximately 50 miles west of
Mobile, Alabama. The target market for Casino Magic Biloxi is the 2.2 million
adults within a 200-mile radius of Biloxi and includes visitors from Alabama,
Mississippi and Florida.
Casino Magic Biloxi conducts gaming from a permanently moored barge with
approximately 47,700 square feet of gaming space with 1,174 slot machines and
41 gaming tables. The land-based facility, which is located adjacent to the
barge on the approximately 16-acre site, is approximately 21,600 square feet
and offers buffets and full service restaurants. On May 1, 1998, Casino Magic
Biloxi opened its 378-room luxury hotel, which includes 16 master suites, 70
junior suites, 6,600 square feet of convention and meeting space, a full
service restaurant and retail shops.
Boomtown Biloxi
Boomtown Biloxi began operations in July 1994. Boomtown Biloxi occupies
nineteen acres on Biloxi's historic Back Bay. We lease the site under a 99-year
lease that began in 1994. The casino is one-half mile from Interstate 110,
which is the main highway connecting Interstate 10 and Biloxi.
Boomtown Biloxi offers a 33,632-square foot casino constructed on a
permanently moored barge. The casino contains 1,308 slot machines and 35 table
games. The dockside property includes a land-based facility with restaurants
and other non-gaming activities. We purchased the barge and building shell for
$5.3 million from the lessor of those assets, National Gaming Mississippi,
Inc., of which a $2.5 million balance is due in two annual installments to be
paid in 1999 and 2000.
Nevada Property
Boomtown Reno
Boomtown Reno began operations over 30 years ago on 569 acres in Verdi,
Nevada, nine miles west of Reno and two miles from the California border. The
facility is located on Interstate 80, the major highway connecting Northern
California and Reno. We believe Boomtown Reno maintains a loyal customer base
primarily drawn from Interstate 80 traffic.
Boomtown Reno offers a 40,000-square foot casino with 1,320 slot machines,
44 table games, and two Keno games. Boomtown Reno opened a new 200-room hotel
tower in December 1998 to augment its existing 122-room hotel. It also offers a
35,000-square foot family entertainment center, a 16-acre truck stop, a
recreational vehicle park, and other related amenities.
California Properties
Hollywood Park Race Track
The Hollywood Park Race Track is located in the Los Angeles metropolitan
area, which has a population base of approximately 14 million people. The race
track sits on 378 acres, approximately 160 of which are undeveloped. Since
1938, the Hollywood Park Race Track has been among the country's most
distinguished thoroughbred racing facilities. In 1997, it hosted the Breeders'
Cup championship racing series for the third time.
53
Through our wholly-owned subsidiary, Hollywood Park Operating Company, we
conduct two live on-track thoroughbred horse race meets per year. The meets
provide a total of approximately 95 to 100 race days per year, usually with
nine races a day. We also send the signal of our live races to hundreds of off-
track sites, including fairgrounds, hotels, casinos, and other race tracks, and
receive simulcast signals from live races conducted at other race tracks,
including Southern and Northern California tracks.
Hollywood Park derives revenues primarily from a share of the pari-mutuel
handle at rates fixed by the State of California. Pari-mutuel wagering means
that patrons bet against each other in a pool rather than against the operator
of the facility or with pre-set odds. Hollywood Park also receives revenue from
admission fees and concession sales.
The Hollywood Park-Casino
The Hollywood Park-Casino opened in July 1994 on the premises of the
Hollywood Park Race Track. We operate the casino under a California law that
permits publicly-traded pari-mutuel racing associations to operate card club
casinos on race track premises.
The Hollywood Park-Casino offers 145 table games in 30,000 square feet of
gaming space. California card club casinos may not participate in the wagers
made or in the outcome of any card games. The Hollywood Park-Casino offers only
certain card games, including Poker, Pai Gow and California Blackjack, but no
slot machines. Hollywood Park-Casino patrons pay a fee for seats at gaming
tables or for each hand played. We also derive revenue from food and beverage
sales, rental of facilities for bingo, gift shops and health club operations.
Crystal Park Hotel and Casino
Crystal Park opened in late 1996 as Southern California's first major
combined hotel and casino property. The 226-room hotel operates under a
Radisson Hotels International, Inc. flag. Crystal Park's casino, which has 60
table games, offers games similar to those offered at the Hollywood Park-
Casino.
Since Crystal Park is not located on the same property as a race track, an
unaffiliated operator who is licensed by the State of California and the City
of Compton operates Crystal Park under a four year triple-net lease. Although
the rent was due to increase to $350,000 per month as of July 1, 1998, we
agreed to accept rent of $150,000 per month through January 1999. We expect
that, under present market conditions, the monthly rent will not increase as
scheduled in the lease, but rather will remain between $100,000 and $150,000.
Arizona Property
Turf Paradise
We acquired Turf Paradise in 1994. Turf Paradise was organized in 1954 and
is located in the northwest region of Phoenix, Arizona on approximately 275
acres, approximately 100 of which are undeveloped. We have entered into an
agreement to sell 12 acres of the undeveloped land for approximately $4.6
million. The purchaser, a national retailer, intends to construct a major
retail outlet on the site. We expect to complete the sale in the first quarter
of 1999.
Turf Paradise conducts one live thoroughbred meet per year, which runs from
September to May. During live racing, Turf Paradise accepts simulcast races
from numerous race tracks, and also sends its live race signals to a large
number of off-track sites. Turf Paradise operates as a simulcast facility,
accepting race signals during its off season covering June through August.
Argentina Properties
We operate two casinos in the cities of Neuquen and San Martin de los Andes
in west central Argentina. Approximately 900,000 people live within a 150-mile
radius of the two cities. The cities are located near
54
several Argentine tourist attractions, including national parks, ski resorts
and a wide variety of outdoor activities.
Casino Magic Argentina
In December, 1994, Casino Magic Neuquen SA, a wholly-owned subsidiary of
Casino Magic, entered into a twelve-year concession agreement with the
provincial government of the Argentine Province of Neuquen to operate the
casinos. Gaming operations began on January 1, 1995. On May 31, 1997, Casino
Magic sold a 49% interest in Casino Magic Neuquen SA to Crown Casino Corp. for
$7 million. We retain a controlling interest in Casino Magic Neuquen SA and
manage the casinos in Argentina for a fee equal to approximately two percent of
the casinos' gross revenues.
The larger casino, located in the city of Neuquen, contains approximately
27,000 square feet of gaming space and offers 398 slot machines, 40 table
games, and a 384-seat bingo facility. The smaller casino operates in San Martin
de los Andes, a resort town approximately 200 miles southwest of the city of
Neuquen. The San Martin de los Andes casino offers 75 slot machines and 16
table games in approximately 2,500 square feet of gaming space.
Other Gaming Interests
Legends Casino
Through HP Yakama, Inc., our wholly-owned subsidiary, we made a seven-year
loan of approximately $9.6 million, at 10% interest, to the Yakama Tribal
Gaming Corporation to construct the Legends Casino, which opened in May 1998 in
Toppenish, Washington. Legends Casino is approximately 160 miles from both
Seattle, Washington and Portland, Oregon, and features a 600-seat bingo hall,
electronic pull tabs, and table games, including Blackjack, Poker, Craps,
Roulette, Mini-bac, and Caribbean Stud. Legends Casino does not have slot
machines. The Yakama Tribal Gaming Corporation pays HP Yakama an amount equal
to 28% of Net Revenues (as defined in the relevant agreement). The payment
decreases to 22% over a seven-year period. HP Yakama pays 22% of payments
received from the Yakama Tribal Gaming Corporation to North American Sports
Management pursuant to a Profit Participation Agreement.
Employees
The following is a summary of Hollywood Park's employees by property:
Total
Permanent Seasonal Staffing
Property Staff Staff Range
-------- --------- -------- ------------
Hollywood Park-Casino........................ 1,415 -- 1,415
Boomtown Reno................................ 800 300 800-1,100
Boomtown New Orleans......................... 1,100 -- 1,100
Boomtown Biloxi.............................. 970 -- 970
Casino Magic Bay St. Louis................... 1,250 50 1,250-1,300
Casino Magic Biloxi.......................... 1,160 -- 1,160
Casino Magic Bossier......................... 1,425 -- 1,425
Casino Magic Argentina....................... 255 -- 255
Hollywood Park Race Track.................... 390 1,020 390-1,410
Turf Paradise................................ 85 425 85-510
Corporate.................................... 35 -- 35
----- ----- ------------
8,885 1,795 8,885-10,680
===== ===== ============
We do not employ the staff at the Crystal Park Casino.
55
Our staff is non-union, with the exception of the janitorial and food
service employees at the Hollywood Park-Casino and the majority of the seasonal
staff at the Hollywood Park Race Track. We believe that we have good
relationships with our employees. We are presently in or about to begin
discussions with the union representing the food service staff. We believe that
this contract will be renewed without incident, though there can be no
assurance that labor problems will be avoided.
Properties
The following describes our principal real estate properties:
Casino Magic Bossier. We own the 23-acre site on the Red River in Bossier
City, Louisiana on which Casino Magic Bossier is located. The property, which
contains a dockside casino and land-based facilities, including a new hotel
that opened in December 1998, secures the outstanding $112.9 million aggregate
principal amount of Louisiana Notes. Casino Magic Bossier is owned and operated
by Casino Magic of Louisiana, Corp., an indirect wholly-owned subsidiary which
is an unrestricted subsidiary under the Indenture governing the Notes.
Boomtown New Orleans. We own the approximately 50 acres in Harvey, Louisiana
on which Boomtown New Orleans is located. This property is approximately 10
miles from the French Quarter of New Orleans. We own all improvements to and
facilities on this property, including the riverboat casino.
Casino Magic Bay St. Louis. We own approximately 591 acres in the city of
Bay St. Louis, Mississippi, including the 17-acre marina where the gaming barge
is moored. The property includes an 18-hole golf course, a hotel, and other
land-based facilities, all of which we own.
Casino Magic Biloxi. Casino Magic Biloxi is located on an approximately 16-
acre site, which includes land located on both the north and south sides of
U.S. Highway 90. We own approximately 4.5 acres and lease approximately 11.5
acres, including approximately 6.4 acres of submerged tidelands adjacent to the
land which is leased from the State of Mississippi under a ten-year lease with
a five-year renewal option.
Boomtown Biloxi. We lease substantially all of the 19 acres on which
Boomtown Biloxi sits under a 99 year lease that began in 1994. In addition, we
lease property for parking under several lease agreements ranging from 10 to 25
years. We also lease approximately 5.1 acres of submerged tidelands at the
casino site from the State of Mississippi under a ten-year lease with a five-
year option to renew. We own the barge on which the casino is located and all
of the land-based facilities.
Boomtown Reno. We own the 569 acres of land in Verdi, Nevada on which
Boomtown Reno is located. We use approximately 61 acres for current operations.
We also own all of the improvements and facilities on the land, including the
casino, hotel, fun center, truck stop and recreational vehicle park. We also
own the related water rights and operate our own sewage treatment facility at
the site. Of the remaining acreage, we are considering developing approximately
250 acres.
Hollywood Park Race Track and Hollywood Park-Casino. We own approximately
378 acres in Inglewood, California. Management believes the fair market value
of the land equals approximately $200 million. The property contains the 60,000
square foot Hollywood Park-Casino, the Hollywood Park Race Track and our
executive offices. The Hollywood Park Race Track, Hollywood Park-Casino, and
parking areas cover approximately 218 acres, leaving approximately 160 acres
available for development.
Crystal Park Hotel and Casino. Crystal Park Hotel and Casino Development
Company, LLC, our wholly-owned subsidiary, leases the hotel from the City of
Compton under a 50-year lease, but owns the ground floor where the
approximately 40,000 square foot casino is located. It also owns approximately
six acres of land containing a parking structure used for the hotel and casino
and leases an additional approximately 35 acres of unimproved land to be used
for expansion or additional parking, if needed. An unaffiliated third party
operates Crystal Park under a four-year triple-net lease.
56
Turf Paradise. We own approximately 275 acres in the northwest region of
Phoenix, Arizona, on which our Turf Paradise race track is located. Management
believes the land has a fair market value of approximately $30 million. The
site includes approximately 100 acres of undeveloped land. We have entered into
an agreement to sell 12 acres of the property to a national retailer, who plans
to construct a major retail outlet on the purchased parcels.
Argentina Properties. We operate two casinos in Argentina under a twelve-
year concession agreement with the provincial government of the Argentine
Province of Neuquen. Pursuant to the agreement, we operate a casino in the city
of Neuquen on an approximately 27,000 square foot site owned by the Province of
Neuquen and provided to us as part of the concession. The second casino is in
San Martin de los Andes on an approximately 2,500 square foot site which we
lease from a third party for a six-year term. We have the option to extend the
term of the concession agreement for a minimum of an additional five years if
we expend more than $5 million to construct a hotel in the Province of Neuquen.
Except for the Casino Magic Bossier and Argentina properties, substantially
all of the properties described above are pledged to secure obligations under
the Bank Credit Facility.
Regulation and Licensing
Louisiana. The ownership and operation of a riverboat gaming vessel is
subject to the Louisiana Riverboat Economic Development and Gaming Control Act
(the "Louisiana Act"). As of May 1, 1996, gaming activities are regulated by
the Louisiana Gaming Control Board (the "Board"). The Board is responsible for
issuing the gaming license and enforcing the laws, rules and regulations
relative to riverboat gaming activities. The Board is empowered to issue up to
15 licenses to conduct gaming activities on a riverboat of new construction in
accordance with applicable law. However, no more than six licenses may be
granted to riverboats operating from any one parish.
The laws and regulations of Louisiana 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 procedures for
reliable record keeping and making periodic reports to the Board; (iv) prevent
cheating and fraudulent practices; (v) provide a source of state and local
revenues through fees; and (vi) ensure that gaming licensees, to the extent
practicable, employ and contract with Louisiana residents, women and
minorities.
The Louisiana Act specifies certain restrictions and conditions relating to
the operation of riverboat gaming, including but not limited to the following:
(i) in parishes bordering the Red River, such as the Company's Casino Magic
property in Bossier, gaming may be conducted dockside; however, in all other
authorized locations such as Boomtown New Orleans, gaming is not permitted
while a riverboat is docked, other than for forty-five minutes between
excursions, unless dangerous weather or water conditions exist; (ii) each round
trip riverboat cruise may not be less than three nor more than eight hours in
duration, subject to specified exceptions; (iii) agents of the Board are
permitted on board at any time during gaming operations; (iv) gaming devices,
equipment and supplies may be purchased or leased from permitted suppliers; (v)
gaming may only take place in the designated river or waterway; (vi) gaming
equipment may not be possessed, maintained, or exhibited by any person on a
riverboat except in the specifically designated gaming area, or a secure area
used for inspection, repair, or storage of such equipment; (vii) wagers may be
received only from a person present on a licensed riverboat; (viii) persons
under 21 are not permitted in designated gaming areas; (ix) except for slot
machine play, wagers may be made only with tokens, chips, or electronic cards
purchased from the licensee aboard a riverboat, (x) licensees may only use
docking facilities and routes for which they are licensed and may only board
and discharge passengers at the riverboat's licensed berth; (xi) licensees must
have adequate protection and indemnity insurance; (xii) licensees must have all
necessary federal and state licenses, certificates and other regulatory
approvals prior to operating a riverboat; and (xiii) gaming may only be
conducted in accordance with the terms of the license and the rules and
regulations adopted by the Board.
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No person may receive any percentage of the profits from the Company's
operations in Louisiana without first being found suitable. In March 1994,
Boomtown New Orleans, its officers, key personnel, partners and persons holding
a 5% or greater interest in the partnership were found suitable by the
predecessor to the Board. In April 1996, the Board's predecessor confirmed that
Casino Magic Bossier's officers, key personnel, partners and persons holding a
5% or greater interest in the corporation were suitable and authorized to
acquire an existing licensee. A gaming license is deemed to be a privilege
under Louisiana law and as such may be denied, revoked, suspended, conditioned
or limited at any time by the Board. In issuing a license, the Board must find
that the applicant is a person of good character, honesty and integrity and the
applicant is a person whose prior activities, criminal record, if any,
reputation, habits and associations do not pose a threat to the public interest
of the State of Louisiana or to the effective regulation and control of gaming,
or create or enhance the dangers of unsuitable, unfair or illegal practices,
methods, and activities in the conduct of gaming or the carrying on of business
and financial arrangements in connection therewith. The Board will not grant
any licenses unless it finds that: (i) the applicant is capable of conducting
gaming operations, which means that the applicant can demonstrate the
capability, either through training, education, business experience, or a
combination of the above, to operate a gaming casino; (ii) the proposed
financing of the riverboat and the gaming operations is adequate for the nature
of the proposed operation and from a source suitable and acceptable to the
Board; (iii) the applicant demonstrates a proven ability to operate a vessel of
comparable size, capacity and complexity to a riverboat in its application for
a license; (v) the applicant designates the docking facilities to be used by
the riverboat; (vi) the applicant shows adequate financial ability to construct
and maintain a riverboat; (vii) the applicant has a good faith plan to recruit,
train and upgrade minorities in all employment classifications; and (viii) the
applicant is of good moral character.
The Board may not award a license to any applicant who fails to provide
information and documentation to reveal any fact material to qualifications or
who supplies information which is untrue or misleading as to a material fact
pertaining to the qualification criteria; who has been convicted of or pled
nolo contendere to an offense punishable by imprisonment of more than one year;
who is currently being prosecuted for or regarding whom charges are pending in
any jurisdiction of an offense punishable by more than one year imprisonment;
if any holder of 5% or more in the profits and losses of the applicant has been
convicted of or pled guilty or nolo contendere to an offense which at the time
of conviction is punishable as a felony.
The transfer of a license is prohibited. The sale, assignment, transfer,
pledge, or disposition of securities which represent 5% or more of the total
outstanding shares issued by a holder of a license is subject to prior Board
approval. A security issued by a holder of a license must generally disclose
these restrictions.
Section 2501 of the regulations enacted by the Louisiana State Police
Riverboat Gaming Division pursuant to the Louisiana Act (the "Regulations")
requires prior written approval of the Board of all persons involved in the
sale, purchase, assignment, lease, grant or foreclosure of a security interest,
hypothecation, transfer, conveyance or acquisition of an ownership interest
(other than in a corporation) or economic interest of five percent (5%) or more
in any licensee.
Section 2523 of the Regulations requires notification to and prior approval
from the Board of the (a) application for, receipt, acceptance or modification
of a loan, or the (b) use of any cash, property, credit, loan or line of
credit, or the (c) guarantee or granting of other forms of security for a loan
by a licensee or person acting on a licensee's behalf. Exceptions to prior
written approval apply to any transaction for less than $2,500,000 in which all
of the lending institutions are federally regulated, or if the transaction
involves publicly registered debt and securities sold pursuant to a firm
underwriting agreement.
The failure of a licensee to comply with the requirements set forth above
may result in the suspension or revocation of that licensee's gaming license.
Additionally, if the Board finds that the individual owner or holder of a
security of a corporate license or intermediary company or any person with an
economic interest in a licensee is not qualified under the Louisiana Act, the
Board may require, under penalty of suspension or revocation of the license,
that the person not (a) receive dividends or interest on securities of the
corporation,
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(b) exercise directly or indirectly a right conferred by securities of the
corporation, (c) receive remuneration or economic benefit from the licensee, or
(d) continue in an ownership or economic interest in the licensee.
A licensee must periodically report the following information to the Board,
which is not confidential and is to be available for public inspection: the
licensee's net gaming proceeds from all authorized games; the amount of net
gaming proceeds tax paid; and all quarterly and annual financial statements
presenting historical data that are submitted to the Board, including annual
financial statements that have been audited by an independent certified public
accountant.
The Board has adopted rules governing the method for approval of the area of
operations and the rules and odds of authorized games and devices permitted,
and prescribing grounds and procedures for the revocation, limitation or
suspension of licenses and permits.
On April 19, 1996, the Louisiana legislature adopted legislation requiring
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit licensed riverboat gaming, licensed video poker
gaming, and licensed land-based gaming in Orleans Parish. The applicable local
election took place on November 5, 1996, and the voters in the parishes of
Boomtown New Orleans and Casino Magic Bossier voted to continue licensed
riverboat and video poker gaming. However, it is noteworthy that the current
legislation does not provide for any moratorium on future local elections on
gaming.
Mississippi. The ownership and operation of casino 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
"Mississippi Gaming Authorities").
The Mississippi Gaming Control Act (the "Mississippi Act"), which legalized
dockside casino gaming in Mississippi, was enacted June 29, 1990. Although not
identical, the Mississippi Act is similar to the Nevada Gaming Control Act. The
Mississippi Commission adopted regulations which are also similar in many
respects to the Nevada Gaming Commission's regulations.
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. Changes in Mississippi laws or regulations may limit or otherwise
materially affect the types of gaming that may be conducted and such changes,
if enacted, could have an adverse effect on the Company and the Company's
Mississippi gaming operations.
The Mississippi Act provides for legalized dockside gaming at the discretion
of the 14 counties that 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. During 1998, certain anti-gaming groups proposed for adoption through
the initiative and referendum process certain amendments to the Mississippi
Constitution. The proposals were declared illegal by Mississippi courts on
constitutional and procedural grounds. If another such proposal were to be
offered and if a sufficient number of signatures were to be gathered to place a
legal initiative on the ballot, it is possible for the voters of Mississippi to
consider such a proposal in November of 2000. See "Risk Factors-- Uncertain
Status of Mississippi Anti-Gaming Initiative." As of January 1, 1999, dockside
gaming was permissible in nine of the fourteen eligible counties in the state
and gaming operations had commenced in Adams, Coahoma, Hancock, Harrison,
Tunica, Warren and Washington counties. Under Mississippi law, gaming vessels
must be located on the Mississippi River or on navigable waters in eligible
counties along the Mississippi River or in the waters lying south of the
counties along the Mississippi Gulf Coast. The law permits
59
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 Company and any subsidiary of the Company (or partnership in which the
subsidiary is a partner) that operates a casino in Mississippi (a "Mississippi
Gaming Subsidiary"), is subject to the licensing and regulatory control of the
Mississippi Commission. The Company must be registered under the Mississippi
Act as a publicly traded holding company for the Mississippi Gaming
Subsidiaries and is required periodically to submit detailed financial and
operating reports to the Mississippi Commission and furnish any other
information which the Mississippi Commission may require. If the Company is
unable to continue to satisfy the registration requirements of the Mississippi
Act, the Company and its Mississippi Gaming Subsidiaries cannot own or operate
gaming facilities in Mississippi. Each Mississippi Gaming Subsidiary must
maintain a gaming license from the Mississippi Commission to operate a casino
in Mississippi. Such licenses are issued by the Mississippi Commission subject
to certain conditions, including continued compliance with all applicable state
laws and regulations.
Gaming licenses are not transferable, are issued for a two-year period and
must be renewed periodically thereafter. Boomtown Biloxi's license must be
renewed in July of 2000, Casino Magic Bay St. Louis's license must be renewed
in April of 2000, and Casino Magic Biloxi's license must be renewed in December
of 2000. No person may become a stockholder of or receive any percentage of
profits from a licensed subsidiary of a holding company without first obtaining
licenses and approvals from the Mississippi Commission. The Company has
obtained such approvals in connection with the licensing of its Mississippi
Gaming Subsidiaries, and the registration of the Company as a publicly-traded
holding company.
Certain officers and employees of the Company and the officers, directors
and certain key employees of the Company's Mississippi Gaming Subsidiaries must
be found suitable or be licensed by the Mississippi Commission. The Company
believes that findings of suitability with respect to such persons associated
with the Company or its Mississippi Gaming Subsidiaries have been applied for
or obtained, although the Mississippi Commission in its discretion may require
additional persons to file applications for findings of suitability. In
addition, any person having a material relationship or involvement with the
Company may be required to be found suitable or licensed, in which case those
persons must pay the costs and fees associated with such investigation. The
Mississippi Commission may deny an application for a finding of suitability for
any cause that it deems reasonable. Changes in certain licensed positions must
be reported to the Mississippi Commission. In addition to its authority to deny
an application for a finding of suitability, the Mississippi Commission has
jurisdiction to disapprove a change in a licensed position. The Mississippi
Commission has the power to require any Mississippi Gaming Subsidiary and the
Company to suspend or dismiss officers, directors and other key employees or
sever relationships with other persons who refuse to file appropriate
applications or whom the authorities find unsuitable to act in such capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension under certain circumstances. The Mississippi Commission
shall refuse to issue a work permit to a person convicted of a felony and it
may refuse to issue a work permit to a gaming employee if the employee has
committed certain misdemeanors or knowingly violated the Mississippi Act or for
any other reasonable cause.
At any time, the Mississippi Commission has the power to investigate and
require the finding of suitability of any record or beneficial stockholder of
the Company. Mississippi law requires any person who acquires more than 5% of
the common stock of a publicly traded corporation registered with the
Mississippi Commission to report the acquisition to the Mississippi Commission,
and such person may be required to be found suitable. Also, any person who
becomes a beneficial owner of more than 10% of the common stock of such a
company, as reported to the Securities and Exchange Commission, must apply for
a finding of suitability by the Mississippi Commission and must pay the costs
and fees that the Mississippi Commission incurs in conducting the
investigation. The Mississippi Commission has generally exercised its
discretion to require a finding of suitability of any beneficial owner of more
than 5% of a registered publicly-traded holding
60
company's common stock. However, the Mississippi Commission has adopted a
policy that permits certain institutional investors to own beneficially up to
10% of a registered public company's stock without a finding of suitability. If
a stockholder 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.
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. Management believes that compliance by the
Company with the licensing procedures and regulatory requirements of the
Mississippi Commission will not affect the marketability of the Company's
securities. Any person found unsuitable and who holds, directly or indirectly,
any beneficial ownership of the securities of the Company beyond such time as
the Mississippi Commission prescribes, may be guilty of a misdemeanor. The
Company is subject to disciplinary action if, after receiving notice that a
person is unsuitable to be a stockholder or to have any other relationship with
the Company or its Mississippi Gaming Subsidiaries, the Company: (i) pays the
unsuitable person any dividend or other distribution upon the voting securities
of the Company; (ii) recognizes the exercise, directly or indirectly, of any
voting rights conferred by securities of the Company; (iii) pays the unsuitable
person any remuneration in any form for services rendered or otherwise, except
in certain limited and specific circumstances; or (iv) fails to pursue all
lawful efforts to require the unsuitable person to divest himself of the
securities, including, if necessary, the immediate purchase of the securities
for cash at a fair market value.
The Company may be required to disclose to the Mississippi Commission upon
request the identities of the holders of any of the Company's debt securities,
such as the Old Notes, the Exchange Notes and the 9 1/2% Notes. In addition,
under the Mississippi Act the Mississippi Commission may, in its discretion,
(i) require holders of securities of registered corporations, including debt
securities such as the Notes, to file applications, (ii) investigate such
holders, and (iii) require such holders to be found suitable to own such
securities. Although the Mississippi Commission generally does not require the
individual holders of obligations such as the 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.
Each Mississippi Gaming Subsidiary must maintain in Mississippi a current
ledger with respect to ownership of its equity securities, and the Company must
maintain in Mississippi a current list of stockholders of the Company which
must reflect the record ownership of each outstanding share of any class of
equity security issued by the Company. The ledger and stockholder lists must be
available for inspection by the Mississippi Commission at any time. If any
securities of the Company 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 must also render maximum
assistance in determining the identity of the beneficial owners.
The Mississippi Act requires that the certificates representing securities
of a publicly-traded corporation bear a legend to the general effect that such
securities are subject to the Mississippi Act and the regulations of the
Mississippi Commission. The Company has received a waiver from this legend
requirement from the Mississippi Commission. The Mississippi Commission has the
power to impose additional restrictions on the holders of the Company's
securities at any time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a Mississippi Gaming Subsidiary must be reported to or approved
by the Mississippi Commission. A Mississippi Gaming Subsidiary may not make an
issuance or a public offering of its securities, but may pledge or mortgage
casino facilities. The equity interests of a Mississippi Gaming Subsidiary may
not be pledged without the prior approval of the Mississippi Commission. The
Company may not make a public offering of its securities without the prior
approval of 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
61
obligations incurred for one or more such purposes. Such approval, if given,
does not constitute a recommendation or approval of the investment merits of
the securities subject to the offering.
Changes in control of the Company through merger, consolidation, acquisition
of assets, management or consulting agreements or any form of takeover, and
certain recapitalizations and stock purchases by the Company, cannot occur
without the prior approval of the Mississippi Commission. The Mississippi
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 Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Commission has established a regulatory scheme to ameliorate the
potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to: (i) assure the
financial stability of corporate gaming operators 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 Mississippi
Commission before the Company may make exceptional repurchases of voting
securities in excess of the current market price of its common stock (commonly
called "greenmail") or before a corporate acquisition opposed by management may
be consummated. Mississippi's gaming regulations will also require prior
approval by the Mississippi Commission if the Company adopts a plan of
recapitalization proposed by its Board of Directors opposing a tender offer
made directly to the shareholders for the purpose of acquiring control of the
Company.
Neither the Company nor any subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Commission. The Mississippi Commission may
require determinations that, among other things, there are means for the
Mississippi Commission to have access to information concerning the out-of-
state gaming operations of the Company and its affiliates. The Mississippi
Commission must approve any future gaming operations of the Company outside
Mississippi. The Mississippi Commission has approved the Company's current
operations in other jurisdictions but must approve the Company's operations in
any new jurisdictions.
If the Mississippi Commission decides that a Mississippi Gaming Subsidiary
violated a gaming law or regulation, the Mississippi Commission could limit,
condition, suspend or revoke the license of the Mississippi Gaming Subsidiary.
In addition, a Mississippi Gaming Subsidiary, the Company and the persons
involved could be subject to substantial fines for each separate violation.
Because of such a violation, the Mississippi Commission could attempt to
appoint a supervisor to operate the casino facilities. Limitation, conditioning
or suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially adversely affect the
Company and the Mississippi Gaming Subsidiary's gaming operations and the
Company's results of operations.
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 a Mississippi Gaming Subsidiary's respective 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) a percentage of the gross gaming revenues received by the casino
operation, (ii) the number of slot machines operated by the casino or (iii) the
number of table games operated by the casino. The license fee payable to the
State of Mississippi is based upon "gaming receipts" (generally defined as
gross receipts less pay outs to customers as winnings) and equals 4% of gaming
receipts of $50,000 or less per month, 6% of gaming receipts over $50,000 and
less than $134,000 per month, and 8% of gaming receipts over $134,000. The
foregoing license fees are allowed as a credit against the licensee's
Mississippi income tax liability for the year paid. The gross revenue fee
imposed by the Mississippi communities in which the Company's casino operations
are located equals approximately 4 percent of the gaming receipts.
62
In October 1994, the Mississippi Commission adopted two new regulations.
Under the first regulation, as condition of licensure or license renewal,
casino vessels on the Mississippi Gulf Coast that are not self-propelled must
be moored to withstand a Category 4 hurricane with 155 mile-per-hour winds and
15-foot tidal surge. The Company believes that all of its Mississippi Gaming
Subsidiaries currently meet this requirement. The second regulation requires as
a condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex and
infrastructure facilities, the expenditures for which will amount to at least
25% of the casino cost. Such facilities shall 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, golf courses, marinas, 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 cities and/or counties are
excluded. The Mississippi Commission may in its discretion reduce the number of
rooms required, where it is shown to the Commission's satisfaction that
sufficient rooms are available to accommodate the anticipated visitor load. The
Company believes that all of its Mississippi Gaming Subsidiaries currently meet
such requirements. The Mississippi Commission has recently approved amendments
to the regulation that would increase the infrastructure development
requirement from 25% to 100% for new casinos (or upon acquisition of a closed
casino), but would grandfather existing licensees.
The sale of food or alcoholic beverages at the Mississippi Gaming
Subsidiaries is subject to licensing, control and regulation by the applicable
state and local authorities. 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 upon the operations
of the affected casino or casinos. Certain officers and managers of the Company
and the Mississippi Gaming Subsidiaries must be investigated by the Alcoholic
Beverage Control Division of the State Tax Commission (the "ABC") in connection
with the Mississippi Gaming Subsidiaries' liquor permits. Changes in licensed
positions must be approved by the ABC.
Nevada. The ownership and operation of casino gaming facilities in Nevada
are subject to: (i) the Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, "Nevada Act"); and (ii) various local
regulations. The Company's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the
Nevada State Gaming Control Board ("Nevada Board") and Washoe County. The
Nevada Commission, the Nevada Board and Washoe County are collectively referred
to as 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 requiring the filing of
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. Changes in such laws,
regulations and procedures could have an adverse effect on Boomtown's gaming
operations.
Boomtown Hotel & Casino, Inc. (the "Gaming Subsidiary"), which operates
Boomtown Reno and two other gaming operations with slot machines only, is
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 currently registered by the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found suitable to own the
stock of Boomtown, which is registered as an intermediary company
("Intermediary Company"). Boomtown has been found suitable to own the stock of
the Gaming Subsidiary, which is a corporate licensee (a "Corporate Licensee")
under the terms of the Nevada Act. As a Registered Corporation, the Company is
required periodically to submit detailed financial and operating reports to the
Nevada Commission and furnish any other information which the Nevada Commission
may require. No person
63
may become a stockholder of, or holder of an interest of, or receive any
percentage of profits from an Intermediary Company or a Corporate Licensee
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, Boomtown and the Gaming Subsidiary 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 Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, Boomtown
or the Gaming Subsidiary 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 Company, Boomtown and the
Gaming Subsidiary 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 and Boomtown
who are actively and directly involved in gaming activities of the Gaming
Subsidiary may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
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, Boomtown or the Gaming Subsidiary, the companies
involved would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company, Boomtown or the Gaming
Subsidiary 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 and the Gaming Subsidiary are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the Company, Boomtown and the Gaming Subsidiary must be reported to or
approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by the Gaming
Subsidiary, the gaming licenses it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Company, Boomtown, the Gaming
Subsidiary 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 Boomtown 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 Gaming Subsidiary 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 the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and be found suitable as a beneficial holder of the Company's
voting securities if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply
to the Nevada
64
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 Registered Corporation's
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.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common stock
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is 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, Boomtown or the Gaming
Subsidiary, 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.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation such as the Old Notes, the Exchange Notes
and the 9 1/2% Notes, to file applications, be investigated and be found
suitable to own the debt security of a Registered Corporation. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the
Nevada Commission, it (i) pays to the unsuitable person any dividend, interest,
or any distribution whatsoever; (ii) recognizes any voting right by such
unsuitable person in connection with such securities; (iii) pays the unsuitable
person remuneration in any form; or (iv) makes any payment to the unsuitable
person by way of principal, redemption, conversion, exchange, liquidation, or
similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be
required to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require that the Company's stock certificates bear
a legend indicating that the securities are subject to the Nevada Act. However,
to date the Nevada Commission has not imposed such a requirement on the
Company.
The Company is not permitted to make a public offering of its securities
without the prior approval of the Nevada Commission if the securities or the
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. On March 25, 1999, the Nevada Commission granted the Company
prior approval to make public offerings for a period of
65
two years, subject to certain conditions (the "Shelf Approval"). The Shelf
Approval also applies to any affiliated company wholly owned by the Company
(an "Affiliate"), which is a publicly traded corporation or would thereby
become a publicly traded corporation pursuant to a public offering. The Shelf
Approval also includes approval for Boomtown and the Gaming Subsidiary to
guarantee any security issued by, and for the Gaming Subsidiary to hypothecate
its assets to secure the payment or performance of any obligations issued by,
the Company or an Affiliate in a public offering under the Shelf Registration.
The Shelf Approval also includes approval to place restrictions upon the
transfer of and enter into agreements not to encumber the equity securities of
Boomtown and the Gaming Subsidiary (collectively, "Stock Restrictions"). The
Shelf Approval, however, may be rescinded for good cause without prior notice
upon the issuance of an interlocutory stop order by the Chairman of the Nevada
Board. The Shelf Approval does not constitute a finding, recommendation or
approval of the Nevada Gaming Authorities as to the accuracy or adequacy of
the prospectus or the investment merits of the securities offered thereby. Any
representation to the contrary is unlawful. The Exchange Offer will constitute
a public offering (as defined in the Nevada Act) and will be made pursuant to
the Shelf Approval. Any Stock restrictions in respect of the Exchange Notes
are covered by the Shelf Approval. Any Stock Restrictions in respect of the
Old Notes are not covered by the Shelf Approval and therefore require the
prior approval of the Nevada Commission in order to be effective. The Stock
Restrictions in respect of the Old Notes were approved by the Nevada
Commission on March 25, 1999.
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 Washoe
County, in which the Gaming Subsidiary's 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 a
cabaret, nightclub, cocktail lounge or casino showroom in connection with the
serving or selling of food or refreshments, or the selling of any merchandise.
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 such Licensee's participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada
66
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 with, 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.
California. Operation of California card club casinos such as the Hollywood
Park-Casino and Crystal Park is governed by the Gambling Control Act (the
"GCA") and is subject to the oversight of the California Attorney General and
the California Gambling Control Commission. Under the GCA, a California card
club casino may only offer certain forms of card games, including Poker, Pai
Gow, and California Blackjack. A card club casino may not offer many of the
card games and other games of chance permitted in Nevada and other
jurisdictions where the Company conducts business.
Although the California Attorney General takes the position that, under the
GCA, only individuals, partnerships or privately-held companies (as opposed to
publicly-traded companies such as Hollywood Park) are eligible to operate card
club casinos, the 1995 enactment of California Senate Bill 100 ("SB-100") and
the subsequent enactment of SB-8 permit a publicly-owned racing association to
own and operate a card club casino if it also owns and operates a race track on
the same premises.
Pursuant to the GCA, the operator of a card club casino, and its officers,
directors and certain stockholders are required to be registered by the
Attorney General and licensed by the municipality in which it is located. In
September 1995, the Attorney General granted Hollywood Park a provisional
registration under SB-100 to operate the Hollywood Park-Casino which was
renewed effective January 1, 1999. A permanent registration will not be granted
until the California Department of Justice completes its review of the
applications of Hollywood Park and its corporate officers and directors. The
Attorney General has broad discretion to deny a gaming registration and may
impose reasonably necessary conditions upon the granting of a gaming
registration. Grounds for denial include felony convictions, criminal acts,
convictions involving dishonesty, illegal gambling activities, and false
statements on a gaming application. Such grounds also generally include having
a financial interest in a business or organization that engages in gaming
activities that are illegal under California law; however, this provision
contains an exception for publicly-traded racing associations such as Hollywood
Park. In addition, the Attorney General possesses broad authority to suspend or
revoke a gaming registration on any of the foregoing grounds, as well as for
violation of any federal, state or local gambling law, failure to take
reasonable steps to prevent dishonest acts or illegal activities on the
premises of the card club casino, failure to cooperate with the Attorney
General in its oversight of the card club casino and failure to comply with any
condition of the registration.
Hollywood Park's operations at the Hollywood Park-Casino are also regulated
by a City of Inglewood ordinance (the "Inglewood Ordinance"). The Inglewood
Ordinance provides for a single card club casino located on the premises of the
Hollywood Park Race Track and requires Hollywood Park, as the operator of the
Hollywood Park-Casino, to be licensed by the City of Inglewood and to obtain a
card club operations certificate. The Inglewood City Council has approved
Hollywood Park's application for a gaming license and on August 21, 1996
Hollywood Park was granted the required card club operations certificate.
Hollywood Park's city gaming license and operations certificate are valid for
five years unless revoked, suspended or surrendered, and are renewable annually
thereafter.
In addition to Hollywood Park, the Inglewood Ordinance also requires all
employees, each beneficial owner of at least 10% of the outstanding Hollywood
Park common stock, and certain key employees of Hollywood Park to have either a
permit or a valid registration from the City of Inglewood. The license to
operate the card club casino may be suspended or revoked if such a stockholder
or employee fails to obtain a permit. Without the prior consent of the City of
Inglewood, a 10% stockholder may not transfer or sell its Hollywood Park shares
to any person who is, or by reason of such transaction would become, a
10% stockholder. These licensing requirements and transfer restrictions apply
to all 10% stockholders of
67
Hollywood Park, and no waiver from such requirements or restrictions are
provided for institutional or other investors who purchase for investment
purposes only.
The City of Compton has granted the operator of Crystal Park all municipal
gaming licenses necessary for operation of Crystal Park, and the operator has
received a provisional registration from the California Department of Justice.
The California Horse Racing Board ("CHRB") has jurisdiction and supervision
over all horse race meets in the State of California. Licenses granted by the
CHRB must be obtained annually by Hollywood Park in order to conduct both the
Spring/Summer and Autumn race meets. The CHRB has the authority, when granting
any license, to vary the number of weeks allocated to any applicant and the
time of year in which such allocation falls. The CHRB may, at its discretion,
refuse to issue a license to a race track operator such as Hollywood Park that
has a financial interest in another licensed race track operation or in the
conduct of horse racing meets by any other person at any other race track in
California. Although no future assurance can be given, Hollywood Park has
applied for and received a license to conduct thoroughbred horse race meets
every year since 1938, except for 1942 and 1943 due to wartime activities.
Indiana. On September 14, 1998, the Indiana Gaming Commission ("Indiana
Commission") voted to award a Certificate of Suitability to Pinnacle Gaming
Development Corporation ("Indiana Affiliate"), ninety-seven percent (97%) of
the equity of which is owned and controlled by affiliates of the Company. The
Certificate of Suitability authorizes the Indiana Affiliate to develop a
$148,000,000 riverboat gaming resort, including a hotel and golf course, in
Switzerland County, Indiana. Upon completion of development of the project in
accordance with the Certificate of Suitability and satisfaction of other
conditions, the Indiana Commission is expected to issue a license to the
Indiana Affiliate. That license would be the fifth and final license authorized
under Indiana law for riverboat gaming operations conducted from sites on the
Ohio River.
The ownership and operation of riverboat casinos docked at Indiana-based
sites are subject to extensive state regulation under the Indiana Riverboat
Gaming Act ("Indiana Act") and regulations which the Indiana Commission has
adopted under the Indiana Act. The Indiana Act and the regulations adopted to
date are significant to the Company's prospects for successfully developing and
operating the Switzerland County, Indiana based riverboat casino and associated
developments through its Indiana affiliate.
The Indiana Act extends broad and pervasive regulatory powers and authority
to the Indiana Commission. The Indiana Commission has adopted a comprehensive
set of regulations covering ownership and reporting for licensed riverboat
casinos together with "rules of the game" governing the actual operation of
riverboat casinos. The Indiana Commission has also adopted a set of regulations
under the Indiana Act which covers numerous operational matters concerning
riverboat casinos licensed by the Commission.
Among the regulations adopted by the Indiana Commission is one dealing with
riverboat excursions, routes and public safety. The Indiana Act requires
licensed riverboat casinos to be cruising vessels and the regulations carry out
the legislative intent with appropriate recognition of public safety needs. The
regulations explicitly preclude "dockside gambling." Riverboat gaming
excursions are limited to a duration of up to four hours unless otherwise
expressly approved by the Indiana Commission. All excursion routes and
schedules are subject to the approval of the Indiana Commission. No gaming may
be conducted while the boat is docked except: (1) for thirty-minute embarkment
and disembarkment periods at the beginning and end of a cruise; (2) if the
master of the riverboat reasonably determines that specific weather or water
conditions present a danger to the riverboat, its passengers and crew; (3) if
either the vessel or the docking facility is undergoing mechanical or
structural repair; (4) if water traffic conditions present a danger to the
riverboat, riverboat passengers and crew, or to other vessels on the water, or
(5) if the master has been notified that a condition exists that would cause a
violation of Federal law if the riverboat were to cruise.
For Ohio River excursions, such as those the Indiana Affiliate will conduct
from its Switzerland County development, "full excursions" must be conducted at
all times during the year unless the master determines
68
otherwise, for the above-stated reasons. A "full excursion" is a cruise on the
Ohio River. The Ohio River has waters in both Indiana and Kentucky. The Company
believes there is ample room to cruise fully in Indiana waters on the Ohio
River with no need or likelihood of entering Kentucky waters. Therefore, the
provisions of Kentucky law (which preclude any kind of casino gaming) will not
have any impact on the Company's prospective Indiana operations.
An Indiana riverboat owner's license has an initial effective period of five
years; thereafter, a license is subject to annual renewal. The Indiana
Commission has broad discretion over the initial issuance of licenses and over
the renewal, revocation, suspension and control of riverboat owner's licenses.
The Indiana affiliate has received a Certificate of Suitability designed to
lead to issuance of a license upon completion of project development and
satisfaction of various conditions. The Indiana Act requires a reinvestigation
after three years to ensure the owner continues to be in compliance with the
Indiana Act. Officers, directors and principal owners of the actual license
holder and employees who are to work on the riverboat are subject to
substantial disclosure requirements as a part of securing and maintaining
necessary licenses. Significant contracts to which the Indiana Affiliate is
party are subject to disclosure and approval processes imposed by the
regulations. A riverboat owner's licensee may not enter into or perform any
contract or transaction in which it transfers or receives consideration which
is not commercially reasonable or which does not reflect the fair market value
of the goods or services rendered or received. All contracts are subject to
disapproval by the Indiana Commission. Suppliers of gaming equipment and
materials must also be licensed under the Indiana Act.
Licensees are statutorily required to disclose to the Indiana Commission the
identity of all directors, officers and persons holding direct or indirect
beneficial interests of 1% or greater. The Indiana Commission also requires a
broad and comprehensive disclosure of financial and operating information on
licensees and their principal officers, and those parent corporations and other
upstream owners. The Company and the Indiana Affiliate have provided full
information and documentation to the Indiana Commission. As part of the process
leading up to the issuance of the Certificate of Suitability they must continue
to do so until issuance of the license and then throughout the period of
licensure. The Indiana Act prohibits contributions to a candidate for a state,
legislative, or local office, or to a candidate's committee or to a regular
party committee by the holder of a riverboat owner's license or a supplier's
license, by an officer of a licensee, by an officer of a person that holds at
least a 1% interest in the licensee or by a person holding at least a 1%
interest in the licensee. The Indiana Commission has promulgated a rule
requiring quarterly reporting by such licensees, officers, and persons.
As a condition to receiving a license to conduct riverboat casino operations
from the Indiana Commission, the Company will be required to obtain permits and
approvals from the United States Army Corp of Engineers to develop the
facilities it will use to conduct operations. Clearances will be required to be
received from the Indiana Department of Natural Resources for portions of the
proposed development. Alcoholic beverage permits for riverboat excursions and
for the hotel and boarding facilities will be required as will various other
permits and governmental consents or clearances.
Adjusted gross receipts from gambling games authorized under the Indiana Act
are subject to a tax at the rate of 20% on adjusted gross receipts. "Adjusted
gross receipts" means the total of all cash and property received from gaming
operations less cash paid out as winnings and uncollectible gaming receivables
(not to exceed 2%). The Indiana Act also prescribes an additional tax for
admissions, based upon $3 per person per excursion. Property taxes may be
imposed on riverboats at rates determined by local taxing authorities. Income
to the Company from the Indiana Affiliate will be subject to the Indiana gross
income tax, the Indiana adjusted gross income tax and the Indiana supplemental
corporate net income tax. Sales on a riverboat and at related resort facilities
are subject to applicable use, excise and retail taxes. The Indiana Act
requires a riverboat owner licensee to directly reimburse the Indiana
Commission for the costs of inspectors and agents required to be present while
authorized gaming is conducted.
Through the establishment of purchasing "goals," the Indiana Act encourages
minority and women's business enterprise participation in the riverboat gaming
industry. Any person issued a riverboat owner's
69
license must establish goals of at least 10% of the total dollar value of the
licensee's contracts for goods and services with minority business enterprises
and 5% of the total dollar value of the licensee's contracts for goods and
services with women's business enterprises. Compliance with these conditions is
incorporated into the Indiana Affiliate's Certificate of Suitability. The
Indiana Commission may suspend, limit or revoke the owner's license or impose a
fine for failure to comply with the statutory requirements.
Minimum and maximum wagers on games on the riverboat are left to the
discretion of the licensee. Wagering may not be conducted with money or other
negotiable currency. There are no statutory restrictions on extending credit to
patrons; however, the matter of credit may come under scrutiny in future
legislative sessions.
If an institutional investor acquires 5% or more of any class of voting
securities of a holding company of a licensee, the investor is required to
notify the Indiana Commission and to provide additional information, and may be
subject to a finding of suitability. Any other person who acquires 5% or more
of any class of voting securities of a holding company of a licensee is
required to apply to the Indiana Commission for a finding of suitability. A
riverboat licensee or an affiliate may not enter into a debt transaction of $1
million or more without approval of the Indiana Commission. The Indiana
Commission has taken the position that a "debt transaction" includes increases
in maximum amount available under reducing revolving credit facilities. A
riverboat owner's license is a revocable privilege and is not a property right
under the Indiana Act. A riverboat owner licensee or any other person may not
lease, hypothecate, borrow money against or loan money against or otherwise
scrutinize or monetize a riverboat owner's license.
The Governor of Indiana has appointed a study commission on the impact of
legalized wagering in Indiana. Its work product may result in calls for changes
to the legislative landscape surrounding gaming in Indiana.
Arizona. The Arizona Racing Commission ("ARC") has jurisdiction and
supervision over all racing activities in the State of Arizona. The ARC issues
live racing permits that are valid for three years, and off-track permits are
granted on a year to year basis. In June 1997, Turf Paradise received a live
racing permit from the ARC, which will remain in force through the 1999/2000
race year. The permit specifies that live racing may be conducted between the
first week of September through the third week of May and that, so long as
there is live racing at Turf Paradise at least five days a week, Turf Paradise
may have simulcast wagering on days when there is no live racing.
Argentina. The Provincial Government of Neuquen, Argentina enacted a casino
privatization program to issue twelve-year exclusive concession agreements to
operate existing casinos. The Company's two casinos are the only casinos in the
province of Neuquen, in west central Argentina, and are located in Neuquen City
and San Martin de los Andes. The casinos had previously been operated by the
provincial government. The Ministry of Finance of Argentina has adopted a
modified regulatory system for casinos, based on the regulatory system utilized
by the State of Nevada, and such regulatory system is being administered by the
Provincial Government of Neuquen. The Company cannot predict what effect the
enactment of other laws, regulations or pronouncements relating to casino
operations may have on the operations of Casino Magic Argentina.
Litigation
Poulos Lawsuit. A class action lawsuit was filed on April 26, 1994, in the
United States District Court, Middle District of Florida (the "Poulos
Lawsuit"), naming as defendants 41 manufacturers, distributors and casino
operators of video poker and electronic slot machines, including Casino Magic.
The lawsuit alleges that the defendants have engaged in a course of fraudulent
and misleading conduct intended to induce people to play such games based on
false beliefs concerning the operation of the gaming machines and the extent to
which there is an opportunity to win. The suit alleges violations of the
Racketeer Influenced and Corrupt Organization Act, as well as claims of common
law fraud, unjust enrichment and negligent misrepresentation, and seeks damages
in excess of $6 billion. On May 10, 1994, a second class action lawsuit was
filed in the
70
United States District Court, Middle District of Florida (the "Ahern Lawsuit"),
naming as defendants the same defendants who were named in the Poulos Lawsuit
and adding as defendants the owners of certain casino operations in Puerto Rico
and the Bahamas, who were not named as defendants in the Poulos Lawsuit. The
claims in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit.
Because of the similarity of parties and claims, the Poulos Lawsuit and Ahern
Lawsuit were consolidated into one case file in the United States District
Court, Middle District of Florida. On December 9, 1994 a motion by the
defendants for change of venue was granted, transferring the case to the United
States District Court for the District of Nevada, in Las Vegas. In an order
dated April 17, 1996, the court granted motions to dismiss filed by Casino
Magic and other defendants and dismissed the Complaint without prejudice. The
plaintiffs then filed an amended Complaint on May 31, 1996 seeking damages
against Casino Magic and other defendants in excess of $1 billion and punitive
damages for violations of the Racketeer Influenced and Corrupt Organizations
Act and for state common law claims for fraud, unjust enrichment and negligent
misrepresentation. Casino Magic and other defendants have moved to dismiss the
amended Complaint. Casino Magic believes that the claims are without merit and
does not expect that the lawsuit will have a material adverse effect on the
financial condition or results of operations of Casino Magic.
Casino America Litigation. On or about September 6, 1996, Casino America,
Inc. commenced litigation in the Chancery Court of Harrison County,
Mississippi, Second Judicial District, against Casino Magic, and James Edward
Ernst, its Chief Executive Officer, seeking injunctive relief and unspecified
compensatory damages in an amount to be proven at trial as well as punitive
damages. The plaintiff claims, among other things, that the defendants (i)
breached the terms of an agreement they had with the plaintiff, (ii) tortiously
interfered with certain of the plaintiff's business relations; and (iii)
breached covenants of good faith and fair dealing they allegedly owed to the
plaintiff. On or about October 8, 1996, the defendants interposed an answer,
denying the allegations contained in the Complaint. The discovery phase of this
litigation is continuing and a trial date was initially set for August 1998,
but was postponed to mid-1999 after the plaintiff requested a continuance.
While Casino Magic's management cannot predict the outcome of this action, it
believes plaintiff's claims are without merit and intends to vigorously defend
this action.
Astoria Entertainment, Inc. v. Edwin W. Edwards, et als., United States
District Court for the Eastern District of Louisiana, No. 98-3359. This civil
action was filed on November 12, 1998 in federal district court in New Orleans
against 21 defendants, including Edwin W. Edwards, Stephen Edwards, Edward J.
Debartolo, Jr., Debartolo Entertainment Louisiana Gaming, Inc., Hollywood
Casino Corporation, Boyd Kenner, Inc., Treasure Chest Casino, L.L.C., five
members of the former Louisiana Riverboat Gaming Commission, Hollywood Park,
Inc., Louisiana Gaming Enterprises, Inc., and Robert List (the latter three
hereafter are referred to as the "Hollywood Park/Boomtown defendants"). The
complaint alleges violations of the Racketeer Influenced and Corrupt
Organizations ("RICO") Act in connection with the awarding of riverboat gaming
licenses in Louisiana. The plaintiff, Astoria Entertainment, Inc. ("Astoria"),
contends that it has sustained damages due to alleged racketeering activities
of the defendants, allegedly resulting in corruption of the licensing process
and Astoria's failure to receive a license for riverboat gaming in, inter alia,
the West Bank of Jefferson Parish (suburban New Orleans). The Complaint seeks
damages of "not less than $340 million," plus treble damages, costs, and
attorneys' fees. On January 15, 1999, the Hollywood Park/Boomtown defendants
filed a motion to dismiss Astoria's Complaint for failure to state a claim
against those defendants. Astoria voluntarily dismissed its complaint, without
prejudice, on February 2, 1999 as to many of the defendants, including the
three Hollywood Park/Boomtown defendants.
Astoria Entertainment Inc. v. Edward J. DeBartolo, Jr., et als., Civil
District Court for the Parish of Orleans, State of Louisiana, No. 98-
20315. This action was filed on or about December 1, 1998 in state district
court in New Orleans against twelve defendants, including Edward J. Debartolo,
Jr., Debartolo Entertainment Louisiana Gaming, Inc., Hollywood Casino
Corporation, Robert Guidry, Boyd Gaming, Inc., Boyd Kenner, Inc., Treasure
Chest Casino, L.L.C., Hollywood Park, Inc., Robert List, Louisiana Gaming
Enterprises, Inc., Boomtown, Inc., and Louisiana-I Gaming, L.P. (the latter
five hereafter are referred to as the "Hollywood Park/Boomtown defendants").
The petition seeks damages against the Hollywood
71
Park/Boomtown defendants and others "in excess of $300 million" for alleged
"intentional interference with economic advantage and/or prospective economic
advantage" and alleged "unjust enrichment" in connection with the licensing of
riverboat gaming in Louisiana. The plaintiff, Astoria Entertainment, Inc.
("Astoria"), alleges that the defendants were obligated to refrain from
intentional acts that would interfere with Astoria's alleged ability to obtain
a license for riverboat gaming in the West Bank of Jefferson Parish (suburban
New Orleans) and that the Hollywood Park/Boomtown defendants breached the
obligation by participating in alleged unlawful practices designed to gain an
improper advantage in obtaining a certificate of preliminary approval and
license for such riverboat gaming. The petition was not served upon any of the
Hollywood Park/Boomtown defendants until December 21, 1998, and an extension of
time within which to file responsive pleadings through and including February
4, 1999 was obtained. On February 4, 1999, the Hollywood Park/Boomtown
defendants filed the Louisiana state court equivalent of a motion to dismiss
for failure to state a claim and improper venue. On March 5, 1999, Astoria
voluntarily dismissed, without prejudice, all claims asserted against the
Hollywood Park/Boomtown defendants.
72
MANAGEMENT
Directors and Executive Officers
Each of the executive officers of Hollywood Park, Inc. holds office at the
pleasure of the Board of Directors. The current directors and executive
officers of Hollywood Park, Inc. are as follows:
Name Age Position
---- --- --------
R.D. Hubbard 63 Chairman of the Board and Chief Executive
Officer
J.R. Johnson 78 Director
Robert T. Manfuso 61 Director
Michael Ornest 41 Director
Timothy J. Parrott 50 Director
Lynn P. Reitnouer 66 Director
Herman Sarkowsky 73 Director
Marlin Torguson 54 Director
Warren B. Williamson 70 Director
G. Michael Finnigan 50 President and Chief Executive Officer of Realty
Investment Group, Inc., a subsidiary of
Hollywood Park; and Chief Financial Officer
Paul R. Alanis 50 President and Chief Operating Officer
J. Michael Allen 51 Senior Vice President/Chief Operating Officer
of Gaming Operations
Donald M. Robbins 51 Secretary; and President of Racing of Hollywood
Park Operating Company
Mr. Hubbard has been a Director of the Company since 1990; Chairman of the
Board and Chief Executive Officer of the Company since September 1991; Chairman
of the Board and Chief Executive Officer, Hollywood Park Operating Company
since February 1991; President, Hollywood Park Operating Company from February
to July 1991; Chairman, AFG Industries, Inc. and its parent company, Clarity
Holdings Corp. (glass manufacturing), and director of AFG Industries, Inc.'s
subsidiaries, from 1978 to July 1993; Chairman of the Board (and 60%
stockholder until March 1994), Sunflower (The Woodlands Race Tracks--greyhound
racing and horse racing) from 1988 to March 1994; President, Director, and
majority owner, Ruidoso Downs Racing, Inc. (horse racing) since 1988; Chairman
of the Board, Chief Executive Officer and sole stockholder, Multnomah Kennel
Club, Inc. (greyhound racing) from December 1991 to April 1998; owner and
breeder of numerous thoroughbreds and quarter horses since 1962.
Mr. Johnson has been a Director of the Company since 1991; Director,
Hollywood Park Operating Company from February 1991 to January 1992; Chairman,
President and Chief Executive Officer, NEWMAR (marine electronics
manufacturing) since 1980; Director, Logicon, Inc. (defense oriented
intelligence); Trustee, Westminster College.
Mr. Manfuso has been a Director of the Company since 1991; Director,
Hollywood Park Operating Company from February 1991 to January 1992; Co-
Chairman of the Board, Laurel Racing Association (horse race track management)
from 1984 to February 1994; Vice Chairman of the Board, The Maryland Jockey
Club (horse racing) from 1986 to February 1994; Executive Vice President,
Laurel Racing Association from 1984 to May 1990; Executive Vice President, The
Maryland Jockey Club from 1986 to June 1990; Director, Maryland Horse Breeders
Association from 1984 to 1992 and since 1993; Member, Executive Committee,
Maryland Million since 1991.
73
Mr. Ornest has been a director of the Company since October 1998 and his
family has been a shareholder of the Company since 1962; Director of the Ornest
Family Partnership since 1983; Director of the Ornest Family Foundation since
1993; Director of the Toronto Argonauts Football Club from 1988 to 1990;
President of the St. Louis Arena and Vice President of the St. Louis Blues
Hockey Club from 1983 to 1986 and Managing Director of the Vancouver Canadians
Baseball Club, Pacific Coast League from 1979 to 1980.
Mr. Parrott has served as a Director of the Company since June 1997;
Chairman of the Board and Chief Executive Officer, Boomtown, Inc. from
September 1992 to October 1998; President and Treasurer, Boomtown, Inc. from
June 1987 to September 1992; Director, Boomtown, Inc. since 1987; Chairman of
the Board and Chief Executive Officer, Boomtown Hotel & Casino, Inc. since May
1988; Chief Executive Officer, Parrott Investment Company (a family-held
investment company with agricultural interests in California) since April 1995;
Director, The Chronicle Publishing Company since April 1995.
Mr. Reitnouer has been a Director of the Company since 1991; Director,
Hollywood Park Operating Company from September 1991 to January 1992; Partner,
Crowell Weedon & Co. (stock brokerage) since 1969; Director (Chairman of the
Board), COHR, Inc. since 1986; Director, President, Forest Lawn Memorial Parks
Association since 1975; Trustee, University of California Santa Barbara
Foundation since 1992 (and Chairman in 1997 and 1998).
Mr. Sarkowsky has been a Director of the Company since 1991; Director,
Hollywood Park Operating Company from February 1991 to January 1992; Owner,
Sarkowsky Investment Corporation and SPF Holding, Inc. (real estate development
and investments) since 1980; Director, The Sarkowsky Foundation (charitable
foundation) since 1982; thoroughbred horse breeder and owner since 1959;
Director, Synetics, Inc. (porous plastic manufacturing); Director, Eagle
Hardware & Garden, since 1990.
Mr. Torguson served as the Chairman of the Board of Casino Magic from
December 1, 1994 until the Company acquired Casino Magic. Mr. Torguson was
President and Chief Executive Officer of Casino Magic from April 1992 through
November 1994. From April 1992 to February 1993, Mr. Torguson also served as
the Chief Financial Officer and Treasurer of Casino Magic. 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.
Mr. Williamson has been a Director of the Company since 1991; Vice President
and Secretary of the Company from September 1991 to August 1996; Chairman of
the Board and Chief Executive Officer of the Company from 1989 to September
1991; Director, Hollywood Park Operating Company since 1985; Vice President and
Secretary, Hollywood Park Operating Company from February 1991 to August 1996;
Secretary and Treasurer, Hollywood Park Operating Company from 1985 to November
1990; Chairman of Chandler Trusts since 1985; Director, Times Mirror Company;
Trustee, Hospital of the Good Samaritan; Trustee, California Thoroughbred
Breeders Foundation; Trustee, Claremont McKenna College; Chairman Emeritus, Art
Center College of Design; breeder and racer of thoroughbreds since 1970.
Mr. Finnigan has served as the President and Chief Executive Officer of
Realty Investment Group, Inc., a wholly-owned subsidiary of the Company which
conducts all of the Company's real estate business and related development
activities, since December 1998. He has also served as the Chief Financial
Officer and Executive Vice President of the Company and of Hollywood Park
Operating Company since March 1989. Mr. Finnigan served as the Company's
President, Sports and Entertainment, from January 1996 to December 1998;
President, Gaming and Entertainment from February 1994 to January 1996; and
Treasurer of the Company and of Hollywood Park Operating Company since March
1992; Chairman of the Board, Southern California Special Olympics since 1996;
Chairman of the Board, Centinela Hospital since 1996; and Director, Shoemaker
Foundation since 1993.
74
Mr. Alanis has served as the President and Chief Operating Officer since
January 1999. Mr. Alanis served as President of Horseshoe Gaming, Inc., which
is the manager and a member of Horseshoe Gaming, L.L.C., and of Horseshoe GP,
Inc., a wholly-owned subsidiary of Horseshoe Gaming, L.L.C. from January 1996
to December 1998; President, KII-Pasadena, Inc. since December 1988; President,
Koar International, Inc. from 1991 until 1995.
Mr. Allen has served as the Company's Senior Vice President, Gaming
Operations, since January 1999. Mr. Allen served as Senior Vice President of
Horseshoe Gaming, Inc. from October 1, 1995 to December 31, 1998 and prior to
that as General Manager of the Horseshoe Casino Center from May 1994. Prior to
that, Mr. Allen served as Principal of Gaming Associates, Inc. from September
1992.
Mr. Robbins has served as Secretary of the Company since 1996 (formerly
Assistant Secretary since September 1991). He has also served as President of
Racing of Hollywood Park Operating Company since February 1994, Executive Vice
President of Hollywood Park Operating Company since 1988, and Secretary of
Hollywood Park Operating Company since July 1991. Mr. Robbins served as
President of the Company from September 1991 to December 1998; General Manager,
Hollywood Park Operating Company from 1986 to February 1994.
Executive Compensation
The following tables summarize the annual and long-term compensation of, and
stock options held by, Hollywood Park's Chief Executive Officer and the two
additional most highly compensated executive officers whose annual salaries and
bonuses exceeded $100,000 in total during the fiscal year ended December 31,
1998 (collectively, the "Named Officers").
Summary Compensation Table
Long Term
Compensation
Awards
Annual ------------
Compensation Securities
----------------- Underlying
Name and Principal Salary Bonus Other Annual Options/ All Other
Position Year ($) ($) Compensation SARs (#) Compensation
- ------------------ ---- -------- -------- ------------ ------------ ------------
R.D. Hubbard 1998 $500,000 $160,000 $0 50,000 $ 2,370(a)
Chairman of the Board 1997 400,000 40,235 0 45,000 4,740
and Chief Executive 1996 400,000 0 0 85,000 0
Officer
G. Michael Finnigan 1998 $307,600 $ 75,000 $0 35,000 $23,633(b)
President, Sports and 1997 307,608 0 0 25,000 3,555
Entertainment, 1996 262,608 25,000 0 40,000 0
Executive
Vice President,
Treasurer, Chief
Financial Officer
Donald M. Robbins 1998 $295,000 $ 35,000 $0 15,000 $30,484(c)
President of Hollywood 1997 295,008 0 0 25,000 3,373
Park, Inc., President 1996 250,008 25,000 0 40,000 0
of Racing and
Secretary
- --------
(a) Reflects Company matching contributions under the Hollywood Park 401(k)
Plan.
(b) Includes Company matching contribution under the Hollywood Park 401(k) Plan
of $2,370, and $21,262 of distribution related to the termination of the
Company's Supplemental Executive Retirement Plan
(c) Includes Company matching contribution under the Hollywood Park 401(k) Plan
of $2,249, and $28,235 of distribution related to the termination of the
Company's Supplemental Executive Retirement Plan.
On January 1, 1999, the Company appointed Paul Alanis as President and Chief
Operating Officer and Michael Allen as Senior Vice President and Chief
Operating Officer of the Company's Gaming Division. Mr. Alanis' annual base
salary will be $600,000 and Mr. Allen's will be $400,000. Mr. Alanis and Mr.
Allen were granted stock options to purchase 400,000 and 200,000 shares,
respectively, on September 10, 1998, but they were not eligible to exercise any
of the options until January 1, 1999.
75
Stock Option Plans. In 1993 and 1996, the stockholders of Hollywood Park
adopted Stock Options Plans, which provided for the issuance of up to 625,000
and 900,000 shares of Hollywood Park common stock upon exercise of the options,
respectively. Except for the provisions governing the number of shares issuable
thereunder, and except for certain provisions which reflect changes in tax and
securities laws, the provisions of the Stock Option Plans are substantially
similar. The Hollywood Park Stock Option Plans are administered and terms of
option grants are established by the Compensation Committee of the Board of
Directors. Under the Hollywood Park Stock Option Plans, options alone or
coupled with stock appreciation rights may be granted to selected key
employees, directors, consultants and advisors of Hollywood Park. Options
become exercisable according to a vesting period as determined by the
Compensation Committee at the date of grant, and expire on the earlier of one
month after termination of employment, six months after the death or permanent
disability of the optionee, or the expiration of the fixed option term set by
the Compensation Committee at the grant date (not to exceed ten years from the
grant date). The exercise prices of all options granted under the Hollywood
Park Stock Options Plans are determined by the Compensation Committee on the
grant date, provided that the exercise price of an incentive stock option may
not be less than the fair market value of the common stock at the date of
grant.
As of December 31, 1998, all of the 625,000 shares eligible for issuance
under the 1993 Stock Option Plan had either been issued or were subject to
outstanding options, and of the 900,000 shares eligible for issuance under the
1996 Stock Option Plan, 260,688 were subject to outstanding options. In
addition, 968,111 and 303,924 shares of Hollywood Park common stock are
issuable upon exercise of options granted under pre-merger plans of Boomtown
and Casino Magic, respectively, which Hollywood Park assumed in each Merger,
Hollywood Park has filed registration statements with the Securities and
Exchange Commission covering an aggregate of 2,883,215 shares of Hollywood Park
common stock issuable upon exercise of options granted under the Hollywood Park
Stock Option Plans, the Stock Option Plans of Boomtown and the Stock Option
Plans of Casino Magic.
Options/SAR Grants In Last Fiscal Year. The following table summarizes the
option grants to Named Officers and Messrs. Alanis and Allen during the year
ended December 31, 1998:
Individual Grants
- ---------------------------------------------------------------------------
Percent of
Total
Number of Options/ Potential Realizable Value
Securities SARs of Assumed Annual Rates
Underlying Granted to of Stock Price Appreciation
Options/SARs Employees Exercise of for Option Term
Granted in Fiscal Base Price Expiration ----------------------------
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------------ ---------- ----------- -------------- ------------- --------------
R.D. Hubbard............ 50,000 5% $13.6250 Feb 3, 2008 $ 428,000 $1,086,000
G. Michael Finnigan..... 35,000 3% 13.6250 Feb. 3, 2008 300,000 760,000
Paul R. Alanis.......... 300,000 29% 10.1875 Sept. 10, 2008 1,922,000 4,871,000
100,000 10% 18.0000 Sept. 10, 2008 0 842,000
J. Michael Allen........ 150,000 14% 10.1875 Sept. 10, 2008 961,000 2,435,000
50,000 5% 18.0000 Sept. 10, 2008 0 421,000
Donald M. Robbins....... 15,000 1% 13.6250 Feb. 3, 2008 129,000 326,000
76
Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values. The following table sets forth information with respect to
the exercise of stock options during the year ended December 31, 1998, and the
final year end value of unexercised options. None of the Named Officers
exercised, nor held, stock appreciation rights during the year ended December
31, 1998.
Value of
Number of Unexercised
Securities In-the Money
Shares Underlying Option/SARs
Acquired Options/SARs At Fiscal
On Value At Fiscal Year-End ($)
Exercise Realized Year-End (#) Exercisable/
Name (#) ($) Exercisable/Unexercisable Unexercisable (a)
- ---- -------- -------- ------------------------- -----------------
R.D. Hubbard............ 0 $0 71,688/108,332 $0/$0
G. Michael Finnigan..... 0 0 60,001/64,999 $0/$0
Paul R. Alanis.......... 0 0 100,000/300,000 $0/$0
J. Michael Allen........ 0 0 50,000/150,000 $0/$0
Donald M. Robbins....... 0 0 60,001/44,999 $0/$0
- --------
(a) Represents the difference between the market price of Hollywood Park Common
Stock on December 31, 1998, and the exercise price of the options.
Pension Plan
Years of Qualified Service
---------------------------------------
Final Average Annual Salary 10 15 20 25 30
- --------------------------- ------- ------- ------- ------- -------
$100,000................................ $24,745 $37,118 $49,490 $61,863 $66,863
$150,000 to $500,000 (a)................ 37,995 56,993 75,990 94,988 102,488
- --------
(a) Under current provisions of the Internal Revenue Code, the maximum average
salary that may be used in calculating retirement benefits in 1996 was
$150,000. Benefits accrued on April 1, 1994 (based on prior compensation
limits) are grandfathered. Pension benefits were frozen as of September 1,
1996, for all plan participants, except retained participants, whose
benefits were frozen as of December 31, 1996.
Hollywood Park elected to terminate the Hollywood Park Pension Plan (the
"Pension Plan") as of January 31, 1997. Accrued Pension Plan benefits were
frozen as of September 1, 1996, for all Pension Plan participants, except
retained participants, (participants who, because of legal requirements,
including the provisions of the National Labor Relation Act, are represented by
a collective bargaining agent) whose benefits were frozen as of December 31,
1996.
The Pension Plan was a non-contributory, defined benefit plan covering
employees of Hollywood Park, Inc., and all employees of HPOC, not eligible for
participation in a multi-employer defined benefit plan, who met the Pension
Plan's service requirement. R.D. Hubbard, G. Michael Finnigan, and Donald M.
Robbins, are the only officers or directors of the Company who participated in
the Pension Plan, and their Pension Plan benefits were frozen as of September
1, 1996, and as of that date, Messrs. Hubbard, Finnigan and Robbins had two,
six and ten years, respectively, of qualified years of service. Only amounts
earned by Messrs. Hubbard, Finnigan and Robbins listed under "Annual
Compensation-Salary" as shown in the Summary Compensation table, were
considered in determining their Pension Plan benefit levels.
The amounts listed in the above pension Plan table are estimated annual
retirement benefits under the Pension Plan (assuming payments were made on the
normal life annuity basis, and not under the provisions on survivor benefits)
at a normal retirement age of 65 in 1996, after various years of qualified
service, at selected average annual compensation levels. However, due to the
Pension Plan benefits being frozen as of September 1,
77
1996, and based on their actual years of qualified service, and annual
compensation levels, Messrs. Hubbard, Finnigan and Robbins annual benefits,
expressed as a joint and survivor annuity payment, starting at age 65, are
$7,521, $29,082 and $51,009, respectively.
The amounts required to fund the pension Plan were determined actuarially,
and were paid by Hollywood Park to a life insurance company under an
unallocated annuity contract.
Effective January 31, 1997, in conjunction with the termination of the
Pension Plan, Hollywood Park elected to terminate its non-qualified
Supplementary Employment Retirement Plan (the "SERP"). The SERP was an unfunded
plan, established primarily for the purpose of restoring the retirement
benefits for highly compensated employees that were eliminated by the Internal
Revenue Service in 1994, when the maximum annual earnings allowed for qualified
pension plans was reduced to $150,000 from $235,850. Messes. Hubbard, Finnigan
and Robbins participated in the SERP, prior to its termination.
Director Compensation. All directors hold office until the next annual
meeting of stockholders and until their successors are duly elected and
qualified. Directors are entitled to receive, and in 1998 received, an annual
retainer of $25,000 per year plus a $1,000 for each Board meeting attended,
which they may take in cash or in deferred compensation under Hollywood Park's
Directors Deferred Compensation Plan as outlined below. In addition, members of
the Executive Committee, Audit Committee and Compensation Committee receive
$1,000 for each committee meeting attended, and such amounts are also eligible
for the Directors Deferred Compensation Plan. Furthermore, directors and their
guests are entitled, without charge, to use the Directors' Room at the
Hollywood Park Race Track, which is open on weekends and holidays during the
racing season.
On December 16, 1998, each of Messrs. Johnson, Manfuso, M. Ornest, Parrott,
Reitnouer, Sarkowsky, Torguson and Williamson was granted a non-qualified stock
option to purchase 2,000 shares of Hollywood Park common stock at an exercise
price of $8.75 per share. One-third of the shares purchasable upon exercise of
these options was vested on the grant date, with an additional one-third to
vest on each of the first and second anniversary of the grant date. All of
these options expire on the tenth anniversary of the grant date and (except for
the options granted to Messrs. Johnson, Reitnouer, and Williamson) were granted
under the Hollywood Park 1996 Stock Option Plan.
Directors Deferred Compensation Plan. Participation in Hollywood Park's
Directors Deferred Compensation Plan is limited to directors of Hollywood Park
and each eligible director may elect to defer all or a portion of his annual
retainer and any fees for meetings attended. Any such deferred compensation is
credited to a deferred compensation account, either in cash or in shares of
Hollywood Park Common Stock, at each director's election. As of the date the
director's compensation would otherwise have been paid, and depending on the
director's election, the director's deferred compensation account will be
credited with either (i) cash, (ii) the number of full and/or fractional shares
of Hollywood Park common stock obtained by dividing the amount of the
director's compensation for the calendar quarter or month which he elected to
defer, by the average of the closing price of Hollywood Park common stock on
the principal stock exchange on which the Company's common stock listed (or, if
the common shares are not listed on a stock exchange, the NASDAQ National
Market System) on the last ten business days of the calendar quarter or month
for which such compensation is payable or (iii) a combination of cash and
shares of Hollywood Park common stock as described in clause (i) and (iii). All
cash amounts credited to the director's deferred compensation account bear
interest at an amount to be determined from time to time by the Board of
Directors.
If a director has elected to receive shares of Hollywood Park common stock
in lieu of his retainer, such director's deferred compensation account is
credited at the end of each calendar quarter with the number of full and/or
fractional shares of Hollywood Park common stock obtained by dividing the
dividends which would have been paid on the shares credited to the director's
deferred compensation account as of the dividend record date, if any, occurring
during such calendar quarter is such shares had been shares of issued and
outstanding Hollywood Park common stock on such date, by the closing price of
the Hollywood Park common stock on the New York Stock Exchange on the date such
dividend(s) was paid. In addition, if Hollywood Park declares a
78
dividend payable in shares of Hollywood Park common stock, the director's
deferred compensation account is credited at the end of each calendar quarter
with the number of full and/or fractional shares of Hollywood Park common stock
which such shares would have been entitled to if such shares had been shares of
issued and outstanding Hollywood Park common stock on the record date for such
stock dividend(s).
Participating directors do not have any interest in the cash and/or
Hollywood Park common stock credited to their deferred compensation accounts
until distributed in accordance with the Directors Deferred Compensation Plan,
nor do they have any voting rights with respect to such shares until shares
credited to their deferred compensation accounts are distributed. The rights of
a director to receive payments under the Deferred Compensation Plan are no
greater than the rights of an unsecured general creditor of Hollywood Park.
Each participating director may elect to have the aggregate amount of cash and
shares credited to his deferred compensation account distributed to him in one
lump sum payment or in a number of approximately equal annual installments over
a period of time not to exceed fifteen years. The lump sum payment or the first
installment will be paid as of the first business day of the calendar quarter
immediately following the cessation of the director's service as a director of
Hollywood Park. Prior to the beginning of any calendar year, a director may
elect to change the method of distribution, but amounts credited to a
director's account prior to the effective date of such change may not be
affected, but rather will be distributed in accordance with the election of the
time such amounts were credited to the director's deferred compensation
account.
The maximum number of shares of Hollywood Park common stock that can be
issued pursuant to the Directors Deferred Compensation Plan is 125,000 shares.
Hollywood Park is not required to reserve or set aside funds or shares of
Hollywood Park common stock for the payment of its obligations pursuant to the
Directors Deferred Compensation Plan. Hollywood Park is obligated to make
available, as and when required, a sufficient number of shares of common stock
to meet the needs of the Directors Plan. The shares of Hollywood Park Common
Stock to be issued under the Directors Deferred Compensation Plan may be either
authorized and unissued shares or reacquired shares.
Amendment, modification or termination of the Directors Deferred
compensation Plan may not (1) adversely affect any eligible director's rights
with respect to amounts then credited to his account or (2) accelerate any
payments or distributions under the Directors Deferred Compensation Plan
(except with regard to bona fide financial hardships).
Amendment, modification or termination of the Directors Deferred
Compensation Plan may not (i) adversely affect any eligible director's rights
with respect to amounts then credited to his account or (ii) accelerate any
payments or distributions under the Directors Deferred Compensation Plan
(except with regard to bona fide financial hardships).
Employment Contracts, Termination of Employment and Change-in-Control
Arrangement. The Company has entered into a three-year employment agreement
with G. Michael Finnigan, effective January 1, 1999. Mr. Finnigan's annual
compensation will be $400,000 with an annual bonus of up to $200,000. The bonus
is payable as follows: (a) an amount in the discretion of the Board in the
initial year, and (b) in the remaining years, $100,000 based on the Realty
Investment Group, Inc.'s (a subsidiary of the Company) performance and $100,000
at the discretion of the Board. If Mr. Finnigan terminates his employment for
good reason (defined for present purposes as a material breach of the
employment agreement by the Company and failure to timely remedy such breach),
or if the Company terminates him without cause, Mr. Finnigan will receive his
annual compensation for one year (including salary and bonus), with health and
disability insurance coverage for six months. Mr. Finnigan will also
immediately vest in all stock option grants.
The Company has entered into a three year employment agreement with Paul
Alanis, effective January 1, 1999. Mr. Alanis's annual compensation will be
$600,000, with an annual bonus of not less than $100,000 and up to $600,000.
The bonus is payable as follows: (a) $100,000 if Mr. Alanis remains employed by
Hollywood Park for the year in question; (b) $200,000 based on the Company's
actual earnings before interest, taxes depreciation and amortization as
compared to budget, and not exceeding the capital budget; and (c) the
79
remaining $300,000 to awarded at the discretion of the Board of Directors. If
Mr. Alanis terminates his employment for good reason, or if the Company
terminates Mr. Alanis without cause, Mr. Alanis will receive an annual salary
of $700,000 through the balance of the contract period, and retain his health
and disability insurance for six months after termination. Mr. Alanis will also
immediately vest in all stock option grants. If Mr. Alanis terminates his
employment upon failure to be promoted to the Company's Chief Executive Officer
by December 31, 1999, he will be entitled to lump sum severance payments of
$700,000, and continued health and disability insurance coverage for six
months. Mr. Alanis would also immediately vest in 75% of the 400,000 options
granted to him on September 10, 1998.
The Company has also entered into a three-year employment agreement with J.
Michael Allen, effective January 1, 1999. Mr. Allen's annual compensation will
be $400,000 with a possible bonus of up to $200,000. The bonus is payable as
follows: (a) $100,000 based on the company's actual earnings before interest,
taxes depreciation and amortization as compared to budget, and not exceeding
the capital budget, and (b) $100,000 at the discretion of the Board of
Directors. If Mr. Allen terminates his employment for good reason, or if the
Company terminates him without cause, and so long as he does not compete with
the Company or its subsidiaries in the gaming business prior to the end of the
employment contract term, he will be entitled to $400,000 per year for the
balance of employment contract term, with health and disability insurance
coverage for six months. Mr. Allen will also immediately vest in all stock
option grants. If Mr. Allen terminates his employment due to Mr. Alanis's
failure to be promoted to the Company's Chief Executive Officer by December 31,
1999, he will receive any accrued but unpaid salary and vacation benefits.
The Company, through its wholly-owned subsidiary, Hollywood Park Operating
Company, has entered into a three-year employment agreement with Donald M.
Robbins, effective January 1, 1999. Mr. Robbins's annual compensation will be
$295,000 with a possible bonus at the discretion of the Board of Directors. If
Hollywood Park Operating Company terminates Mr. Robbins without cause prior to
January 1, 2000, Mr. Robbins will be entitled to receive a lump sum amount
equal to twice his annual compensation (including salary and bonus). If
Hollywood Park Operating Company terminates Mr. Robbins without cause after
January 1, 2000, he will be entitled to receive a lump sum amount equal to his
annual compensation for the balance of the term of the employment agreement
(including salary and bonus), but not less than his annual compensation for one
year (including salary and bonus). In either situation, Mr. Robbins will retain
health and disability insurance coverage for six months after termination and
will vest in all stock option grants. If Hollywood Park Operating Company
terminates Mr. Robbins without cause at any time after the term of the
employment agreement, he will be entitled to receive in a lump sum an amount
equal to one year's compensation (including salary and bonus), will retain
health and disability insurance coverage for six months after termination and
will vest in all stock option grants.
Compensation Committee Interlocks and Insider Participation. The members of
the Compensation Committee currently are Messrs. Johnson, Reitnouer and
Williamson. None of the members of the Compensation Committee were officers or
employees or former officers or employees of the Company or its subsidiaries.
80
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the name, address (address is provided for
persons listed as beneficial owners of 5% or more of the outstanding Hollywood
Park common stock) and number of shares and percent of the outstanding
Hollywood Park common stock beneficially owned as of March 15, 1999, by each
person known to the Board of Directors of Hollywood Park to be the beneficial
owner of 5% or more of the outstanding shares of Hollywood Park common stock,
each Director, each Named Officer and all current Directors and Executive
Officers as a group.
Shares Percent of
Beneficially Shares
Name and Address of Beneficial Owner Owned Outstanding(a)
- ------------------------------------ ------------ --------------
R.D. Hubbard................................... 2,736,488(b) 10.6%
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Legg Mason, Inc................................ 2,709,095(c) 10.5%
111 South Calvert Street
Baltimore, Maryland 21202
State of Wisconsin Investment Board............ 1,611,000(d) 6.2%
P.O. Box 7842
Madison, Wisconsin 53707
Timothy J. Parrott............................. 443,716(e) 1.7%
J.R. Johnson................................... 380,760(f) 1.5%
Michael Ornest................................. 299,833(g) 1.2%
Warren B. Williamson........................... 159,917(h) *
Lynn P. Reitnouer.............................. 62,000(i) *
Herman Sarkowsky............................... 66,708(j) *
Robert T. Manfuso.............................. 40,333(k) *
Marlin Torguson................................ 30,667(l) *
G. Michael Finnigan............................ 110,417(m) *
Paul Alanis.................................... 400,000(n) 1.6%
J. Michael Allen............................... 50,000(o) *
Donald M. Robbins.............................. 80,672(p) *
Current Directors and Executive Officers as a
group (13 persons)............................ 4,861,511(q) 18.8%
- --------
* Less than one percent (1%) of the outstanding common shares.
(a) Assumes exercise of stock options beneficially owned by the named
individual or entity into shares of Hollywood Park Common Stock. Based on
25,800,069 shares outstanding as of March 15, 1999.
(b) Includes 116,668 shares of Hollywood Park Common Stock which Mr. Hubbard
has the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(c) Based upon information provided by the stockholder in Schedule 13G filed
with the Commission on February 16, 1999. According to such Schedule 13G,
2,515,000 (9.75%) shares are held by Legg Mason Special Investment Trust,
Inc., with Legg Mason Fund Adviser, Inc. having power to dispose thereof.
The Schedule 13G further reports that the remaining shares are held by
various clients of Legg Mason Capital Management, Inc. and Legg Mason Wood
Walker, Inc., which have power to dispose thereof. Legg Mason Fund Adviser,
Inc., Legg Mason Capital Management, Inc. and Legg Mason Wood Walker, Inc.
are subsidiaries of Legg Mason, Inc.
(d) Based upon information provided by the stockholder in Schedule 13G filed
with the Commission on February 2, 1999.
81
(e) Includes 270,945 shares of Hollywood Park Common Stock which Mr. Parrott
has the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999, including 270,278 options assumed by the
Company in connection with the Boomtown Merger.
(f) Includes 12,000 shares of Hollywood Park Common Stock which Mr. Johnson has
the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(g) Includes 667 shares of Hollywood Park Common Stock which Mr. Ornest has the
right to acquire upon the exercise of options which are exercisable within
60 days of March 15, 1999.
(h) Includes 12,000 shares of Hollywood Park Common Stock which Mr. Williamson
has the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(i) Includes 12,000 shares of Hollywood Park Common Stock which Mr. Reitnouer
has the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(j) Includes 12,000 shares of Hollywood Park Common Stock which Mr. Sarkowsky
has the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(k) Includes 12,000 shares of Hollywood Park Common Stock which Mr. Manfuso has
the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(l) Includes 30,667 shares of Hollywood Park Common Stock which Mr. Torguson
has the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(m) Includes 85,002 shares of Hollywood Park Common Stock which Mr. Finnigan
has the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(n) Includes 100,000 shares of Hollywood Park Common Stock which Mr. Alanis has
the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(o) Includes 50,000 shares of Hollywood Park Common Stock which Mr. Allen has
the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(p) Includes 78,334 shares of Hollywood Park Common Stock which Mr. Robbins has
the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1999.
(q) Includes 792,283 shares of Hollywood Park Common Stock of which the
Directors and Executive Officers may be deemed to have beneficial ownership
following the exercise of options to purchase Hollywood Park Common Stock
which are exercisable within 60 days of March 15, 1999. Excluding such
shares, the Directors and Executive Officers of Hollywood Park have
beneficial ownership of 4,057,228 shares of Hollywood Park Common Stock,
which represents 15.7% of the shares of Hollywood Park Common Stock
outstanding as of March 15, 1999.
82
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since November 1993, we have had an aircraft time sharing agreement with
R.D. Hubbard Enterprises, Inc., which is wholly owned by Mr. Hubbard. The
current agreement, effective as of June 1998, expires on December 31, 1999 and
thereafter automatically renews each month unless either party gives written
notice of termination at least two weeks before a renewal date. We reimbursed
Hubbard Enterprises approximately $72,000 in 1998 for our use of the aircraft.
Timothy J. Parrott purchased 270,738 shares of Boomtown common stock in
connection with Boomtown's 1988 acquisition of Boomtown Hotel & Casino, Inc.
(which operates Boomtown Reno). Mr. Parrott paid an aggregate purchase price of
$222,000, of which $1,000 was paid in cash and $221,000 was paid by a
promissory note secured by a pledge to Boomtown of all of the shares owned by
Mr. Parrott. As of October 31, 1998, Mr. Parrott resigned his position as
Chairman of Boomtown, and Hollywood Park retained him as a consultant to
provide executive consulting services to Hollywood Park relating to gaming and
other business issues. Mr. Parrott was retained for a three year period, with
an annual retainer of $350,000 with health and disability benefits equivalent
to those he received as a Boomtown employee. Mr. Parrott's note will be
forgiven in three equal parts on each anniversary of the consulting agreement.
In connection with the Boomtown merger, Mr. Parrott was designated as a Board
member and continues in that respect.
On August 31, 1998, we received a promissory note from Mr. Alanis for up to
$3.5 million evidencing a loan we made to Mr. Alanis of approximately $3.2
million to purchase 300,000 shares of our common stock in connection with Mr.
Alanis' becoming an officer of Hollywood Park. Mr. Alanis was formerly the
President of Horseshoe Gaming, Inc., the manager and a member of Horseshoe
Gaming, L.L.C. The promissory note bears interest at the prime interest rate,
but is not to exceed 10%. The principal amount of the promissory note, along
with any accrued interest, is due in full no later than December 31, 1999. The
promissory note is secured by Mr. Alanis' interest in Horseshoe Gaming, L.L.C.,
which has an approximate value well in excess of $3.5 million.
Marlin F. Torguson, who beneficially owned approximately 21.5% of the
outstanding common stock of Casino Magic, agreed, in connection with the Casino
Magic acquisition, to vote his Casino Magic shares in favor of the acquisition
by Hollywood Park. In addition, Mr. Torguson agreed to continue to serve as an
employee of Casino Magic for three years following the acquisition, and during
such three-year period not to compete with Hollywood Park or Casino Magic in
any jurisdictions in which either Hollywood Park or Casino Magic operates.
Hollywood Park agreed to appoint Mr. Torguson to the board of directors of
Hollywood Park. Hollywood Park has agreed to issue to Mr. Torguson 20,000
shares of Hollywood Park common stock per year during such three-year period
and pay him $300,000 per year of such period. In addition, Hollywood Park
agreed to grant Mr. Torguson options to acquire 30,000 shares of Hollywood Park
common stock at an exercise price equal to the closing price of Hollywood Park
common stock on the effective date of the Casino Magic acquisition. The
foregoing payments will be made to Mr. Torguson whether or not Hollywood Park
or Casino Magic terminates Mr. Torguson's employment (except for a termination
for cause).
83
DESCRIPTION OF CERTAIN INDEBTEDNESS
Bank Credit Facility
In connection with the acquisition of Casino Magic, we entered into the Bank
Credit Facility with a group of banks (the "Banks") for whom Bank of America
NT&SA acts as Administrative Agent. The Bank Credit Facility provides us with a
revolving line of credit of up to $300 million, with a letter of credit sub-
facility of $30 million and swing line sub-facility of $10 million provided by
the Administrative Agent. Under the terms of the Bank Credit Facility, now that
we have been approved to receive the gaming license in Indiana, we may request
that the line of credit be increased to $375 million. The Bank Credit Facility
matures December 31, 2003; however, the Banks have the right to terminate the
line of credit upon a "Change in Control", as defined in the Bank Credit
Facility.
The commitment under the revolving line of credit will be reduced by $15
million, commencing March 31, 2001, and on the last day of each third calendar
month thereafter until December 31, 2002. Commencing on March 31, 2003 and on
the last day of each third calendar month thereafter, the amount available for
borrowing under the line of credit will decrease by $25 million. If the
facility has been increased, the reduction amounts are to be increased
proportionately.
The annual interest rate under the Bank Credit Facility is determined, at
the Company's election, by reference to the "Eurodollar Rate" (for Eurodollar
loans) (for interest periods of one, two, three or six months) or the
"Alternate Base Rate" (for Base Rate loans), as these terms are defined in the
Bank Credit Facility, plus margins that vary depending on the Company's ratio
of funded debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA"). With a funded debt to EBITDA ratio of less than 2.00
to 1.00, the margin for Eurodollar loans is 1.00% and nothing for Base Rate
loans. The margin for each type of loan will increase by 25 basis points
(except the initial increase in the margin for Base Rate loans, which increases
by 12.5 basis points) for each 50 basis point increase in the funded debt to
EBITDA ratio. The maximum margin for Eurodollar loans is 2.25%, and for Base
Rate loans is 1.125%. The margin for the period October 15, 1998, through
November 30, 1998, for Eurodollar loans was 2.00% and 0.875% for Base Rate
loans. Effective December 1, 1998 through February 28, 1999, the margins are
2.25% and 1.125% for Eurodollar and Base Rate loans, respectively. After giving
effect to this offering, the margins would continue to be 2.25% and 1.125% for
Eurodollar and Base Rate loans, respectively.
The commitment fee for the facility also varies based on the ratio of funded
debt to EBITDA, starting from 25 basis points when the ratio is less than 2.00,
and increasing by 6.25 basis points for the first two increases in the ratio of
50 basis points, then remaining unchanged for the next 50 basis points increase
in the ratio, and thereafter increasing by 6.25 basis points for each 50 basis
points increase in the ratio, up to a maximum of 50 basis points.
Our obligations under the Bank Credit Facility are guaranteed by all of our
significant subsidiaries (except Casino Magic of Louisiana, Corp. and Casino
Magic Neuquen) and are secured by a first lien and security interest on
substantially all of our assets and the assets of our significant subsidiaries,
except for specified permitted liens incurred in connection with, or existing
at the time of, acquisition of property or subsidiaries.
The Bank Credit Facility imposes various customary affirmative covenants on
us and our subsidiaries, including among others, reporting covenants, covenants
to maintain insurance, comply with laws, maintain properties and other
covenants customary in commercial bank financings of this type.
The Bank Credit Facility imposes various negative covenants on us and our
subsidiaries including, without limitation: (1) restrictions on the payment of
subordinated obligations, (2) disposition of property, (3) mergers, (4) hostile
acquisitions, (5) payment of dividends and other distributions, (6) change in
the nature of our business, (7) restrictions on the incurrence of additional
debt and guaranties of debt, (8) restrictions on capital expenditures and
operating leases, (9) restrictions on investments, (10) restrictions on
transactions with affiliates, (11) restrictions on liens and negative pledges,
and (12) restrictions on amendments and modifications
84
of subordinated indebtedness. In addition, we must comply with various
financial covenants, including interest coverage ratio, and funded debt to
EBITDA ratio.
Events of default under the Bank Credit Facility include, among other
things: (1) failure to make payments when due, (2) breach of representations or
warranties, (3) events of insolvency, (4) failure to pay other debt for
borrowed money, or other breach or default under agreements for such other debt
allowing the holder or lender to accelerate its maturity, or require such debt
to be redeemed or repurchased, (5) final judgment in an amount in excess of
$1.0 million which has not been stayed or satisfied within 30 days, (6)
revocation of the licenses affecting gaming operations accounting for 5% or
more of consolidated gross revenues, and (7) failure to comply with covenants.
Hollywood Park 9 1/2% Senior Subordinated Notes
On August 6, 1997, we and our wholly-owned subsidiary, Hollywood Park
Operating Company, jointly issued $125,000,000 aggregate principal amount of 9
1/2% Senior Subordinated Notes. These notes bear interest at 9 1/2% per year,
and interest is payable on each February 1 and August 1. The 9 1/2% Notes may
be redeemed, at our option and at the option of Hollywood Park Operating
Company, in whole or in part, on or after August 1, 2002 at the following
premiums over face: (1) on and after August 1, 2002, but before August 1, 2003:
104.75%; (2) on and after August 1, 2003, but before August 1, 2004: 102.375%;
(3) on and after August 1, 2004, but before August 1, 2005: 101.188%; and (4)
on and after August 1, 2005, and thereafter: 100%. Our obligations and those of
Hollywood Park Operating Company on the 9 1/2% Notes are not secured by any of
our assets, but are guaranteed by all of our material restricted subsidiaries.
The 9 1/2% Notes are governed by an indenture dated August 1, 1997, as
amended, which contains covenants limiting the ability of Hollywood Park and
Hollywood Park Operating Company and their respective subsidiaries to incur
additional debt, issue preferred stock, pay dividends or make certain
distributions, repurchase their stock, grant liens on their property, enter
into certain transactions with their affiliates, sell assets or enter into
mergers or consolidations, or sell stock in their subsidiaries. The indenture
also requires that we and Hollywood Park Operating Company offer to repurchase
the 9 1/2% Notes upon a change of control, as defined in the indenture. In a
supplemental indenture dated February 5, 1999, the indenture was amended to
make changes consented to by holders of the 9 1/2% Notes in the consent
solicitation.
Events of default under the indenture include: (1) failure to make payments
on the 9 1/2% Notes when due, (2) failure to comply with covenants, (3) failure
to pay other debt of $10 million or more, or default under such debt resulting
in acceleration of the maturity of such debt, (4) failure to satisfy or
discharge any final judgment in excess of $10 million, and (5) occurrence of
certain insolvency events.
Casino Magic of Louisiana, Corp. 13% First Mortgage Notes
On August 22, 1996, Casino Magic of Louisiana, Corp., our indirect wholly-
owned subsidiary which owns and operates Casino Magic Bossier, issued and sold
$115,000,000 aggregate principal amount of 13% First Mortgage Notes due 2003.
The Louisiana Notes provide for interest at 13% per year, payable semi-annually
on each February 15 and August 15, and at maturity. The Louisiana Notes also
provide for contingent interest in the amount of 5% of Casino Magic of
Louisiana, Corp.'s "Adjusted Consolidated Cash Flow", as defined in the
indenture for the Louisiana Notes, for the "Accrual Period", which is generally
the six month period ending December 31 or June 30, as the case may be. The
contingent interest is payable on each interest payment date, but may be
deferred at the option of Casino Magic of Louisiana, Corp., if and to the
extent that: (1) the payment of such contingent interest will cause Casino
Magic of Louisiana, Corp.'s "Adjusted Fixed Charge Coverage Ratio" for the most
recently completed four full fiscal quarters preceding such interest payment
date to be less than 1.5 to 1.0 on a pro forma basis, giving effect to the
payment of such contingent interest, and (2) the principal amount of the
Louisiana Notes to which such contingent interest relates has not then matured
or otherwise become due and payable. "Adjusted Fixed Charge Coverage Ratio" is
defined in the indenture as the ratio obtained by dividing the "Adjusted
Consolidated Cash Flow" by the "Fixed Charges."
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The aggregate contingent interest payable in any Accrual Period is reduced by
the portion of such interest that relates to Louisiana Notes that were not
outstanding as of the record date, each February 1 and August 1, preceding such
interest payment date.
The Louisiana Notes are secured by a first priority lien and security
interest in substantially all of the assets of Casino Magic of Louisiana,
Corp., including the Bossier riverboat. Jefferson Casino Corporation, the
immediate parent of Casino Magic of Louisiana, Corp., guarantees the Louisiana
Notes and the guarantee is secured by all of the assets of Jefferson Casino
Corporation, including all of the capital stock of Casino Magic of Louisiana,
Corp.
The Louisiana Notes are governed by an indenture which contains certain
covenants limiting the ability of Casino Magic of Louisiana, Corp. and its
subsidiaries to engage in any line of business other than the gaming business
and activities incidental to it, to borrow additional moneys or otherwise
become liable for additional debt, to pay dividends, issue preferred stock,
make investments and certain types of payments, to grant liens in their
property or enter into mergers or consolidations, or to enter into certain
specified transactions with their affiliates. The covenants also limit the
ability of Jefferson Casino Corporation to engage in any business other than
owning the stock of Casino Magic of Louisiana, Corp. or to incur any debt or
make any investments. The indenture also contains covenants which require
Casino Magic of Louisiana, Corp. to make an offer to repurchase the Louisiana
Notes upon certain sales of assets, casualty losses and changes in the control
of Casino Magic of Louisiana, Corp. or Jefferson Casino Corporation. Our
acquisition of Casino Magic resulted in a change in control. Accordingly,
Casino Magic of Louisiana, Corp. offered to repurchase the Louisiana Notes. The
offer expired on December 23, 1998 and holders of an aggregate principal amount
of approximately $2.1 million principal amount of Louisiana Notes accepted the
offer.
The indenture provides for certain events of default which include failure
to pay interest or contingent interest due on the Louisiana Notes, failure to
pay the principal or premium on the Louisiana Notes at maturity, upon
redemption or otherwise, failure to comply with the covenants contained in the
indenture, failure to pay certain other indebtedness, failure to satisfy a
final judgment, breach of any material representation or warranty in the
indenture and related documents, becoming insolvent or seeking relief under any
bankruptcy laws, and failure to continue operations.
The Louisiana Notes may only be redeemed at the option of Casino Magic of
Louisiana, Corp. after August 14, 2000, at the following redemption prices: (1)
after August 14, 2000, and before August 15, 2001: 106.5%; (2) after August 14,
2001, and before August 15, 2002: 104.332%, and (3) after August 14, 2002:
102.166%. Upon any acceleration of the maturity of the Louisiana Notes as a
result of an event of default caused by the willful action or inaction of
Casino Magic of Louisiana, Corp., the applicable redemption premiums set forth
above will also become due and payable in addition to the principal and other
amounts otherwise due on the Louisiana Notes. In the event of an acceleration
of the maturity of the Louisiana Notes as a result of a willful default before
August 15, 2000, when the Louisiana Notes may not be redeemed at the option of
Casino Magic of Louisiana, Corp., the following premiums will apply: (1) after
August 14, 1998, and before August 15, 1999: 109.750%, and (2) after August 14,
1999, and before August 15, 2000: 108.125%.
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THE EXCHANGE OFFER
General
The Company hereby offers, upon the terms and subject to the conditions set
forth in this prospectus and in the accompanying Letter of Transmittal (which
together constitute the exchange offer (the "Exchange Offer")), to exchange up
to $350 million aggregate principal amount of Exchange Notes for a like
aggregate principal amount of Old Notes properly tendered on or prior to the
Expiration Date (as defined below) and not withdrawn as permitted pursuant to
the procedures described below. The Exchange Offer is being made with respect
to all of the Old Notes.
As of the date of this prospectus, $350 million aggregate principal amount
of the Old Notes is outstanding. This prospectus, together with the Letter of
Transmittal, is first being sent on or about March 29, 1999, to all holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions
set forth under "--Certain Conditions to the Exchange Offer" below. The Company
currently expects that each of the conditions will be satisfied and that no
waivers will be necessary.
Purpose of the Exchange Offer
The Old Notes were issued on February 18, 1999 (the "Issuance Date") in a
transaction exempt from the registration requirements of the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold, or otherwise
transferred unless so registered or unless an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the issuance and sale of the Old Notes, the Company
entered into the Registration Rights Agreement, which requires that:
. the Company file with the Commission a registration statement relating to
the Exchange Offer not later than 45 days after the date of issuance of
the Old Notes, and
. the Company use its best efforts to cause the registration statement
relating to the Exchange Offer to become effective under the Securities
Act not later than 150 days after the date of issuance of the Old Notes,
and
. the Exchange Offer be consummated not later than 30 business days after
the target date for the effectiveness of the Registration Statement,
. or, if obligated to file a shelf registration statement, that the Company
use its best efforts to file the shelf registration statement with the
Commission within 30 days after such filing obligation arises and to
cause the shelf registration statement to be declared effective within 90
days after such obligation arises.
A copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
The Exchange Offer is being made by the Company to satisfy its obligations
with respect to the Registration Rights Agreement. 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, or any person whose
Old Notes are held of record by The Depository Trust Company. Other than
pursuant to the Registration Rights Agreement, the Company is not required to
file any registration statement to register any outstanding Old Notes. Holders
of Old Notes who do not tender their Old Notes or whose Old Notes are tendered
but not accepted would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act, if they wish to sell
their Old Notes.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company
87
has not sought its own interpretive letter and there can be no assurance that
the staff would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the Staff, the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a Holder (other than any Holder
who is a broker-dealer or an "affiliate" of the Company within the meaning of
Rule 405 of the Securities Act) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
Holder's business and that such Holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such Exchange Notes, as to which
such Holder must acknowledge. See "--Resale of Exchange Notes". Any holder who
is an affiliate of the Company or who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes cannot rely on
such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange 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 Exchange Notes. See "Plan of
Distribution".
Terms of the Exchange
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Old Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Old Notes for which they may be exchanged pursuant
to this Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof and will not be subject to any covenant
regarding registration. The Exchange Notes will evidence the same indebtedness
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Notes".
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
Tendering holders of the Old Notes will be required to make the
acknowledgements referred to in the last paragraph of the heading "--Purpose of
the Exchange Offer." Tendering holders of the Old Notes shall 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 the Old
Notes pursuant to the Exchange Offer.
Expiration Date; Extension; Termination; Amendment
The Exchange Offer will expire at 5:00 p.m., New York City time, on May 3,
1999, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended, is
referred to herein as the "Expiration Date"). The Expiration Date will be at
least 20 business days after the commencement of the Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. The Company expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Old Notes, by giving oral or written notice to the Exchange
Agent and by timely public announcement no later than 9:00 a.m. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer unless properly withdrawn.
The Company expressly reserves the right to
. terminate or amend the Exchange Offer and not to accept for exchange any
Old Notes not theretofore accepted for exchange upon the occurrence of
any of the events specified below under "Certain Conditions to the
Exchange Offer" which have not been waived by the Company and
. amend the terms of the Exchange Offer in any manner.
88
If any such termination or amendment occurs and is determined by the Company to
be a material change, the Company will notify the Exchange Agent and will
either issue a press release or give oral or written notice to the holders of
the Old Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Company
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Company will exchange the Exchange Notes for the Old Notes
as soon as practicable after the Expiration Date (such date is referred to as
the "Exchange Date").
Interest on Exchange Notes
The Exchange Notes will bear interest from their date of issuance. Interest
will accrue on the Old Notes that are tendered in exchange for the Exchange
Notes through the issue date of the Exchange Notes. Holders of Old Notes that
are accepted for exchange will not receive interest that is accrued but unpaid
on the Old Notes at the time of exchange, but such interest will be payable,
together with interest on the Exchange Notes, on the first interest payment
date after the Expiration Date. Interest on the Exchange Notes will be payable
semi-annually on each February 15 and August 15, commencing on August 15, 1999.
Procedures for Tendering Old Notes
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this prospectus and in the accompanying
Letter of Transmittal.
A holder of Old Notes may tender the same by
. properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this prospectus to the Letter of Transmittal
shall be deemed to include a facsimile thereof) and delivering the same,
together with the certificate or certificates representing the Old Notes
being tendered and any required signature guarantees and any other documents
required by the Letter of Transmittal, to the Exchange Agent (as defined
below) at its address set forth below on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or
. complying with the guaranteed delivery procedures described below.
The method of delivery of Old Notes, Letters of Transmittal and all other
required documents is at the election and risk of the holders. If such delivery
is by mail, it is recommended that registered mail properly insured, with
return receipt requested, be used. In all cases, sufficient time should be
allowed to insure timely delivery. No Old Notes or Letters of Transmittal
should be sent to the Company.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a "book-
entry transfer facility") whose name appears on a security listing as the owner
of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed
by the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of
89
the registered holder appearing on the note register for the Old Notes, the
signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date, a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Old Notes are registered and, if possible, the certificate
numbers of the Old Notes to be tendered, and stating that the tender is being
made thereby and guaranteeing that within three business days after the
Expiration Date, the Old Notes in proper form for transfer (or a confirmation
of book-entry transfer of such Old Notes into the Exchange Agent's account at
the book-entry transfer facility), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Notes being tendered
by the above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly completed
Letter of Transmittal and any other required documents), the Company may, at
its option, reject the tender. Copies of the notice of guaranteed delivery
("Notice of Guaranteed Delivery") which may be used by Eligible Institutions
for the purposes described in this paragraph are available from the Exchange
Agent.
A tender will be deemed to have been received as of the date when
. the tendering holder's properly completed and duly signed Letter of
Transmittal accompanied by the Old Notes (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the book-
entry transfer facility) is received by the Exchange Agent, or
. a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible
Institution is received by the Exchange Agent.
Issuances of Exchange Notes in exchange for Old Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer (including the Letter
90
of Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured within such
reasonable period of 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 any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney 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, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things:
. the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange 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
Exchange Notes and
. that neither the holder nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company, or if it is
an affiliate it will comply with the registration and prospectus
requirements of the Securities Act to the extent applicable.
Each broker-dealer that receives Exchange 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 Exchange Notes. See "Plan of Distribution".
Terms and Conditions of the Letter of Transmittal
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer:
The party tendering Notes for exchange (the "Transferor") exchanges, assigns
and transfers the Old Notes to the Company and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Old Notes or transfer
ownership of such Old Notes on the account books maintained by a book-entry
transfer facility and also agrees to comply with its obligations under the
Registration Rights Agreement. The Transferor further agrees that acceptance of
any tendered Old Notes by the Company and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of
certain of its obligations under the Registration Rights Agreement. All
authority conferred by the Transferor will survive the death or incapacity of
the Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
91
The Transferor certifies that it is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes.
Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of Exchange Notes.
Each Transferor which is a broker-dealer receiving Exchange Notes for its own
account must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. 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.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter
must be received by the Exchange Agent at the address set forth herein prior to
the Expiration Date. Any such notice of withdrawal must:
. specify the name of the person having tendered the Old Notes to be
withdrawn (the "Depositor"),
. identify the Old Notes to be withdrawn (including the certificate number
or numbers and principal amount of such Old Notes),
. specify the principal amount of Notes to be withdrawn,
. include a statement that such holder is withdrawing his election to have
such Old Notes exchanged,
. 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 or as
otherwise described above (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee
under the Indenture register the transfer of such Old Notes into the name
of the person withdrawing the tender, and
. specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. The Exchange Agent will return the
properly withdrawn Old Notes promptly following receipt of notice of
withdrawal. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and
number of the account at the book-entry transfer facility to be credited
with the withdrawn Old Notes or otherwise comply with the book-entry
transfer facility procedure. All questions as to the validity of notices
of withdrawals, including time of receipt, will be determined by the
Company and such determination will be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such book-
entry transfer facility specified by the 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 under "--Procedures for Tendering Old Notes" above at any time on or
prior to the Expiration Date.
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Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly on the Exchange Date, all Old Notes properly
tendered and will issue the Exchange Notes promptly after such acceptance. See
"--Certain Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if the Company has given oral or written
notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely book-entry
confirmation of such Old Notes into the Exchange Agent's account at the book-
entry transfer facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Old Notes will be credited to an account
maintained with such book-entry transfer facility) as promptly as practicable
after the expiration of the Exchange Offer.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for
exchange, or to issue Exchange Notes in exchange for, any Old Notes and may
terminate or amend the Exchange Offer (by oral or written notice to the
Exchange Agent or by a timely press release) if at any time before the
acceptance of such Old Notes for exchange or the exchange of the Exchange Notes
for such Old Notes, any of the following conditions exist:
(1) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange
Offer which, in the sole judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or have a
material adverse effect on the contemplated benefits of the Exchange Offer
to the Company; or
(2) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that is or may be adverse to the Company, or the
Company shall have become aware of facts that have or may have adverse
significance with respect to the value of the Old Notes or the Exchange
Notes or that may materially impair the contemplated benefits of the
Exchange Offer to the Company; or
(3) any law, rule or regulation or applicable interpretations of the
staff of the Commission is issued or promulgated which, in the good faith
determination of the Company, do not permit the Company to effect the
Exchange Offer; or
(4) the approval of the issuance of the Exchange Notes in the exchange
offer has not been obtained from the Indiana Gaming Commission; or
(5) any governmental approval has not been obtained, which approval the
Company, in its sole discretion, deems necessary for the consummation of
the Exchange Offer; or
(6) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law statute, rule or
regulation) which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
have a material adverse effect on the contemplated benefits of the Exchange
Offer to the Company; or
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(7) there shall occur a change in the current interpretation by the staff
of the Commission which permits the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes to be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the
distribution of such Exchange Notes; or
(8) there shall have occurred:
. any general suspension of, shortening of hours for, or limitation on
prices for, trading in securities on any national securities exchange
or in the over-the-counter market (whether or not mandatory),
. any limitation by any governmental agency or authority which may
adversely affect the ability of the Company to complete the
transactions contemplated by the Exchange Offer,
. a declaration of a banking moratorium or any suspension of payments
in respect of banks by Federal or state authorities in the United
States (whether or not mandatory),
. a commencement of a war, armed hostilities or other international or
national crisis directly or indirectly involving the United States,
. any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other lending
institutions in the United States, or
. in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or
worsening thereof.
The Company expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date
in any respect whether or not any of the conditions set forth above occur.
The foregoing conditions are for the sole benefit of the Company and maybe
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 maybe
asserted at any time and from time to time.
If the Company waives or amends the foregoing conditions, it will, if
required by law, extend the Exchange Offer for a minimum of five business days
from the date that the Company first gives notice, by public announcement or
otherwise, of such waiver or amendment, if the Exchange Offer would otherwise
expire within such five business-day period. Any determination by the Company
concerning the events described above will be final and binding upon all
parties.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this prospectus constitutes
apart or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
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Exchange Agent
The Bank of New York has been appointed as the "Exchange Agent" for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
By Hand/Overnight Courier: By Mail:
------------------------- -------
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, Floor 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attn: Martha James
New York, New York 10286 Reorganization Section
Attn: Martha James
Reorganization Section
By Facsimile: (212) 815-6339
Attn.: Reorganization Section
Telephone: (212) 815-6335
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 at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
Solicitation of Tenders; Fees and Expenses
The Company has not retained any dealer-manager in connection with the
Exchange Offer and 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 will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this and other related documents to the beneficial owners
of the Old Notes and in handling or forwarding tenders for their customers.
The Company will pay all expenses incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent, Trustee, registration
fees, accounting, legal, printing and related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the respective dates as of
which information is given herein. The Exchange Offer is not being made to (nor
will tenders be accepted from or on behalf of) holders of Old Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. However,
the Company may, at its discretion, take such action as it may deem necessary
to make the Exchange Offer in any such jurisdiction and extend the Exchange
Offer to holders of Old Notes in such jurisdiction. In certain jurisdictions,
the Exchange Offer may be made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
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Transfer Taxes
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 Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be 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 Exchange Notes will be recorded at the carrying value of the Old Notes
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 by the
Company upon the exchange of Exchange Notes for Old Notes. Expenses incurred in
connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. Old Notes not
exchanged pursuant to the Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of Old Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement to effect the Exchange Offer. Holders of Old Notes who do not tender
their Old Notes in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights and limitations applicable thereto under the
Indenture, except for any such rights under the Registration Rights Agreement
that by their terms terminate or cease to have further effectiveness as a
result of the making of this Exchange Offer. All untendered Old Notes will
continue to be subject to the restrictions on transfer set forth in the
Indenture. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered Old Notes could be adversely
affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
Resale of Exchange Notes
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on
96
these interpretations by the staff, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by a Holder (other than
any Holder who is a broker-dealer or an "affiliate" of the Company within the
meaning of Rule 405 of the Securities Act) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
Holder's business and that such Holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such Exchange Notes. However, any
holder who is an "affiliate" of the Company or who has an arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Old
Notes from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act:
. could not rely on the applicable interpretations of the staff and
. must comply with the registration and prospectus delivery requirements of
the Securities Act. A broker-dealer who holds Old Notes that were
acquired for its own account as a result of market-making or other
trading activities 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
resale of Exchange Notes. Each such broker-dealer that receives Exchange
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 in the Letter of
Transmittal that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution".
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company
has agreed, pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the Exchange
Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Exchange Notes reasonably requests. Such
registration or qualification may require the imposition of restrictions or
conditions (including suitability requirements for offers or purchasers) in
connection with the offer or sale of any Exchange Notes.
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DESCRIPTION OF NOTES
The Old Notes were issued and the Exchange Notes offered hereby will be
issued under an indenture dated as of February 18, 1999 (the "Indenture") among
the Company, as issuer, the Guarantors named therein and The Bank of New York,
as trustee (the "Trustee"). The terms of the Exchange 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
Exchange Notes are subject to all such terms, and holders of the Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of the material provisions of the Indenture
describes the material terms of the Indenture but does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to
the Trust Indenture Act.
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to Hollywood Park, Inc. and not to any of its subsidiaries or
affiliates.
On February 18, 1999, the Company issued $350 million aggregate principal
amount of Old Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Old Notes, except for certain
transfer restrictions and registration and other rights relating to the
exchange of the Old Notes for the Exchange Notes. The Trustee will authenticate
and deliver Exchange Notes for original issue only in exchange for a like
principal amount of Old Notes. Any Old Notes that remain outstanding after the
consummation of the Exchange Offer, together with the Exchange Notes, will be
treated as a single class of securities under the Indenture. Accordingly, all
references herein to specified percentages in aggregate principal amount of the
outstanding Notes shall be deemed to mean, at any time after the Exchange Offer
is consummated, such percentage in aggregate principal amount of the Old Notes
and Exchange Notes then outstanding.
Brief Description of the Notes and the Guarantees
The Notes
These Notes:
. are general unsecured obligations of the Company;
. are subordinated in right of payment to all existing and future Senior
Debt of the Company;
. are effectively subordinated to all secured Indebtedness of the Company;
. rank equally with its 9 1/2% Senior Subordinated Notes due 2007 issued by
the Company and Hollywood Park Operating Company;
. are senior in right of payment to any future Indebtedness of the Company
that is specifically subordinated to the Notes; and
. are unconditionally guaranteed by the Guarantors.
The Guarantees
These Notes are guaranteed by each of the existing and future Material
Restricted Subsidiaries of the Company, which are initially all of the
subsidiaries of the Company except:
Hollywood Park Kansas, Inc.
Sunflower Racing, Inc. and its subsidiary SR Food & Beverage Company
98
the following subsidiaries of Casino Magic Corp.:
Jefferson Casino Corporation and its subsidiary Casino Magic of Louisiana,
Corp.
Casino Magic Neuquen S.A. and its subsidiary Casino Magic Support Services
SA
Casino Magic Management Services Corp.
St. Louis Casino Corp.
Boston Casino Corp.
Casino Advertising, Inc.
the following subsidiaries of Boomtown, Inc.:
Boomtown Missouri, Inc.
Boomtown Council Bluffs, Inc.
Boomtown Iowa, L.C.
Old River Enterprises
Blue Diamond Hotel and Casino, Inc.
Boomtown Las Vegas, Inc.
and the subsidiaries of any of the foregoing.
The Guarantees of these Notes:
. are general unsecured obligations of each Guarantor;
. are subordinated in right of payment to all existing and future Senior
Debt of each Guarantor;
. are effectively subordinated to all secured Indebtedness of each
Guarantor;
. rank equally with each Guarantor's guarantee of the 9 1/2% Senior
Subordinated Notes due 2007 issued by the Company and Hollywood Park
Operating Company; and
. are senior in right of payment to any future Indebtedness of each
Guarantor that is specifically subordinated to the Guarantees.
Assuming we had completed the offering of these Notes and applied the net
proceeds as intended, as of September 30, 1998, the Company and the Guarantors
would have had total Senior Debt (including secured Indebtedness) of
approximately $31.1 million, plus an aggregate of approximately $15.6 million
of accounts payable ranking equally with the Notes. As indicated above and as
discussed in detail below under the subheading "Subordination," payments on the
Notes and under the Guarantees will be subordinated to the payment of Senior
Debt. The Indenture permits us and the Guarantors to incur additional Senior
Debt.
As of the date of the Indenture, all of our Subsidiaries were "Restricted
Subsidiaries," except for Sunflower Racing, Inc. and its subsidiary SR Food &
Beverage Company, Jefferson Casino Corporation and its subsidiary Casino Magic
of Louisiana, Corp., Casino Magic Neuquen S.A. and its subsidiary Casino Magic
Support Services SA and Casino Magic Management Services Corp. However, under
the circumstances described below under the subheading "Certain Covenants--
Designation of Restricted and Unrestricted Subsidiaries," we will be permitted
to designate certain of our subsidiaries as "Unrestricted Subsidiaries."
Unrestricted Subsidiaries are not subject to many of the restrictive covenants
in the Indenture. Unrestricted Subsidiaries do not guarantee these Notes.
Not all of our "Restricted Subsidiaries" guarantee these Notes. In the event
of a bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, these non-guarantor subsidiaries will pay the holders of their
debt and their trade creditors before they will be able to distribute any of
their assets to us. The
99
guarantor subsidiaries generated 79.8% of our pro forma consolidated revenues
in the nine-month period ended September 30, 1998 and held 84.4% of our pro
forma consolidated assets as of September 30, 1998. See footnote 18 to our
Consolidated Financial Statements for year ended December 31, 1997 and footnote
7 to our Consolidated Financial Statements for the nine months ended September
30, 1998, included at the back of this prospectus for more detail about the
division of our consolidated revenues and assets between our guarantor and non-
guarantor subsidiaries. The issuance of the Exchange Notes in the exchange
offer requires the approval of the Indiana Gaming Commission.
Principal, Maturity and Interest
The Notes are limited to a maximum aggregate principal amount of $350
million. The Company issues Notes in denominations of $1,000 and integral
multiples of $1,000. The Notes will mature on February 15, 2007.
Interest on these Notes accrues at the rate of 9 1/4% per annum and is
payable semi-annually in arrears on February 15 and August 15, commencing on
August 15, 1999. The Company will make each interest payment to the Holders of
record of these Notes on the immediately preceding February 1 and August 1.
Interest on these Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid. The
Exchange Notes will bear interest from their date of issuance. Interest will
accrue on the Old Notes that are tendered in exchange for the Exchange Notes
through the issue date of the Exchange Notes. Holders of Old Notes that are
accepted for exchange will not receive interest that is accrued but unpaid on
the Old Notes at the time of exchange, but such interest will be payable,
together with interest on the Exchange Notes, on the first interest payment
date after the Expiration Date. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Company, the Company
will make all principal, premium and interest payments on those Notes in
accordance with those instructions. All other payments on these Notes will be
made at the office or agency of the Company maintained for such purpose within
the City and State of New York unless the Company elects to make interest
payments by check mailed to the Holders at their address set forth in the
register of Holders; provided that all payments with respect to Global Notes,
and any definitive Notes the Holder of which has given wire instructions to the
Company will be made by wire transfer. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose.
Optional Redemption
The Company does not have the option to redeem the Notes prior to February
15, 2003. Thereafter, the Company has the option to redeem the Notes, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of the principal amount thereof)
set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on February 15 of the years indicated below:
Year Percentage
---- ----------
2003............................................................ 104.625%
2004............................................................ 103.083%
2005............................................................ 101.542%
2006 and thereafter............................................. 100.000%
Notwithstanding the foregoing, the Company may, during the first 36 months
after the Issue Date, redeem up to 25% of the initially outstanding aggregate
principal amount of Notes with the net cash proceeds of one or
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more Public Equity Offerings of common stock of the Company at a redemption
price in cash of 109.25% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the redemption date;
provided that:
(1) at least 75% of the initially outstanding aggregate principal amount
of Notes remains outstanding immediately after the occurrence of such
redemption;
(2) notice of any such redemption shall be given by the Company to the
Holders and the Trustee within 15 days after the consummation of any such
Public Equity Offering; and
(3) such redemption shall occur within 60 days of the date of such
notice.
In addition to the foregoing, if any Gaming Authority requires that a holder
or beneficial owner of Notes must be licensed, qualified or found suitable
under any applicable Gaming Laws and such holder or beneficial owner:
(1) fails to apply for a license, qualification or a finding of
suitability within 30 days (or such shorter period as may be required by
the applicable Gaming Authority) after being requested to do so by the
Gaming Authority, or
(2) is denied such license or qualification or not found suitable,
the Company shall have the right, at its option:
(1) to require any such holder or beneficial owner to dispose of its
Notes within 30 days (or such earlier date as may be required by the
applicable Gaming Authority) of receipt of such notice or finding by such
Gaming Authority, or
(2) to call for the redemption of the Notes of such holder or beneficial
owner at a redemption price equal to the least of:
(A) the principal amount thereof,
(B) the price at which such holder or beneficial owner acquired the
Notes, in the case of either clause (A) above or this clause (B),
together with accrued interest and Liquidated Damages, if any, to the
earlier of the date of redemption or the date of the denial of license
or qualification or of the finding of unsuitability by such Gaming
Authority, or
(C) such other lesser amount as may be required by any Gaming
Authority.
The Company shall notify the Trustee in writing of any such redemption as
soon as practicable. The holder or beneficial owner applying for license,
qualification or a finding of suitability must pay all costs of the licensure
or investigation for such qualification or finding of suitability.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee
will select the Notes to be redeemed among the holders of Notes as follows:
(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed, or
(2) if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and
appropriate.
No Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall 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 its
registered address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the
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unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
The Company may obtain a satisfaction and discharge from all of its
obligations under the Indenture and the Notes concurrently with its issuance of
any notice to redeem all of the outstanding Notes by (1) depositing cash or
Cash Equivalents in an amount sufficient to pay and discharge the entire
indebtedness on the outstanding Notes for principal, premium (if any), and
interest to the redemption date set forth in the notice of redemption, (2)
paying or providing for the payment of all other sums payable under the
Indenture or the Notes including, without limitation, the expenses and fees of
the Trustee, and (3) delivering an Officer's Certificate and opinion of
counsel, each stating that all conditions precedent herein provided for the
satisfaction and discharge of the Indenture have been complied with, and
otherwise complying with any additional provisions of Section 314(c) of the
Trust Indenture Act in connection with such satisfaction and discharge. Upon
compliance with the foregoing, the Trustee shall execute proper instrument(s)
acknowledging the satisfaction and discharge of the Indenture.
Mandatory Redemption
Except as described below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
Subordination
The payment of principal, Liquidated Damages, if any, and interest on the
Old Notes and the related Guaranties are, and on the Exchange Notes and related
Guaranties will be, subordinated to the prior payment in full of all Senior
Debt, whether outstanding on the Issue Date or thereafter Incurred.
Upon any distribution to creditors of any Obligor in a liquidation or
dissolution of such Obligor or in a proceeding under Bankruptcy Law relating to
such Obligor or its property, in an assignment for the benefit of creditors or
any marshaling of such Obligor's assets and liabilities:
(1) the holders of Senior Debt will be entitled to receive payment in
full of all Obligations in respect of such Senior Debt (including Accrued
Bankruptcy Interest) and to have all outstanding Letter of Credit
Obligations and applicable Hedging Obligations fully cash collateralized
before the Trustee or the holders shall be entitled to receive any payment
or distribution on Obligations in respect of the Notes (except that the
Trustee or the holders may receive payments and other distributions made
from the defeasance or redemption trust described under "Legal Defeasance
and Covenant Defeasance" or "Selection and Notice" and the issuance of
Permitted Junior Securities), and
(2) until all Obligations with respect to Senior Debt (as provided in
clause (1) above) are paid in full and all outstanding Letter of Credit
Obligations and applicable Hedging Obligations are fully cash
collateralized, any distribution to which the Trustee or the holders would
be entitled but for this provision, including any such distribution that is
payable or deliverable by reason of the payment of any other Indebtedness
of such Obligor being subordinated to the payment of the Notes, shall be
made to holders of Senior Debt or their representatives, ratably in
accordance with the respective amounts of the principal of such Senior
Debt, interest (including, without limitation, Accrued Bankruptcy Interest)
thereon and all other Obligations with respect thereto (except that holders
may receive payments and other distributions made from the defeasance or
redemption trust described under "Legal Defeasance and Covenant Defeasance"
or "Selection and Notice" and the issuance of Permitted Junior Securities),
as their respective interests may appear.
The Obligors will also be restrained from making any payment or distribution
to the Trustee or any holder in respect of Obligations arising under or in
connection with the Notes, and from acquiring from the Trustee or any holder
any Notes for cash or property (other than payments and other distributions
made from any defeasance or redemption trust described under "Legal Defeasance
and Covenant Defeasance" or "Selection
102
and Notice" and the issuance of Permitted Junior Securities), until all
principal and other Obligations arising under or in connection with the Senior
Debt have been paid in full or fully cash-collateralized, if not yet due if:
(1) a default in the payment of any Obligations with respect to
Designated Senior Debt occurs and is continuing (including any default in
payment upon the maturity of any Designated Senior Debt by lapse of time,
acceleration or otherwise), or any judicial proceeding is pending to
determine whether any such default has occurred, or
(2) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which
such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the affected
Obligors or the holders of any Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived, and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received by the Trustee,
unless the maturity of any Designated Senior Debt has been accelerated.
No new period of payment blockage predicated on a nonpayment default may be
commenced unless and until 360 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been waived for a period of not less than
180 days.
Notwithstanding the foregoing, the Company will be permitted to repurchase,
redeem, repay or prepay any or all of the Notes to the extent required to do so
by any Gaming Authority having authority over any Obligor.
The Indenture provides that the Trustee or any holder that has received any
payment or distribution in violation of the foregoing provisions will be
required to hold the same without commingling and deliver the same, in the form
received, together with any necessary endorsements, to the holders of Senior
Debt or their representatives. The Indenture further requires that each
affected Obligor promptly notify holders of Senior Debt if payment of the Notes
is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of Notes may recover less ratably than
creditors of the affected Obligors who are holders of Senior Debt. See "Risk
Factors--The Notes are Subordinated to Senior Debt and Effectively Subordinated
to Debt of Our Non-Guarantor Subsidiaries."
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash (the
"Change of Control Payment") equal to 101% of the aggregate principal amount of
Notes plus accrued and unpaid interest thereon, if any, to the date of
repurchase. Within 30 days following any Change of Control, the Company will
mail a notice to the Trustee and each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed (the "Change
of Control Payment Date"), pursuant to the procedures required by the Indenture
and described in such notice. The Company will comply with all applicable laws,
including, without limitation, Section 14(e) of the Exchange Act and the rules
thereunder and all applicable federal and state securities laws, and will
include all instructions and materials necessary to enable holders to tender
their Notes.
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On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
(2) 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
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted, together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered by such holder, if any; provided that each such new Note will be in
a principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, the
Company will either:
(1) repay all outstanding obligations with respect to Senior Debt,
(2) obtain the requisite consents, if any, from the holders of Senior
Debt to permit the repurchase of the Notes required by this covenant, or
(3) deliver to the Trustee an Officer's Certificate to the effect that no
action of the kind described in clause (1) or (2) is necessary.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Bank Credit Facility contains, and any future Credit Facilities or other
agreements relating to Indebtedness to which the Company becomes a party may
contain, restrictions on the ability of the Company to purchase any Notes, and
also may provide that certain change of control events with respect to the
Company would constitute a default thereunder. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consents of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain all such requisite consents or repay such borrowings,
the Company will remain prohibited from purchasing Notes. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default under the Indenture. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes. Thus, there can be no assurance that in the event of a Change of Control
the Company will have sufficient funds, or that it will be permitted under the
terms of the Bank Credit Facility, to satisfy its obligations with respect to
any or all of the tendered Notes.
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.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of
104
Notes to require the Company to repurchase such Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of the Company or the Company and its Restricted Subsidiaries, taken as a
whole, to another Person or group may be uncertain.
The presence of the Company's Note repurchase obligation in the event of a
Change of Control may deter potential bidders from attempting to acquire the
Company, whether by merger, tender offer or otherwise. Such deterrence may have
an adverse effect on the market price for the Company's securities,
particularly its common stock, which would presumably reflect the market's
perception of the likelihood of any takeover attempt at a premium to the market
price.
Asset Sales
The Indenture provides that no Obligor will, directly or indirectly,
consummate or enter into a binding commitment to consummate an Asset Sale
unless:
(1) such Obligor, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets
sold or of which other disposition is made (as determined reasonably and in
good faith by the Board of such Obligor), and
(2) at least 75% of the consideration received by such Obligor from such
Asset Sale will be cash or Cash Equivalents and will be received at the
time of the consummation of any such Asset Sale. For purposes of this
provision, each of the following shall be deemed to be cash:
(A) any liabilities as shown on the Obligors' most recent balance
sheet (or in the notes thereto) (other than (i) Indebtedness
subordinate in right of payment to the Notes, (ii) contingent
liabilities, (iii) liabilities or Indebtedness to Affiliates of the
Company and (iv) Non-Recourse Indebtedness) that are assumed by the
transferee of any such assets, and
(B) to the extent of the cash received, any notes or other
obligations received by the Company or any such Restricted Subsidiary
from such transferee that are converted by such Obligor into cash
within 60 days of receipt.
Notwithstanding the foregoing, an Obligor will be permitted to consummate an
Asset Sale without complying with the foregoing provisions if:
(1) such Obligor receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets or other property sold,
issued or otherwise disposed of (as evidenced by a resolution of the Board
of such Obligor) as set forth in an Officers' Certificate delivered to the
Trustee,
(2) the transaction constitutes a "like-kind exchange" of the type
contemplated by Section 1031 of the Internal Revenue Code, and
(3) the consideration for such Asset Sale constitutes Productive Assets;
provided that any non-cash consideration not constituting Productive Assets
received by such Obligor in connection with such Asset Sale that is
converted into or sold or otherwise disposed of for cash or Cash
Equivalents at any time within 360 days after such Asset Sale and any
Productive Assets constituting cash or Cash Equivalents received by such
Obligor in connection with such Asset Sale shall constitute Net Cash
Proceeds subject to the provisions set forth above.
Upon the consummation of an Asset Sale, the Company or the affected Obligor
will be required to apply all Net Cash Proceeds that are received from such
Asset Sale within 360 days of the receipt thereof either:
(1) to reinvest (or enter into a binding commitment to invest, if such
investment is effected within 360 days after the date of such commitment)
in Productive Assets or in Asset Acquisitions not otherwise prohibited by
the Indenture, or
(2) to permanently prepay or repay Indebtedness of any Obligor other than
Indebtedness that is subordinate in right of payment to the Notes.
105
Pending the final application of any such Net Cash Proceeds, the Obligors
may temporarily reduce revolving Indebtedness or otherwise invest such Net
Cash Proceeds in any manner not prohibited by the Indenture.
On the 361st day after an Asset Sale or such earlier date, if any, as the
Board of the Company or the affected Obligor determines not to apply the Net
Cash Proceeds relating to such Asset Sale as set forth in clauses (1) or (2)
of the preceding paragraph (each a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (1) or (2) of the
preceding paragraph (each a "Net Proceeds Offer Amount"), will be applied by
the Company to make an offer to purchase (the "Net Proceeds Offer"), on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days
following the applicable Net Proceeds Offer Trigger Date, on a pro rata basis
(A) Notes at a purchase price in cash equal to 100% of the aggregate principal
amount of Notes, in each case, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon on the Net Proceeds Offer Payment Date and (B) 9 1/2%
Senior Subordinated Notes due 2007 issued by the Company and Hollywood Park
Operating Company to the extent required by the terms thereof; provided that
if at any time within 360 days after an Asset Sale any non-cash consideration
received by the Company or the affected Obligor in connection with such Asset
Sale is converted into or sold or otherwise disposed of for cash, then such
conversion or disposition will be deemed to constitute an Asset Sale hereunder
and the Net Cash Proceeds thereof will be applied in accordance with this
covenant. To the extent that the aggregate principal amount of Notes tendered
pursuant to the Net Proceeds Offer is less than the Net Proceeds Offer Amount,
the Obligors may use any remaining proceeds of such Asset Sales for general
corporate purposes (but subject to the other terms of the Indenture). Upon
completion of a Net Proceeds Offer, the Net Proceeds Offer Amount relating to
such Net Proceeds Offer will be deemed to be zero for purposes of any
subsequent Asset Sale. In the event that a Restricted Subsidiary consummates
an Asset Sale, only that portion of the Net Cash Proceeds therefrom (including
any Net Cash Proceeds received upon the sale or other disposition of any non-
cash proceeds received in connection with an Asset Sale) that are distributed
to or received by any Obligor will be required to be applied by the Obligors
in accordance with the provisions of this paragraph.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$10 million the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time
as such Net Proceeds Offer Amount plus the aggregate amount of all Net
Proceeds Offer Amounts arising subsequent to the Issue Date of the Notes from
all Asset Sales by the Obligors in respect of which a Net Proceeds Offer has
not been made aggregate at least $10 million at which time the affected
Obligor will apply all Net Cash Proceeds constituting all Net Proceeds Offer
Amounts that have been so deferred to make a Net Proceeds Offer (each date on
which the aggregate of all such deferred Net Proceeds Offer Amounts is equal
to $10 million or more will be deemed to be a Net Proceeds Offer Trigger
Date). In connection with any Asset Sale with respect to assets having a book
value in excess of $10 million or as to which it is expected that the
aggregate consideration therefor to be received by the affected Obligor will
exceed $10 million in value, such Asset Sale will be approved, prior to the
consummation thereof, by the Board of the applicable Obligor.
Certain Covenants
Restricted Payments
The Indenture provides that neither the Company nor any Restricted
Subsidiary will, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
(other than dividends or distributions payable solely in Qualified Capital
Stock of the Company or dividends or distributions payable to the Company
or a Restricted Subsidiary) in respect of the Company's or any Restricted
Subsidiary's Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or
such Restricted Subsidiary, as applicable) or to the direct or indirect
holders of the Company's or such Restricted Subsidiary's Equity Interests
in their capacity as such,
106
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, any payment in connection with any merger or
consolidation involving the Company or any Restricted Subsidiary) Equity
Interests of the Company or any Restricted Subsidiary or of any direct or
indirect parent or Affiliate of the Company or any Restricted Subsidiary
(other than any such Equity Interests owned by the Company or any
Restricted Subsidiary),
(3) make any payment on or with respect to, or purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value any Indebtedness
that is subordinate in right of payment to the Notes, except a payment at
Stated Maturity, or
(4) make any Investment (other than Permitted Investments) (each of the
foregoing prohibited actions set forth in clauses (1), (2), (3) and (4)
being referred to as a "Restricted Payment"),
if at the time of such proposed Restricted Payment or immediately after giving
effect thereto,
(1) a Default or an Event of Default has occurred and is continuing or
would result therefrom,
(2) the Company is not, or would not be, able to Incur at least $1.00 of
additional Indebtedness under the Consolidated Coverage Ratio test
described in the second paragraph of the covenant described below under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock", or
(3) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount expended
for such purposes, if other than in cash, being the fair market value of
such property as determined reasonably and in good faith by the Board of
the Company) exceeds or would exceed the sum, without duplication, of:
(A) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company and the Restricted Subsidiaries during the period (treating
such period as a single accounting period) beginning on the Issue Date
and ending on the last day of the most recent fiscal quarter of the
Company ending immediately prior to the date of the making of such
Restricted Payment for which internal financial statements are
available ending not more than 135 days prior to the date of
determination, plus
(B) 100% of the aggregate net cash proceeds received by the Company
from any Person (other than from a Subsidiary of the Company) from the
issuance and sale of Qualified Capital Stock of the Company or the
conversion of debt securities or Disqualified Capital Stock into
Qualified Capital Stock (to the extent that proceeds of the issuance of
such Qualified Capital Stock would have been includable in this clause
if such Qualified Capital Stock had been initially issued for cash)
subsequent to the Issue Date and on or prior to the date of the making
of such Restricted Payment (excluding any Qualified Capital Stock of
the Company the purchase price of which has been financed directly or
indirectly using funds (i) borrowed from the Company or any Restricted
Subsidiary, unless and until and to the extent such borrowing is
repaid, or (ii) contributed, extended, guaranteed or advanced by the
Company or any Restricted Subsidiary (including, without limitation, in
respect of any employee stock ownership or benefit plan)), plus
(C) 100% of the aggregate cash received by the Company subsequent to
the Issue Date and on or prior to the date of the making of such
Restricted Payment upon the exercise of options or warrants (whether
issued prior to or after the Issue Date) to purchase Qualified Capital
Stock of the Company, plus
(D) to the extent that any Restricted Investment that was made after
the Issue Date is sold for cash or Cash Equivalents or otherwise
liquidated or repaid for cash or Cash Equivalents, or any dividends,
distributions, principal repayments, or returns of capital are received
by the Company or any Restricted Subsidiary in respect of any
Restricted Investment, in each such case (i) reduced by the amount of
any Amount Limitation Restoration (as defined below) for such
Restricted Investment and (ii) valued at the cash or marked-to-market
value of Cash Equivalents received with respect to such Restricted
Investment (less the cost of disposition, if any), plus
107
(E) to the extent that any Person becomes a Restricted Subsidiary or
an Unrestricted Subsidiary is redesignated as a Restricted Subsidiary
after the date of the Indenture, the lesser of (i) the fair market
value of the Restricted Investment of the Company and its Restricted
Subsidiaries in such Person as of the date it becomes a Restricted
Subsidiary or in such Unrestricted Subsidiary on the date of
redesignation as a Restricted Subsidiary or (ii) the fair market value
of such Restricted Investment as of the date such Restricted Investment
was originally made in such Person or, in the case of the redesignation
of an Unrestricted Subsidiary into a Restricted Subsidiary which
Subsidiary was designated as an Unrestricted Subsidiary after the date
of the Indenture, the amount of the Company's Restricted Investment
therein as determined under the last paragraph of this covenant, plus
the aggregate fair market value of any additional Restricted
Investments (each valued as of the date made) by the Company and its
Restricted Subsidiaries in such Unrestricted Subsidiary after the date
of the Indenture; provided that any amount so determined in (i) or (ii)
shall be reduced to the extent that such Investment shall have been
recouped as an Amount Limitation Restoration to the Amount Limitations
of clause (4) (including (4)(A)) or (6) below.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph will not prohibit:
(1) the payment of any dividend or the making of any distribution within
60 days after the date of declaration of such dividend or distribution if
the making thereof would have been permitted on the date of declaration;
provided such dividend will be deemed to have been made as of its date of
declaration or the giving of such notice for purposes of this clause (1);
(2) the redemption, repurchase, retirement or other acquisition of
Capital Stock of the Company or warrants, rights or options to acquire
Capital Stock of the Company either (A) solely in exchange for shares of
Qualified Capital Stock of the Company or warrants, rights or options to
acquire Qualified Capital Stock of the Company, or (B) through the
application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company or warrants, rights or options to acquire Qualified
Capital Stock of the Company; provided that no Default or Event of Default
shall have occurred and be continuing at the time of such Restricted
Payment or would result therefrom;
(3) the redemption, repurchase, retirement, defeasance or other
acquisition of Indebtedness of any Obligor that is subordinate or junior in
right of payment to the Notes or the Guaranties either (A) solely in
exchange for shares of Qualified Capital Stock of the Company or for
Permitted Refinancing Indebtedness, or (B) through the application of the
net proceeds of a substantially concurrent sale for cash (other than to an
Obligor) of (i) shares of Qualified Capital Stock of the Company or
warrants, rights or options to acquire Qualified Capital Stock of the
Company or (ii) Permitted Refinancing Indebtedness; provided that no
Default or Event of Default shall have occurred and be continuing at the
time of such Restricted Payment pursuant to this clause (3) and would not
result therefrom;
(4) Restricted Payments in an amount not in excess of $50 million in the
aggregate for all such Restricted Payments made in reliance upon this
clause (4), for the purpose of (A) Limited Real Estate Development not to
exceed $25 million or (B) developing, constructing, improving or acquiring
(i) a Casino or Casinos or, if applicable, any Related Business in
connection with such Casino or Casinos or (ii) a Related Business to be
used primarily in connection with an existing Casino or Casinos;
(5) redemptions, repurchases or repayments to the extent required by any
Gaming Authority having jurisdiction over the Company or any Restricted
Subsidiary or deemed necessary by the Board of the Company in order to
avoid the suspension, revocation or denial of a gaming license by any
Gaming Authority;
(6) other Restricted Payments not to exceed $20 million in the aggregate;
provided no Default or Event of Default then exists or would result
therefrom;
(7) repurchases by the Company of its common stock, options, warrants or
other securities exercisable or convertible into such common stock from
employees and directors of the Company or any
108
of its respective Subsidiaries upon death, disability or termination of
employment or directorship of such employees or directors;
(8) the payment of any amounts in respect of Equity Interests by any
Restricted Subsidiary organized as a partnership or a limited liability
company or other pass-through entity:
(A) to the extent of capital contributions made to such Restricted
Subsidiary (other than capital contributions made to such Restricted
Subsidiary by the Company or any Restricted Subsidiary),
(B) to the extent that they constitute dividends or other
distributions on minority interests in Equity Interests of Restricted
Subsidiaries pursuant to requirements under partnership agreements or
organizational or membership agreements of other pass-through entities,
(C) to the extent required by applicable law, or
(D) to the extent necessary for holders thereof to pay taxes with
respect to the net income of such Restricted Subsidiary, the payment of
which amounts under this clause (D) is required by the terms of the
relevant partnership agreement, limited liability company operating
agreement or other governing document;
provided, that except in the case of clause (C), no Default or Event of
Default has occurred and is continuing at the time of such Restricted
Payment or would result therefrom, and provided further that, except in the
case of clause (C) or (D), such distributions are made pro rata with the
distributions paid contemporaneously to the Company or a Restricted
Subsidiary or their Affiliates holding an interest in such Equity
Interests;
(9) Investments in Unrestricted Subsidiaries, joint ventures,
partnerships or limited liability companies consisting of conveyances of
substantially undeveloped real estate in a number of acres which, after
giving effect to any such conveyance, would not exceed in the aggregate for
all such conveyances after the Issue Date, 50% of the sum of (A) the acres
of undeveloped real estate held by the Company and its Restricted
Subsidiaries on the date of such conveyance plus (B) the acres of
undeveloped real estate previously so conveyed by the Company and its
Restricted Subsidiaries after the Issue Date; provided, that no Default or
Event of Default has occurred and is continuing at the time of such
Restricted Payment or would result therefrom; or
(10) Investments, not to exceed $15 million in the aggregate, in any
combination of (A) readily marketable equity securities and (B) assets of
the kinds described in the definition of "Cash Equivalents"; provided, that
for the purposes of this clause (10), such Investments may be made without
regard to the rating requirements or the maturity limitations set forth in
such definition.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date, Restricted Payments made pursuant to clauses (2), (3), (4),
(6), (8) and (9) of this paragraph shall, in each case, be excluded from such
calculation; provided, that any amounts expended or liabilities incurred in
respect of fees, premiums or similar payments in connection therewith shall be
included in such calculation. Restricted Payments under clauses (4), (4)(A),
(6) and (10) shall be limited to the respective amounts of $50 million,
$25 million, $20 million and $15 million set forth in such clauses (each, an
"Amount Limitation") The Amount Limitation for each clause shall be permanently
reduced at the time of any Restricted Payment made under such clause; provided,
however, that to the extent that a Restricted Investment made under such clause
is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash
or Cash Equivalents, or principal repayments or returns of capital are received
by the Company or any Restricted Subsidiary in respect of such Restricted
Investment, valued, in each such case at the cash or marked-to-market value of
Cash Equivalents received with respect to such Restricted Investment (less the
cost of disposition, if any), then the Amount Limitation for such clause shall
be increased by the amount so received by the Company or a Restricted
Subsidiary (an "Amount Limitation Restoration"). In no event shall the
aggregate Amount Limitation Restorations for a Restricted Investment exceed the
original amount of such Restricted Investment.
With respect to clauses (4), (4)(A) and (6) above, the respective Amount
Limitation under each such clause, as applicable, shall also be increased when
any Person becomes a Restricted Subsidiary or an
109
Unrestricted Subsidiary is redesignated as a Restricted Subsidiary (each such
increase also referred to as an "Amount Limitation Restoration") by the lesser
of (i) the fair market value of the Restricted Investment made under clause
(4), (4)(A) or (6) in such Person as of the date it becomes a Restricted
Subsidiary or in such Unrestricted Subsidiary as of the date of redesignation,
as the case may be, or (ii) the fair market value of such Restricted Investment
as of the date such Restricted Investment was originally made in such Person
or, in the case of the redesignation of an Unrestricted Subsidiary into a
Restricted Subsidiary which Subsidiary was designated as an Unrestricted
Subsidiary after the date of the Indenture, the amount of the Company's
Restricted Investment therein as determined under the last paragraph of this
covenant, plus the aggregate fair market value of any additional Investments
(each valued as of the date made) made under clause (4), (4)(A) or (6) in such
Unrestricted Subsidiary after the date of the Indenture.
Not less than once each fiscal quarter, the Company shall deliver to the
Trustee an Officers' Certificate stating that each Restricted Payment (and any
Amount Limitation Restoration relied upon in making such Restricted Payment)
made during the prior fiscal quarter complies with the Indenture and setting
forth in reasonable detail the basis upon which the required calculations were
computed (upon which the Trustee may conclusively rely without any
investigation whatsoever), which calculations may be based upon the Company's
latest available internal quarterly financial statements. In the event that the
Company makes one or more Restricted Payments in an amount exceeding $3 million
that have not been covered by an Officers' Certificate issued pursuant to the
immediately preceding sentence, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payments (and any Amount
Limitation Restoration relied upon in making such Restricted Payment) comply
with the Indenture and setting forth in reasonable detail the basis upon which
the required calculations were computed (upon which the Trustee may
conclusively rely without any investigation whatsoever), which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
The Board of the Company may designate any of its Restricted Subsidiaries to
be Unrestricted Subsidiaries if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Obligors (except to the extent repaid in cash or in kind) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of:
(1) the net book value of such Investments at the time of such
designation,
(2) the fair market value of such Investments at the time of such
designation, and
(3) the original fair market value of such Investments at the time they
were made.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, directly or indirectly:
(1) Incur any Indebtedness or issue any Disqualified Capital Stock, other
than Permitted Indebtedness, or
(2) cause or permit any of its Subsidiaries to Incur any Indebtedness or
issue any Disqualified Capital Stock or preferred stock, in each case,
other than Permitted Indebtedness.
Notwithstanding the foregoing limitations, the Company may issue
Disqualified Capital Stock, and any Obligor may Incur Indebtedness (including,
without limitation, Acquired Debt) or issue preferred stock, if:
(1) no Default or Event of Default shall have occurred and be continuing
on the date of the proposed Incurrence or issuance or would result as a
consequence of such proposed Incurrence or issuance, and
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(2) immediately after giving pro forma effect to such proposed Incurrence
or issuance and the receipt and application of the net proceeds therefrom,
the Company's Consolidated Coverage Ratio would not be less than 2.00:1.00.
Any Indebtedness of any Person existing at the time it becomes a Restricted
Subsidiary (whether by merger, consolidation, acquisition of capital stock or
otherwise) shall be deemed to be Incurred as of the date such Person becomes a
Restricted Subsidiary.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Indebtedness described in clauses (1) through (11) of such
definition or is entitled to be Incurred pursuant to the second paragraph of
this covenant, the Company will, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been Incurred pursuant to only one of
such clauses or pursuant to the second paragraph hereof. The Company may
reclassify such Indebtedness from time to time in its sole discretion. Accrual
of interest and the accretion of principal amount will not be deemed to be an
Incurrence of Indebtedness for purposes of this covenant.
Liens
The Indenture provides that no Obligor will, directly or indirectly, create,
Incur or assume any Lien, except a Permitted Lien, securing Indebtedness that
is pari passu with or subordinate in right of payment to the Notes or the
Guaranties, on or with respect to any of its property or assets including any
shares of stock or Indebtedness of any Restricted Subsidiary, whether owned on
the Issue Date or thereafter acquired, or any income, profits or proceeds
therefrom, unless:
(1) in the case of any Lien securing Indebtedness that is pari passu in
right of payment with the Notes or the Guaranties, the Notes or the
Guaranties are secured by a Lien on such property, assets or proceeds that
is senior in priority to or pari passu with such Lien, and
(2) in the case of any Lien securing Indebtedness that is subordinate in
right of payment to the Notes or the Guaranties, the Notes or the
Guaranties are secured by a Lien on such property, assets or proceeds that
is senior in priority to such Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that no Obligor will, directly or indirectly, create
or otherwise cause or permit or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock,
(2) make loans or advances to or pay any Indebtedness or other
obligations owed to any Obligor or to any Restricted Subsidiary, or
(3) transfer any of its property or assets to any Obligor or to any
Restricted Subsidiary (each such encumbrance or restriction in clause (1),
(2) or (3), a "Payment Restriction").
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(A) applicable law or required by any Gaming Authority;
(B) the Indenture;
(C) customary non-assignment provisions of any purchase money financing
contract or lease of any Restricted Subsidiary entered into in the ordinary
course of business of such Restricted Subsidiary;
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(D) any instrument governing Acquired Debt Incurred in connection with an
acquisition by any Obligor or Restricted Subsidiary in accordance with the
Indenture as the same was in effect on the date of such Incurrence; provided
that such encumbrance or restriction is not, and will not be, applicable to any
Person, or the properties or assets of any Person, other than the Person and
its Subsidiaries or the property or assets, including directly-related assets,
such as accessions and proceeds so acquired or leased;
(E) any restriction or encumbrance contained in contracts for the sale of
assets to be consummated in accordance with the Indenture solely in respect of
the assets to be sold pursuant to such contract;
(F) any restrictions of the nature described in clause (3) above with
respect to the transfer of assets secured by a Lien that was permitted by the
Indenture to be Incurred;
(G) any encumbrance or restriction contained in Permitted Refinancing
Indebtedness; provided that the provisions relating to such encumbrance or
restriction contained in any such Permitted Refinancing Indebtedness are no
less favorable to the holders of the Notes in any material respect in the good
faith judgment of the Board of the Company than the provisions relating to such
encumbrance or restriction contained in the Indebtedness being refinanced; or
(H) Indebtedness or Investments existing on the Issue Date, as in effect on
the Issue Date.
Merger, Consolidation, or Sale of Assets
The Indenture provides that no Obligor may, in a single transaction or a
series of related transactions, consolidate or merge with or into any Person,
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of such Obligor's properties or assets whether as an entirety
or substantially as an entirety to any Person or adopt a Plan of Liquidation
unless:
(1) either
(A) in the case of a consolidation or merger, such Obligor shall be
the surviving or continuing corporation, or
(B) the Person (if other than such Obligor) formed by such
consolidation or into which such Obligor is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition of the properties and assets of such Obligor and of such
Obligor's Subsidiaries substantially as an entirety, or in the case of
a Plan of Liquidation, the Person to which assets of such Obligor and
such Obligor's Subsidiaries have been transferred (i) shall be a
corporation organized and validly existing under the laws of the United
States or any State thereof or the District of Columbia and (ii) shall
expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any,
and interest on all of the Notes and, if applicable, the Guaranties and
the performance of every covenant of the Notes, the Indenture and the
Registration Rights Agreement on the part of such Obligor to be
performed or observed;
(2) immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(B)(ii) above (including giving effect
to any Indebtedness and Acquired Debt Incurred or anticipated to be
Incurred in connection with or in respect of such transaction), the
Obligors, including any such other Person becoming an Obligor through the
operation of clause (1)(B) above would have a Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated
Net Worth of such Obligor immediately preceding the transaction;
(3) in the event that such transaction involves (A) the incurrence by the
Company or any Restricted Subsidiary, directly or indirectly, of additional
Indebtedness (and treating any Indebtedness not previously an obligation of
the Company or any of its Restricted Subsidiaries incurred in connection
with or as a result of such transaction as having been incurred at the time
of such transaction) and/or (B) the assumption contemplated by clause
(1)(B)(ii) above (including giving effect to any Indebtedness and Acquired
Debt Incurred or anticipated to be Incurred in connection with or in
respect of such transaction),
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then immediately after giving effect to such incurrence and/or assumption
under clauses (A) and (B), (i) the Obligors, including any such other
Person becoming an Obligor through the operation of clause (1)(B) above
could Incur at least $1.00 of Indebtedness (other than Permitted
Indebtedness) pursuant to the Consolidated Coverage Ratio test described
above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock" or (ii) any other Person which would, as a result of the
applicable transaction, properly classify such Obligor as a consolidated
subsidiary in accordance with GAAP, satisfied the conditions set forth in
clause (1)(B)(i) above and either (a) also satisfied the condition set
forth in clause (1)(B)(ii) above and caused each acquired Person to become
a Guarantor or (b) became a Guarantor, and, in either such case, after
giving effect to such assumption of the Notes or Incurrence of Obligations
under the Guaranty, such assuming or guarantying Person would be able to
Incur at least $1.00 of Indebtedness pursuant to the Consolidated Coverage
Ratio test described above under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock";
(4) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(B)(ii) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Debt Incurred or anticipated to be Incurred and any Lien granted
in connection with or in respect of the transaction) no Default and no
Event of Default shall have occurred or be continuing; and
(5) such Obligor or such other Person shall have delivered to the Trustee
(A) an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger, sale, assignment, transfer, lease, conveyance,
other disposition or Plan of Liquidation and, if a supplemental indenture
is required in connection with such transaction, such supplemental
indenture, comply with the applicable provisions of the Indenture and that
all conditions precedent in the Indenture relating to such transaction have
been satisfied and (B) a certificate from the Company's independent
certified public accountants stating that such Obligor has made the
calculations required by clause (2) above in accordance with the terms of
the Indenture and the Notes after the consummation of such transaction.
Notwithstanding clauses (2) and (3) above:
(A) any Restricted Subsidiary may consolidate with, or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its assets to the Company or to a
Restricted Subsidiary, and
(B) any Obligor may consolidate with or merge with or into any Person
that has conducted no business and Incurred no Indebtedness or other
liabilities if such transaction is solely for the purpose of effecting
a change in the state of incorporation of such Obligor.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Transactions With Affiliates
The Indenture provides that no Obligor will make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is, considered in light of any series of
related transactions of which it comprises a part, on terms that are fair
and reasonable and no less favorable to such Obligor than those that might
reasonably have been obtained at such time in a comparable transaction or
series of related transactions on an arms-length basis from a Person that
is not such an Affiliate;
(2) with respect to any Affiliate Transaction involving aggregate
consideration of $5 million or more, a majority of the disinterested
members of the Board of the Company (and of any other affected Obligor,
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where applicable) shall, prior to the consummation of any portion of such
Affiliate Transaction, have reasonably and in good faith determined, as
evidenced by a resolution of its Board, that such Affiliate Transaction
meets the requirements of the foregoing clause; and
(3) with respect to any Affiliate Transaction involving value of $15
million or more, the Board of the applicable Obligor shall have received
prior to the consummation of any portion of such Affiliate Transaction, a
written opinion from an independent investment banking, accounting or
appraisal firm of recognized national standing that such Affiliate
Transaction is on terms that are fair to such Obligor from a financial
point of view.
The foregoing restrictions will not apply to:
(1) reasonable fees and compensation (including any such compensation in
the form of Equity Interests not derived from Disqualified Capital Stock,
together with loans and advances, the proceeds of which are used to acquire
such Equity Interests) paid to, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Obligors as determined
in good faith by the Board or senior management,
(2) any transaction solely between or among Obligors and Restricted
Subsidiaries to the extent any such transaction is otherwise in compliance
with, or not prohibited by, the Indenture,
(3) any Restricted Payment permitted by the terms of the covenant
described above under the heading "--Restricted Payments" or
(4) provision of management services (including any agreements therefor)
to an Unrestricted Subsidiary in connection with the development,
construction and operation of gaming facilities, provided the Obligor is
reimbursed for all costs and expenses it incurs in providing such services.
No Subordinated Debt Senior to The Notes or Guaranties
The Indenture provides that no Obligor will Incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes or the Guaranties.
Amendments to Subordination Provisions
The Indenture provides that, without the consent of the holders of 66 2/3%
of the principal amount of the outstanding Notes, the Obligors will not amend,
modify or alter the terms of any indebtedness subordinated to the Notes or the
Guaranties in any way that will:
(1) increase the rate of or change the time for payment of interest on
such subordinated indebtedness,
(2) increase the principal of, advance the final maturity date of or
shorten the Weighted Average Life to Maturity of any such subordinated
indebtedness,
(3) alter the redemption provisions or the price or terms at which any
Obligor is required to offer to purchase such subordinated indebtedness, or
(4) amend the subordination provisions of any documents, instruments or
agreements governing any such subordinated indebtedness, except to the
extent that any of the foregoing would be required to permit any Obligor to
make a Restricted Payment permitted by the covenant described above under
the heading "--Restricted Payments."
Lines of Business
The Indenture provides that the Obligors will not engage in any lines of
business other than the Core Businesses.
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Reports
The Indenture provides that, 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 for
mailing to the holders of Notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing or filings by the Company with the Commission
on Forms 10-Q and 10-K if the Company was required to file such forms,
including 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 certified independent accountants,
and
(2) all current reports that would be required to be filed by the Company
with the Commission on Form 8-K if the Company was required to file such
reports,
in each case within 15 days of the time periods specified in the SEC's rules
and regulations.
In addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company has
agreed that, for so long as any Notes remain outstanding, it will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act. The Indenture permits the Company to deliver the
consolidated reports or financial information of the Company to comply with the
foregoing requirements.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes or the Guaranties (whether or
not prohibited by the subordination provisions of the Indenture);
(2) default in payment of the principal of or premium, if any, on the
Notes or the Guaranties when due and payable, at maturity, upon
acceleration, redemption or otherwise (whether or not prohibited by the
subordination provisions of the Indenture);
(3) failure by any Obligor for 60 days after written notice to comply
with any of its other agreements in the Indenture, the Notes or the
Guaranties;
(4) default under 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 any Obligor (or the payment of which is
guaranteed by any Obligor) whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, which default:
(A) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"), or
(B) results in the acceleration of such Indebtedness prior to its
express maturity
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10 million or more;
(5) failure by any Obligor to pay final judgments aggregating in excess
of $10 million, net of any applicable insurance, the carrier or underwriter
with respect to which has acknowledged liability in writing, which
judgments are not paid, discharged or stayed for a period of 60 days; and
115
(6) certain events of bankruptcy or insolvency with respect to any
Obligor.
If an Event of Default (other than an Event of Default with respect to
certain events of bankruptcy, insolvency or reorganization) occurs and is
continuing, then and in every such case, the Trustee or the holders of not less
than 25% in aggregate principal amount of the then outstanding Notes may
declare the principal amount, together with any accrued and unpaid interest,
premium and Liquidated Damages on all the Notes and Guaranties then outstanding
to be due and payable, by a notice in writing to the Company (and to the
Trustee, if given by holders) specifying the Event of Default and that it is a
"notice of acceleration" and on the fifth Business Day after delivery of such
notice the principal amount, in either case, together with any accrued and
unpaid interest, premium and Liquidated Damages on all the Notes or the
Guaranties then outstanding will become immediately due and payable,
notwithstanding anything contained in the Indenture, the Notes or the
Guaranties to the contrary. Upon the occurrence of specified Events of Default
relating to bankruptcy, insolvency or reorganization, the principal amount,
together with any accrued and unpaid interest, premium and Liquidated Damages,
will immediately and automatically become due and payable, without the
necessity of notice or any other action by any Person. Holders of the Notes may
not enforce the Indenture, the Notes or the Guaranties 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 Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of any Obligor with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
February 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to February 15, 2003, then the
additional premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Notes
and Guaranties.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes 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
principal of, premium and Liquidated Damages, if any, or interest on the Notes
or the Guaranties.
The Company will be required to deliver to the Trustee annually statements
regarding compliance with the Indenture, and 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.
No Personal Liability of Directors, Officers, Employees and Stockholders
No past, present or future director, officer, employee, agent, manager,
partner, member, incorporator or stockholder of any Obligor, in such capacity,
will have any liability for any obligations of any Obligor under the Notes, the
Indenture or the Guaranties or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of 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 and the Guaranties.
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.
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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 and all
obligations of the Guarantors discharged with respect to their Guarantees
("Legal Defeasance") except for:
(1) 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;
(2) 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;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Company's obligations in connection therewith; and
(4) 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 and the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants 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-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default and Remedies" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) 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
and Liquidated Damages 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;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel 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;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel 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;
(4) no Default or Event of Default shall have occurred and be continuing
either:
(A) 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); or
117
(B) insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after
the date of deposit;
(5) 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 Restricted Subsidiaries is a party or by which the Company or
any of its Restricted Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable Bankruptcy Law;
(7) 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
(8) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent 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 next three succeeding paragraphs, the Indenture or
the Notes 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,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes 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):
(1) reduce the principal amount of Notes whose holders must consent to an
amendment, supplement or waiver,
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"),
(3) reduce the rate of or change the time for payment of interest on any
Note,
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration),
(5) make any Note payable in money other than that stated in the Notes,
118
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes,
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the conditions described above under the caption
"--Repurchase at the Option of Holders"), or
(8) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without notice to or the consent of any
holder of Notes, the Obligors and the Trustee may amend or supplement the
Indenture or the Notes 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 Obligors' obligations to holders of
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 Notes or that does
not adversely affect the legal rights under the Indenture of any such holder,
to provide for the issuance of registered notes in exchange for the Notes
pursuant to the Registration Rights Agreement or to comply with requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the TIA.
In addition, any amendment (1) to the provisions of the article of the
Indenture which governs subordination or (2) which releases any Guarantor from
its obligations under any Guaranty, in either case will require the consent of
the holders of at least 66 2/3% in aggregate principal amount of the Notes then
outstanding, if such amendment would adversely affect the rights of holders of
Notes.
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; however, if it 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 shall occur (which shall not be 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. However, 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.
The Trustee also serves as trustee under the indenture governing the 9 1/2%
Notes.
Additional Information
Anyone who receives this prospectus may obtain a copy of the Indenture
without charge by writing to Hollywood Park, Inc., 1050 South Prairie Avenue,
Inglewood CA 90301, Attn: Assistant Treasurer.
Book-Entry, Delivery and Form
Exchange Notes exchanged for Old Notes through the book-entry transfer
facility may be represented by one or more Global Notes (the "Global Exchange
Notes"). The Global Exchange Notes will be deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
Beneficial interests in the Global Exchange Notes may also be held through the
Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel") (as indirect
participants in DTC).Transfers of beneficial interests in the Global Exchange
Notes will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those of Euroclear
and Cedel), which may change from time to time.
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Exchange Notes exchanged for Old Notes which are in the form of registered
definitive certificates will be issued in the form of certificated Exchange
Notes. Such certificated Exchange Notes may, unless the Global Exchange Notes
previously have been exchanged for certificated Exchange Notes, be exchanged
for an interest in the Global Exchange Notes representing the principal amount
at maturity of Exchange Notes being transferred.
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
Depository Procedures
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
Purchases of Notes under the DTC system must be made by or through
Participants, who will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of each Note ("Beneficial Owner")
is in turn to be recorded on the Participants' and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Notes are to be accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their ownership interests in Notes,
except in the event that use of the book-entry system for the Notes is
discontinued. To facilitate subsequent transfers, all Notes deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Notes with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Notes; DTC's records reflect only the
identity of the Participants to whose accounts such Notes are credited, which
may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Redemption notices shall be sent to Cede & Co. If less than all
of the Notes within an issue are being redeemed, DTC's practice is to determine
by lot the amount of the interest of each Participant in such issue to be
redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to
Notes. Under its usual procedures, DTC mails an Omnibus Proxy to the Company as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Participants to whose accounts the Notes
are credited on the record date identified in a listing attached to the Omnibus
Proxy.
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Investors in the Global Exchange Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and Cedel) which are Participants in
such system. Euroclear and Cedel will hold interests in the Global Exchange
Notes on behalf of their participants through customers' securities accounts in
their respective names on the books of their respective depositories, which are
Morgan Guaranty Trust Company of New York, Brussels office, as operator of
Euroclear, and Citibank, N.A., as operator of Cedel. All interests in a Global
Exchange Note, including those held through Euroclear or Cedel, may be subject
to the procedures and requirements of DTC. Those interests held through
Euroclear or Cedel may also be subject to the procedures and requirements of
such systems. 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 beneficial interests in a Global Exchange Note to such
persons will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a Global Exchange
Note to pledge such interests to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Exchange Notes
will not have Exchange Notes registered in their names, will not receive
physical delivery of Exchange Notes in certificated form and will not be
considered the registered owners or "Holders" thereof under the Indenture for
any purpose.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Exchange Note registered in the name
of DTC or its nominee will be payable to DTC in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee will treat the persons in whose names the Exchange Notes, including
the Global Exchange 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, the Trustee nor any agent of the Company or
the Trustee has or will have any responsibility or liability for (i) any aspect
of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interest in the
Global Exchange Notes, or for maintaining, supervising or reviewing any of
DTC's records or any Participant's or Indirect Participant's records relating
to the beneficial ownership interests in the Global Exchange Notes or (ii) any
other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised the Company that its
current practice, upon receipt of any payment in respect of securities such as
the Exchange Notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in the principal amount of
beneficial interest in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practices and will be the responsibility of the Participants or
the Indirect Participants and will not be the responsibility of DTC, the
Trustee or the Company. Neither the Company nor the Trustee will be liable for
any delay by DTC or any of its Participants in identifying the Beneficial
Owners of the Exchange Notes, and the Company and the Trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its
nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Global Exchange Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and its Participants. See "--Same
Day Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
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Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may
be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or Cedel, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Exchange Note in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Cedel participants may not
deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Exchange Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global
Exchange Notes and only in respect of such portion of the aggregate principal
amount of the Exchange Notes as to which such Participant or Participants has
or have given such direction. However, if there is an Event of Default under
the Exchange Notes, DTC reserves the right to exchange the Global Exchange
Notes for Exchange Notes in certificated form, and to distribute such Exchange
Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Exchange Notes among
Participants in DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Cedel or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
Exchange of Book-Entry Notes for Certificated Notes
A Global Exchange Note is exchangeable for definitive Exchange Notes in
registered certificated form ("Certificated Notes") if (i) DTC (x) notifies the
Company that it is unwilling or unable to continue as depositary for the Global
Exchange Notes and the Company thereupon fails to appoint a successor
depositary or (y) has ceased to be a clearing agency registered under the
Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of the Certificated Notes or (iii) there
shall have occurred and be continuing a Default or Event of Default with
respect to the Exchange Notes. In addition, beneficial interests in a Global
Exchange Note may be exchanged for Certificated Notes upon request but only
upon prior written notice given to the Trustee by or on behalf of DTC in
accordance with the Indenture. In all cases, Certificated Notes delivered in
exchange for any Global Exchange Note or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of the depositary (in accordance with its customary procedures).
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Exchange Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
Exchange Notes in certificated form, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The Notes represented by the Global Exchange
Notes are expected to be eligible to trade in the PORTAL
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market and to trade in the Depositary's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such Exchange Notes will,
therefore, be required by the Depositary to be settled in immediately available
funds. The Company expects that secondary trading in any certificated Exchange
Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Exchange Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. DTC has advised the Company
that cash received in Euroclear or Cedel as a result of sales of interests in a
Global Exchange Note by or through a Euroclear or Cedel participant to a
Participant in DTC will be received with value on the settlement date of DTC
but will be available in the relevant Euroclear or Cedel cash account only as
of the business day for Euroclear or Cedel following DTC's settlement date.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accrued Bankruptcy Interest" means, with respect to any Senior Debt, all
interest accruing thereon after the filing of a petition or commencement of any
other proceeding by or against any Obligor under any Bankruptcy Law, in
accordance with and at the rate (including any rate applicable upon any default
or event of default, to the extent lawful) specified in the documents
evidencing or governing such Indebtedness or Hedging Obligations, whether or
not the claim for such interest is allowed as a claim after such filing in any
proceeding under such Bankruptcy Law.
"Acquired Debt" means, with respect to any specified Person, Indebtedness of
another Person and any of such other Person's Subsidiaries existing at the time
such other Person becomes a Subsidiary of such Person or at the time it merges
or consolidates with such Person or any of such Person's Subsidiaries or is
assumed by such Person or any Subsidiary of such Person in connection with the
acquisition of assets from such other Person and in each case not Incurred by
such Person or any Subsidiary of such Person or such other Person in connection
with, or in anticipation or contemplation of, such other Person becoming a
Subsidiary of such Person or such acquisition, merger or consolidation.
"Affiliate" means, when used with reference to any Person:
(1) any other Person directly or indirectly controlling, controlled by,
or under direct or indirect common control with, the referent Person or
such other Person, as the case may be, or
(2) any director, officer or partner of such Person or any Person
specified in clause (1) above.
For the purposes of this definition, the term "control" when used with respect
to any specified Person means the power to direct or cause the direction of
management or policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling," and "controlled" have meanings correlative of the
foregoing. None of the Initial Purchasers nor any of their respective
Affiliates shall be deemed to be an Affiliate of any Obligor or of any of their
respective Affiliates.
"Asset Acquisition" means:
(1) an Investment by any Obligor in any other Person pursuant to which
such Person shall become an Obligor or a Restricted Subsidiary of an
Obligor or shall be merged into, or with any Obligor or Restricted
Subsidiary of an Obligor, or
(2) the acquisition by any Obligor of assets of any Person comprising a
division or line of business of such Person or all or substantially all of
the assets of such Person.
123
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other disposition (for purposes of this
definition, each a "disposition") by any Obligor (including, without
limitation, pursuant to any sale and leaseback transaction or any merger or
consolidation of any Restricted Subsidiary of the Company with or into another
Person (other than another Obligor) whereby such Restricted Subsidiary shall
cease to be a Restricted Subsidiary of the Company) to any Person of:
(1) any property or assets of any Obligor to the extent that any such
disposition is not in the ordinary course of business of such Obligor, or
(2) any Capital Stock of any Restricted Subsidiary,
other than, in both cases:
(A) any disposition to the Company,
(B) any disposition to any Obligor or Restricted Subsidiary,
(C) any disposition that constitutes a Restricted Payment or a Permitted
Investment that is made in accordance with the covenant described above
under the caption "--Restricted Payments",
(D) any transaction or series of related transactions resulting in Net
Cash Proceeds to such Obligor of less than $1 million,
(E) any transaction that is consummated in accordance with the covenant
described above under the caption "--Merger, Consolidation or Sale of
Assets,"
(F) the sale or discount, in each case without recourse (direct or
indirect), of accounts receivable arising in the ordinary course of
business of the Company or such Restricted Subsidiary, as the case may be,
but only in connection with the compromise or collection thereof,
(G) any pledge, assignment by way of collateral security, grant of
security interest, hypothecation or mortgage, permitted by the Indenture or
any foreclosure, judicial or other sale, public or private, by the pledgee,
assignee, mortgagee or other secured party of the subject assets,
(H) a disposition of assets constituting a Permitted Investment, or
(I) any disposition of undeveloped or substantially undeveloped real
estate, provided that in such disposition:
(i) the Obligor making such disposition receives consideration at the
time of such disposition at least equal to the fair market value of the
real estate assets disposed of (as determined reasonably and in good
faith by the Board of such Obligor), and
(ii) at least 60% of the consideration received from such disposition
by the Obligor making such disposition is cash or Cash Equivalents and
is received at the time of the consummation of such disposition. (For
purposes of this provision, each of the following shall be deemed to be
cash: (A) any liabilities as shown on such Obligors' most recent
balance sheet (or in the notes thereto) (other than (i) Indebtedness
subordinate in right of payment to the Notes, (ii) contingent
liabilities, (iii) liabilities or Indebtedness to Affiliates of the
Company and (iv) Non-Recourse Indebtedness) that are assumed by the
transferee of any such assets, and (B) to the extent of the cash
received, any notes or other obligations received by the Obligor making
the disposition from such transferee that are converted by such Obligor
into cash within 60 days of receipt.)
"Bank Credit Facility" means the Credit Facility provided to the Company
pursuant to the Amended and Restated Reducing Revolving Loan Agreement, dated
as of October 14, 1998, by and among the Company, the financial institutions
from time to time named therein (the "Banks"), Bank of Scotland and Societe
General, as Managing Agents, First National Bank of Commerce, as Co-Agent, and
Bank of America NT&SA, as Administrative Agent, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time
by the same or different institutional lenders.
124
"Bankruptcy Law" means the United States Bankruptcy Code and any other
bankruptcy, insolvency, receivership, reorganization, moratorium or similar law
providing relief to debtors, in each case, as from time to time amended and
applicable to the relevant case.
"Board" means the Board of Directors or similar governing entity of an
Obligor, the members of which are elected by the holders of Capital Stock of
such Obligor or, if applicable, a duly-appointed committee of such Board of
Directors or similar governing body, having jurisdiction over the subject
matter at issue.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all shares,
rights, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
common stock and preferred stock of such Person, and
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the discounted
rental stream payable by such Person that is required to be classified and
accounted for as a capital lease obligation under GAAP and, for purposes of
this definition, the amount of such obligation at any date shall be the
capitalized amount of such obligation at such date, determined in accordance
with GAAP. The final maturity of any such obligation shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
penalty.
"Cash Equivalents" means:
(1) Government Securities;
(2) certificates of deposit, eurodollar time deposits and bankers
acceptances maturing within 12 months from the date of acquisition thereof
by any Obligor and issued by any commercial bank organized under the laws
of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of foreign bank having, at the date of
acquisition of the applicable Cash Equivalent, (A) combined capital and
surplus of not less than $500 million and (B) a commercial paper rating of
at least A-1 from S&P or at least P-1 from Moody's;
(3) repurchase obligations with a term of not more than seven days after
the date of acquisition thereof by any Obligor for underlying securities of
the types described in clauses (1), (2) and (4) hereof, entered into with
any financial institution meeting the qualifications specified in clause
(2) above;
(4) commercial paper having a rating of at least P-1 from Moody's or a
rating of at least A-1 from S&P on the date of acquisition thereof by any
Obligor;
(5) debt obligations of any corporation maturing within 12 months after
the date of acquisition thereof by any Obligor, having a rating of at least
P-1 or aaa from Moody's or A-1 or AAA from S&P on the date of such
acquisition; and
(6) mutual funds and money market accounts investing at least 90% of the
funds under management in instruments of the types described in clauses (1)
through (5) above and, in each case, maturing within the period specified
above for such instrument after the date of acquisition thereof by any
Obligor.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one transaction or a series of
related transactions, of all or substantially all of the assets of the
Company, or the Company and its Restricted Subsidiaries taken as a whole,
to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) (as defined below),
(2) the adoption, or, if applicable, the approval of any requisite
percentage of the Company's stockholders of a plan relating to the
liquidation or dissolution of the Company,
125
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above), other than a Principal, becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a
subsequent condition), directly or indirectly, of more than 50% of the
Voting Stock of the Company (measured by voting power rather than number of
shares), or
(4) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of the Company (together
with any new directors whose election to such Board or whose nomination for
election by the stockholders of the Company was approved by a vote of a
majority of the directors of the Company 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) cease for any reason to
constitute a majority of the Board of the Company then in office.
"Casino" means any gaming establishment and other property or assets
directly ancillary thereto or used in connection therewith, including any
building, restaurant, hotel, theater, parking facilities, retail shops, land,
golf courses and other recreation and entertainment facilities, marina,
vessel, barge, ship and equipment.
"Consolidated Coverage Ratio" means, with respect to any Person on any date
of determination, the ratio of:
(1) Consolidated EBITDA for the period of four fiscal quarters most
recently ended prior to such date for which internal financial reports are
available, ended not more than 135 days prior to such date, to
(2)(A) Consolidated Interest Expense during such period plus (B)
dividends on or in respect of any Capital Stock of any such Person paid in
cash during such period; provided that the Consolidated Coverage Ratio
shall be calculated giving pro forma effect, as of the beginning of the
applicable period, to any acquisition, Incurrence or redemption of
Indebtedness (including the Notes), issuance or redemption of Disqualified
Capital Stock, acquisition, Asset Sale, purchases of assets that were
previously leased or re-designation of a Restricted Subsidiary as an
Unrestricted Subsidiary, at any time during or subsequent to such period,
but on or prior to the applicable Determination Date.
In making such computation, Consolidated Interest Expense:
(1) attributable to any Indebtedness bearing a floating interest rate
shall be computed on a pro forma basis as if the rate in effect on the date
of computation had been the applicable rate for the entire period, or
(2) attributable to interest on any Indebtedness under a revolving Credit
Facility shall be computed on a pro forma basis based upon the average
daily balance of such Indebtedness outstanding during the applicable
period.
For purposes of calculating Consolidated EBITDA of the Company for the most
recently completed period of four full fiscal quarters ending on the last day
of the last quarter for which internal financial statements are available
(such period of four fiscal quarters, the "Measurement Period"), not more than
135 days prior to the transaction or event giving rise to the need to
calculate the Consolidated EBITDA,
(1) any Person that is a Restricted Subsidiary on such Determination Date
(or would become a Restricted Subsidiary on such Determination Date in
connection with the transaction that requires the determination of the
Consolidated Coverage Ratio) shall be deemed to have been a Restricted
Subsidiary at all times during such Measurement Period,
(2) any Person that is not a Restricted Subsidiary on such Determination
Date (or would cease to be a Restricted Subsidiary on such Determination
Date in connection with the transaction that requires the determination of
the Consolidated Coverage Ratio) will be deemed not to have been a
Restricted Subsidiary at any time during such Measurement Period,
126
(3) if the Company or any Restricted Subsidiary shall have in any manner
(A) acquired (including through an Asset Acquisition or the
commencement of activities constituting such operating business) or
(B) disposed of (including by way of an Asset Sale or the termination
or discontinuance of activities constituting such operating business)
any operating business during such Measurement Period or after the end of
such Measurement Period and on or prior to the Determination Date, such
calculation shall be made on a pro forma basis in accordance with GAAP as
if, in the case of an Asset Acquisition or the commencement of activities
constituting such operating business, all such transactions had been
consummated on the first day of such Measurement Period and, in the case of
an Asset Sale or termination or discontinuance of activities constituting
such operating business, all such transactions had been consummated prior
to the first day of such Measurement Period; provided, however, that such
pro forma adjustment shall not give effect to the Consolidated EBITDA of
any acquired Person to the extent that such Person's net income would be
excluded pursuant to clause (6) of the definition of Consolidated Net
Income and
(4) any Indebtedness Incurred and proceeds thereof received and applied
as a result of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio will be deemed to have been so Incurred,
received and applied on the first day of such Measurement Period.
"Consolidated EBITDA" means, with respect to any Person for any period, the
sum (without duplication) of:
(1) the Consolidated Net Income of such Person for such period, plus
(2) to the extent that any of the following shall have been taken into
account in determining such Consolidated Net Income, and without
duplication:
(A) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions of assets
outside the ordinary course of business),
(B) the Consolidated Interest Expense of such Person for such period,
(C) the amortization expense (including the amortization of deferred
financing charges) and depreciation expense for such Person and its
Restricted Subsidiaries for such period,
(D) other non-cash items (other than non-cash interest) of such Person
or any of its Restricted Subsidiaries (including any non-cash
compensation expense attributable to stock option or other equity
compensation arrangements), other than any non- cash item for such
period that requires the accrual of or a reserve for cash charges for
any future period (except as otherwise provided in clause (E) below) and
other than any non-cash charge for such period constituting an
extraordinary item of loss, and
(E) any non-recurring costs or expenses of an acquired company or
business incurred in connection with the purchase or acquisition of such
acquired company or business by such Person and any non-recurring
adjustments necessary to conform the accounting policies of the acquired
company or business to those of such Person, less
(3)(A) all non-cash items of such Person or any of its Restricted
Subsidiaries increasing such Consolidated Net Income for such period and
(B) all cash payments during such period relating to non-cash items that
were added back in determining Consolidated EBITDA in any prior period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non- cash
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interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capitalized Lease Obligations, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period, and
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Support Obligation or Lien is called upon) and
(4) the product of:
(A) all dividend payments on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, times
(B) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that there shall be excluded therefrom:
(1) net after-tax gains and losses from all sales or dispositions of
assets outside of the ordinary course of business,
(2) net after-tax extraordinary or non-recurring gains or losses,
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of
such Person or is merged or consolidated with or into such Person or any
Restricted Subsidiary,
(4) the cumulative effect of a change in accounting principles,
(5) any net income of any other Person if such other Person is not a
Restricted Subsidiary and is accounted for by the equity method of
accounting, except that such Person's equity in the net income of any such
other Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
other Person during such period to such Person or a Restricted Subsidiary
as a dividend or other distribution, (subject, in case of a dividend or
other distribution to a Restricted Subsidiary, to the limitation that such
amount so paid to a Restricted Subsidiary shall be excluded to the extent
that such amount could not at that time be paid to the Company due to the
restrictions set forth in clause (6) below (regardless of any waiver of
such conditions)),
(6) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, by contract,
operation of law, pursuant to its charter or otherwise on the payment of
dividends or the making of distributions by such Restricted Subsidiary to
such Person except that:
(A) such Person's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been paid or
distributed during such period to such Person as a dividend or other
distribution (provided that such ability is not due to a waiver of such
restriction) and
(B) such Person's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income regardless of any such restriction,
(7) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date,
(8) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued),
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(9) in the case of a successor to such Person by consolidation or merger
or as a transferee of such Person's assets, any net income or loss of the
successor corporation prior to such consolidation, merger or transfer of
assets and
(10) the net income (but not loss) of any Unrestricted Subsidiary, except
that the Company's or any Restricted Subsidiary's equity in the net income
of any Unrestricted Subsidiary or other Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Unrestricted Subsidiary or Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date, plus
(2) the respective amounts reported on such Person's consolidated balance
sheet as of such date with respect to any series of preferred stock (other
than Disqualified Capital Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid only
out of net earnings in respect of the year of such declaration and payment,
but only to the extent of any cash received by such Person upon issuance of
such preferred stock,
less:
(1) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business
made within 12 months after the acquisition of such business) subsequent to
the Issue Date in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person,
(2) all investments as of such date in unconsolidated Subsidiaries and in
Persons that are not Subsidiaries (except, in each case, Permitted
Investments), and
(3) all unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in accordance with
GAAP.
"Core Businesses" means the gaming, card club, racing, sports,
entertainment, lodging, restaurant, riverboat operations, real estate
development and all other businesses and activities necessary for or reasonably
related or incident thereto, including, without limitation, related
acquisition, construction, development or operation of related truck stop,
transportation, retail and other facilities designed to enhance any of the
foregoing.
"Credit Facilities" means, with respect to any Obligor, one or more debt
facilities or commercial paper facilities with any combination of banks, other
institutional lenders and other Persons extending financial accommodations or
holding corporate debt obligations in the ordinary course of their business,
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time by the
same or different institutional lenders.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Determination Date" means, with respect to any calculation, the date on or
as of which such calculation is made in accordance with the terms hereof.
"Designated Senior Debt" means any Indebtedness under the Bank Credit
Facility (which is outstanding or which the lenders thereunder have a
commitment to extend) and, if applicable, any other Senior Debt permitted under
the Indenture, the principal amount (committed or outstanding) of which is $25
million or more and that has been designated by the Company as "Designated
Senior Debt."
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"Disqualified Capital Stock" means any Capital Stock which by its terms (or
by the terms of any security into which it is, by its terms, convertible or for
which it is, by its terms, exchangeable at the option of the holder thereof),
or upon the happening of any specified event, is required to be redeemed or is
redeemable (at the option of the holder thereof) at any time prior to the
earlier of the repayment of all Notes or the stated maturity of the Notes or is
exchangeable at the option of the holder thereof for Indebtedness at any time
prior to the earlier of the repayment of all Notes or the stated maturity of
the Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" means the occurrence of any of the events described under
the caption "--Events of Default and Remedies", after giving effect to any
applicable grace periods or notice requirements.
"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 may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Gaming Approval" means any governmental approval relating to any gaming
business or enterprise.
"Gaming Authority" means any governmental authority with regulatory
oversight of, authority to regulate or jurisdiction over any gaming businesses
or enterprises, including the State Gaming Control Board of Nevada, Washoe
County, Nevada gaming authorities, the Nevada Gaming Commission, Mississippi
Gaming Commission, Indiana Gaming Commission, California Gambling Control
Commission, Louisiana Gaming Control Board, California Horse Racing Board and
the Arizona Racing Commission, with regulatory oversight of, authority to
regulate or jurisdiction over any gaming operation (or proposed gaming
operation) owned, managed or operated by any Obligor.
"Gaming Laws" means all applicable provisions of all:
(1) constitutions, treaties, statutes or laws governing gaming operations
(including without limitation card club casinos and pari mutuel race
tracks) and rules, regulations and ordinances of any Gaming Authority,
(2) Gaming Approvals and
(3) orders, decisions, judgments, awards and decrees of any Gaming
Authority.
"Global Note" means a permanent global note in registered form deposited
with the Trustee, as a custodian for The Depositary Trust Company or any other
designated depositary.
"Government Securities" means marketable direct obligations issued by, or
unconditionally guaranteed by, the United States government or issued by any
agency or instrumentality thereof and backed by the full faith and credit of
the United States, in each case maturing within 12 months from the date of
acquisition thereof by any Obligor.
"Guarantor" means any existing or future Material Restricted Subsidiary of
the Company, which has guaranteed the obligations of the Company arising under
or in connection with the Notes, as required by the Indenture.
"Guaranty" means a guaranty by a Guarantor of the Obligations of the Company
arising under or in connection with the Notes.
"Hedging Obligations" means all obligations of the Obligors arising under or
in connection with any rate or basis swap, forward contract, commodity swap or
option, equity or equity index swap or option, bond, note or bill option,
interest rate option, foreign currency exchange transaction, cross currency
rate swap, currency
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option, cap, collar or floor transaction, swap option, synthetic trust
product, synthetic lease or any similar transaction or agreement.
"Incur" means, with respect to any Indebtedness of any Person or any Lien,
to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or Lien
or the recording, as required pursuant to GAAP or otherwise, of any such
Indebtedness on the balance sheet of such Person (and "Incurrence,"
"Incurred," "Incurrable" and "Incurring" shall have meanings correlative to
the foregoing).
"Indebtedness" means with respect to any Person, without duplication,
whether contingent or otherwise,
(1) any obligations for money borrowed,
(2) any obligation evidenced by bonds, debentures, notes, or other
similar instruments,
(3) Letter of Credit Obligations and obligations in respect of other
similar instruments,
(4) any obligations to pay the deferred purchase price of property or
services, including Capitalized Lease Obligations,
(5) the maximum fixed redemption or repurchase price of Disqualified
Capital Stock,
(6) Indebtedness of other Persons of the types described in clauses (1)
through (5) above, secured by a Lien on the assets of such Person or its
Restricted Subsidiaries, valued, in such cases where the recourse thereof
is limited to such assets, at the lesser of the principal amount of such
Indebtedness or the fair market value of the subject assets,
(7) indebtedness of other Persons of the types described in clauses (1)
through (5) above, guaranteed by such Person or any of its Restricted
Subsidiaries and
(8) the net obligations of such Person under Hedging Obligations;
provided that the amount of any Indebtedness at any date shall be
calculated as the outstanding balance of all unconditional obligations and
the maximum liability supported by any contingent obligations at such date.
Notwithstanding the foregoing, "Indebtedness" shall not be construed to
include trade payables, credit on open account, accrued liabilities,
provisional credit, daylight overdrafts or similar items. For purposes of this
definition, the "maximum fixed redemption or repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Disqualified Capital Stock
as if such Disqualified Capital Stock were repurchased on the date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of the issuing Person. Unless
otherwise specified in the Indenture, the amount outstanding at any time of
any Indebtedness issued with original issue discount is the full amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"Interest Swap Obligations" means the net obligations of any Person under
any interest rate protection agreement, interest rate future, interest rate
option, interest rate swap, interest rate cap, collar or floor transaction or
other interest rate Hedging Obligation.
"Investment" by any Person means any direct or indirect:
(1) loan, advance or other extension of credit or capital contribution
(valued at the fair market value thereof as of the date of contribution or
transfer) (by means of transfers of cash or other property or services for
the account or use of other Persons, or otherwise);
(2) purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidences of Indebtedness issued by any other Person
(whether by merger, consolidation, amalgamation or otherwise and whether or
not purchased directly from the issuer of such securities or evidences of
Indebtedness);
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(3) guarantee or assumption of any Indebtedness or any other obligation
of any other Person (except for an assumption of Indebtedness for which the
assuming Person receives consideration at the time of such assumption in
the form of property or assets with a fair market value at least equal to
the principal amount of the Indebtedness assumed); and
(4) all other items that would be classified as investments (including,
without limitation, purchases of assets outside the ordinary course of
business) on a balance sheet of such Person prepared in accordance with
GAAP.
Notwithstanding the foregoing, the purchase or acquisition of any securities,
Indebtedness or Productive Assets of any other Person solely with Qualified
Capital Stock shall not be deemed to be an Investment. The term "Investments"
shall also exclude extensions of trade credit and advances to customers and
suppliers to the extent made in the ordinary course of business on ordinary
business terms. The amount of any non-cash Investment shall be the fair market
value of such Investment, as determined conclusively in good faith by
management of the Company or the affected Restricted Subsidiary, as applicable,
unless the fair market value of such Investment exceeds $5 million, in which
case the fair market value shall be determined conclusively in good faith by
the Board of such Person as of the time such Investment is made or such other
time as specified in the Indenture. Unless otherwise required by the Indenture,
the amount of any Investment shall not be adjusted for increases or decreases
in value, or write-ups, write-downs or write-offs subsequent to the date such
Investment is made with respect to such Investment.
"Issue Date" means February 18, 1999.
"Letter of Credit Obligations" means Obligations of an Obligor arising under
or in connection with letters of credit.
"Lien" means, with respect to any assets, any mortgage, lien, pledge,
charge, security interest or other similar encumbrance (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof, any option or other agreement to sell, and any filing of or
agreement to give, any security interest).
"Limited Real Estate Development" means the development or improvement of
(1) any undeveloped or substantially undeveloped real estate held by the
Company or a Subsidiary on the date of the Indenture or (2) any undeveloped or
substantially undeveloped real estate that is acquired by the Company or a
Subsidiary in an acquisition of a company that is primarily in the Casino
business.
"Material Restricted Subsidiary" means any Subsidiary which is both a
Material Subsidiary and a Restricted Subsidiary.
"Material Subsidiary" means any Subsidiary of the Company other than a Non-
Material Subsidiary.
"Moody's" means Moody's Investors Services, Inc., and its successors.
"Net Cash Proceeds" means with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
received by any Obligor from such Asset Sale, net of:
(1) reasonable out-of- pocket expenses, fees and other direct costs
relating to such Asset Sale (including, without limitation, brokerage,
legal, accounting and investment banking fees and sales commissions),
(2) taxes paid or payable after taking into account any reduction in tax
liability due to available tax credits or deductions and any tax sharing
arrangements,
(3) repayment of Indebtedness (other than any intercompany Indebtedness)
that is required by the terms thereof to be repaid or pledged as cash
collateral, or the holders of which otherwise have a
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contractual claim that is legally superior to any claim of the holders
(including a restriction on transfer) to the proceeds of the subject
assets, in connection with such Asset Sale, and
(4) appropriate amounts to be provided by any applicable Obligor, as a
reserve, in accordance with GAAP, against any liabilities associated with
such Asset Sale and retained by limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale and any reserve for adjustment to the sale price
received in such Asset Sale for so long as such reserve is held.
"Non-Material Subsidiaries" means all Subsidiaries not designated as
Material Subsidiaries by the Company; provided, that all such Subsidiaries
(other than Unrestricted Subsidiaries) may not, in the aggregate at any time
have assets (attributable to the Company's and its Restricted Subsidiaries'
equity interest in such entity) constituting more than 5% of the Company's
total assets on a consolidated basis based on the Company's most recent
internal financial statements. As of the Issue Date, the Non-Material
Subsidiaries shall be all the Company's Subsidiaries existing as of the Issue
Date other than the Guarantors as of the Issue Date and the Unrestricted
Subsidiaries as of the Issue Date.
"Non-Recourse Indebtedness" means Indebtedness of an Unrestricted Subsidiary
(1) as to which none of the Obligors:
(A) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(B) is directly or indirectly liable (as a guarantor or otherwise),
or
(C) constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness (other than the Notes being offered hereby) of any
Obligor to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity,
and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of any Obligor.
The foregoing notwithstanding, if an Obligor or a Restricted Subsidiary makes a
loan to an Unrestricted Subsidiary that is permitted under the covenant
described under the caption "Restricted Payments" and is otherwise permitted to
be incurred under the Indenture, such loan shall constitute Non-Recourse
Indebtedness.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities, whether
absolute or contingent, payable under the documentation governing any
Indebtedness.
"Obligor" means the Company or any Guarantor.
"Paying Agent" means the Person so designated by the Company in accordance
with the Indenture, initially the Trustee.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the Issue Date and reflected in the financial statements set forth in
the offering memorandum relating to the Old Notes as in effect on the Issue
Date as reduced by the amount of any scheduled amortization payments or
mandatory prepayments when actually paid or permanent reductions thereof;
(2) Indebtedness Incurred by the Company under the Notes and by the
Guarantors under the Guaranties;
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(3) Indebtedness Incurred by the Company or any Restricted Subsidiary
pursuant to the Bank Credit Facility; provided that the aggregate principal
amount of Indebtedness outstanding thereunder as of any date of Incurrence
shall not exceed $350 million, to be reduced dollar-for-dollar by the
amount of (A) any increase to the face amount of Support Obligations
permitted to be Incurred pursuant to clause (11) of this definition and (B)
the aggregate amount of all Net Cash Proceeds of Asset Sales applied by an
Obligor to permanently prepay or repay Indebtedness under the Bank Credit
Facility pursuant to the covenant described above under the caption "--
Asset Sales."
(4) Indebtedness of the Company to any Obligor or of any Guarantor to any
other Obligor for so long as such Indebtedness is held by the Company or by
another Obligor; provided that:
(A) any Indebtedness of the Company to any other Obligor is unsecured
and evidenced by an intercompany promissory note that is subordinated,
pursuant to a written agreement, to the Company's obligations under the
Indenture and the Notes and the Registration Rights Agreement, and
(B) if as of any date any Person other than the Company or a
Guarantor owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed to be an
Incurrence of Indebtedness not constituting Permitted Indebtedness
under this clause (4) by the issuer of such Indebtedness;
(5) Indebtedness of a Restricted Subsidiary to the Company for so long as
such Indebtedness is held by an Obligor; provided that if as of any date
any Person other than an Obligor acquires any such Indebtedness or holds a
Lien in respect of such Indebtedness, such acquisition shall be deemed to
be an Incurrence of Indebtedness not constituting Permitted Indebtedness
under this clause (5) by the issuer of such Indebtedness;
(6) Permitted Refinancing Indebtedness;
(7) the Incurrence by Unrestricted Subsidiaries of Non-Recourse
Indebtedness; provided that, if any such Indebtedness ceases to be Non-
Recourse Indebtedness of an Unrestricted Subsidiary, such event shall be
deemed to constitute an Incurrence of Indebtedness that is not permitted by
this clause (7);
(8) Indebtedness Incurred by the Company or any Restricted Subsidiary
solely to finance the construction or acquisition or improvement of, or
consisting of Capitalized Leased Obligations Incurred to acquire rights of
use in, capital assets useful in the Company's or such Subsidiary's
business, as applicable, and, in any such case, Incurred prior to or within
180 days after the construction, acquisition, improvement or leasing of the
subject assets, not to exceed in aggregate principal amount outstanding at
any time:
(A) $15 million for each of the Company or any Restricted Subsidiary,
or
(B) $60 million in the aggregate for all of the Company and its
Restricted Subsidiaries, and additional Indebtedness of the kind
described in this clause (8) with respect to which neither the Company
nor any Restricted Subsidiary is directly or indirectly liable, and
which is expressly made non-recourse to all of such Person's assets,
except the asset so financed;
(9) Interest Swap Obligations entered into not as speculative Investments
but as hedging transactions designed to protect the Company and its
Restricted Subsidiaries against fluctuations in interest rates in
connection with Indebtedness otherwise permitted hereunder;
(10) Indebtedness of the Company or any Restricted Subsidiary arising in
respect of performance bonds and completion guaranties (to the extent that
the Incurrence thereof does not result in the Incurrence of any obligation
for the payment of borrowed money of others), in the ordinary course of
business, in amounts and for the purposes customary in such Person's
industry; provided, that such Indebtedness shall be Incurred solely in
connection with the development, construction, improvement or enhancement
of assets useful in such Person's business; and
(11) other Indebtedness consisting of Support Obligations not exceeding
$25 million in aggregate principal amount at any time, which may be
increased by the Company in its discretion, subject to
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availability under, and a corresponding reduction to, the principal amount
of Indebtedness permitted to be Incurred under the Bank Credit Facility
pursuant to clause (3) of this definition.
"Permitted Investments" means, without duplication, each of the following:
(1) Investments in cash (including deposit accounts with major commercial
banks) and Cash Equivalents;
(2) Investments by the Company or a Restricted Subsidiary in the Company
or any Restricted Subsidiary or any Person that is or will immediately
become upon giving effect to such Investment, or as a result of which, such
Person is merged, consolidated or liquidated into, or conveys substantially
of all its assets to, an Obligor or a Restricted Subsidiary; provided that
Investments in any such Person (other than the Company or any Restricted
Subsidiary) made prior to such Investment shall not be "Permitted
Investments"; and provided further that for purposes of calculating at any
date the aggregate amount of Investments made since the Issue Date pursuant
to the covenant described above under the caption "--Restricted Payments,"
such Investment shall be a Permitted Investment only so long as any
Subsidiary in which any such Investment has been made continues to be an
Obligor or a Restricted Subsidiary;
(3) Investments existing on the Issue Date, each such Investment to be:
(A) in an amount less than $1 million,
(B) listed on a schedule to the Indenture, or
(C) an existing Investment by any one or combination of the Company
and its consolidated subsidiaries in any other such Person;
(4) accounts receivable created or acquired in the ordinary course of
business of the Company or any Restricted Subsidiary on ordinary business
terms;
(5) Investments arising from transactions by the Company or a Restricted
Subsidiary with trade creditors or customers in the ordinary course of
business (including any such Investment received pursuant to any plan of
reorganization or similar arrangement pursuant to the bankruptcy or
insolvency of such trade creditors or customers or otherwise in settlement
of a claim);
(6) Investments made as the result of non-cash consideration received
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Assets Sales"; and
(7) Investments consisting of advances to officers, directors and
employees of the Company or a Restricted Subsidiary for travel,
entertainment, relocation, purchases of Capital Stock of the Company or a
Restricted Subsidiary permitted by the Indenture and analogous ordinary
business purposes.
"Permitted Junior Securities" means Equity Interests in the Obligors or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to
a greater extent than, the Notes and the Guaranties are subordinated to Senior
Debt pursuant to the Indenture.
"Permitted Liens" means:
(1) Liens in favor of the Company or Liens on the assets of any Guarantor
so long as such Liens are held by another Obligor;
(2) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or a Restricted Subsidiary;
provided that such Liens were not Incurred in anticipation of such merger
or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company or such Restricted
Subsidiary, as applicable;
(3) Liens on property existing at the time of acquisition thereof by any
Obligor or Restricted Subsidiary; provided that such Liens were not
Incurred in anticipation of such acquisition;
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(4) Liens Incurred to secure Indebtedness permitted by clause (8) of the
definition of Permitted Indebtedness, attaching to or encumbering only the
subject assets and directly related property such as proceeds and products
thereof and accessions and replacements thereto;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens created by "notice" or "precautionary" filings in connection
with operating leases or other transactions pursuant to which no
Indebtedness is Incurred by the Company or any Restricted Subsidiary;
(7) Liens existing on the Issue Date;
(8) Liens for taxes, assessments or governmental charges or claims
(including, without limitation, Liens securing the performance of workers
compensation, social security, or unemployment insurance obligations) that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens on shares of any equity security or any warrant or option to
purchase an equity security or any security which is convertible into an
equity security issued by any Obligor that holds, directly or indirectly
through a holding company or otherwise, a license under any applicable
Gaming Laws; provided that this clause (9) shall apply only so long as such
Gaming Laws provide that the creation of any restriction on the disposition
of any of such securities shall not be effective and, if such Gaming Laws
at any time cease to so provide, then this clause (9) shall be of no
further effect;
(10) Liens on securities constituting "margin stock" within the meaning
of Regulation T, U or X promulgated by the Board of Governors of the
Federal Reserve System, to the extent that (i) prohibiting such Liens would
result in the classification of the obligations of the Company under the
Notes as a "purpose credit" and (ii) the Investment by any Obligor in such
margin stock is permitted by the Indenture;
(11) Liens securing Permitted Refinancing Indebtedness; provided that any
such Lien attaches only to the assets encumbered by the predecessor
Indebtedness, unless the Incurrence of such Liens is otherwise permitted
under the Indenture;
(12) Liens securing stay and appeal bonds or judgment Liens in connection
with any judgment not giving rise to an Event of Default under paragraph
(5) of the Events of Default;
(13) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business, in respect of obligations not
constituting Indebtedness and not past due; provided that adequate reserves
shall have been established therefor in accordance with GAAP;
(14) easements, rights-of-way, zoning restrictions, reservations,
encroachments and other similar charges or encumbrances in respect of real
property which do not individually or in the aggregate, materially
interfere with the conduct of business by any Obligor;
(15) any interest or title of a lessor under any Capitalized Lease
Obligation permitted to be incurred hereunder;
(16) Liens upon specific items of inventory or equipment and proceeds
thereof, Incurred to secure obligations in respect of bankers' acceptances
issued or created for the account of any Obligor or Restricted Subsidiary
in the ordinary course of business to facilitate the purchase, shipment, or
storage of such inventory or equipment;
(17) Liens securing Letter of Credit Obligations permitted to be Incurred
hereunder Incurred in connection with the purchase of inventory or
equipment by an Obligor or Restricted Subsidiary in the ordinary course of
the business and secured only by such inventory or equipment, the documents
issued in connection therewith and the proceeds thereof and
136
(18) Liens in favor of the Trustee arising under the Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any Restricted Subsidiary issued in exchange for, or the net proceeds of
which are used to repay, redeem, extend, refinance, renew, replace, defease or
refund other Permitted Indebtedness of such Person arising under clauses (1),
(2), (6), (8), (10) or (11) of the definition of "Permitted Indebtedness" or
Indebtedness Incurred under the Consolidated Coverage Ratio test in the
covenant described above under the heading "--Incurrence of Indebtedness and
Issuance of Preferred Stock" (any such Indebtedness, "Existing Indebtedness");
provided that:
(1) the principal amount of such Permitted Refinancing Indebtedness does
not exceed the principal amount of such Existing Indebtedness (plus the
amount of prepayment penalties, premiums and expenses incurred or paid in
connection therewith), except to the extent that the Incurrence of such
excess is otherwise permitted by the Indenture;
(2) if such Indebtedness is subordinated to, or pari passu in right of
payment with, the Notes, such Permitted Refinancing Indebtedness has a
final maturity date on or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, such Existing Indebtedness;
(3) if such Existing Indebtedness is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity
date on or later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the
holders of Notes as those contained in the documentation governing the
Indebtedness being repaid, redeemed, extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Permitted Refinancing Indebtedness shall be Indebtedness solely
of the Obligor or Restricted Subsidiary originally obligated thereunder,
unless otherwise permitted by the Indenture.
"Plan of Liquidation" means, with respect to any Person, a plan (including
by operation of law) that provides for, contemplates or the effectuation of
which is preceded or accomplished by (whether or not substantially
contemporaneously):
(1) the sale, lease or conveyance of all or substantially all of the
assets of such Person otherwise than as an entirety or substantially as an
entirety, and
(2) the distribution of all or substantially all of the proceeds of such
sale, lease, conveyance, or other disposition and all or substantially all
of the remaining assets of such Person to holders of Capital Stock of such
Person.
"Principals" means:
(1) R.D. Hubbard,
(2) any spouse, parent or child of such Principal, or
(3) any trust, corporation, partnership or other Person, the
beneficiaries, stockholders, partners, owners or other Persons holding an
80% or more controlling interest in which are Persons described in clause
(1) or (2) of this definition.
"Productive Assets" means assets (including assets owned directly or
indirectly through Capital Stock of a Restricted Subsidiary) of a kind used or
usable in the businesses of the Obligors as they are conducted on the date of
the Asset Sale.
"Public Equity Offering" means a public equity offering, underwritten by a
nationally recognized underwriter pursuant to an effective registration
statement under the Securities Act of Qualified Capital Stock.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
137
"Related Business" means the gaming (including pari-mutuel betting) business
and any and all reasonably related businesses necessary for, in support or
anticipation of and ancillary to or in preparation for, the gaming business
including, without limitation, the development, expansion or operation of any
Casino (including any land-based, dockside, riverboat or other type of Casino),
owned, or to be owned, by the Company or one of its Subsidiaries.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. If no referent Person is
specified, "Restricted Subsidiary" means a Subsidiary of the Company.
"S&P" means Standard & Poors Rating Group, a division of The McGraw-Hill
Industries, Inc., and its successors.
"Senior Debt" means:
(1) all Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto,
(2) any other Indebtedness permitted to be Incurred by the Company under
the terms of the Indenture, unless the instrument under which such
Indebtedness is Incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes, and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing
by the Company,
(2) any Indebtedness of any Obligor to any of its Restricted Subsidiaries
or other Affiliates,
(3) any trade payables,
(4) any Indebtedness that is incurred in violation of the Indenture, and
(5) Indebtedness which, when Incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without recourse
to any Obligor.
Notwithstanding anything in the Indenture to the contrary Senior Debt shall
not include the 9 1/2% Notes. The Indenture will expressly provide that the
Obligations in respect of the Notes and the Guarantees will be on a parity
with the Obligations in respect of the 9 1/2% Notes and the guarantees
thereof in right of payment.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary," with respect to any Person, means:
(1) any corporation or comparably organized entity, a majority of whose
voting stock (defined as any class of capital stock having voting power
under ordinary circumstances to elect a majority of the Board of such
Person) is owned, directly or indirectly, by any one or more of the
Obligors, and
(2) any other Person (other than a corporation) in which any one or more
of the Obligors, directly or indirectly, has at least a majority ownership
interest entitled to vote in the election of directors, managers or
trustees thereof or of which such Obligor is the managing general partner.
138
"Support Obligation" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and, without limiting the generality of the foregoing, any obligation, direct
or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise), or
(2) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided that the
term "Support Obligation" shall not include:
(A) endorsements for collection or deposit in the ordinary course of
business, or
(B) commitments to make Permitted Investments in Obligors or their
Restricted Subsidiaries.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of the Company as its Unrestricted Subsidiary pursuant
to a Board resolution; but only to the extent that such Subsidiary:
(A) has, or will have after giving effect to such designation, no
Indebtedness other than Non-Recourse Indebtedness,
(B) is not party to any agreement, contract, arrangement or
understanding with any Obligor unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to such
Obligor than those that might be obtained at the time from Persons who
are not Affiliates of such Obligor,
(C) is a Person with respect to which none of the Obligors has any
direct or indirect obligation (i) to subscribe for additional equity
interests or (ii) to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels of
operating results,
(D) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of any Obligor, and
(E) has at least one director on its Board who is not a director or
executive officer of any Obligor and has at least one executive officer
who is not a director or executive officer of any Obligor.
Any such designation by the Board of the Company 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 complied with the foregoing conditions and was permitted by
the covenant described above under "--Restricted Payments." 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 as of such
time (and, if such Indebtedness is not permitted to be Incurred as of such date
under the covenant described above under "--Incurrence of Indebtedness and
Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board 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 any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if
(1) such Indebtedness is permitted under the covenant described above
under the heading "--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred
at the beginning of the reference period, and
(2) no Default or Event of Default would be in existence following such
designation.
139
As of the Issue Date, the following entities shall be Unrestricted
Subsidiaries: Jefferson Casino Corporation, Casino Magic of Louisiana, Corp.,
Casino Magic Management Services Corp., Sunflower Racing, Inc., SR Food &
Beverage Company, Casino Magic Neuquen S.A. and Casino Magic Support Services
S.A.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the Company's calculations of the number of years obtained by
dividing:
(1) the then outstanding aggregate principal amount of such Indebtedness
into:
(2) the total of the products obtained by multiplying:
(A) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
(B) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
140
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
resulting from the Exchange Offer and from the ownership of the Notes. This
discussion is a general summary only and does not address all tax aspects of
ownership of the Notes that may be relevant to a prospective investor's
particular circumstances. This discussion deals only with Notes held as capital
assets and does not deal with the consequences to special classes of holders of
the Notes, such as dealers in securities or currencies, life insurance
companies, tax exempt entities, financial institutions, persons with a
functional currency other than the U.S. dollar, or investors in pass-through
entities such as partnerships. It does not deal with the effects of any
arrangement entered into by a holder of the Notes that partially or completely
hedges the Notes, or otherwise holding the Notes as part of a synthetic
security or other integrated investment. The discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations,
rulings, and judicial decisions thereunder as of the date hereof, any of which
may be repealed or modified in a manner resulting in federal income tax
consequences that differ from those described below. In addition, the
discussion relies upon the description provided to the Company by the DTC,
Euroclear, and Cedel of their depository procedures and the procedures of their
Participants and Indirect Participants in maintaining a book-entry system
reflecting the beneficial ownership of the Notes.
Holders tendering their Old Notes or prospective purchasers of Exchange
Notes should consult their own tax advisors concerning the federal income tax
consequences resulting from their particular situations, and concerning the
state or local income or franchise tax consequences, gift and estate tax
consequences, or the consequences under the laws of any other taxing
jurisdiction.
U.S. Holders
The following discussion addresses the United States federal income tax
consequences to a U.S. Holder of a Note. For purposes of this discussion, a
U.S. Holder is a Holder that is (i) a citizen or resident of the United States,
(ii) a corporation, partnership, or other entity organized under the laws of
the United States or any political subdivision of the United States, (iii) an
estate taxed by the United States without regard to the source of its income,
or (iv) a trust if a court within the United States can exercise primary
supervision over its administration and one or more United States persons have
authority to control all of its substantial decisions.
Payments of Interest
Payments of stated interest on a Note will be taxable as ordinary interest
income at the time it is received or accrued, depending upon the method of
accounting applicable to the holder of the Note.
Exchange Offer in Connection with Registration of the Notes
The exchange of the Old Notes for the Exchange Notes (with substantially
identical terms) in connection with the registration of the Exchange Notes
should not be a taxable event for federal income tax purposes, and a Holder
should have the same tax basis and holding period in the Exchange Notes that
the Holder had in the Old Notes.
Market Discount
Any gain or loss on a disposition of a Note would generally be capital gain
or loss. However, a subsequent purchaser of a Note who did not acquire the Note
at its original issue, and who acquires such Note at a price that is less than
the stated redemption price of the Note at its maturity (that is, its face
amount if issued at par), may be required to treat the Note as a "market
discount bond". Any recognized gain on a disposition of the Note would then be
treated as ordinary income to the extent that it does not exceed the "accrued
market discount" on the Note. In general, accrued market discount is that
amount that bears the same ratio to the excess of the stated redemption price
of the Note over the purchaser's basis in the Note immediately after its
acquisition, as the number of days the purchaser holds the Note bears to the
number of days after the date the purchaser acquired the Note up to (and
including) the date of its maturity. In addition, there are rules deferring the
deduction of all or part of the interest expense on indebtedness incurred or
continued to purchase or carry such bond, and permitting a holder to elect to
include accrued market discount in income on a current basis.
141
Backup Withholding and Information Reporting
In general, a U.S. Holder of a Note will be subject to backup withholding at
the rate of 31% with respect to interest, principal and premium, if any, paid
on a Note, unless the holder (a) is an entity (including corporations, tax-
exempt organizations and certain qualified nominees) that is exempt from
withholding and, when required, demonstrates this fact, or (b) provides the
Company with its Taxpayer Identification Number ("TIN") (which, for an
individual, would be the holder's Social Security number), certifies that the
TIN provided to the Company is correct and that the holder has not been
notified by the Internal Revenue Service that it is subject to backup
withholding due to underreporting of interest or dividends, and otherwise
complies with applicable requirements of the backup withholding rules. In
addition, such payments of interest, principal and premium to U.S. Holders that
are not corporations, tax-exempt organizations or qualified nominees will
generally be subject to information reporting requirements.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such holder's federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the Internal Revenue Service.
Non-U.S. Holders
The following discussion addresses the principal U.S. federal income tax
consequences to a Holder of a Note that is not a U.S. Holder--referred to in
this discussion as a Non-U.S. Holder. As discussed above, this discussion does
not address all tax aspects of ownership of the Notes that may be relevant to a
prospective investor's particular circumstances, including holding the Notes
through a partnership or holding the Notes through a hybrid entity (an entity
that is a pass-through entity for U.S. tax purposes but not for foreign tax
purposes).
Payments of Interest
Generally, payments of stated interest on a Note will not be subject to U.S.
federal income tax if the interest qualifies as portfolio interest. Interest on
the Notes will qualify as portfolio interest if the Non-U.S. Holder (i) does
not actually or constructively own 10 percent of more of the total combined
voting power of all voting stock of the Company, (ii) is not a "controlled
foreign corporation" with respect to which the Company is a "related person" as
such terms are defined in the Code, and (iii) provides the required
certifications that the beneficial owner of the Notes is not a U.S. person.
However, the interest on the Notes will be taxed at regular U.S. federal income
tax rates if the interest constitutes income that is effectively connected with
the conduct of a U.S. trade or business and, if the Non-U.S. Holder can claim
the benefit of an income tax treaty, is attributable to a U.S. permanent
establishment or fixed base. Such income is referred to in this discussion as
U.S. trade or business income. If the Non-U.S. Holder is a corporation,
interest that constitutes U.S. trade or business income may also be subject to
the "branch profits tax" at 30 percent or, if applicable, a lower rate
determined by an income tax treaty.
Interest that neither qualifies as portfolio interest nor constitutes U.S.
trade or business income will be subject to U.S. withholding tax at the rate of
30 percent, unless such withholding tax is reduced or eliminated by an
applicable income tax treaty. To claim the protection of an income tax treaty,
a Non-U.S. Holder must provide a properly executed Form 1001 prior to the
payment of interest, and must periodically update the filing. New regulations
scheduled to take effect on January 1, 2000, will replace these forms with new
forms and procedures, and may require a Non-U.S. Holder to obtain a taxpayer
identification number and to provide documentary evidence of residence in order
to claim a treaty benefit.
Sale, Exchange or Redemption of Notes
Gain realized by a Non-U.S. Holder on the sale, exchange, redemption or
other disposition of a Note will generally not be subject to U.S. federal
income tax, unless (i) such gain constitutes U.S. trade or business income,
(ii) the Non-U.S. Holder is an individual who holds the Note as a capital asset
and is present in the United States for 183 days or more in the taxable year of
the disposition, or (iii) the Non-U.S. Holder is a former citizen or resident
of the United States subject to certain rules related to that status.
142
Federal Estate Tax
Notes held by an individual who is not a citizen or resident of the United
States for federal estate tax purposes at the time of his or her death will not
be subject to U.S. federal estate tax if the interest on the Notes qualifies
for the portfolio interest exemption from U.S. federal income tax under the
rules described above.
Information Reporting and Backup Withholding
The Company must report to the Internal Revenue Service and to each Non-U.S.
Holder any interest that is subject to U.S. withholding tax or that is exempt
from withholding tax pursuant to either a tax treaty or the portfolio interest
exemption. Copies of these information returns may also be available to the tax
authorities of the country in which the Non-U.S. Holder resides under the
provisions of various treaties or agreements for the exchange of information.
Non-U.S. Holders other than corporations may be subject to backup
withholding and additional information reporting. Neither backup withholding
nor information reporting will apply to payments of portfolio interest by the
Company to a Non-U.S. Holder, if the Non-U.S. Holder properly certifies that it
is not a U.S. Holder or otherwise establishes an exemption. However, such
certification or exemption is not effective if the Company or its paying agent
has actual knowledge that the Holder is a U.S. Holder or that the conditions of
another exemption relied upon by the Non-U.S. Holder are not satisfied.
Payments of principal on the Notes by the Company to a Non-U.S. Holder may
be subject to backup withholding and information reporting unless the Non-U.S.
Holder properly certifies as to those items described below in connection with
payments made by brokers or otherwise establishes an exemption (provided that
neither the Company nor its paying agent has actual knowledge that the Holder
is a U.S. Holder or that the conditions of another exemption relied upon by the
Non-U.S. Holder are not satisfied).
Neither backup withholding nor information reporting will apply to the
payment of the proceeds from the disposition of the Notes to or through the
United States office of any broker if the Non-U.S. Holder (i) properly
certifies (A) that he is not a U.S. Holder, (B) that he does not expect to be
present within the U.S. for 183 days or more during the calendar year and (C)
none of his gains from transactions effected with the payor during the calendar
year are expected to be effectively connected with a U.S. trade or business; or
(ii) otherwise establishes an exemption, and neither the Company nor its paying
agent has actual knowledge that the conditions of any claimed exemption are not
satisfied. If proceeds from the disposition of the Notes are paid to or through
the foreign office of a U.S. broker, information reporting (but not backup
withholding) is required unless the broker has documentary evidence that the
owner is a foreign person and the broker has no actual knowledge to the
contrary. Similar rules apply to the foreign office of a foreign broker if
either (i) the foreign broker is a controlled foreign corporation within the
meaning of the Code, or (ii) 50 percent or more of the gross income of the
foreign broker during a specified testing period was effectively connected with
the conduct of a trade or business within the United States. If proceeds from
the disposition of the Notes are paid to or through the foreign office of a
foreign broker that does not have these characteristics, neither information
reporting nor backup withholding is required.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or credit against such Non-U.S.
Holder's federal income tax liability.
New regulations revising the information and reporting rules will become
effective on January 1, 2000. In general, these new regulations will not
materially change the withholding and information reporting requirements, but
will change various forms and certification procedures.
143
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange 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 Exchange Notes. 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 Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities (other than Old Notes acquired directly from the
Company). To the extent any such broker-dealer participates in the Exchange
Offer and so notifies the Company, or causes the Company to be so notified in
writing, the Company has agreed that, subject to certain exceptions, a period
of 180 days after the date of this prospectus, it will make this prospectus, as
amended or supplemented, available to such broker-dealer for use in connection
with any such resale, and 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 will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange 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 Exchange Notes or a combination of such
methods of resale, at prevailing market prices 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 or the purchasers or any such Exchange Notes. Any broker-
dealer that resells Exchange 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 Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that, by acknowledging that it will deliver 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.
By its acceptance of the Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the prospectus in connection with the sale or transfer
of Exchange Notes, and acknowledges and agrees that, upon receipt of notice
from the Company of the happening of any event which makes any statement in
this prospectus untrue in any material respect or which requires the making of
any changes in this prospectus in order to make the statements therein not
misleading or which may impose upon the Company disclosure obligations that the
Company determines in good faith may not be in the best interests of the
Company (which notice the Company agrees to deliver promptly to such broker-
dealer), such broker-dealer will suspend use of this prospectus until the
Company has notified such broker-dealer that delivery of this prospectus may
resume and has furnished copies of any amendment or supplement to this
prospectus to such broker-dealer.
144
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
Hollywood Park by Irell & Manella LLP, Los Angeles, California.
EXPERTS
Hollywood Park's consolidated financial statements as of December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, included in this prospectus, to the extent and for the periods indicated
in their report with respect thereto have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report appearing herein, and
are included herein, in reliance upon authority of said firm as experts in
giving said report.
Casino Magic's consolidated financial statements as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
appearing in this prospectus, to the extent and for the periods indicated in
their report with respect thereto, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report appearing herein and
are included herein in reliance upon the authority of said firm as experts in
giving said report.
The consolidated financial statements (including schedule) of Boomtown as of
September 30, 1996 and 1995 and for each of the three years in the period ended
September 30, 1996, incorporated by reference into this prospectus and
Registration Statement from Amendment No. 4 to the Registration Statement (Form
S-4 No. 333-34471) of Hollywood Park have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein.
Such consolidated financial statements (including schedule) are incorporated
herein by reference, in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
145
INDEX TO FINANCIAL STATEMENTS
Page
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Hollywood Park, Inc.
Consolidated Balance Sheets as of September 30, 1998 and December 31,
1997................................................................... F-2
Consolidated Statements of Operations for the three and nine months
ended September 30, 1998 and 1997...................................... F-3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997............................................ F-4
Notes to Consolidated Financial Statements.............................. F-5
Calculation of Earnings Per Share....................................... F-17
Report of Independent Public Accountants, Arthur Andersen LLP........... F-18
Consolidated Balance Sheets as of December 31, 1997 and 1996............ F-19
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.................................................... F-20
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995................................. F-21
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................... F-22
Notes to Consolidated Financial Statements.............................. F-23
Schedule II............................................................. F-47
Calculation of Earnings Per Share....................................... F-48
Casino Magic Corp.
Condensed Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997...................................................... F-49
Condensed Consolidated Statements of Operations for the three months
ended September 30, 1998 and 1997...................................... F-50
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1998 and 1997...................................... F-51
Condensed Consolidated Statement of Cash Flows for the nine months ended
September 30, 1998 and 1997............................................ F-52
Notes to Consolidated Financial Statements.............................. F-53
Report of Independent Public Accountants, Arthur Andersen LLP........... F-55
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.................................................... F-56
Consolidated Balance Sheets as of December 31, 1997 and 1996............ F-57
Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995....................................... F-58
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................... F-60
Notes to Consolidated Financial Statements.............................. F-63
F-1
HOLLYWOOD PARK, INC.
CONSOLIDATED BALANCE SHEETS
As of
--------------------------
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
(in thousands)
ASSETS
------
Current Assets:
Cash and cash equivalents......................... $ 20,126 $ 23,749
Restricted cash................................... 798 407
Short term investments............................ 3,459 0
Other receivables, net............................ 7,061 9,417
Prepaid expenses and other assets................. 16,160 10,948
Deferred tax assets............................... 10,250 8,118
Current portion of notes receivable............... 2,340 42
-------- --------
Total current assets............................ 60,194 52,681
Notes receivable.................................... 18,250 9,548
Property, plant and equipment, net.................. 301,125 300,666
Goodwill, net....................................... 50,341 33,017
Other assets........................................ 23,009 23,117
-------- --------
$452,919 $419,029
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable.................................. $ 8,848 $ 11,277
Accrued lawsuit settlement........................ 0 2,750
Accrued compensation.............................. 7,620 7,627
Accrued liabilities............................... 26,986 19,105
Accrued interest.................................. 2,642 5,175
Gaming liabilities................................ 3,698 3,853
Racing liabilities................................ 263 4,093
Current portion of notes payable.................. 2,058 3,437
-------- --------
Total current liabilities....................... 52,115 57,317
Notes payable....................................... 168,574 132,102
Deferred tax liabilities............................ 6,606 6,310
-------- --------
Total liabilities............................... 227,295 195,729
Minority interests.................................. 0 1,946
Stockholders' Equity:
Capital stock--
Preferred--$1.00 par value, authorized 250,000
shares; none issued and outstanding............ 0 0
Common--$.10 par value, authorized 40,000,000
shares; 25,800,069 issued and outstanding in
1998, and 26,220,528 in 1997................... 2,580 2,622
Capital in excess of par value.................... 218,023 222,350
Retained earnings (accumulated deficit)........... 5,338 (3,532)
Accumulated other comprehensive loss.............. (317) (86)
-------- --------
Total stockholders' equity...................... 225,624 221,354
-------- --------
$452,919 $419,029
======== ========
See accompanying notes to consolidated financial statements.
F-2
HOLLYWOOD PARK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three
months ended For the nine months
September 30, ended September 30,
------------------- --------------------
1998 1997 1998 1997
--------- --------- ---------- ---------
(in thousands, except per share data--
unaudited)
Revenues:
Gaming............................. $ 58,846 $ 57,143 $ 173,552 $ 83,990
Racing............................. 11,371 12,216 48,085 48,084
Food and beverage.................. 7,383 6,156 21,245 13,016
Hotel and recreational vehicle
park.............................. 637 581 1,362 581
Truck stop and service station..... 4,525 4,897 11,071 4,897
Other income....................... 4,705 4,217 13,434 7,781
--------- --------- ---------- ---------
87,467 85,210 268,749 158,349
--------- --------- ---------- ---------
Expenses:
Gaming............................. 30,604 29,956 93,920 45,117
Racing............................. 5,562 6,206 21,244 21,615
Food and beverage.................. 10,065 8,101 27,601 16,920
Hotel and recreational vehicle
park.............................. 212 199 499 199
Truck stop and service station..... 4,177 4,461 10,164 4,461
Administration..................... 20,088 20,091 62,209 38,622
Other.............................. 2,011 1,823 5,586 3,262
REIT restructuring................. 0 609 469 609
Depreciation and amortization...... 6,825 6,159 19,874 11,939
--------- --------- ---------- ---------
79,544 77,605 241,566 142,744
--------- --------- ---------- ---------
Operating income..................... 7,923 7,605 27,183 15,605
Loss on write off of assets........ 1,586 0 1,586 0
Interest expense................... 4,112 3,653 11,827 3,782
--------- --------- ---------- ---------
Income before minority interests and
income taxes........................ 2,225 3,952 13,770 11,823
Minority interests................. 0 17 0 80
Income tax expense................. 253 1,524 4,903 4,624
--------- --------- ---------- ---------
Net income........................... $ 1,972 $ 2,411 $ 8,867 $ 7,119
========= ========= ========== =========
Dividend requirements on convertible
preferred stock..................... $ 0 $ 558 $ 0 $ 1,520
Net income available to common
shareholders........................ $ 1,972 $ 1,853 $ 8,867 $ 5,599
Per common share:
Net income--basic.................. $ 0.08 $ 0.08 $ 0.34 $ 0.27
Net income--diluted................ $ 0.08 $ 0.08 $ 0.34 $ 0.27
Number of shares--basic.............. 26,101 24,706 26,115 20,596
Number of shares--diluted............ 26,101 24,706 26,277 20,596
F-3
HOLLYWOOD PARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine
months ended
September 30,
-------------------
1998 1997
-------- ---------
(in thousands--
unaudited)
Cash flows from operating activities:
Net income................................................ $ 8,867 $ 7,119
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 19,874 11,939
Minority interests....................................... 0 17
Loss on sale or disposal of property, plant and
equipment............................................... 985 488
(Increase) decrease in restricted cash................... (391) 3,277
Decrease (increase) in other receivables, net............ 2,356 (944)
(Increase) decrease in prepaid expenses and other
assets.................................................. (5,648) 894
Increase in deferred tax assets.......................... (2,132) (1,681)
Decrease in accounts payable............................. (2,429) (2,151)
Decrease in accrued lawsuit settlement................... (2,750) 0
Decrease in accrued compensation......................... (7) (1,788)
Increase (decrease) in accrued liabilities............... 2,287 (10,381)
(Decrease) increase in gaming liabilities................ (155) 1,197
Decrease in racing liabilities........................... (3,830) (3,496)
Decrease in accrued interest payable..................... (2,533) 0
Increase in deferred tax liabilities..................... 296 1,569
-------- ---------
Net cash provided by operating activities............... 14,790 6,059
-------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment............... (34,981) (23,059)
Receipts from sale of property, plant and equipment...... 650 114
Principal collected on notes receivable.................. 2,071 31
Note receivable, Paul Alanis............................. (3,232) 0
Note receivable, HP Yakama investment.................... (8,012) 0
Purchase of short term investments....................... (3,690) (1,946)
Proceeds from short term investments..................... 0 6,712
Payment to buy-out minority interest in Crystal Park
LLC..................................................... (1,946) 0
Cash acquired in the purchase of a business, net of
transaction and other costs............................. 0 12,264
-------- ---------
Net cash used in investing activities................... (49,140) (5,884)
-------- ---------
Cash flows from financing activities:
Proceeds from secured Bank Credit Facility............... 40,000 112,000
Payment of secured Bank Credit Facility.................. 0 (112,000)
Redemption of Boomtown 11.5% First Mortgage Notes........ (1,253) (110,924)
Proceeds from issuance of 9.5% Notes..................... 0 125,000
Payment of secured notes payable......................... 0 (4,282)
Payment of unsecured notes payable....................... (3,654) (31)
Common stock options exercised........................... 1,174 1,667
Purchase and retirement of Hollywood Park common stock... (5,540) 0
Dividends paid to preferred stockholders................. 0 (1,520)
-------- ---------
Net cash provided by financing activities............... 30,727 9,910
-------- ---------
(Decrease) increase in cash and cash equivalents......... (3,623) 10,085
Cash and cash equivalents at the beginning of the
period.................................................. 23,749 11,922
-------- ---------
Cash and cash equivalents at the end of the period....... $ 20,126 $ 22,007
======== =========
See accompanying notes to consolidated financial statements.
F-4
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
General Hollywood Park, Inc. (the "Company" or "Hollywood Park") is a
diversified gaming, sports and entertainment company engaged in the ownership
and operation of casinos (including card club casinos), pari-mutuel racing
facilities, and the development of other gaming and sports related
opportunities. Hollywood Park owns and operates, through its Boomtown, Inc.
("Boomtown") subsidiary, land-based, riverboat and dockside gaming operations
in Verdi, Nevada ("Boomtown Reno"), Harvey, Louisiana ("Boomtown New Orleans")
and Biloxi, Mississippi ("Boomtown Biloxi"), respectively. As of October 15,
1998, the Company expanded its gaming operations through the acquisition of
Casino Magic Corp. ("Casino Magic"). Casino Magic operates dockside gaming in
Bay St. Louis, Mississippi ("Casino Magic Bay St. Louis") and in Biloxi,
Mississippi ("Casino Magic Biloxi"); riverboat gaming in Bossier City,
Louisiana ("Casino Magic Bossier"); and is 51% owner of two land-based casinos
in Argentina ("Casino Magic Argentina"). Hollywood Park also owns two card club
casinos located in the Los Angeles metropolitan area. The Hollywood Park-Casino
is operated by the Company, and is located on the same property as the
Hollywood Park Race Track. The Company also owns the Crystal Park Hotel and
Casino (the "Crystal Park Casino"), which is leased to an unaffiliated
operator. Presently, Hollywood Park is the only company that owns and operates
both California card club casinos and traditional casinos in Nevada, Louisiana
and Mississippi. The Company's premier thoroughbred racing facilities are, the
Hollywood Park Race Track, which the Company has owned for 60 years, and Turf
Paradise, Inc. ("Turf Paradise"), located in Phoenix, Arizona.
The financial information included herein has been prepared in conformity
with generally accepted accounting principles as reflected in Hollywood Park's
consolidated Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, for the year ended December 31, 1997.
The information furnished herein is unaudited; however, in the opinion of
management it reflects all normal and recurring adjustments necessary to
present a fair statement of the financial results for the interim periods. It
should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The interim racing
results of operations are not indicative of the results for the full year, due
to the seasonality of the Company's horse racing business.
Consolidation The consolidated financial statements presented herein,
include the accounts of Hollywood Park and its wholly owned subsidiaries: (a)
Boomtown, and Boomtown's six active subsidiaries; (1) Boomtown Hotel & Casino,
Inc., (2) Bayview Yacht Club, Inc., (3) Mississippi--I Gaming, L.P., (4)
Louisiana Gaming Enterprises, Inc., (5) Louisiana--I Gaming, and (6) Boomtown
Hoosier, Inc.; (b) Hollywood Park Operating Company and its two wholly owned
subsidiaries, Hollywood Park Food Services, Inc. and Hollywood Park Fall
Operating Company; (c) Turf Paradise, Inc.; (d) HP Yakama, Inc.; and (e)
HP/Compton, Inc. and HP Casino, Inc., which own 89.8% and 10.2%, respectively,
of the Crystal Park Hotel and Casino Development Company LLC ("Crystal Park
LLC"). The Hollywood Park-Casino is a division of Hollywood Park, Inc.
As of October 15, 1998, the consolidated financial statements will also
include Casino Magic's thirteen active subsidiaries: (1) Mardi Gras Casino
Corp., (2) Biloxi Casino Corp., (3) Casino Magic Finance Corp., (4) Jefferson
Casino Corp., (5) Casino Magic of Louisiana, Corp., (6) Casino Magic Neuquen,
(7) Casino Magic Support Services SA, (8) Casino Magic American Corp., (9)
Casino Magic Management Services Corp., (10) Bay St. Louis Casino Corp., (11)
Boston Casino Corp., (12) Casino One Corporation, and (13) St. Louis Casino
Corp.
F-5
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Restricted Cash Restricted cash as of September 30, 1998 and December 31,
1997, was for amounts due to horsemen for purses, stakes and awards.
Capitalized Interest During the three and nine months ended September 30,
1998, the Company capitalized interest related to construction projects of
approximately $295,000 and $802,000, respectively. Capitalized interest for
both the three and nine months ended September 30, 1997 was $15,000.
Comprehensive Income Statement of Financial Accounting Standards No. 130,
("SFAS 130") Reporting Comprehensive Income, requires that the Company disclose
comprehensive income and its components. The objective of SFAS 130 is to report
a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners. Comprehensive income is the sum of the following; net income
(loss) and other comprehensive income (loss), which is defined as all other
nonowner changes in equity.
The Company has recorded unrealized gain (loss) on securities as other
comprehensive income (loss) in the accompanying financial statements.
Comprehensive income was computed as follows:
For the
Three Months
Ended
September 30,
--------------
1998 1997
------ ------
(in
thousands,
unaudited)
Net income.................................................. $1,972 $2,411
Other comprehensive income (loss):
Unrealized loss on securities............................. (315) 0
Less reclassification adjustment for realized (gain)
loss..................................................... 0 0
------ ------
Comprehensive income........................................ $1,657 $2,411
====== ======
For the
Nine Months
Ended
September 30,
--------------
1998 1997
------ ------
(in
thousands,
unaudited)
Net income................................................... $8,867 $7,119
Other comprehensive income (loss):
Unrealized loss on securities.............................. (231) 0
Less reclassification adjustment for realized loss......... 0 1
------ ------
Comprehensive income......................................... $8,636 $7,120
====== ======
Estimates Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of property, plant and equipment,
to determine the fair value of financial instruments, to account for the
valuation allowance for deferred tax assets and to determine litigation related
obligations. Actual results could differ from these estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of Whenever there are recognized events or changes in circumstances that
indicate the carrying amount of an asset may not be recoverable, management
reviews the asset for possible impairment. In accordance with current
accounting standards, management uses estimated expected future net cash flows
(undiscounted and excluding interest
F-6
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
costs, and grouped at the lowest level for which there are identifiable cash
flows that are as independent as possible of other asset groups) to measure the
recoverability of the asset. If the expected future net cash flows are less
than the carrying amount of the asset, an impairment loss would be recognized.
An impairment loss would be measured as the amount by which the carrying amount
of the asset exceeded the fair value of the asset, with fair value measured as
the amount at which the asset could be bought or sold in a current transaction
between willing parties, other than in a forced liquidation sale. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future net cash
flows, market conditions, and the availability of capital. If, in future
periods, there are changes in the estimates or assumptions incorporated into
the impairment review analysis, the changes could result in an adjustment to
the carrying amount of the asset, but at no time would previously recognized
impairment losses be restored.
Earnings Per Share Basic earnings per share were computed by dividing net
income available to common shareholders (net income less preferred dividend
requirements) by the weighted average number of common shares outstanding
during the period. Diluted per share amounts were similarly computed, but
include the effect, when dilutive, of the conversion of the convertible
preferred shares (which is applicable to the three and nine months ended
September 30, 1997, only), and the assumed exercise of stock options.
Redemption of Depositary Shares As of August 28, 1997, the Company's
2,749,900 outstanding depositary shares were converted into 2,291,492 shares of
the Company's common stock, thereby, eliminating future annual preferred stock
cash dividend payments of approximately $1,925,000.
Cash Flows Cash and cash equivalents included certificates of deposit and
short term investments with maturities of 90 days or less.
Racing Revenues and Expenses The Company records pari-mutuel revenues,
admissions, food and beverage and other income associated with racing on a
daily basis, except for seasonal admissions, which are recorded ratably over
the racing season. Expenses associated with racing revenues were charged
against income in those periods in which racing revenues were recognized.
Gaming Revenue and Promotional Allowances Gaming revenues at the Boomtown
properties consisted of the difference between gaming wins and losses, or net
win from gaming activity, and at the Hollywood Park-Casino consisted of fees
collected from patrons on a per seat or per hand basis. Revenues in the
accompanying statements of operations excluded the retail value of food and
beverage provided to players on a complimentary basis. The estimated cost of
providing these promotional allowances during the three months ended
September 30, 1998 and 1997, was $3,206,000 and $2,745,000, respectively, and
for the nine months ended September 30, 1998 and 1997, was $10,683,000 and
$3,410,000, respectively. (The amount for the nine months ended September 30,
1997, is exclusive of the costs associated with Boomtown's operations, prior to
June 30, 1997.)
Reclassifications Certain reclassifications have been made to the 1997
balances to be consistent with the 1998 financial statement presentation.
Note 2--Acquisition of Casino Magic Corp.
On October 15, 1998, Hollywood Park acquired Casino Magic, pursuant to the
February 19, 1998 Agreement of Merger among Casino Magic Corp., Hollywood Park,
Inc., and HP Acquisition II, Inc. (a wholly owned subsidiary of Hollywood
Park), pursuant to which HP Acquisition II, Inc., was merged into Casino Magic,
with Casino Magic surviving and becoming a wholly owned subsidiary of Hollywood
Park. The Casino Magic Merger will be accounted for under the purchase method
of accounting for a business combination. Hollywood Park paid $2.27 per Casino
Magic common share outstanding, or approximately $81,100,000.
F-7
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Casino Magic owns and operates dockside gaming properties in Bay St. Louis,
Mississippi, and Biloxi, Mississippi, riverboat gaming in Bossier City,
Louisiana, and is a 51% partner in two land-based casinos in Argentina.
Note 3--Acquisition of Boomtown, Inc.
On June 30, 1997, pursuant to the Agreement and Plan of Merger dated as of
April 23, 1996, by and among Hollywood Park, HP Acquisition, Inc., a wholly
owned subsidiary of the Company, and Boomtown, HP Acquisition, Inc. was merged
with and into Boomtown (the "Boomtown Merger"). As a result of the Boomtown
Merger, Boomtown became a wholly owned subsidiary of the Company and each share
of Boomtown common stock was converted into the right to receive 0.625 of a
share of Hollywood Park's common stock. Approximately 5,362,850 shares of
Hollywood Park common stock, valued at $9.8125 per share (excluding shares
repurchased from Edward P. Roski, Jr. ("Roski") and subsequently retired) were
issued in the Boomtown Merger.
The Boomtown Merger was accounted for under the purchase method of
accounting for a business combination. The purchase price of the Boomtown
Merger was allocated to the identifiable assets acquired and liabilities
assumed based on their estimated fair values at the date of acquisition. Based
on financial analyses which considered the impact of general economic,
financial and market conditions on the assets acquired and liabilities assumed,
it was determined that the estimated fair values approximated their carrying
value. The Boomtown Merger generated approximately $21,136,000 of excess
acquisition cost over the recorded value of the net assets acquired, all of
which was allocated to goodwill, to be amortized over 40 years. The
amortization of the goodwill is not deductible for income tax purposes. As of
June 30, 1997, the excess acquisition cost over the recorded value of the
assets was estimated at approximately $2,683,000. As of June 30, 1998, the
Company revised its initial estimates of the excess acquisition cost over the
recorded value to $21,136,000, due primarily to a reduction in the valuation of
certain gaming fixed assets and provisions for additional liabilities.
The Company acquired three of the four Boomtown properties; Boomtown Reno,
Boomtown New Orleans, and Boomtown Biloxi. In connection with the Boomtown
Merger, Boomtown's Las Vegas property was divested on July 1, 1997.
Note 4--Short Term Investments
As of September 30, 1998, short term investments consisted of investments in
equity securities. These investments were recorded at fair value in the
accompanying financial statements, as determined by the quoted market price,
and are classified as available-for-sale. As of September 30, 1998, the Company
recorded an unrealized loss on these investments of approximately $231,000.
Included in the portfolio of equity securities were 792,900 shares of Casino
Magic common stock, for which the Company paid approximately $2.00 per common
share, or a total cost of approximately $1,615,000 (inclusive of commissions).
F-8
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Property, Plant and Equipment
Property, plant and equipment held as of September 30, 1998, and December
31, 1997, consisted of the following:
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
(in thousands)
Land and land improvements........................ $ 50,349 $ 50,945
Buildings and building improvements............... 279,451 270,271
Equipment......................................... 88,561 77,337
Vessels........................................... 16,690 18,925
Construction in progress.......................... 15,875 21,896
-------- --------
450,926 439,374
Less accumulated depreciation..................... 149,801 138,708
-------- --------
$301,125 $300,666
======== ========
Note 6--Secured and Unsecured Notes Payable
Notes payable as of September 30, 1998, and December 31, 1997, consisted of
the following:
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
(in thousands)
Secured notes payable, Bank Credit Facility..... $ 40,000 $ 0
Secured notes payable, other.................... 2,500 3,750
Unsecured 9.5% Notes............................ 125,000 125,000
Boomtown 11.5% First Mortgage Notes............. 0 1,253
Unsecured notes payable......................... 3,031 4,009
Capital lease obligations....................... 101 1,527
-------- --------
170,632 135,539
Less current maturities......................... 2,058 3,437
-------- --------
$168,574 $132,102
======== ========
Secured Notes Payable, Bank Credit Facility On October 15, 1998, the
Company executed the Amended and Restated Reducing Revolving Loan Agreement
with a bank syndicate led by Bank of America National Trust and Savings
Association (the "Bank Credit Facility") for up to $300,000,000, with an
option to increase this amount to $375,000,000. The Bank Credit Facility also
provides for sub-facilities for letters of credit up to $30,000,000, and swing
line loans of up to $10,000,000. Prior to the execution of the Bank Credit
Facility, the Company was operating with a previous bank credit facility,
which was initially for $225,000,000, and was reduced to $100,000,000 with the
August 1997 issuance of the 9.5% Hollywood Park Notes. The Bank Credit
Facility extended the maturity of the Bank Credit Facility to December 31,
2003, reduced interest and commitment fee rates, and amended certain
covenants, as compared to the previous bank credit facility.
F-9
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unsecured 9.5% Notes On August 6, 1997, Hollywood Park, Inc. and Hollywood
Park Operating Company, co-issued $125,000,000 of Series A 9 1/2% Senior
Subordinated Notes due 2007 (the "Series A 9 1/2% Notes"). On March 20, 1998,
the Company completed a registered exchange offer for the Series A 9 1/2%
Notes, pursuant to which all $125,000,000 principal amount of the Series A 9
1/2% Notes were exchanged by the holders for $125,000,000 aggregate principal
amount of Series B 9 1/2% Senior Subordinated Notes due 2007, of the Company
and Hollywood Park Operating Company (the "Series B 9 1/2% Notes") and,
together with the Series A 9 1/2% Notes, (the "9 1/2% Notes") were registered
under the Securities Act on Form S-4. Interest on the 9 1/2% Notes is payable
semi-annually, on February 1st and August 1st. The Company paid Liquidated
Damages at an annual rate of 0.5% of the principal amount of the 9 1/2% Notes
for the period January 27, 1998 to March 20, 1998 (the date of consummation of
the exchange offer). The 9 1/2% Notes are redeemable, at the option of
Hollywood Park and Hollywood Park Operating Company, in whole or in part, on or
after August 1, 2002, at a premium to face amount, plus accrued interest, as
follows: (a) August 1, 2002 at 104.75%; (b) August 1, 2003 at 102.375%;
(c) August 1, 2004 at 101.188%; and (d) August 1, 2005 and thereafter at 100%.
The 9 1/2% Notes are unsecured obligations of Hollywood Park and Hollywood Park
Operating Company, guaranteed by all other material restricted subsidiaries of
either Hollywood Park or Hollywood Park Operating Company.
The indenture governing the 9 1/2% Notes contains certain covenants that,
among other things, limit the ability of Hollywood Park, Hollywood Park
Operating Company and their restricted subsidiaries to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, repurchase equity interests or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, sell assets,
issue or sell equity interests in their respective subsidiaries or enter into
certain mergers and consolidations. The Casino Magic Merger and the execution
of the Bank Credit Facility, were permitted under the terms of the indenture,
given the redemption of the $135,000,000 Casino Magic Notes and establishing
certain Casino Magic subsidiaries as Unrestricted Subsidiaries, as defined in
the indenture.
Boomtown 11.5% First Mortgage Notes As permitted in the indenture (the
"Boomtown Indenture") governing the Boomtown 11.5% First Mortgage Notes (the
"Boomtown Notes") in June 1998, Boomtown elected to satisfy and discharge its
obligation regarding the $1,253,000 of Boomtown Notes. As of June 9, 1998,
Boomtown had satisfied all conditions required to discharge its obligations
under the Boomtown Indenture. The total cost to redeem the Boomtown Notes was
$1,378,000.
F-10
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7--Consolidating Condensed Financial Information
Hollywood Park's subsidiaries (excluding non-material subsidiaries) have
fully and unconditionally guaranteed the payment of all obligations under the 9
1/2% Notes. Hollywood Park's subsidiaries (excluding certain subsidiaries) have
fully and unconditionally guaranteed the payment of all obligations under
Hollywood Park's 9 1/4% Senior Subordinated Notes (the "Notes"). Hollywood Park
Operating Company co-issued the 9 1/2% Notes and is a guarantor on the Notes.
The following is the consolidating information for the issuers of the 9 1/2%
Notes and the Notes and their respective subsidiaries:
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the Three and Nine Months Ended September 30, 1998 and 1997
and Balance Sheets as of September 30, 1998 and December 31, 1997
Hollywood
Park (c)
Operating Co. (a) (b) Wholly
Hollywood (co-obligor 9 Wholly Majority Owned Consolidating
Park, Inc. 1/2% Notes/ Owned Owned Non- and Hollywood
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc.
obligor) on the Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
---------- ------------- ------------ ------------ ------------ ------------- ------------
(in thousands)
Balance Sheet
As of September 30, 1998
Current assets.......... $ 16,057 $ 4,670 $ 33,143 $ 6,272 $ 69 $ (17) $ 60,194
Property, plant and
equipment, net......... 65,513 22,010 169,060 44,542 0 0 301,125
Other non-current
assets................. 33,683 4,564 39,662 2,061 1,294 10,336 91,600
Investment in
subsidiaries........... 207,061 15,373 97,687 0 0 (320,121) 0
Inter-company........... 129,610 142,200 128,587 13 0 (400,410) 0
-------- -------- -------- ------- ------ --------- --------
$451,924 $188,817 $468,139 $52,888 $1,363 $(710,212) $452,919
======== ======== ======== ======= ====== ========= ========
Current liabilities..... $ 12,730 $ 10,509 $ 21,350 $ 5,485 $ 0 $ (17) $ 50,057
Notes payable, current.. 693 32 67 1,266 0 0 2,058
Notes payable, long
term................... 42,079 125,228 17 1,250 0 0 168,574
Other non-current
liabilities............ 13,312 0 3,853 0 (10,559) 6,606
Inter-company........... 142,174 21,004 188,551 48,681 0 (400,410) 0
Equity (deficit)........ 240,936 32,044 254,301 (3,794) 1,363 (299,226) 225,624
-------- -------- -------- ------- ------ --------- --------
$451,924 $188,817 $468,139 $52,888 $1,363 $(710,212) $452,919
======== ======== ======== ======= ====== ========= ========
Statement of Operations
For the three months
ended
September 30, 1998
Revenues:
Gaming................ $ 11,542 $ 0 $ 33,977 $13,327 $ 0 $ 0 $ 58,846
Racing................ 0 10,112 1,259 0 0 0 11,371
Food and beverage..... 1,228 0 4,817 1,338 0 0 7,383
Equity in
subsidiaries......... 6,408 4 8,370 0 0 (14,782) 0
Inter-company
interest............. 0 0 1,352 0 0 (1,352) 0
Other................. 939 240 7,874 814 0 0 9,867
-------- -------- -------- ------- ------ --------- --------
20,117 10,356 57,649 15,479 0 (16,134) 87,467
-------- -------- -------- ------- ------ --------- --------
Expenses:
Gaming................ 6,617 0 16,934 7,053 0 0 30,604
Racing................ 0 4,807 755 0 0 0 5,562
Food and beverage..... 2,857 0 5,488 1,720 0 0 10,065
Administrative and
other................ 3,985 4,420 13,155 4,561 367 0 26,488
REIT restructuring.... 0 0 0 0 0 0 0
Depreciation and
amortization......... 1,041 993 3,710 945 0 136 6,825
-------- -------- -------- ------- ------ --------- --------
14,500 10,220 40,042 14,279 367 136 79,544
-------- -------- -------- ------- ------ --------- --------
Operating income
(loss)................. 5,617 136 17,607 1,200 (367) (16,270) 7,923
Loss on write off of
assets................. 1,586 0 0 0 0 1,586
Interest expense........ 1,050 3,194 (211) 79 0 0 4,112
Inter-company interest.. 0 0 0 1,352 0 (1,352) 0
-------- -------- -------- ------- ------ --------- --------
Income (loss) before
taxes.................. 2,981 (3,058) 17,818 (231) (367) (14,918) 2,225
Income tax expense
(benefit).............. 973 0 (720) 0 0 0 253
-------- -------- -------- ------- ------ --------- --------
Net income (loss)....... $ 2,008 $ (3,058) $ 18,538 $ (231) $ (367) $ (14,918) $ 1,972
======== ======== ======== ======= ====== ========= ========
F-11
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hollywood Park, Inc.
Consolidating Condensed Financial Information--(Continued)
For the Three and Nine Months Ended September 30, 1998 and 1997
and Balance Sheets as of September 30, 1998 and December 31, 1997
Hollywood
Park
Hollywood Operating Co. (c)
Park, (co-obligor 9 (a) (b) Majority Wholly Owned Consolidating
Inc. 1/2% Notes/ Wholly Owned Owned Non- and Hollywood
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc.
obligor) on the Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
--------- ------------- ------------ ------------ ------------ ------------- ------------
(in thousands)
For the nine months
ended September 30,
1998
Revenues:
Gaming................ $34,659 $ 0 $ 97,296 $41,597 $ 0 $ 0 $173,552
Racing................ 0 37,984 10,101 0 0 0 48,085
Food and beverage..... 3,527 0 13,894 3,824 0 0 21,245
Equity in
subsidiaries......... 22,688 240 7,031 0 0 (29,959) 0
Inter-company
interest............. 0 0 4,053 0 0 (4,053) 0
Other................. 2,836 1,706 19,040 2,285 0 0 25,867
------- ------- -------- ------- ----- -------- --------
63,710 39,930 151,415 47,706 0 (34,012) 268,749
------- ------- -------- ------- ----- -------- --------
Expenses:
Gaming................ 20,078 0 51,906 21,936 0 0 93,920
Racing................ 0 16,588 4,656 0 0 0 21,244
Food and beverage..... 7,608 0 15,201 4,792 0 0 27,601
Administrative and
other................ 13,505 13,179 38,154 13,160 460 0 78,458
REIT restructuring.... 469 0 0 0 0 0 469
Depreciation and
amortization......... 3,248 2,981 10,709 2,727 0 209 19,874
------- ------- -------- ------- ----- -------- --------
44,908 32,748 120,626 42,615 460 209 241,566
------- ------- -------- ------- ----- -------- --------
Operating income
(loss)................. 18,802 7,182 30,789 5,091 (460) (34,221) 27,183
Loss on write off of
assets................. 1,586 0 0 0 0 0 1,586
Interest expense........ 2,598 9,377 (412) 264 0 0 11,827
Inter-company interest.. 0 0 0 4,053 0 (4,053) 0
------- ------- -------- ------- ----- -------- --------
Income (loss) before
taxes.................. 14,618 (2,195) 31,201 774 (460) (30,168) 13,770
Income tax expense
(benefit).............. 5,613 0 (710) 0 0 0 4,903
------- ------- -------- ------- ----- -------- --------
Net income (loss)....... $ 9,005 $(2,195) $ 31,911 $ 774 $(460) $(30,168) $ 8,867
======= ======= ======== ======= ===== ======== ========
Statement of Cash Flows:
For the nine months
ended September 30,
1998
Net cash provided by
(used in) operating
activities............. $(2,921) $ 2,053 $ 35,132 $ 2,110 $(460) $(21,124) $ 14,790
Net cash used in
investing activities... (9,020) (1,266) (37,139) (1,715) 0 0 (49,140)
Net cash provided by
(used in) financing
activities............. 34,909 0 (2,902) (745) 0 (535) 30,727
F-12
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the Three and Nine Months Ended September 30, 1998 and 1997
and Balance Sheets as of September 30, 1998 and December 31, 1997
Hollywood
Park
Hollywood Operating Co. (c)
Park, (co-obligor 9 (a) (b) Majority Wholly Owned Consolidating
Inc. 1/2% Notes/ Wholly Owned Owned Non and Hollywood
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc.
obligor) on the Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
--------- ------------- ------------ ------------ ------------ ------------- ------------
(in thousands)
Statement of Operations
For the three months
ended September 30, 1997
Revenues:
Gaming................. $12,676 $ 0 $30,460 $14,007 $ 0 $ 0 $57,143
Racing................. 0 10,791 1,425 0 0 0 12,216
Food and beverage...... 1,129 0 4,112 915 0 0 6,156
Equity in
subsidiaries.......... 9,108 (167) 7,911 0 0 (16,852) 0
Inter-company
interest.............. 0 0 2,354 0 0 (2,354) 0
Other.................. 1,282 92 7,513 808 0 0 9,695
------- ------- ------- ------- --- -------- -------
24,195 10,716 53,775 15,730 0 (19,206) 85,210
------- ------- ------- ------- --- -------- -------
Expenses:
Gaming................. 6,600 0 16,163 7,193 0 0 29,956
Racing................. 0 5,357 849 0 0 0 6,206
Food and beverage...... 2,316 0 4,591 1,194 0 0 8,101
Administrative and
other................. 4,900 4,266 13,340 4,280 0 0 26,786
REIT restructuring..... 397 0 0 0 0 0 397
Depreciation and
amortization.......... 1,118 950 2,733 1,341 0 17 6,159
------- ------- ------- ------- --- -------- -------
15,331 10,573 37,676 14,008 0 17 77,605
------- ------- ------- ------- --- -------- -------
Operating income........ 8,864 143 16,099 1,722 0 (19,223) 7,605
Interest expense........ 1,252 2,080 232 89 0 0 3,653
Inter-company interest.. 102 0 974 1,278 0 (2,354) 0
------- ------- ------- ------- --- -------- -------
Income (loss) before
taxes.................. 7,510 (1,937) 14,893 355 0 (16,869) 3,952
Minority interests...... 0 0 0 0 0 17 17
Income tax expense
(benefit).............. (1,085) 0 2,609 0 0 0 1,524
------- ------- ------- ------- --- -------- -------
Net income (loss)....... $ 8,595 $(1,937) $12,284 $ 355 $ 0 $(16,886) $ 2,411
======= ======= ======= ======= === ======== =======
F-13
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hollywood Park, Inc.
Consolidating Condensed Financial Information--(Continued)
For the Three and Nine Months Ended September 30, 1998 and 1997
and Balance Sheets as of September 30, 1998 and December 31, 1997
Hollywood
Park
Operating
Co.
(co-obligor
Hollywood 9 (c)
Park, 1/2% Notes/ (a) (b) Majority Wholly Owned Consolidating
Inc. Guarantor Wholly Owned Owned Non and Hollywood
(Parent on the Guarantor Guarantor Guarantor Eliminating Park, Inc.
obligor) Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
--------- ----------- ------------ ------------ ------------ ------------- ------------
(in thousands)
For the nine months ended
September 30, 1997
Revenues:
Gaming.................. $38,023 $ 0 $30,460 $15,507 $ 0 $ 0 $ 83,990
Racing.................. 0 38,195 9,889 0 0 0 48,084
Food and beverage....... 3,376 0 8,725 915 0 0 13,016
Equity in subsidiaries.. 11,961 126 8,505 0 0 (20,592) 0
Inter-company interest.. 0 0 2,354 0 0 (2,354) 0
Other................... 3,428 1,274 7,749 808 0 0 13,259
------- ------- ------- ------- --- -------- --------
56,788 39,595 67,682 17,230 $ 0 (22,946) 158,349
======= ======= ======= ======= === ======== ========
Expenses:
Gaming.................. 21,761 0 16,163 7,193 $ 0 0 45,117
Racing.................. 0 16,895 4,720 0 0 0 21,615
Food and beverage....... 7,069 0 8,657 1,194 0 0 16,920
Administrative and
other.................. 13,175 13,557 15,491 4,321 0 0 46,544
REIT restructuring...... 609 0 0 0 0 0 609
Depreciation and
amortization........... 3,512 2,815 3,452 2,143 0 17 11,939
------- ------- ------- ------- --- -------- --------
46,126 33,267 48,483 14,851 0 17 142,744
------- ------- ------- ------- --- -------- --------
Operating income......... 10,662 6,328 19,199 2,379 0 (22,963) 15,605
Interest expense......... 1,368 2,093 232 89 0 0 3,782
Inter-company interest... 102 0 974 1,278 0 (2,354) 0
------- ------- ------- ------- --- -------- --------
Income before taxes...... 9,192 4,235 17,993 1,012 0 (20,609) 11,823
Minority interests....... 0 0 0 0 0 80 80
Income tax expense....... 2,020 0 2,604 0 0 0 4,624
------- ------- ------- ------- --- -------- --------
Net income............... $ 7,172 $ 4,235 $15,389 $ 1,012 $ 0 $(20,689) $ 7,119
======= ======= ======= ======= === ======== ========
F-14
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the Three and Nine Months Ended September 30, 1998 and 1997
and Balance Sheets as of September 30, 1998 and December 31, 1997
Hollywood
Park
Operating
Co.
(co-obligor
Hollywood 9 (a) (c)
Park, 1/2% Notes/ Wholly (b) Majority Wholly Consolidating
Inc. Guarantor Owned Owned Owned Non- and Hollywood
(Parent on the Guarantor Guarantor Guarantor Eliminating Park, Inc.
obligor) Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
--------- ----------- ------------ ------------ ------------ ------------- ------------
(in thousands)
Statement of Cash Flows:
For the nine months ended
September 30, 1997
Net cash provided by
(used in) operating
activities............. $ 16,964 $(131,497) $ 128,142 $ 8,070 $ 0 $ (15,620) $ 6,059
Net cash provided by
(used in) investing
activities............ 16,619 (4,036) (14,091) (4,376) 0 0 (5,884)
Net cash provided by
(used in) financing
activities............ 147 124,968 (113,720) (2,100) 0 615 9,910
Balance Sheet
As of December 31, 1997
Current assets.......... $ 17,020 $ 3,867 $ 25,074 $ 6,720 $ 0 $ 0 $ 55,505
Property, plant and
equipment, net........ 68,515 23,753 140,105 68,293 0 0 300,666
Other non-current
assets................ 25,130 4,701 29,320 7,611 0 (1,080) 62,858
Investment in
subsidiaries.......... 126,121 15,132 116,020 0 0 (257,273) 0
Inter-company.......... 125,210 148,380 122,035 0 0 (395,625) 0
-------- --------- --------- ------- --- --------- --------
$361,996 $ 195,833 $ 432,554 $82,624 $ 0 $(653,978) $419,029
======== ========= ========= ======= === ========= ========
Current liabilities..... $ 16,890 $ 14,232 $ 19,583 $ 6,612 $ 0 $ 0 $ 57,317
Notes payable, long
term.................. 2,406 125,256 1,936 2,504 0 0 132,102
Other non-current
liabilities........... 4,753 5,202 83 0 0 (3,728) 6,310
Inter-company.......... 146,145 21,589 178,448 49,443 0 (395,625) 0
Minority interest...... 0 0 0 0 0 1,946 1,946
Equity................. 191,802 29,554 232,504 24,065 0 (256,571) 221,354
-------- --------- --------- ------- --- --------- --------
$361,996 $ 195,833 $ 432,554 $82,624 $ 0 $(653,978) $419,029
======== ========= ========= ======= === ========= ========
- --------
(a) The Company's wholly owned guarantor subsidiaries on the 9 1/2% Notes are:
HP Casino, Inc., HP/Compton, Inc., Turf Paradise, Inc., Hollywood Park Food
Services, Inc., Hollywood Park Fall Operating Company, Boomtown, Inc.,
Boomtown Hotel & Casino, Inc., Louisiana--I Gaming, Louisiana Enterprises,
Inc., Bayview Yacht Club, Inc., and for periods after December 31, 1997,
Crystal Park Hotel and Casino Development Company, LLC. Due to the June 30,
1997, Boomtown Merger being accounted for under the purchase method of
accounting for a business combination, the 1997 financial results do not
include the financial results of Boomtown, Inc., Boomtown Hotel & Casino,
Inc., Louisiana--I Gaming, Louisiana Enterprises, Inc., and Bayview Yacht
Club, Inc., prior to June 30, 1997.
(b) As of December 31, 1997, Mississippi--I Gaming, L.P. which was added as of
the June 30, 1997, Boomtown Merger, was the Company's only majority owned
guarantor subsidiary on the 9 1/2% Notes. Due to the
F-15
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Boomtown Merger being accounted for under the purchase method of accounting
for a business combination, Mississippi--I Gaming, L.P.'s financial results
were not included for the period prior to June 30, 1997. Prior to December
31, 1997, Crystal Park Hotel and Casino Development Company, LLC was also a
majority owned guarantor subsidiary.
(c) As of 1998, Boomtown Hoosier, Inc. and its subsidiaries were the Company's
only wholly owned non-guarantor subsidiaries on the 9 1/2% Notes with
financial activity. Boomtown Hoosier, Inc.'s and its subsidiaries' prior
financial activity was not material.
F-16
HOLLYWOOD PARK, INC.
CALCULATION OF EARNINGS PER SHARE
For the three months ended
September 30,
---------------------------------------
Basic Diluted(a)
------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(in thousands, except per share data)
Average number of common shares
outstanding........................... 26,101 24,706 26,101 24,706
Average common shares due to assumed
conversion of convertible preferred
shares (b)............................ 0 0 0 0
Average common shares due to assumed
conversion of stock options........... 0 0 0 0
--------- --------- --------- ---------
Total shares........................... 26,101 24,706 26,101 24,706
========= ========= ========= =========
Net income............................. $ 1,972 $ 2,411 $ 1,972 $ 2,411
Less dividend requirements on
convertible preferred shares.......... 0 558 0 0
--------- --------- --------- ---------
Net income available to common
shareholders.......................... $ 1,972 $ 1,853 $ 1,972 $ 2,411
========= ========= ========= =========
Net income per share................... $ 0.08 $ 0.08 $ 0.08 $ 0.10
========= ========= ========= =========
For the nine months ended September 30,
---------------------------------------
Basic Diluted(a)
------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(in thousands, except per share data)
Average number of common shares
outstanding........................... 26,115 20,596 26,115 20,596
Average common shares due to assumed
conversion of convertible preferred
shares (b)............................ 0 0 0 0
Average common shares due to assumed
conversion of stock options........... 0 0 162 0
--------- --------- --------- ---------
Total shares........................... 26,115 20,596 26,277 20,596
========= ========= ========= =========
Net income............................. $ 8,867 $ 7,119 $ 8,867 $ 7,119
Less dividend requirements on
convertible preferred shares.......... 0 1,520 0 0
--------- --------- --------- ---------
Net income available to common
shareholders.......................... $ 8,867 $ 5,599 $ 8,867 $ 7,119
========= ========= ========= =========
Net income per share................... $ 0.34 $ 0.27 $ 0.34 $ 0.35
========= ========= ========= =========
- --------
(a) When the computed diluted values are anti-dilutive, the basic per share
values are presented on the face of the consolidated statements of
operations.
(b) As of August 28, 1997, the Company's 2,749,000 outstanding depositary
shares were converted into 2,291,492 shares of the Company's common stock.
F-17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Hollywood Park, Inc.:
We have audited the accompanying consolidated balance sheets of Hollywood
Park, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
December 31, 1997, and 1996, and the related consolidated statements of
operations, stockholders' equity 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Hollywood Park, Inc. and
subsidiaries as of December 31, 1997, and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 27, 1998
F-18
HOLLYWOOD PARK, INC.
CONSOLIDATED BALANCE SHEETS
As of December
31,
------------------
1997 1996
-------- --------
(in thousands)
ASSETS
------
Current Assets:
Cash and cash equivalents................................ $ 23,749 $ 11,922
Restricted cash.......................................... 407 4,486
Short term investments................................... 0 4,766
Other receivables, net................................... 9,417 7,110
Prepaid expenses and other assets........................ 18,473 6,215
Deferred tax assets...................................... 8,118 6,422
Current portion of notes receivable...................... 42 38
-------- --------
Total current assets................................... 60,206 40,959
Notes receivable........................................... 9,428 819
Property, plant and equipment, net......................... 300,666 130,835
Goodwill, net.............................................. 33,017 20,370
Other assets............................................... 15,712 12,903
-------- --------
$419,029 $205,886
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable......................................... $ 11,277 $ 10,043
Accrued lawsuit settlement............................... 2,750 2,750
Accrued compensation..................................... 7,627 4,198
Accrued liabilities...................................... 19,105 9,733
Accrued interest......................................... 5,175 0
Gaming liabilities....................................... 3,853 2,499
Racing liabilities....................................... 4,093 6,106
Current portion of notes payable......................... 3,437 35
-------- --------
Total current liabilities.............................. 57,317 35,364
Notes payable.............................................. 132,102 282
Deferred tax liabilities................................... 6,310 9,065
-------- --------
Total liabilities...................................... 195,729 44,711
Minority interests......................................... 1,946 3,015
Stockholders' Equity:
Capital stock--
Preferred--$1.00 par value, authorized 250,000 shares;
none issued and outstanding as of year end 1997,
27,499 issued and outstanding during 1996............. 0 28
Common--$.10 par value, authorized 40,000,000 shares;
26,220,528 issued and outstanding in 1997, and
18,332,016 in 1996.................................... 2,622 1,833
Capital in excess of par value........................... 222,350 167,074
Accumulated deficit...................................... (3,618) (10,775)
-------- --------
Total stockholders' equity............................. 221,354 158,160
-------- --------
$419,029 $205,886
======== ========
See accompanying notes to consolidated financial statements.
F-19
HOLLYWOOD PARK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
1997 1996 1995
-------- -------- --------
(in thousands, except per
share data)
Revenues:
Gaming........................................ $137,659 $ 50,717 $ 26,656
Racing........................................ 68,844 71,308 77,036
Food and beverage............................. 19,894 13,947 19,783
Hotel and recreational vehicle park........... 937 0 0
Truck stop and service station................ 8,633 0 0
Other income.................................. 12,161 7,253 7,097
-------- -------- --------
248,128 143,225 130,572
-------- -------- --------
Expenses:
Gaming........................................ 74,733 27,249 5,291
Racing........................................ 30,304 30,167 30,960
Food and beverage............................. 25,745 19,573 24,749
Hotel and recreational vehicle park........... 356 0 0
Truck stop and service station................ 7,969 0 0
Administration................................ 61,514 41,477 45,447
Other......................................... 5,048 2,485 3,200
Depreciation and amortization................. 18,157 10,695 11,384
REIT restructuring............................ 2,483 0 0
Write off of investment in Sunflower.......... 0 11,412 0
Lawsuit settlement............................ 0 0 6,088
-------- -------- --------
226,309 143,058 127,119
-------- -------- --------
Operating income................................ 21,819 167 3,453
Interest expense................................ 7,302 942 3,922
-------- -------- --------
Income (loss) before minority interests and
income taxes................................... 14,517 (775) (469)
Minority interests............................ (3) 15 0
Income tax expense............................ 5,850 3,459 693
-------- -------- --------
Net income (loss)............................... $ 8,670 $ (4,249) $ (1,162)
======== ======== ========
Dividend requirements on convertible preferred
stock.......................................... $ 1,520 $ 1,925 $ 1,925
Net income (loss) attributable to (allocated to)
common shareholders............................ $ 7,150 $ (6,174) $ (3,087)
Per common share:
Net income (loss)--basic...................... $ 0.33 $ (0.33) $ (0.17)
Net income (loss)--diluted.................... $ 0.32 $ (0.33) $ (0.17)
Number of shares--basic......................... 22,010 18,505 18,399
Number of shares--diluted....................... 22,340 20,797 20,691
See accompanying notes to consolidated financial statements.
F-20
HOLLYWOOD PARK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
Capital
in
Excess Total
Preferred Common of Par Accumulated Stockholders'
Stock Stock Value Deficit Equity
--------- ------ -------- ----------- -------------
(in thousands)
Balance at year end
1994.................... $ 28 $1,837 $166,892 $ (1,502) $167,255
Net loss................ 0 0 0 (1,162) (1,162)
Issuance of common stock
to acquire--Pacific
Casino Management,
Inc.................... 0 13 1,587 0 1,600
Investment in bonds--
unrealized holding
loss................... 0 0 0 (22) (22)
Preferred stock
dividends--$70.00 per
share.................. 0 0 0 (1,925) (1,925)
---- ------ -------- -------- --------
Balance at year end
1995.................... 28 1,850 168,479 (4,611) 165,746
Net loss................ 0 0 0 (4,249) (4,249)
Issuance of common stock
to acquire--Pacific
Casino Management,
Inc.................... 0 5 535 0 540
Repurchase and
retirement of common
stock.................. 0 (22) (1,940) 0 (1,962)
Investment in bonds--
unrealized holding
gain................... 0 0 0 10 10
Preferred stock
dividends--$70.00 per
share.................. 0 0 0 (1,925) (1,925)
---- ------ -------- -------- --------
Balance at year end
1996.................... 28 1,833 167,074 (10,775) 158,160
Net income.............. 0 0 0 8,670 8,670
Issuance of common stock
to acquire--Pacific
Casino Management,
Inc.................... 0 3 497 0 500
Issuance of common stock
to acquire--Boomtown,
Inc.................... 0 582 56,425 0 57,007
Repurchase and
retirement of common
stock.................. 0 (45) (3,420) 0 (3,465)
Common stock options
exercised.............. 0 20 1,975 0 1,995
Conversion of
convertible preferred
stock.................. (28) 229 (201) 0 0
Investment in bonds--
unrealized holding
gain................... 0 0 0 7 7
Preferred stock
dividends--$55.27 per
share.................. 0 0 0 (1,520) (1,520)
---- ------ -------- -------- --------
Balance at year end
1997.................... $ 0 $2,622 $222,350 $ (3,618) $221,354
==== ====== ======== ======== ========
See accompanying notes to consolidated financial statements.
F-21
HOLLYWOOD PARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31,
-----------------------------
1997 1996 1995
--------- -------- --------
(in thousands)
Cash flows from operating activities:
Net income (loss).............................. $ 8,670 $ (4,249) $ (1,162)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 18,157 10,027 10,857
Minority interests............................ (3) 15 0
Changes in accounts due to deconsolidation of
subsidiary in bankruptcy:
Property, plant and equipment............... 0 58,380 0
Secured notes payable....................... 0 (28,918) 0
Unsecured notes payable..................... 0 (15,323) 0
Goodwill and lease with TRAK East........... 0 6,908 0
Unrealized (gain) loss on short term bond
investing.................................... 10 (2) 64
Loss on sale or disposal of property, plant
and equipment................................ 632 10 0
Changes in assets and liabilities, net of the
effects of the purchase of a business:
Decrease (increase) in restricted cash...... 4,079 (1,360) (2,427)
Increase in casino lease and related
interest receivable, net................... 0 0 (9,204)
Decrease (increase) in other receivables,
net........................................ (312) 1,037 77
Increase in prepaid expenses and other
assets..................................... (452) (3,524) (304)
Increase in deferred tax assets............. (1,696) (1,534) (349)
(Decrease) increase in accounts payable..... (2,468) (2,475) 5,685
(Decrease) increase in accrued lawsuit
settlement................................. 0 (2,482) 5,232
(Decrease) increase in accrued
compensation............................... (1,004) 903 (761)
(Decrease) increase in accrued liabilities.. (8,460) (3,489) 6,437
Increase (decrease) in gaming liabilities... 1,354 (1,499) 3,998
Increase (decrease) in racing liabilities... (2,013) 2,270 1,404
Increase in accrued interest payable........ 5,175 0 0
Payments to minority members................ (89) 0 0
Increase (decrease) in deferred tax
liabilities................................ (3,126) (1,018) 744
--------- -------- --------
Net cash provided by operating
activities............................... 18,454 13,677 20,291
--------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment..... (32,505) (23,786) (25,150)
Receipts from sale of property, plant and
equipment..................................... 187 9 98
Principal collected on notes receivable........ 52 34 31
Purchase of short term investments............. (1,946) (16,888) (35,875)
Proceeds from short term investments........... 6,712 18,569 29,428
Payment to buy-out minority interest in Crystal
Park LLC...................................... (1,000) 0 0
Long term gaming assets........................ 0 2,169 (2,169)
Cash acquired in the purchase of a business,
net of transaction and other costs............ 12,264 0 715
--------- -------- --------
Net cash used in investing activities..... (16,236) (19,893) (32,922)
--------- -------- --------
Cash flows from financing activities:
Proceeds from secured Bank Credit Facility..... 112,000 0 0
Proceeds from secured notes payable............ 0 0 3,358
Proceeds from unsecured notes payable.......... 0 0 1,681
Payment of secured Bank Credit Facility........ (112,000) (3,358) (1,386)
Payment of secured notes payable............... (4,917) 0 0
Payment of unsecured notes payable............. (25) (23) (3,813)
Proceeds from issuance of 9.5% Notes........... 125,000 0 0
Payment of 11.5% Boomtown First Mortgage
Notes......................................... (110,924) 0 0
Payments from minority interest partners....... 0 3,000 0
Common stock options exercised................. 1,995 0 0
Common stock repurchase and retirement......... 0 (1,962) 0
Dividends paid to preferred stockholders....... (1,520) (1,925) (1,925)
--------- -------- --------
Net cash provided by (used in) financing
activities............................... 9,609 (4,268) (2,085)
--------- -------- --------
Increase (decrease) in cash and cash
equivalents................................... 11,827 (10,484) (14,716)
Cash and cash equivalents at the beginning of
the period.................................... 11,922 22,406 37,122
--------- -------- --------
Cash and cash equivalents at the end of the
period........................................ $ 23,749 $ 11,922 $ 22,406
========= ======== ========
See accompanying notes to consolidated financial statements.
F-22
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
General Hollywood Park, Inc. (the "Company" or "Hollywood Park") is a
diversified gaming, sports and entertainment company engaged in the ownership
and operation of casinos (including card club casinos) and pari-mutuel racing
facilities, and the development of other gaming and sports related
opportunities. The Company owns and operates through its Boomtown, Inc.
("Boomtown") subsidiary land-based, dockside and riverboat gaming operations in
Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi"), and
Harvey, Louisiana ("Boomtown New Orleans"), respectively. Hollywood Park owns
two card club casinos in the Los Angeles metropolitan area. The Hollywood Park-
Casino is operated by the Company and the Crystal Park Hotel and Casino (the
"Crystal Park Casino"), which as of December 31, 1997, was 100% owned by the
Company (previously it was 93% owned by the Company) is leased to an
unaffiliated third party operator. The Company owns two premier thoroughbred
racing facilities, the Hollywood Park Race Track (the Hollywood Park-Casino is
located adjacent to the Hollywood Park Race Track), and Turf Paradise, Inc.
("Turf Paradise") which is located in Phoenix, Arizona. The Company also owns
Sunflower Racing, Inc. ("Sunflower") a greyhound and thoroughbred racing
facility in Kansas City, Kansas, though due to intense competition from nearby
Missouri riverboat gaming, on May 17, 1996, Sunflower filed for reorganization
under Chapter 11 of the Bankruptcy Code. Sunflower is operating as a debtor in
possession during the bankruptcy.
Consolidation The consolidated financial statements for the year ended
December 31, 1997, included the accounts of Hollywood Park and its wholly owned
subsidiaries: (a) Boomtown, which was acquired by the Company on June 30, 1997,
and was accounted for under the purchase method of accounting for a business
combination, and Boomtown's six active subsidiaries (1) Boomtown Hotel &
Casino, Inc., (2) Bayview Yacht Club, Inc., (3) Mississippi--I Gaming, L.P.,
(4) Louisiana Gaming Enterprises, Inc., (5) Louisiana--I Gaming and (6)
Boomtown Hoosiers, Inc.; (b) Hollywood Park Operating Company, and its two
wholly owned subsidiaries, Hollywood Park Food Services, Inc. and Hollywood
Park Fall Operating Company; (c) Turf Paradise, Inc.; (d) HP Yakama, Inc.; (e)
HP Kansas, Inc.; (f) HP/Compton, Inc. and HP Casino, Inc., which as of December
31, 1997, own 89.8% and 10.2%, respectively, of the Crystal Park Hotel and
Casino Development Company LLC, ("Crystal Park LLC"), which built and presently
leases the Crystal Park Casino, to an unaffiliated third party. As of March 31,
1996, the Company wrote off its investment in Sunflower and its wholly owned
subsidiary SR Food and Beverage, Inc., due to Sunflower's inability to compete
with nearby Missouri riverboat gaming, and as of April 1, 1996, no longer
consolidated Sunflower's operating results with the Company's. The Hollywood
Park-Casino is a division of Hollywood Park, Inc.
Restricted Cash Restricted cash as of December 31, 1997 and 1996, was for
amounts due to horsemen for purses, stakes and awards.
Racing Revenues and Expenses The Company records pari-mutuel revenues,
admissions, food and beverage and other racing income associated with racing on
a daily basis, except for seasonal admissions, which were recorded ratably over
the racing season. Expenses associated with racing revenues were charged
against income in those periods in which racing revenues were recognized. Other
expenses were recognized as they occurred throughout the year.
Gaming Revenue and Promotional Allowances Gaming revenues at the three
Boomtown properties consisted of the difference between gaming wins and losses,
or net win from gaming activity, and at the Hollywood Park-Casino consisted of
fees collected from patrons on a per seat or per hand basis. Revenues in the
accompanying statements of operations exclude the retail value of food and
beverage, hotel rooms and other items provided to patrons on a complimentary
basis. The estimated cost of providing these promotional allowances during the
years ended December 31, 1997, and 1996, was $8,285,000 (which includes
Boomtown's promotional allowances as of June 30, 1997), and $1,316,000,
respectively. There were no comparable costs for the year ended December 31,
1995.
F-23
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Capitalized Interest Interest of $425,000 was capitalized during the year
ended December 31, 1997. No capitalized interest was recorded during the years
ended December 31, 1996, and 1995, because the Company had no outstanding debt,
other than Sunflower's debt, which was non-recourse to the Company, and
Sunflower did not make any capital improvements during the periods covered.
Estimates Financial statements prepared in accordance with generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of property, plant and equipment,
to determine the fair value of financial instruments, to account for the
valuation allowance for deferred tax assets and to determine litigation related
obligations.
Property, Plant and Equipment Property, plant and equipment are depreciated
on the straight line method over their estimated useful lives as follows:
Years
-------
Land improvements.............................................. 3 to 25
Buildings...................................................... 5 to 40
Equipment...................................................... 3 to 10
Maintenance and repairs were charged to expense, and betterments were
capitalized. The cost of property sold or otherwise disposed of and its
associated accumulated depreciation were eliminated from both the property and
accumulated depreciation accounts with any gain or loss recorded in the expense
accounts.
Property, plant and equipment is carried on the Company's balance sheets at
depreciated cost. Whenever there are recognized events or changes in
circumstances that affect the carrying amount of the property, plant and
equipment, management reviews the assets for possible impairment. In accordance
with current accounting standards, management uses estimated expected future
net cash flows to measure the recoverability of property, plant and equipment.
The estimation of expected future net cash flows is inherently uncertain and
relies to a considerable extent on assumptions regarding current and future
economic and market conditions, and the availability of capital. In future
periods, if there are changes in the estimates or assumptions incorporated into
the impairment review analysis, the changes could result in an adjustment to
the carrying amount of the property, plant and equipment.
Income Taxes The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") 109, Accounting for Income Taxes,
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that included the enactment date.
Earnings Per Share Basic earnings per share were computed by dividing income
(loss) attributable to (allocated to) common shareholders (net income (loss)
less preferred stock dividend requirements) by the weighted average number of
common shares outstanding during the period. Diluted per share amounts were
similarly computed, but include the effect, when dilutive, of the conversion of
the convertible preferred shares and the exercise of stock options.
Cash Flows Cash and cash equivalents consisted of certificates of deposit and
short term investments with original maturities of 90 days or less.
F-24
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Repurchase On July 22, 1996, the Company announced its intention to
repurchase, and to retire up to 2,000,000 shares of its common stock on the
open market or in negotiated transactions. As of December 31, 1996, the Company
had repurchased and retired (with the last purchase being made on November 13,
1996) 222,300 common shares, at a cost of approximately $1,962,000.
Reclassifications Certain reclassifications have been made to the 1996 and
1995 balances to be consistent with the 1997 financial statement presentation.
Note 2--Acquisitions
Acquisition of Boomtown, Inc. On June 30, 1997, pursuant to the Agreement
and Plan of Merger dated as of April 23, 1996, by and among Hollywood Park, HP
Acquisition, Inc., a wholly owned subsidiary of the Company, and Boomtown, HP
Acquisition, Inc. was merged with and into Boomtown (the "Boomtown Merger"). As
a result of the Boomtown Merger, Boomtown became a wholly owned subsidiary of
the Company and each share of Boomtown common stock was converted into the
right to receive 0.625 of a share of Hollywood Park's common stock.
Approximately 5,362,850 shares of Hollywood Park common stock, valued at
$9.8125 per share (excluding shares repurchased from Edward P. Roski, Jr.
("Roski") and subsequently retired, as described below) were issued in the
Boomtown Merger.
The Boomtown Merger was accounted for under the purchase method of
accounting for a business combination. The purchase price of the Boomtown
Merger was allocated to the identifiable assets acquired and liabilities
assumed based on their estimated fair values at the date of acquisition. Based
on financial analyses which considered the impact of general economic,
financial and market conditions on the assets acquired and liabilities assumed,
the Company determined that the estimated fair values approximated their
carrying value. The Boomtown Merger generated approximately $2,683,000 of
excess acquisition cost over the recorded value of the net assets acquired, all
of which was allocated to goodwill, to be amortized over 40 years. The
amortization of the goodwill is not deductible for income tax purposes.
The Company acquired three of the four Boomtown properties; Boomtown Reno,
Boomtown New Orleans, and Boomtown Biloxi. Boomtown's Las Vegas property was
divested on July 1, 1997 because it had generated significant operating losses
since it opened, thus reducing the overall profitability of Boomtown. Boomtown
and its subsidiaries exchanged substantially all of their interest in the Las
Vegas property, including substantially all of the operating assets and notes
receivable of approximately $27,300,000 from the landowner/lessor of the Las
Vegas property, IVAC, a California general partnership of which Roski, a former
Boomtown director, is a general partner, for, among other things, two unsecured
notes receivable totaling approximately $8,465,000, cash, assumption of certain
liabilities and release from certain lease obligations. The first note
receivable is for $5,000,000, bearing interest at Bank of America National
Trust and Savings Association's ("Bank of America") reference rate plus 1.5%
per year, with annual principal receipts of $1,000,000 plus accrued interest
commencing on July 1, 1998. The second note is for approximately $3,465,000,
bearing interest at Bank of America's reference rate plus 0.5% per year, with
the principal and accrued interest payable to the Company, in full, on July 1,
2000. In addition, concurrently with the divestiture of the Las Vegas property,
Hollywood Park purchased and retired 446,491 shares of Hollywood Park common
stock received by Roski in the Boomtown Merger for a price of approximately
$3,465,000, payable in the form of a Hollywood Park promissory note. The
promissory note bears interest at Bank of America's reference rate plus 1.0%.
Interest is payable annually and annual principal payments in five equal
installments of approximately $693,000 are due commencing July 1, 1998.
Acquisition of Pacific Casino Management, Inc. The Hollywood Park-Casino was
opened in July 1994 under a third party leasing arrangement with Pacific Casino
Management, Inc. ("PCM"); whereby PCM leased
F-25
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and operated the gaming floors of the Hollywood Park-Casino, and the Company
operated all other aspects of the business. In 1994, under the California
Gaming Registration Act, it was then the position of the California Attorney
General that as a publicly traded company, Hollywood Park was not eligible to
register as an operator of a card club, but could lease the site to a
registered operator unaffiliated with the Company. On August 3, 1995, Senate
Bill ("SB") 100 was enacted into law and among other things allowed a publicly
traded racing association, such as Hollywood Park, to operate a card club
casino on the same premises as a race track. On November 17, 1995, Hollywood
Park purchased the gaming floor business from PCM for $2,640,000, which was
paid for with 218,099 shares of the Company's common stock. The approximately
$21,658,000 of excess acquisition cost over the recorded value of net assets
acquired from PCM was allocated to goodwill, and is being amortized over 40
years. The amortization of the goodwill is not deductible for income tax
purposes.
Pro Forma Results of Operations The following pro forma results of
operations were prepared under the assumption that the acquisition of Boomtown
had occurred at the beginning of the period presented. The historical results
of operations of Boomtown (excluding the results of operations of Boomtown's
Las Vegas property, which was divested in connection with the Boomtown Merger)
were combined with Hollywood Park's. Pro forma adjustments were made for the
following: elimination of the amortization of the issuance costs associated
with Boomtown's 11.5% First Mortgage Notes; amortization of the issuance costs
associated with the $125,000,000 of Hollywood Park and Hollywood Park Operating
Company Series A 9.5% Senior Subordinated Notes due 2007 (the "Notes") (see
Note 6. Secured and Unsecured Notes Payable); amortization of the excess
purchase price over net assets acquired in the Boomtown Merger; elimination of
the amortization of the discount associated with the Boomtown 11.5% First
Mortgage Notes; interest expense associated with the promissory notes from
Hollywood Park to Roski; elimination of the interest expense associated with
the Boomtown 11.5% First Mortgage Notes; amortization of the up-front loan fees
associated with the Company's Bank Credit Facility; interest expense associated
with the Notes at 9.5%; and the estimated 40% tax expense associated with the
pro forma adjustments.
Hollywood Park, Inc.
Unaudited Pro Forma Combined Consolidated Results of Operations
1997 1996
-------- --------
(in thousands,
except per share
data)
Revenues:
Gaming................................................. $221,008 $208,699
Racing................................................. 68,844 71,308
Other.................................................. 59,232 56,576
-------- --------
349,084 336,583
-------- --------
Operating income (loss)(a)............................... 30,889 (18,083)
Net income (loss)........................................ $ 9,264 $(37,523)
======== ========
Dividend requirements on preferred stock................. $ 1,520 $ 1,925
Net income (loss) to common shareholders................. $ 7,744 $(39,448)
======== ========
Per common share:
Net income (loss)--basic............................... $ 0.31 $ (1.65)
Net income (loss)--diluted............................. $ 0.31 $ (1.65)
- --------
(a) The 1996 operating loss included the non-recurring write off of Hollywood
Park's investment in Sunflower of $11,412,000, and the non-recurring loss
on Boomtown's sale of its Las Vegas property of $36,562,000.
F-26
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pending Merger with Casino Magic Corp. On February 19, 1998, the respective
Boards of Directors of Hollywood Park and Casino Magic Corp. ("Casino Magic")
approved and signed an Agreement and Plan of Merger among Casino Magic Corp.,
Hollywood Park, Inc., and HP Acquisition II, Inc. (a wholly owned subsidiary of
Hollywood Park), pursuant to which HP Acquisition II, Inc., will merge into
Casino Magic, and Casino Magic will survive and become a wholly owned
subsidiary of Hollywood Park. Hollywood Park will pay cash of $2.27 for each
issued and outstanding share of Casino Magic common stock, or approximately
$81,000,000.
On February 23, 1998, Hollywood Park entered into a voting agreement (the
"Voting Agreement") with Marlin F. Torguson ("Mr. Torguson") pursuant to which,
among other things, Mr. Torguson has agreed to vote the 7,954,500 shares of
Casino Magic common stock he beneficially owns in favor of approval and
adoption of the Agreement and Plan of Merger and the Casino Magic Merger and
any matter that could reasonably be expected to facilitate the Casino Magic
Merger. Mr. Torguson also agreed to continue to serve as an employee of Casino
Magic for three years following the Casino Magic Merger, and not to compete
with Hollywood Park or Casino Magic in any jurisdictions in which either
presently operates.
Casino Magic owns and operates dockside and riverboat gaming properties in
Bay St. Louis, Mississippi ("Casino Magic Bay St. Louis"), Biloxi, Mississippi
("Casino Magic Biloxi") and Bossier City, Louisiana, ("Casino Magic Bossier")
respectively, and is a 51% partner in two land-based casinos in Argentina.
Casino Magic Bay St. Louis, started operations in September 1992, on a
permanently moored barge in a 17 acre marina with the adjoining land based
facilities situated on 591 acres. Bay St. Louis is approximately 46 miles east
of New Orleans and 40 miles west of Biloxi. Casino Magic Bay St. Louis offers
approximately 39,500 square feet of gaming space, with 1,132 slot machines and
42 table games. The land based building is three stories with a restaurant,
buffet, snack bar, gift shop, and a live entertainment lounge. In December
1994, Casino Bay St. Louis also opened the Casino Magic Inn; a 201 room hotel,
including four deluxe and 20 junior suites. The property also contains the
Magic Dome, an 1,800 seat arena, which hosts approximately 50 events annually,
including nationally televised boxing matches, concerts and other special
events. With the late 1997 addition of the 18 hole Bridges Golf Resort, Casino
Magic Bay St. Louis is positioned as a full service vacation destination.
Casino Magic Biloxi began casino operations in June 1993 and is located on
the Gulf of Mexico in the Mississippi Gulf Coast Region. The property is
situated on the Front Bay on the beach of the Gulf of Mexico in a strip with
four other casinos, and is located on the major highway running through the
Mississippi Gulf Coast. (Boomtown Biloxi is located on the Back Bay of Biloxi.)
Casino Magic Biloxi conducts gaming from a permanently moored barge with
approximately 47,700 square feet of gaming space with 1,174 slot machines and
41 gaming tables. The land based facility is located adjacent to the barge on
the approximately 11.5 acre site. In late spring 1998, Casino Magic Biloxi
expects to open its 378 room luxury hotel (Casino Magic is anticipating a four-
star rating for this hotel), to include 16 master suites, 70 junior suites,
6,600 square feet of convention and meeting space, a full service restaurant
and numerous themed retail shops. The casino's land based facility is
approximately 21,600 square feet. Casino Magic Biloxi offers buffets, full
service restaurants and nationally franchised fast food services.
Casino Magic Bossier opened in October 1996, with casino operations
conducted from a dockside riverboat. The property is highly visible with
convenient access from Interstate Highway 20, a major thoroughfare between
Bossier City/Shreveport and the Dallas-Fort Worth area approximately 180 miles
to the west. The Casino Magic Bossier riverboat measures 254 feet long and 78
feet wide with approximately 30,000 square feet of gaming space, and offers 980
slot machines and 44 table games. The Casino Magic Bossier facility includes a
55,000 square foot entertainment pavilion connected to a garage providing
parking for approximately 1,400 vehicles. The entertainment pavilion includes
the 350 seat Abracadabra buffet
F-27
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
restaurant, a gift shop, a bar and lounge area, and a 300 seat live
entertainment theater. The entertainment pavilion also includes two smaller
full service restaurants. Casino Magic Bossier is just beginning construction
on an 188 room hotel with four master suites, 88 junior suites and additional
full service restaurants.
In December 1994, Casino Magic, through its wholly owned subsidiary, Casino
Magic Neuquen SA, ("Casino Magic Argentina") entered into a twelve year
concession agreement with the Province of Neuquen, Argentina. Casino Magic
Argentina operates two casinos in the Province of Neuquen in the cities of
Neuquen and San Martin de los Andes in west-central Argentina. Neuquen Province
is the gateway to the well established resort, tour destinations and ski
resorts of the Andes Mountains. There are approximately 900,000 residents
within a 50 mile radius of the two cities. Casino Magic Argentina, which began
operations in January 1995, includes approximately 29,000 square feet of gaming
space and contains approximately 64 table games, 400 slot machines and a 384
seat bingo facility.
Note 3--Supplemental Disclosure of Cash Flow Information
For the years
ended December 31,
------------------
1997 1996 1995
------ ---- ------
(in thousands)
Cash paid during the year for:
Interest............................................... $1,321 $299 $2,098
Income taxes........................................... 827 40 143
------ ---- ------
$2,148 $339 $2,241
====== ==== ======
Note 4--Short Term Investments
As of December 31, 1997, Hollywood Park had liquidated its investments in
corporate bonds. During the year ended December 31, 1997, net proceeds from the
sale or redemption of corporate bond investments was approximately $4,766,000,
with gross realized gains and losses of approximately $9,000, and $88,000,
respectively.
As of December 31, 1996, short term investments consisted of corporate bonds
valued at $4,766,000, with Moody's ratings of Ba2 to B3, and Standard and Poors
ratings of BB+ to B-, though some of the bonds were not rated by either agency.
Investments in corporate bonds carry a greater amount of principal risk than
other investments made by the Company, and yield a corresponding higher return.
The corporate bond investment as of December 31, 1996, had a weighted average
maturity of 1.5 years, and because the Company reasonably expected to liquidate
these investments in its normal operating cycle the investments were classified
as short term, were held as available for sale, and recorded in the
accompanying financial statements at their fair value, as determined by the
quoted market price.
For the year ended December 31, 1996, proceeds from the sale or redemption
of corporate bond investments were approximately $8,429,000, all of which was
reinvested, and gross realized gains and gross realized losses were $28,000 and
$39,000, respectively.
F-28
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Property, Plant and Equipment
Property, plant and equipment held at December 31, 1997, and 1996 consisted
of the following:
December 31,
-----------------
1997(a) 1996
-------- --------
(in thousands)
Land and land improvements................................ $ 50,945 $ 32,215
Buildings................................................. 270,271 150,935
Equipment................................................. 77,337 31,531
Vessel.................................................... 18,925 0
Construction in progress.................................. 21,896 128
-------- --------
439,374 214,809
Less accumulated depreciation............................. 138,708 83,974
-------- --------
$300,666 $130,835
======== ========
- --------
(a) Includes Boomtown's assets.
Note 6--Secured and Unsecured Notes Payable
Notes payable as of December 31, 1997, and 1996 consisted of the following:
December 31,
---------------
1997(a) 1996
--------- -----
(in thousands)
Secured notes payable....................................... $ 3,750 $ 0
9.5% Series A Notes......................................... 125,000 0
11.5% Boomtown First Mortgage Notes......................... 1,253 0
Capital lease obligations................................... 1,527 0
Unsecured note payable...................................... 4,009 317
--------- -----
135,539 317
Less current maturities..................................... 3,437 35
--------- -----
$ 132,102 $ 282
========= =====
- --------
(a) Includes notes payable related to Boomtown.
Hollywood Park On June 30, 1997, Hollywood Park and a bank syndicate led by
Bank of America finalized the Bank Credit Facility, a reducing revolving credit
facility allowing for drawings up to $225,000,000. On August 7, 1997, the Bank
Credit Facility was reduced by $125,000,000 (the aggregate principal amount of
the Series A 9.5% Senior Subordinated Notes due 2007 (the "Notes") issued as
described below) to $100,000,000. Of the $100,000,000, as a result of covenant
limitations, approximately $88,800,000 was available as of December 31, 1997.
As of December 31, 1997, the Company did not have outstanding borrowings under
the Bank Credit Facility, except for a $2,035,000 letter of credit. The Bank
Credit Facility is secured by substantially all of the assets of Hollywood Park
and its significant subsidiaries, and imposes certain customary affirmative and
negative covenants.
On February 19, 1998, Hollywood Park announced the Casino Magic Merger, and
under the terms of the Agreement and Plan of Merger, Hollywood Park will pay
cash of $2.27 for each issued and outstanding share of Casino Magic common
stock, or approximately $81,000,000. The Company has begun discussions to amend
F-29
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Bank Credit Facility to increase the borrowing capacity to provide the
funds required for the Casino Magic Merger. A formal amendment has not yet been
signed, and there is no assurance that such an amendment will be completed,
although the bank group has given verbal assurance of its intent to provide
such an increased facility.
The Bank Credit Facility has been amended twice. The first amendment, among
other matters, reduced the availability of the facility until the Bank Credit
Facility was approved by the Louisiana Gaming Control Board. Hollywood Park
received this approval on July 10, 1997. The second amendment, among other
things, allowed the co-issuance of the Notes by Hollywood Park Operating
Company with Hollywood Park.
Debt service requirements on the Bank Credit Facility consist of current
interest payments on outstanding indebtedness through September 30, 1999. As of
September 30, 1999, and on the last day of each third calendar month
thereafter, through June 30, 2001, the Bank Credit Facility will decrease by
7.5% of the commitment in effect on September 30, 1999. As of September 30,
2001, and on the last day of each third calendar month thereafter, the Bank
Credit Facility will decrease by 10% of the commitment in effect on September
30, 1999. Any principal amounts outstanding in excess of the Bank Credit
Facility commitment, as so reduced, will be payable on such quarterly reduction
dates.
The Bank Credit Facility provides for a letter of credit sub-facility of
$10,000,000, of which $2,035,000 is currently outstanding for the benefit of
Hollywood Park's California self insured workers' compensation program. The
facility also provides for a swing line sub-facility of up to $10,000,000.
Borrowings under the Bank Credit Facility bear interest at an annual rate
determined, at the election of Hollywood Park, by reference to the "Eurodollar
Rate" (for interest periods of 1, 2, 3 or 6 months) or the "Reference Rate", as
such terms are respectively defined in the Bank Credit Facility, plus margins
which vary depending upon Hollywood Park's ratio of funded debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"). The margins
start at 1.25% for Eurodollar loans and at 0.25% for Base Rate loans, at a
funded debt to EBITDA ratio of less than 1.50. Thereafter, the margin for each
type of loan increases by 25 basis points for each increase in the ratio of
funded debt to EBITDA of 50 basis points or more, up to 2.625% for Eurodollar
loans and 1.625% for Base Rate loans. However, if the ratio of senior funded
debt to EBITDA exceeds 2.50, the applicable margins will increase to 3.25% for
Eurodollar loans, and 2.25% for Base Rate loans. Thereafter, the margins would
increase by 25 basis points for each increase in the ratio of senior funded
debt to EBITDA of 50 basis points or more, up to a maximum of 4.25% for
Eurodollar loans and 3.25% for Base Rate loans. The applicable margins as of
December 31, 1997, were 2.00% with respect to the Eurodollar Rate based
interest rate and 1.00% with respect to the Base Rate interest rate.
The Bank Credit Facility allows for interest rate swap agreements, or other
interest rate protection agreements, up to a maximum notional amount of
$125,000,000. Presently, Hollywood Park does not utilize such financial
instruments.
Hollywood Park pays a quarterly commitment fee for the average daily amount
of unused portions of the Bank Credit Facility. The commitment fee is also
dependent upon Hollywood Park's ratio of funded debt to EBITDA. The commitment
fee for the Bank Credit Facility starts at 31.25 basis points when the ratio is
less than 1.00, and increases by 6.25 basis points for each increase in the
ratio of 0.50, up to a maximum of 50 basis points. For the quarter beginning
January 1, 1998, the commitment fee is 50 basis points.
On July 3, 1997, Hollywood Park borrowed $112,000,000 from the Bank Credit
Facility to fund Boomtown's offer to purchase the 11.5% Boomtown First Mortgage
Notes (the "Boomtown Notes"), and repaid this amount on August 7, 1997, with a
portion of the proceeds from the August 6, 1997, issuance of $125,000,000 of
Series A 9.5% Senior Subordinated Notes due 2007 (the "Series A Notes"). The
Series A
F-30
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes were co-issued by Hollywood Park and Hollywood Park Operating Company,
and were issued pursuant to a private offering under the Securities Act of
1933, as amended (the "Securities Act"). The balance of the proceeds from the
issuance of the Series A Notes was used primarily for the purchase of a new
riverboat for Boomtown New Orleans, and other general corporate needs.
On March 20, 1998, the Company completed a registered exchange offer for the
Series A Notes, pursuant to which all $125,000,000 principal amount of the
Series A Notes were exchanged by the holders for $125,000,000 aggregate
principal amount of Series B 9.5% Senior Subordinated Notes due 2007 of the
Company and Hollywood Park Operating Company (together with the Series A Notes,
the "Notes") which were registered under the Securities Act on Form S-4.
Interest on the Notes is payable semi-annually, on February 1st and August 1st.
The Notes will be redeemable at the option of Hollywood Park and Hollywood Park
Operating Company, in whole or in part, on or after August 1, 2002, at a
premium to face amount, plus accrued interest, with the premium to face amount
decreasing on each subsequent anniversary date. The Notes are unsecured
obligations of Hollywood Park and Hollywood Park Operating Company, guaranteed
by all other material restricted subsidiaries of either Hollywood Park or
Hollywood Park Operating Company.
The indenture governing the Notes contains certain covenants that, among
other things, limit the ability of Hollywood Park, Hollywood Park Operating
Company and their restricted subsidiaries to incur additional indebtedness and
issue preferred stock, pay dividends or make other distributions, repurchase
equity interests or subordinated indebtedness, create certain liens, enter into
certain transactions with affiliates, sell assets, issue or sell equity
interests in their respective subsidiaries or enter into certain mergers and
consolidations. There are no provisions in the indenture governing the Notes
which will prevent the previously mentioned Casino Magic Merger.
On July 1, 1997, in connection with the divestiture of Boomtown's Las Vegas
property, Hollywood Park issued an unsecured promissory note of approximately
$3,465,000 to purchase the Hollywood Park common stock issued to Roski in the
Boomtown Merger. The promissory note bears interest equal to the
Bank of America reference rate plus 1.0%. Interest is payable annually with
five annual principal payments of approximately $693,000 commencing July 1,
1998.
Boomtown In November 1993, Boomtown issued $103,500,000 of 11.5% Boomtown
Notes. On July 3, 1997, pursuant to a tender offer, Boomtown repurchased and
retired approximately $102,142,000 in principal amount of the Boomtown Notes,
at a purchase price of $1,085 per $1,000, along with accrued interest thereon.
An additional $105,000 of the remaining Boomtown Notes were tendered in the
post Boomtown Merger change of control purchase offer, at a price of $1,010 for
each $1,000, completed August 12, 1997. As of December 31, 1997, there were
$1,253,000 of 11.5% Boomtown Notes outstanding.
On August 4, 1997, Hollywood Park executed a promissory note for the
purchase of the barge and the building shell at Boomtown Biloxi for a total
cost of $5,250,000. A payment of $1,500,000 was made on August 4, 1997, with
the balance due of $3,750,000 payable in three equal annual installments of
$1,250,000. Interest on the promissory note is equal to the prime interest rate
in effect on the first day of each year. The principal amount of the promissory
note, together with accrued interest, may be repaid, without penalty, in whole
or in part, at any time.
On August 7, 1997, Boomtown New Orleans prepaid a 13.0% note secured by the
former riverboat, then in use, for approximately $2,107,000 (inclusive of a
1.0% prepayment penalty).
As of December 31, 1997, Boomtown had a note payable of approximately
$252,000 along with various capital lease obligations for gaming and other
operating equipment, totaling approximately $1,527,000.
Sunflower On March 24, 1994, an Amended and Restated Credit and Security
Agreement (the "Sunflower Senior Credit") was executed between Sunflower and
five banks in connection with Hollywood
F-31
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Park's acquisition of Sunflower. As of December 31, 1997, the outstanding
balance of the Sunflower Senior Credit was $28,667,000. The Sunflower Senior
Credit is non-recourse to Hollywood Park.
On May 17, 1996, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code. The Cash Collateral Agreement suspended any interest or
principal payments on the Sunflower Senior Credit until August 12, 1997. The
Bankruptcy Court has issued an order extending the Cash Collateral Agreement
until it issues its pending ruling regarding approval of Sunflower's proposed
plan of reorganization. The Cash Collateral Agreement requires Sunflower to
make certain cash payments to Wyandotte County, Kansas, the creditors under the
Sunflower Credit and TRAK East (the unaffiliated non-profit holder of the pari-
mutuel racing license in Kansas, and operator of racing at Sunflower).
On July 15, 1997, Sunflower presented to the Bankruptcy Court a plan of
reorganization (the "Plan") which provides for the sale of Sunflower's property
to the Wyandotte Tribe of Oklahoma (the "Wyandotte Tribe"). The Plan was
amended on October 31, 1997. Under the Plan, some or all of the land would be
held by the United States Government in trust for the Wyandotte Tribe, and a
casino would be developed on the property. Upon completion of the casino, HP
Kansas, Inc. ("HP Kansas") (a wholly-owned subsidiary of Hollywood Park) and a
partner (North American Sports Management or an affiliate) will provide
financing and consulting services for the development and operation of a
casino. Under this arrangement, HP Kansas would be entitled to receive a share
of the revenues of the casino. Under the plan, in order to allow the property
to be released as collateral and sold to the Wyandotte Tribe, Sunflower will be
required to have standby letters of credit issued to support certain payments
to be made to the lenders under the Sunflower Senior Credit and the Wyandotte
County Treasurer's office. The aggregate amount of such letters of credit is
anticipated to be in excess of $29,000,000. Hollywood Park will arrange for the
issuance of such letters of credit on behalf of Sunflower. It is anticipated
that the earliest that the bankruptcy court will rule on the Plan is in the
second quarter of 1998.
In 1995, under a promissory note executed in December 1994, between
Hollywood Park and Sunflower, Hollywood Park advanced $2,500,000 to Sunflower
to make certain payments due on the Sunflower Senior Credit. The amounts
borrowed under the promissory note, along with accrued interest, are
subordinate to the Sunflower Senior Credit. Although Hollywood Park will
continue to pursue payment of the promissory note, for financial reporting
purposes the outstanding balance of the promissory note was written off as of
March 31, 1996.
Annual Maturities As of December 31, 1997, annual maturities of total notes
and loans payable are as follows:
Year ending:
------------ (in thousands)
December 31, 1998........................................... $ 3,437
December 31, 1999........................................... 2,162
December 31, 2000........................................... 2,050
December 31, 2001........................................... 805
December 31, 2002........................................... 776
Thereafter.................................................. 126,309
The fair values of the Company's various debt instruments discussed above
approximate their carrying amounts based on the fact that borrowings bear
interest at variable market based rates.
Note 7--Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of
In 1995, Statement of Financial Accounting Standards No. 121 ("SFAS") 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, was issued which established
F-32
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets. SFAS 121, which
became effective for Hollywood Park in the quarter ended March 31, 1996,
addresses when impairment losses should be recognized and how impairment losses
should be measured. Whenever there are recognized events or changes in
circumstances that indicate the carrying amount of an asset may not be
recoverable, management reviews the asset for possible impairment. In
accordance with current accounting standards, management uses estimated
expected future net cash flows (undiscounted and excluding interest costs, and
grouped at the lowest level for which there are identifiable cash flows that
are as independent as possible of other asset groups) to measure the
recoverability of the asset. If the expected future net cash flows are less
than the carrying amount of the asset an impairment loss would be recognized.
An impairment loss would be measured as the amount by which the carrying amount
of the asset exceeded the fair value of the asset, with fair value measured as
the amount at which the asset could be bought or sold in a current transaction
between willing parties, other than in a forced liquidation sale. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future net cash
flows, market conditions, and the availability of capital. If, in future
periods, there are changes in the estimates or assumptions incorporated into
the impairment review analysis the changes could result in an adjustment to the
carrying amount of the asset, but at no time would previously recognized
impairment losses be restored.
Note 8--Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 ("SFAS") 123 Accounting
for Stock-Based Compensation, requires that the Company disclose additional
information about employee stock-based compensation plans. The objective of
SFAS 123 is to estimate the fair value, based on the stock price at the grant
date, of the Company's stock options to which employees become entitled when
they have rendered the requisite service and satisfied any other conditions
necessary to earn the right to benefit from the stock options. The fair market
value of a stock option is to be estimated using an option-pricing model that
takes into account, as of the grant date, the exercise price and expected life
of the option, the current price of the underlying stock and its expected
volatility, expected dividends on the stock, and the risk-free interest rate
for the expected term of the options.
In computing the stock-based compensation, the following assumptions were
made:
Risk-Free
Interest Expected Expected Expected
Rate Life Volatility Dividends
--------- -------- ---------- ---------
Options granted in the following
periods:
Second quarter 1995............. 5.0% 3 years 36.1% None
First quarter 1996.............. 5.0% 3 years 36.1% None
Second quarter 1996............. 5.1% 3 years 46.4% None
Fourth quarter 1996(a).......... 5.0% 10 years 47.4% None
- --------
(a) The options granted during the fourth quarter of 1996 were to the Company's
directors, and it is expected that the directors will hold options for a
longer period of time than the Company's employees.
F-33
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following sets forth the pro forma financial results under the
implementation of SFAS 123:
For the Years Ended
December 31,
------------------------
1997 1996 1995
------- ------- -------
(in thousands, except
per share data)
Net income (loss) before stock-based
compensation expense........................... $ 8,670 $(4,249) $(1,162)
Stock-based compensation expense................ 543 81 4
------- ------- -------
Pro forma net income (loss)..................... $ 8,127 $(4,330) $(1,166)
======= ======= =======
Dividend requirements on convertible preferred
stock.......................................... $ 1,520 $ 1,925 $ 1,925
Pro forma net income (loss) to common
shareholders................................... $ 6,607 $(6,255) $(3,091)
======= ======= =======
Per common share:
Pro forma net income (loss)--basic............ $ 0.30 $ (0.34) $ (0.17)
Pro forma net income (loss)--diluted.......... $ 0.30 $ (0.34) $ (0.17)
Number of shares--basic......................... 22,010 18,505 18,399
Number of shares--diluted....................... 22,340 20,797 20,691
Note 9--Racing Operations
The Company conducts thoroughbred racing at its Hollywood Park and Turf
Paradise race tracks, located in California and Arizona, respectively.
Sunflower race track, in Kansas, is primarily a greyhound racing facility with
a limited number of days of thoroughbred racing each summer. On May 17, 1996,
due to competition from Missouri riverboat gaming, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code, and as of April 1,
1996, Sunflower's operating results were no longer consolidated with Hollywood
Park's; therefore, Sunflower's racing results and statistics are included in
this note for 1995 only. Sunflower is operating as a debtor in possession
during the bankruptcy. Under Kansas racing law, Sunflower is not granted any
race days and does not generate any pari-mutuel commissions. The Kansas Racing
Commission granted Sunflower the facility ownership and management licenses;
with all race days until the year 2014 granted to TRAK East, a Kansas not-for-
profit corporation. Sunflower has an agreement, which was entered into in
September 1989, with TRAK East to provide the physical race tracks along with
management and consulting services for twenty-five years with options to renew
for one or more successive terms.
1997 1996 1995
---- ---- ----
Live on-track race days
Hollywood Park race track..................................... 102 103 97
Turf Paradise race track...................................... 159 166 171
Sunflower--Horses............................................. -- -- 49
Sunflower--Greyhounds......................................... -- -- 294
F-34
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the pari-mutuel handle and deductions, by racing facility for
the year ended December 31, are as follows:
1997 1996 1995
-------- -------- --------
(in thousands)
Hollywood Park--live horse racing
Total pari-mutuel handle........................... $663,175 $677,827 $643,246
Less patrons' winning tickets...................... 535,816 547,775 520,291
-------- -------- --------
127,359 130,052 122,955
Less:
State pari-mutuel tax............................ 15,923 19,263 20,691
City of Inglewood pari-mutuel tax................ 1,176 1,287 1,384
Racing purses and awards......................... 25,881 26,300 26,888
Satellite wagering fees.......................... 11,738 12,784 13,545
Interstate location fees......................... 47,524 44,815 34,170
Other fees....................................... 356 390 419
-------- -------- --------
Pari-mutuel commissions............................ 24,761 25,213 25,858
Add off-track independent handle commissions....... 2,195 2,280 2,251
-------- -------- --------
Total pari-mutuel commissions...................... $ 26,956 $ 27,493 $ 28,109
======== ======== ========
1997 1996 1995
-------- -------- --------
(in thousands)
Turf Paradise--live horse racing
Total pari-mutuel handle........................... $166,976 $147,748 $111,509
Less patrons' winning tickets...................... 129,212 114,585 86,460
-------- -------- --------
37,764 33,163 25,049
Less:
State pari-mutuel tax............................ 0 18 345
Racing purses and awards......................... 4,339 4,501 4,757
State sales tax.................................. 183 302 415
Off-track commissions............................ 316 115 117
Interstate location fees......................... 24,790 20,034 10,943
-------- -------- --------
Pari-mutuel commissions............................ 8,136 8,193 8,472
Add off-track independent handle commissions....... 193 166 699
-------- -------- --------
Total pari-mutuel commissions including charity
days.............................................. 8,329 8,359 9,171
Less charity day pari-mutuel commissions........... 18 17 0
-------- -------- --------
Total pari-mutuel commissions net of charity days.. $ 8,311 $ 8,342 $ 9,171
======== ======== ========
Greyhounds Horses
1995 1995
---------- ------
(in thousands)
TRAK East at Sunflower--live racing
Total pari-mutuel handle..................................... $47,406 $2,844
Less patrons' winning tickets................................ 37,379 2,273
------- ------
10,027 571
Less:
State pari-mutuel tax...................................... 1,721 104
Racing purses and awards................................... 2,230 190
------- ------
Total pari-mutuel commissions................................ $ 6,076 $ 277
======= ======
F-35
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a stipulation to the granting of race dates, the California Horse Racing
Board ("CHRB") requires that Hollywood Park designate three days from both the
live Spring/Summer Meet and the Autumn Meeting as charity days. The charity day
payments are not to exceed 2/10 of 1.0% of the total live on-track pari-mutuel
handle for the respective race meet. Charity day payments must be made to a
distributing agent approved by the CHRB. The Company made charity day payments
of $310,000, $338,000 and $370,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
Arizona racing law requires that 1.0% of the total in-state pari-mutuel
handle (on-track live pari-mutuel handle and off-track within the state pari-
mutuel handle) of three charity days be paid to a distributing agent approved
by the Arizona Racing Commission. The Arizona Department of Racing did not
assign any charity days in 1995, therefore no payments were required. Turf
Paradise paid $18,000 to the distributing agent in 1997, and paid $17,000 in
1996.
Hollywood Park Race Track conducts simulcast meets of live races held at
local southern California race tracks and simulcasts races from northern
California tracks concurrent with the Company's live race meets.
1997 1996 1995
-------- -------- --------
(in thousands)
Hollywood Park--simulcast racing
Pari-mutuel handle:
Thoroughbred meets................................ $371,716 $375,910 $379,263
Quarter Horse meets............................... 22,821 23,067 22,793
Harness meets..................................... 7,402 6,165 4,391
-------- -------- --------
$401,939 $405,142 $406,447
======== ======== ========
Pari-mutuel commissions:
Thoroughbred meets................................ $ 12,863 $ 12,669 $ 11,527
Quarter Horse meets............................... 449 454 457
Harness meets..................................... 144 120 86
-------- -------- --------
$ 13,456 $ 13,243 $ 12,070
======== ======== ========
TRAK East at Sunflower operates year round simulcasting of both greyhounds
and horses. Pari-mutuel handle and commissions earned by TRAK East for the year
ended December 31, 1995 are as follows:
1995
--------------
(in thousands)
TRAK East at Sunflower--simulcast racing
Pari-mutuel handle:
Greyhounds................................................ $10,871
Horses.................................................... 29,600
-------
$40,471
=======
Pari-mutuel commission:
Greyhounds................................................ $ 2,342
Horses.................................................... 5,742
-------
$ 8,084
=======
F-36
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Turf Paradise accepts simulcasts of live races from other tracks
concurrently with live on-track racing as well as operating as a simulcast site
for Prescott Downs between live meets. Turf Paradise also accepts simulcast
signals on the two dark days (days without live racing) a week during the live
on-track meet.
1997 1996 1995
------- ------- -------
(in thousands)
Turf Paradise--simulcast racing
Pari-mutuel handle all meets........................... $60,493 $55,814 $55,093
Pari-mutuel commissions all meets...................... 5,020 4,768 3,909
Note 10--Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 Accounting for Income Taxes, whereby deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
The composition of the Company's income tax expense for the years ended
December 31, 1997, 1996 and 1995 was as follows:
Current Deferred Total
------- -------- ------
(in thousands)
Year ended December 31, 1997:
U.S. Federal...................................... $(1,616) $ 6,972 $5,356
State............................................. (698) 1,192 494
------- ------- ------
$(2,314) $ 8,164 $5,850
======= ======= ======
Year ended December 31, 1996:
U.S. Federal...................................... $ 4,341 $(1,681) $2,660
State............................................. (3,293) 4,092 799
------- ------- ------
$ 1,048 $ 2,411 $3,459
======= ======= ======
Year ended December 31, 1995:
U.S. Federal...................................... $ 0 $ 473 $ 473
State............................................. 42 178 220
------- ------- ------
$ 42 $ 651 $ 693
======= ======= ======
The following table reconciles the Company's income tax expense (based on
its effective tax rate) to the federal statutory tax rate of 34%:
1997 1996 1995
------ ------ -----
(in thousands)
Income (loss) before income tax expense, at the
statutory rate.................................... $4,935 $ (269) $(159)
Employee meals................................... 192 0 0
Goodwill amortization............................ 317 195 72
Political and lobbying costs..................... 246 291 353
State income taxes, net of federal tax benefits.. 494 800 145
Other non-deductible expenses.................... (334) 105 260
Additional provisions............................ 0 2,337 22
------ ------ -----
Income tax expense................................. $5,850 $3,459 $ 693
====== ====== =====
F-37
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, and 1996, the tax effects of
temporary differences that gave rise to significant portions of the deferred
tax assets and deferred tax liabilities are presented below, along with a
summary of activity in the valuation allowance.
1997 1996
-------- --------
(in thousands)
Current deferred tax assets:
Workers' compensation insurance reserve.................... $ 790 $ 790
General liability insurance reserve........................ 1,012 690
Legal accrual.............................................. 58 58
Write off of investment in Sunflower....................... 3,111 3,111
Development costs.......................................... 0 0
Lawsuit settlement......................................... 1,104 1,104
Vacation and sick pay accrual.............................. 872 270
Bad debt allowance......................................... 528 437
Other...................................................... 1,999 435
-------- --------
Current deferred tax assets................................ 9,474 6,895
Less valuation allowance................................... (306) (120)
-------- --------
Current deferred tax assets................................ 9,168 6,775
Current deferred tax liabilities:
Business insurance and other............................... (1,050) (353)
-------- --------
Net current deferred tax assets............................ $ 8,118 $ 6,422
======== ========
Non-current deferred tax assets:
Net operating loss carryforwards........................... $ 5,489 $ 0
General business investment tax credits.................... 828 36
Alternative minimum tax credits............................ 3,946 1,244
Los Angeles revitalization zone tax credits................ 11,798 9,299
Boomtown Merger costs...................................... 2,406 0
Capital loss divestiture of Boomtown Las Vegas............. 3,147 0
Other...................................................... 2,717 42
-------- --------
Non-current deferred tax assets............................ 30,331 10,621
Less valuation allowance................................... (13,524) (5,511)
-------- --------
Non-current deferred tax assets............................ 16,807 5,110
-------- --------
Non-current deferred tax liabilities:
Expansion plans............................................ (400) (400)
Los Angeles revitalization zone accelerated write-off...... (461) (461)
Excess book value over tax basis of acquired assets........ (4,048) 0
Depreciation and amortization.............................. (17,382) (10,580)
Other...................................................... (826) (2,734)
-------- --------
Non-current deferred tax liabilities....................... (23,117) (14,175)
-------- --------
Net non-current deferred tax liabilities................... $ (6,310) $ (9,065)
======== ========
The Company is located in the Los Angeles revitalization tax zone and is
entitled to special state of California income tax credits related to sales tax
paid on operating materials and supplies, on construction assets and wages paid
to staff who reside within the zone. With the construction of the Hollywood
Park-Casino and Crystal Park, the Company earned substantial tax credits
related to sales tax paid on the assets acquired and on wages paid to
construction employees.
F-38
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31,
--------------
1997 1996
------- ------
(in thousands)
Valuation allowance at beginning of period.................. $ 5,632 $5,330
Valuation allowance for Boomtown NOL carryforwards and tax
credits.................................................... 5,699 0
Los Angeles revitalization zone tax credit.................. 2,499 302
------- ------
Valuation allowance at end of period........................ $13,830 $5,632
======= ======
As of December 31, 1997, the Company had federal net operating loss ("NOL")
and capital loss ("CL") carryforwards of approximately $17,800,000, and
$8,600,000, respectively, comprised principally of NOL carryforwards acquired
in the Boomtown Merger, and CL carryforwards resulting from the disposition of
Boomtown's Las Vegas property. The NOL carryforwards expire on various dates
through 2012, and the CL carryforwards expire on various dates through 2002. In
addition, the Company has approximately $400,000 of general business tax
credits, comprised principally of FICA credits, and approximately $3,800,000 of
alternative minimum tax credits available to reduce future federal income
taxes. These tax credits generally cannot reduce federal taxes paid below the
amount of alternative minimum tax. The general business tax credits expire in
2000. The alternative minimum tax credits do not expire.
Under several provisions of the Internal Revenue Code (the "Code") and the
regulations promulgated thereunder, the utilization of NOL, CL and tax credit
carryforwards to reduce tax liability is restricted under certain
circumstances. Events which cause such a limitation include, but are not
limited to, certain changes in the ownership of a corporation. The Boomtown
Merger caused such a change in ownership with respect to Boomtown. As a result,
the Company's use of approximately $14,800,000 of Boomtown's NOL carryforwards,
$1,400,000 of Boomtown's CL carryforwards, and $3,400,000 of Boomtown's tax
credit carryforwards is subject to certain limitations imposed by Sections 382
and 383 of the Code and by the separate return limitation year rules of the
consolidated return regulations. These limitations restrict the amount of such
carryforwards that may be used by the Company in any taxable year and,
consequently, are expected to defer the Company's use of a substantial portion
of such carryforwards and may ultimately prevent the Company's use of a portion
thereof. Therefore, a valuation allowance has been recorded related to the
Boomtown carryforwards.
For California tax purposes, as of December 31, 1997, the Company also had
approximately $11,700,000 of Los Angeles Revitalization Zone ("LARZ") tax
credits. The LARZ tax credits can only be used to reduce certain California tax
liability and cannot be used to reduce federal tax liability. A valuation
allowance has been recorded with respect to the LARZ tax credits because the
Company may not generate enough income subject to California tax to utilize the
LARZ tax credits before they expire.
Note 11--Stockholders' Equity
On June 30, 1997, the Company acquired Boomtown and each share of Boomtown
common stock was converted into the right to receive 0.625 of a share of
Hollywood Park's common stock. Approximately 5,362,850 net shares of Hollywood
Park common stock were issued. In connection with the Boomtown Merger, the
Company purchased and retired 446,491 shares of Hollywood Park common stock
received by a former Boomtown shareholder.
During 1996 the Company announced its intention to repurchase and retire up
to 2,000,000 shares of its common stock on the open market or in negotiated
transactions. As of December 31, 1996, the Company had repurchased and retired
(with the last purchase in 1996 made on November 13, 1996) 222,300 common
shares at a cost of approximately $1,962,000.
F-39
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12--Lease Obligations
The Company leases certain equipment for use in gaming and racing operations
and general office equipment. Minimum lease payments required under operating
leases that have initial terms in excess of one year as of December 31, 1997
are as follows:
(in thousands)
1998..................................... $1,870
1999..................................... 1,104
2000..................................... 422
2001..................................... 380
2002..................................... 366
Thereafter............................... 529
Total rent expense for these long term lease obligations for the years ended
December 31, 1997, 1996 and 1995 was $2,453,000, $1,378,000, and $1,318,000,
respectively.
Note 13--Retirement Plans
As of January 31, 1997, Hollywood Park terminated its Pension Plan, which
was a non-contributory defined benefit Pension Plan covering certain employees
of Hollywood Park, Inc. and Hollywood Park Operating Company. Pension Plan
participants' accrued Pension Plan benefits were frozen as of September 1,
1996, except for certain retained participants (participants who, because of
legal requirements, including the provisions of the National Labor Relations
Act, were represented by a collective bargaining agent), whose accrued Pension
Plan benefits were frozen as of December 31, 1996. The funds accumulated under
the Pension Plan were distributed to the Pension Plan participants, and no
Pension Plan assets were paid to the Company. During 1996, the Pension Plan was
subject to the full funding limitation and thus no contributions were made.
Retirement Plans Funded Status
December 31,
-------------
1997 1996
----- -------
(in
thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$2,627,000 at December 31, 1996.............................. $0 $ 2,627
===== =======
Projected benefit obligation for service rendered to date....... $0 $ 2,627
Less Pension Plan assets at fair value.......................... 0 4,436
Less Pension Plan contribution.................................. 0 0
----- -------
Pension Plan assets in excess of projected benefit obligation... 0 1,809
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions.................. 0 (1,052)
Unrecognized net asset being recognized over 15 years........... 0 (452)
----- -------
Pension Plan asset.............................................. $0 $ 305
===== =======
Net pension expense--Service cost............................... $0 $ 698
Net pension expense--Interest cost.............................. 0 325
Actual return on assets......................................... 0 (784)
Net amortization and deferral................................... 0 255
----- -------
Net periodic pension cost....................................... $0 $ 494
===== =======
F-40
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The December 31, 1996, reserve liabilities and related asset values for the
annuity contract were not included in the table above, because the Company
executed an agreement with the insurance company holding the annuity contracts
to no longer participate in the annual adjustments to the contract values.
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations was 8.0% at December 31, 1996. The
expected long term rate of return on assets was 8.0% at December 31, 1996.
The Company also contributed to several collectively-bargained multi-
employer pension and retirement plans (covering full and part-time employees)
which are administered by unions, and to a pension plan covering non-union
employees which is administered by an association of race track owners. Amounts
charged to pension cost and contributed to these plans for the years ended
December 31, 1997, 1996 and 1995 totaled $1,842,000, $1,872,000, and
$1,781,000, respectively. Contributions to the collectively-bargained plans
were determined in accordance with the provisions of negotiated labor contracts
and generally are based on the number of employee hours or days worked.
Contributions to the non-union plans are based on the covered employees'
compensation.
Information from the plans administrators was not available to permit the
Company to determine its share of unfunded vested benefits or prior service
liability. It is the opinion of management that no material liability exists.
Effective January 31, 1997, in conjunction with the termination of the
Pension Plan, Hollywood Park elected to terminate its non-qualified
Supplementary Employment Retirement Plan ("SERP"). The SERP was an unfunded
plan, established primarily for the purpose of restoring the retirement
benefits for highly compensated employees that were eliminated by the Internal
Revenue Service in 1994, when the maximum annual earnings allowed for qualified
pension plans was reduced to $150,000 from $235,850. Messers, Hubbard, Finnigan
and Robbins participated in the SERP prior to its termination.
Note 14--Related Party Transactions
In November 1993, Hollywood Park entered into an aircraft time sharing
agreement with R.D. Hubbard Enterprises, Inc. ("Hubbard Enterprises"), which is
wholly owned by Mr. Hubbard. The agreement automatically renews each month
unless written notice of termination is given by either party at least two
weeks before a renewal date. Hollywood Park reimburses Hubbard Enterprises for
expenses incurred as a result of Hollywood Park's use of the aircraft, which
totaled approximately $106,000 in 1997, $120,000 in 1996, and $126,000 in 1995.
In May 1988, Boomtown acquired all of the outstanding stock of Boomtown
Hotel & Casino, Inc. which owns and operates Boomtown Reno for $16,700,000 in
cash (the "1988 Acquisition"). In order to finance the 1988 Acquisition,
including the retirement of existing debt, Boomtown sold equity securities to
Kenneth Rainin and Timothy J. Parrott, and Boomtown Reno entered into various
loan documents with Merrill Lynch Interfunding, Inc. Pursuant to a stock
purchase agreement, Mr. Rainin purchased 2,000 shares of Boomtown preferred
stock and 3,042,000 shares of Boomtown common stock for an aggregate purchase
price of approximately $4,000,000 in cash, and Mr. Parrott purchased 270,738
shares of Boomtown common stock for an aggregate purchase price of $222,000, of
which $1,000 was paid in cash and $221,000 by a promissory note (the "Parrott
Note") secured by a pledge to Boomtown of all of the shares owned by Mr.
Parrott. The Parrott Note, as amended in April 1997, provides that (I) interest
on the Parrott Note, which accrues at a rate of 6.0% per annum, compounded
annually, is payable in arrears on April 7th of each year, commencing April 7,
1998, and (ii) principal is payable in four annual installments beginning April
7, 1998. The Parrott Note was previously amended in November 1994 to provide
that the shares owned by Mr. Parrott would be released from the pledge and
would no longer secure the amounts outstanding under the Parrott Note.
Hollywood Park notes
F-41
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
that the interest rate of 6% under the amended Parrott Note is less than
Hollywood Park's current borrowing rate. However, this interest rate was in
effect under the original version of the Parrott Note executed in 1988 prior to
Boomtown's public offering and Hollywood Park's subsequent acquisition of
Boomtown.
With the exception of the interest rate on the Parrott Note, Hollywood Park
believes that the terms of the following transactions were at least as
favorable as could have been obtained by Hollywood Park from third parties in
arms length transactions.
Note 15--Stock Option Plan
In 1996, the shareholders of the Company adopted the 1996 Stock Option Plan
(the "1996 Plan"), which provides for the issuance of up to 900,000 shares.
Except for the provisions governing the number of shares issuable under the
1996 Plan and except for provisions which reflect changes in tax and securities
laws, the provisions of the 1996 Plan are substantially similar to the
provision of the prior plan adopted in 1993. The 1996 Plan is administered and
terms of option grants are established by the Board of Directors' Compensation
Committee. Under the terms of the 1996 Plan, options alone or coupled with
stock appreciation rights may be granted to selected key employees, directors,
consultants and advisors of the Company. Options become exercisable ratably
over a vesting period as determined by the Compensation Committee and expire
over terms not exceeding ten years from the date of grant, one month after
termination of employment, or six months after the death or permanent
disability of the optionee. The purchase price for all shares granted under the
1996 Plan shall be determined by the Compensation Committee, but in the case of
incentive stock options, the price will not be less than the fair market value
of the common stock at the date of grant. On April 26, 1996, the Company
amended the non-qualified stock option agreements issued through this date, to
lower the per share price of the outstanding options to $10.00. On May 19,
1995, the Company amended the non-qualified stock option agreements issued
through this date, to reflect the substantial decline in the fair market value
of the common stock, lowering the per share price of the outstanding options to
$13.00.
As of December 31, 1997, all of the 625,000 shares eligible for issuance
under the 1993 Plan had either been issued or were subject to outstanding
options, and of the 900,000 shares eligible for issuance under the 1996 Plan,
40,000 were subject to outstanding options. In addition, 1,008,454 shares of
Hollywood Park common stock were issuable upon exercise of options granted
before the Boomtown Merger under Boomtown's 1990 Stock Option Plan and the 1992
Director Option Plan, these options were assumed by Hollywood Park in the
Boomtown Merger.
The following table summarizes information related to shares under option
and shares available for grant under the Plan.
1997 1996 1995
--------- --------- -------
Options outstanding at beginning of year.... 622,500 249,000 235,000
Options granted during the year............. 261,000 413,500 15,000
Options expired or forfeited during the
year....................................... (26,001) (40,000) (1,000)
--------- --------- -------
Options outstanding at end of year.......... 857,499 622,500 249,000
========= ========= =======
Shares available for issuance under the 1993
Plan....................................... 625,000 625,000 625,000
Shares available for issuance under the 1996
Plan....................................... 900,000 900,000 0
--------- --------- -------
Total shares available for issuance....... 1,525,000 1,525,000 625,000
========= ========= =======
Per share price of outstanding options
issued in prior year....................... $ 10.00 $ 10.00 $ 13.00
Per share price of outstanding options
issued in prior year....................... $ 11.50 $ 10.00 $ 13.25
Per share price of outstanding options
issued in current year..................... $ 14.75 $ 11.50 --
Number of shares subject to exercisable
options at end of year..................... 696,813 188,332 128,000
F-42
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16--Commitments and Contingencies
On August 6, 1997, Hollywood Park and Hollywood Park Operating Company, as
co-obligors, issued $125,000,000 of Notes (as previously discussed). The Notes
are fully and unconditionally, jointly and severally, guaranteed on a senior
subordinated basis by all of Hollywood Park's material subsidiaries.
Note 17--Unaudited Quarterly Information
The following is a summary of unaudited quarterly financial data for the
years ended December 31, 1997 and 1996:
1997
--------------------------------
Dec. Sept. June
31, 30, 30, Mar. 31,
------- ------- ------- --------
(in thousands, except per share
data)
Revenues................................. $89,779 $85,210 $46,324 $ 26,815
======= ======= ======= ========
Net income (loss)........................ $ 1,551 $ 2,411 $ 5,603 $ (895)
======= ======= ======= ========
Net income (loss) available to (allocated
to) common shareholders................. $ 1,551 $ 1,853 $ 5,122 $ (1,376)
======= ======= ======= ========
Per common share:
Net income (loss)--basic............... $ 0.06 $ 0.08 $ 0.28 $ (0.07)
======= ======= ======= ========
Net income (loss)--diluted............. $ 0.06 $ 0.08 $ 0.27 $ (0.07)
======= ======= ======= ========
Cash dividends........................... $ 0.00 $ 0.00 $ 0.00 $ 0.00
======= ======= ======= ========
1996
--------------------------------
Dec. Sept. June
31, 30, 30, Mar. 31,
------- ------- ------- --------
(in thousands, except per share
data)
Revenues................................. $38,698 $30,247 $46,427 $ 27,853
======= ======= ======= ========
Net income (loss)........................ $ 3,277 $ 603 $ 5,249 $(13,378)
======= ======= ======= ========
Net income (loss) available to (allocated
to) common shareholders................. $ 2,795 $ 122 $ 4,768 $(13,859)
======= ======= ======= ========
Per common share:
Net income (loss)--basic............... $ 0.15 $ 0.01 $ 0.26 $ (0.74)
======= ======= ======= ========
Net income (loss)--diluted............. $ 0.15 $ 0.01 $ 0.25 $ (0.74)
======= ======= ======= ========
Cash dividends......................... $ 0.00 $ 0.00 $ 0.00 $ 0.00
======= ======= ======= ========
The primary reason for the loss for the quarter ended March 31, 1996, was
the $11,346,000 write off of the Company's investment in Sunflower.
Historically, the three months ended March 31, produce a loss, because the
Company does not operate live on-track racing at Hollywood Park Race Track.
Note 18--Consolidating Condensed Financial Information
Hollywood Park's subsidiaries (excluding Sunflower and other inconsequential
subsidiaries) have fully and unconditionally guaranteed the payment of all
obligations under the Hollywood Park 9.5% Senior Subordinated Notes due 2007.
The following is the consolidating financial information for the co-obligors
and their respective subsidiaries:
F-43
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hollywood Park, Inc.
Consolidating Condensed Financial Information
As of and For the Years Ended December 31, 1997, 1996 and 1995
Hollywood (b) (c)
Hollywood Park (a) Majority Wholly Consolidating
Park, Inc. Operating Wholly Owned Owned Owned Non- and Hollywood
(Parent Co. Guarantor Guarantor Guarantor Eliminating Park, Inc.
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------ ------------ ------------ ------------- ------------
(in thousands)
As of and for the year
ended Dec. 31, 1997
Balance Sheet
Current assets.......... $ 19,844 $ 8,568 $ 25,074 $ 6,720 $ 0 $ 0 $ 60,206
Property, plant and
equipment, net......... 68,515 23,753 140,105 68,293 0 0 300,666
Other non-current
assets................. 22,306 0 29,320 7,611 0 (1,080) 58,157
Investment in
subsidiaries........... 126,121 15,132 116,020 0 0 (257,273) 0
Inter-company........... 125,210 148,380 122,035 0 0 (395,625) 0
-------- --------- --------- ------- --- --------- --------
$361,996 $ 195,833 $ 432,554 $82,624 $ 0 $(653,978) $419,029
======== ========= ========= ======= === ========= ========
Current liabilities..... $ 16,890 $ 14,232 $ 19,583 $ 6,612 $ 0 $ 0 $ 57,317
Notes payable, long
term................... 2,406 125,256 1,936 2,504 0 0 132,102
Other non-current
liabilities............ 4,753 5,202 83 0 0 (3,728) 6,310
Inter-company........... 146,145 21,589 178,448 49,443 0 (395,625) 0
Minority interest....... 0 0 0 0 0 1,946 1,946
Equity.................. 191,802 29,554 232,504 24,065 0 (256,571) 221,354
-------- --------- --------- ------- --- --------- --------
$361,996 $ 195,833 $ 432,554 $82,624 $ 0 $(653,978) $419,029
======== ========= ========= ======= === ========= ========
Statement of Operations
Revenues:
Gaming................. $ 50,820 $ 0 $ 58,622 $28,217 $ 0 $ 0 $137,659
Racing................. 0 39,930 28,914 0 0 0 68,844
Food and beverage...... 4,659 0 13,483 1,752 0 0 19,894
Equity in
subsidiaries.......... 13,963 3,735 (43) 0 0 (17,655) 0
Inter-company.......... 0 0 4,823 0 0 (4,823) 0
Other.................. 4,601 1,808 13,789 1,533 0 0 21,731
-------- --------- --------- ------- --- --------- --------
74,043 45,473 119,588 31,502 0 (22,478) 248,128
Expenses:
Gaming................. 28,353 0 32,370 14,010 0 0 74,733
Racing................. 0 17,822 12,482 0 0 0 30,304
Food and beverage...... 9,658 0 13,784 2,303 0 0 25,745
Administrative and
other................. 18,282 14,536 33,277 8,792 0 0 74,887
REIT restructuring..... 2,483 0 0 0 0 0 2,483
Depreciation and
amortization.......... 4,632 3,804 6,229 3,459 0 33 18,157
-------- --------- --------- ------- --- --------- --------
63,408 36,162 98,142 28,564 0 33 226,309
-------- --------- --------- ------- --- --------- --------
Operating income
(loss)................. 10,635 9,311 21,446 2,938 0 (22,511) 21,819
Interest expense........ 1,789 5,368 (37) 182 0 0 7,302
Inter-company interest.. 0 0 2,244 2,579 0 (4,823) 0
-------- --------- --------- ------- --- --------- --------
Income (loss) before
minority interests and
taxes.................. 8,846 3,943 19,239 177 0 (17,688) 14,517
Minority interests...... 0 0 0 0 0 (3) (3)
Income tax expense...... 4,124 0 1,726 0 0 0 5,850
-------- --------- --------- ------- --- --------- --------
Net income (loss)....... $ 4,722 $ 3,943 $ 17,513 $ 177 $ 0 $ (17,685) $ 8,670
======== ========= ========= ======= === ========= ========
Statement of Cash Flows:
Net cash provided by
(used in) operating
activities............ $ 19,559 $(117,960) $ 129,260 $ 5,250 $ 0 $ (17,655) $ 18,454
Net cash provided by
(used in) investing
activities............ 14,747 (3,139) (23,516) (4,328) 0 0 (16,236)
Net cash provided by
(used in) financing
activities............ 475 124,975 (114,345) (2,373) 0 877 9,609
F-44
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hollywood Park, Inc.
Consolidating Condensed Financial Information
As of and For the Years Ended December 31, 1997, 1996 and 1995
Hollywood (b) (c)
Hollywood Park (a) Majority Wholly Consolidating
Park, Inc. Operating Wholly Owned Owned Owned Non- and Hollywood
(Parent Co. Guarantor Guarantor Guarantor Eliminating Park, Inc.
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------ ------------ ------------ ------------- ------------
(in thousands)
As of and for the year
ended Dec. 31, 1996
Balance Sheet
Current assets.......... $ 23,522 $ 7,362 $ 9,646 $ 429 $ 0 $ 0 $ 40,959
Property, plant and
equipment, net......... 70,443 24,353 12,786 23,253 0 0 130,835
Other non-current
assets................. 23,322 0 5,108 5,662 0 0 34,092
Investment in
subsidiaries........... 28,723 45,432 23,852 0 0 (98,007) 0
Inter-company........... 72,099 11,386 0 0 0 (83,485) 0
-------- ------- ------- ------- ------- --------- --------
$218,109 $88,533 $51,392 $29,344 $ 0 $(181,492) $205,886
======== ======= ======= ======= ======= ========= ========
Current liabilities..... $ 16,324 $ 7,032 $11,807 $ 201 $ 0 $ 0 $ 35,364
Notes payable, long
term................... 0 282 0 0 0 0 282
Other non-current
liabilities............ 3,859 5,206 0 0 0 0 9,065
Inter-company........... 39,851 50,479 7,677 0 0 (98,007) 0
Minority interest....... 0 0 0 0 0 3,015 3,015
Equity.................. 158,075 25,534 31,908 29,143 0 (86,500) 158,160
-------- ------- ------- ------- ------- --------- --------
$218,109 $88,533 $51,392 $29,344 $ 0 $(181,492) $205,886
======== ======= ======= ======= ======= ========= ========
Statement of Operations
Revenues:
Gaming................. $ 50,272 $ 0 $ 0 $ 445 $ 0 $ 0 $ 50,717
Racing................. 0 41,423 28,568 0 1,317 0 71,308
Food and beverage...... 4,956 0 8,533 0 458 0 13,947
Equity in
subsidiaries.......... 1,751 3,408 0 0 0 (5,159) 0
Other.................. 4,993 1,915 338 0 7 0 7,253
-------- ------- ------- ------- ------- --------- --------
61,972 46,746 37,439 445 1,782 (5,159) 143,225
-------- ------- ------- ------- ------- --------- --------
Expenses:
Gaming................. 27,249 0 0 0 0 0 27,249
Racing................. 0 17,999 11,903 0 265 0 30,167
Food and beverage...... 10,930 0 8,235 0 408 0 19,573
Administrative and
other................. 18,316 15,059 9,556 1 1,030 0 43,962
Write off of investment
in Sunflower.......... 11,412 0 0 0 0 0 11,412
Depreciation and
amortization.......... 4,665 3,645 1,479 319 536 51 10,695
-------- ------- ------- ------- ------- --------- --------
72,572 36,703 31,173 320 2,239 51 143,058
-------- ------- ------- ------- ------- --------- --------
Operating income
(loss)................. (10,600) 10,043 6,266 125 (457) (5,210) 167
Interest expense........ 134 27 0 0 781 0 942
-------- ------- ------- ------- ------- --------- --------
Income (loss) before
minority interests and
taxes.................. (10,734) 10,016 6,266 125 (1,238) (5,210) (775)
Minority interests...... 0 0 0 0 0 15 15
Income tax expense...... 3,421 0 38 0 0 0 3,459
-------- ------- ------- ------- ------- --------- --------
Net income (loss)....... $(14,155) $10,016 $ 6,228 $ 125 $(1,238) $ (5,225) $ (4,249)
======== ======= ======= ======= ======= ========= ========
Statement of Cash Flows:
Net cash provided by
(used in) operating
activities............ $ (6,205) $ 4,956 $ 2,426 $ 200 $(3,588) $ 15,888 $ 13,677
Net cash used in
investing activities.. (963) (5,992) (354) 0 0 (12,584) (19,893)
Net cash used in
financing activities.. (4,245) (23) 0 0 0 0 (4,268)
F-45
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hollywood Park, Inc.
Consolidating Condensed Financial Information
As of and For the Years Ended December 31, 1997, 1996 and 1995
Hollywood (b) (c)
Hollywood Park (a) Majority Wholly Consolidating
Park, Inc. Operating Wholly Owned Owned Owned Non- and Hollywood
(Parent Co. Guarantor Guarantor Guarantor Eliminating Park, Inc.
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------ ------------ ------------ ------------- ------------
(in thousands)
As of and for the year
ended Dec. 31, 1995
Statement of Operations
Revenues:
Gaming................. $ 26,656 $ 0 $ 0 $ 0 $ 0 $ 0 $ 26,656
Racing................. 0 42,648 27,542 0 6,846 0 77,036
Food and beverage...... 7,422 0 9,489 0 2,872 0 19,783
Equity in
subsidiaries.......... (3,610) 1,983 0 0 0 1,627 0
Other.................. 2,420 4,176 444 0 57 0 7,097
-------- ------- ------- --- ------- ------- --------
32,888 48,807 37,475 0 9,775 1,627 130,572
-------- ------- ------- --- ------- ------- --------
Expenses:
Gaming................. 5,291 0 0 0 0 0 5,291
Racing................. 0 16,745 12,830 0 1,385 0 30,960
Food and beverage...... 12,964 0 9,288 0 2,497 0 24,749
Administrative and
other................. 16,411 17,746 9,184 0 5,306 0 48,647
Lawsuit settlement..... 6,088 0 0 0 0 0 6,088
Depreciation and
amortization.......... 3,887 3,236 1,586 0 2,468 207 11,384
-------- ------- ------- --- ------- ------- --------
44,641 37,727 32,888 0 11,656 207 127,119
-------- ------- ------- --- ------- ------- --------
Operating income
(loss)................. (11,753) 11,080 4,587 0 (1,881) 1,420 3,453
Interest expense........ 172 29 30 0 3,691 0 3,922
-------- ------- ------- --- ------- ------- --------
Income (loss) before
taxes.................. (11,925) 11,051 4,557 0 (5,572) 1,420 (469)
Income tax expense...... 510 0 182 0 1 0 693
-------- ------- ------- --- ------- ------- --------
Net income (loss)....... $(12,435) $11,051 $ 4,375 $ 0 $(5,573) $ 1,420 $ (1,162)
======== ======= ======= === ======= ======= ========
Statement of Cash Flows:
Net cash provided by
(used in) operating
activities............ $ 2,575 $11,864 $ 2,794 $ 0 $ 1,431 $ 1,627 $ 20,291
Net cash provided by
(used in) investing
activities............ (40,218) (5,371) (1,831) 0 0 14,498 (32,922)
Net cash provided by
(used in) financing
activities............ 1,433 21 (1,913) 0 (1,626) 0 (2,085)
- -------
(a) The following wholly owned guarantor subsidiaries were included in each
period presented: Turf Paradise, Inc., Hollywood Park Food Services, Inc.,
and Hollywood Park Fall Operating Company. As of and for the year ended
December 31, 1997, the following wholly owned guarantor subsidiaries were
also included: HP Yakama, Inc., Boomtown, Inc., Boomtown Hotel & Casino,
Inc., Louisiana--I Gaming, HP/Compton, Inc. (included as of October 1996)
and Louisiana Gaming Enterprises, Inc. Due to the June 30, 1997, Boomtown
Merger being accounted for under the purchase method of accounting for a
business combination, the financial results as of and for the year ended
December 31, 1997, included Boomtown, Inc.'s, Boomtown Hotel & Casino,
Inc.'s, Louisiana--I Gaming's, and Louisiana Gaming Enterprises, Inc.'s
financial results for the six months ended December 31, 1997, only.
(b) The Company's majority owned guarantor subsidiaries are Crystal Park Hotel
and Casino Development Company, LLC (which as of December 31, 1997, became
a wholly owned subsidiary) and Mississippi--I Gaming, L.P., (which was
added as of the June 30, 1997, Boomtown Merger). As a result of the
Boomtown Merger, Mississippi--I Gaming, L.P.'s financial results are
included for the six months ended December 31, 1997, only.
(c) Sunflower Racing, Inc. and its wholly owned subsidiary, SR Food and
Beverage, Inc., were the Company's only wholly owned non-guarantor
subsidiaries with material financial activity during the periods presented.
As of March 31, 1996, the financial results of these two wholly owned non-
guarantor subsidiaries were no longer consolidated with the Company's
financial results, due to the write off of Hollywood Park's investment in
these subsidiaries. All other wholly owned non-guarantor subsidiaries are
either empty companies established for potential development projects that
were subsequently abandoned, or the subsidiary's financial activity was
immaterial.
F-46
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Allowance for bad debts:
Balance as of December 31, 1994.................................. $ (159)
Charges to expense............................................. (2,294)
Write offs..................................................... 612
-------
Balance as of December 31, 1995.................................. (1,841)
Charges to expense(a).......................................... (783)
Write offs..................................................... 1,535
-------
Balance as of December 31, 1996.................................. (1,089)
Add Boomtown balance as of June 30, 1997(b).................... (225)
Charges to expense............................................. (189)
Write offs..................................................... 754
-------
Balance as of December 31, 1997.................................. $ (749)
=======
- --------
(a) Hollywood Park assumed the bad debt allowance related to the Hollywood
Park-Casino gaming business in the November 17, 1995, acquisition of PCM.
(b) Hollywood Park acquired Boomtown as of June 30, 1997.
F-47
HOLLYWOOD PARK, INC.
CALCULATION OF EARNINGS PER SHARE
For the three months ended December 31,
------------------------------------------------
Basic Diluted
----------------------- -----------------------
1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- -------
(in thousands, except per share data)
Average number of common
shares outstanding.......... 26,209 18,365 18,486 26,705 18,365 18,486
Average common shares due to
assumed conversion of
convertible preferred
shares...................... 0 0 0 0 2,291 2,291
------- ------- ------- ------- ------- -------
Total shares................. 26,209 18,365 18,486 26,705 20,656 20,777
======= ======= ======= ======= ======= =======
Net income................... $ 1,551 $ 3,277 $ 212 $ 1,551 $ 3,277 $ 212
Less dividend requirements on
convertible preferred
shares...................... 0 482 482 0 0 0
------- ------- ------- ------- ------- -------
Net income (loss) available
to (allocated to) common
shareholders................ $ 1,551 $ 2,795 $ (270) $ 1,551 $ 3,277 $ 212
======= ======= ======= ======= ======= =======
Net income (loss) per share.. $ 0.06 $ 0.15 $ (0.01) $ 0.06 $ 0.16 $ 0.01
======= ======= ======= ======= ======= =======
For the years ended December 31,
--------------------------------------------------
Basic Diluted
------------------------ ------------------------
1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- -------
(in thousands, except per share data)
Average number of common
shares outstanding........ 22,010 18,505 18,399 22,340 18,505 18,399
Average common shares due
to assumed conversion of
convertible preferred
shares.................... 0 0 0 0 2,291 2,291
------- ------- ------- ------- ------- -------
Total shares............... 22,010 18,505 18,399 22,340 20,796 20,690
======= ======= ======= ======= ======= =======
Net income (loss).......... $ 8,670 $(4,249) $(1,162) $ 8,670 $(4,249) $(1,162)
Less dividend requirements
on convertible preferred
shares.................... 1,520 1,925 1,925 1,520 0 0
------- ------- ------- ------- ------- -------
Net income (loss)
attributable to (allocated
to) common shareholders... $ 7,150 $(6,174) $(3,087) $ 7,150 $(4,249) $(1,162)
======= ======= ======= ======= ======= =======
Net income (loss) per
share..................... $ 0.33 $ (0.33) $ (0.17) $ 0.32 $ (0.20) $ (0.06)
======= ======= ======= ======= ======= =======
- --------
Note: As of August 28, 1997, the Company's 2,749,900 outstanding depositary
shares were converted into 2,291,492 shares of the Company's common stock.
F-48
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September
30, December 31,
1998 1997
------------ ------------
(unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents........................ $ 25,295,310 $ 20,986,510
Restricted marketable securities................. 1,599,185 10,629,405
Other current assets............................. 7,419,491 8,124,872
------------ ------------
Total current assets............................. 34,313,986 39,740,787
Property and equipment, net...................... 290,070,366 263,993,452
Other long term assets........................... 63,153,166 68,970,578
------------ ------------
$387,537,518 $372,704,817
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities................................ $ 56,129,525 $ 51,031,097
Other long term liabilities and minority interest.. 8,295,675 8,748,212
Long term debt, net of current maturities.......... 260,907,007 253,471,219
Shareholders' Equity:
Common stock, $0.01 par, 50,000,000 shares
authorized, 35,722,124 issued and outstanding... 357,221 357,221
Undesignated stock, 2,500,000 shares authorized,
none issued..................................... 0 0
Additional paid in capital....................... 67,122,856 67,122,852
Retained deficit................................. (5,182,721) (7,762,270)
Less unearned compensation....................... (92,045) (263,514)
------------ ------------
62,205,311 59,454,289
------------ ------------
$387,537,518 $372,704,817
============ ============
See notes to condensed consolidated financial statements.
F-49
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
September 30,
------------------------
1998 1997
----------- -----------
(unaudited)
Revenues:
Casino............................................ $72,680,370 $62,680,205
Food and beverage................................. 2,634,965 2,404,469
Rooms............................................. 1,387,192 328,578
Other operating income............................ 1,188,888 1,081,882
----------- -----------
Total revenues.................................. 77,891,415 66,495,134
----------- -----------
Costs and expenses:
Casino............................................ 36,807,824 30,658,015
Food and beverage................................. 3,300,242 1,767,142
Rooms............................................. 674,773 140,554
Other operating costs and expenses................ 778,737 1,017,571
Advertising and marketing......................... 8,627,711 7,112,014
General and administrative........................ 6,011,762 6,181,399
Hollywood Park/Casino Magic merger costs.......... 4,838,200 0
Property operation, maintenance and energy cost... 3,100,368 2,625,158
Rents, property taxes and insurance............... 2,273,863 1,906,446
Development expenses.............................. 211,010 56,750
Depreciation and amortization..................... 5,710,806 4,905,523
----------- -----------
Total costs and expenses........................ 72,335,296 56,370,572
----------- -----------
Income from operations.............................. 5,556,119 10,124,562
----------- -----------
Other (Income) Expenses:
Equity loss from unconsolidated subsidiary........ 104,929 176,005
Interest expense, net............................. 8,452,613 7,954,345
Loss (gain) from sale of assets................... 154,733 (1,337,687)
Other............................................. (1,111,410) (57,828)
----------- -----------
Total other expense............................. 7,600,865 6,734,835
----------- -----------
Income (loss) before income taxes and minority
interest of subsidiary............................. (2,044,746) 3,389,727
Income tax expense.................................. 341,034 0
Minority interest................................... 230,189 715,023
----------- -----------
Net income (loss)................................... $(2,615,969) $ 2,674,704
=========== ===========
Net income (loss) per common share:
Basic............................................. $ (0.07) $ 0.07
=========== ===========
Diluted........................................... $ (0.07) $ 0.07
=========== ===========
Average shares and equivalents outstanding:
Basic............................................. 35,722,124 35,654,174
=========== ===========
Diluted........................................... 35,722,124 35,735,741
=========== ===========
See notes to condensed consolidated financial statements.
F-50
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended
September 30,
-------------------------
1998 1997
------------ ------------
(unaudited)
Revenues:
Casino........................................... $210,889,320 $186,411,356
Food and beverage................................ 7,738,947 7,391,186
Rooms............................................ 2,948,279 1,103,592
Other operating income........................... 3,812,725 3,327,423
------------ ------------
Total revenues................................. 225,389,271 198,233,557
------------ ------------
Costs and expenses:
Casino........................................... 100,672,992 88,899,256
Food and beverage................................ 9,033,811 8,364,166
Rooms............................................ 1,355,063 509,219
Other operating costs and expenses............... 2,965,292 3,326,192
Advertising and marketing........................ 26,593,631 28,517,336
General and administrative....................... 19,811,647 20,261,984
Hollywood Park/Casino Magic merger costs......... 4,838,200 0
Property operation, maintenance and energy cost.. 8,581,279 8,669,605
Rents, property taxes and insurance.............. 6,724,510 5,866,014
Development expenses............................. 430,858 511,882
Depreciation and amortization.................... 16,058,414 15,258,905
------------ ------------
Total costs and expenses....................... 197,065,697 180,184,559
------------ ------------
Income from operations............................. 28,323,574 18,048,998
------------ ------------
Other (Income) Expenses:
Equity loss from unconsolidated subsidiary....... 349,236 405,066
Interest expense, net............................ 23,432,882 23,703,909
Loss (gain) from sale of assets.................. 154,733 (2,578,231)
Other............................................ 0 (244,461)
------------ ------------
Total other expense............................ 23,936,851 21,286,283
------------ ------------
Income (loss) before income taxes and minority
interest of subsidiary............................ 4,386,723 (3,237,285)
Income tax expense (benefit)....................... 1,453,207 (1,935,000)
Minority interest.................................. 1,081,962 916,535
------------ ------------
Net income (loss).................................. $ 1,851,554 $ (2,218,820)
============ ============
Net income (loss) per common share:
Basic............................................ $ 0.05 $ (0.06)
============ ============
Diluted.......................................... $ 0.05 $ (0.06)
============ ============
Average shares and equivalents outstanding:
Basic............................................ 35,722,124 35,642,780
============ ============
Diluted.......................................... 35,722,124 35,642,780
============ ============
See notes to condensed consolidated financial statements.
F-51
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended
September 30,
--------------------------
1998 1997
------------ ------------
(unaudited)
Cash flows from Operating Activities:
Net income (loss)................................ $ 1,851,554 $ (2,218,828)
Adjustments for non-cash charges................. 31,074,459 14,574,699
Changes in assets and liabilities................ (9,733,526) 5,728,959
------------ ------------
Net Cash Provided by Operating Activities.......... 23,192,487 18,084,830
------------ ------------
Cash Flows from Investing Activities:
Acquisitions of property and equipment........... (33,789,422) (28,996,109)
Proceeds from sale of subsidiary and property and
equipment....................................... 0 19,833,971
Decrease in marketable securities................ 9,030,220 0
Other, net....................................... 2,068,230 145,313
------------ ------------
Net Cash Used in Investing Activities.............. (22,690,972) (9,016,825)
------------ ------------
Cash Flows from Financing Activities:
Principal payments on notes payable and long term
debt............................................ (6,410,856) (12,285,515)
Net proceeds from issuance of long term debt..... 10,270,979 6,514,988
Other, net....................................... (52,837) (346,958)
------------ ------------
Net Cash Provided by (Used in) Financing
Activities........................................ 3,807,286 (6,117,485)
------------ ------------
Net Increase in Cash and Cash Equivalents.......... 4,308,801 2,950,520
Cash and Cash Equivalents, Beginning of Period..... 20,986,510 34,546,166
------------ ------------
Cash and Cash Equivalents, End of Period........... $ 25,295,311 $ 37,496,686
============ ============
Supplemental Cash Flow Information
Cash Paid During the Period for:
Interest (net of amount capitalized)........... $ 21,678,773 $ 25,104,711
Income taxes (net of refunds).................. 0 (6,382,324)
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Property and equipment and other asset
acquisitions included in accounts and
construction payable and accrued expenses....... 6,404,228 1,658,604
Property and equipment financed with long term
debt............................................ 6,142,215 946,004
Common stock grants to officers.................. 0 171,469
See notes to condensed consolidated financial statements.
F-52
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to the Three and Nine Months Ended
September 30, 1998 and 1997 is Unaudited)
1. Summary of significant accounting policies:
Organization and basis of presentation:
Casino Magic Corp. and Subsidiaries is an international gaming company with
operations in Bay Saint Louis, Mississippi ("Casino Magic Bay St. Louis"),
Biloxi, Mississippi ("Casino Magic Biloxi"), Bossier City, Louisiana ("Casino
Magic Bossier"), and the Argentina Province of Neuquen in the cities of Neuquen
City and San Martin de los Andes ("Casino Magic Argentina").
Unless the context requires otherwise, reference in this report to the
"Company" means Casino Magic Corp. and its relevant subsidiaries, and reference
to "Casino Magic" means Casino Magic Corp.
The consolidated financial statements include the accounts of Casino Magic
and its wholly-owned and majority-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements contain all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods. The results of operations for
the interim periods are not necessarily indicative of results of operations for
an entire year. It is suggested that these consolidated financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, and Form 10-Q for June 30, 1998.
Certain reclassifications have been made to 1997 amounts to conform with the
September 30, 1998 presentation.
2. New Accounting Pronouncements
(a) Accounting for Start-Up Costs:
During April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 ("SOP"), "Reporting on the Costs of Start-Up
Activities." The SOP requires costs of start-up activities and organization
costs to be expensed as incurred. The SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. The company has adopted the
SOP.
(b) Accounting for Derivative Instruments and Hedging Activities:
In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16,
F-53
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1998 and thereafter). Statement 133 cannot be applied retroactively. Statement
133 must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998).
The Company's management believes the impact of adopting Statement 133 on
the financial statements is expected to be immaterial.
3. Long Term Debt:
Additions to long-term debt during the first nine months of 1998 consist of
the following:
Ending
Balances at
September 30,
1998
-------------
Notes payable, bank(a)....................................... $2,727,038
Notes payable, equipment contracts(b)........................ $1,842,636
Notes payable, other(c)...................................... $6,931,889
- --------
(a) Consists of one note payable to The Peoples Bank, collateralized by certain
parcels of land, payable in fifty-nine monthly payments of $61,100
including interest at 8.5% through February 2002 with a final balloon
payment of $60,120 in March 2002.
(b) Consists of three notes payable collateralized by equipment. The details of
these notes is as follows: (i) Original balance of $2,021,744 note payable
in twenty-three monthly payments of $92,795, including interest of 10.5%
with final balloon payment at term of note. This note replaces two previous
notes with original balances of $946,005 and $1,075,740. (ii) Original
balance of $57,584.04 note payable in twelve monthly payments of $4,798.67,
including interest of 12%. (iii) Original balance of $239,760 note payable
in twenty-three monthly principal payments of $9,990 including interest at
3% over prime (11.25% at 9/30/98) and a final balloon payment at term of
note.
(c) Consists of six notes payable to Boeing Capital Corp. All notes
collateralized by furniture and equipment used at the 378 room hotel at
Casino Magic Biloxi. The Notes are as follows:
1) Note in the original balance of $4,347,833, payable in forty-seven
monthly installments of $110,523.04 including interest of 10.12% through
April 2002 with a final balloon payment of $112,400 in May 2002.
2) Note in the original balance of $733,516.63, payable in one
installment of $21,616.66 on July 1, 1998, and forty-seven monthly
installments of $18,714.77 including interest at 10.314% through April
2002.
3) Note in the original balance of $391,024.97, payable in one
installment of $2,885.61 on August 1, 1998, and forty-eight installments of
$9,958.37 including interest at 10.2179% through August 2002.
4) Note in the original balance of $328,148.41, payable in one
installment of $1,769.63 on July 1, 1998, and forty-eight monthly
installments of $8,357.07 including interest at 10.2179% through August
2001.
5) Note in the original balance of $559,191,80, payable in forty-eight
monthly installments beginning October 1, 1998 including interest at
9.9384% through September 2002.
6) Progress loan balance of $933,769.16. Interest payable monthly at 3%
above prime rate (11.25% as of 9/30/98).
F-54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Casino Magic Corp.:
We have audited the accompanying consolidated balance sheets of Casino Magic
Corp. (a Minnesota corporation) and subsidiaries (the Company) as of December
31, 1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 financial position of Casino Magic Corp. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana
February 27, 1998
F-55
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
Revenues:
Casino.............................. $246,320,048 $167,153,012 $165,997,836
Food, beverage and rooms............ 10,784,762 8,080,067 8,392,529
Royalty and management fees......... -- 3,099,407 2,224,351
Other Operating revenues............ 4,369,206 1,945,357 1,108,049
------------ ------------ ------------
261,474,016 180,277,843 177,722,765
------------ ------------ ------------
Costs and expenses:
Casino.............................. 118,467,492 74,943,304 69,654,888
Food and beverage................... 10,756,505 7,351,838 6,795,164
Rooms............................... 639,778 1,039,081 1,224,685
Other operating costs and expenses.. 4,292,276 2,807,038 1,333,183
Advertising and marketing........... 36,427,434 20,901,821 25,873,832
General and administrative.......... 26,425,200 24,216,613 28,501,308
Property operation, maintenance and
energy cost........................ 11,210,297 7,433,262 4,057,144
Rents, property taxes and
insurance.......................... 7,891,199 5,991,261 4,314,355
Depreciation and amortization....... 20,246,663 18,346,202 15,768,546
Preopening expenses................. -- 6,554,535 1,818,715
Development expenses................ 562,419 1,849,583 2,228,549
Write-off capitalized costs relating
to inactive developments........... -- -- 11,381,945
------------ ------------ ------------
236,919,263 171,434,538 172,952,314
------------ ------------ ------------
Income from operations................ 24,554,753 8,843,305 4,770,451
Other (income) expense:
Interest expense.................... 34,723,613 25,071,767 17,436,904
Interest capitalized................ (1,963,955) (5,717,494) (867,236)
Interest income..................... (1,375,100) (1,436,468) (803,624)
Loss from unconsolidated
subsidiaries....................... 505,424 26,501,808 112,250
Write-off of capitalized costs
primarily relating to joint
ventures........................... -- -- 2,210,219
Other............................... (1,555,201) 689,221 204,981
------------ ------------ ------------
30,334,781 45,108,834 18,293,494
------------ ------------ ------------
Income (loss) before income taxes and
Minority interest in income of
subsidiary........................... (5,780,028) (36,265,529) (13,523,043)
Income tax benefit.................... (1,935,000) (4,676,182) (3,230,864)
Minority Interest..................... 1,404,180 -- --
------------ ------------ ------------
Net loss.............................. $ (5,249,208) $(31,589,347) $(10,292,179)
============ ============ ============
Net loss per common share:
Basic............................... $ (0.15) $ (0.89) $ (0.31)
============ ============ ============
Diluted............................. $ (0.15) $ (0.89) $ (0.31)
============ ============ ============
Average shares and equivalents
outstanding:
Basic............................... 35,662,616 35,448,068 33,260,904
============ ============ ============
Diluted............................. 35,662,616 35,448,068 33,260,904
============ ============ ============
See notes to consolidated financial statements.
F-56
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
1997 1996
------------ ------------
ASSETS
------
Current assets:
Cash and cash equivalents........................ $ 20,901,510 $ 17,561,512
Restricted Cash.................................. 85,000 16,984,654
Restricted Marketable Securities................. 10,629,405 --
Prepaid expenses................................. 3,330,041 2,844,995
Notes and accounts receivable, net............... 3,781,945 2,889,486
Other current assets............................. 1,012,886 873,676
------------ ------------
Total current assets............................ 39,740,787 41,154,323
------------ ------------
Property and equipment, net........................ 263,993,452 243,692,571
------------ ------------
Other long-term assets:
Notes receivable................................. 3,385,198 4,119,700
Investments in unconsolidated subsidiaries....... 713,035 957,831
Options and land deposits........................ -- 2,282,244
Foreign casino concession agreement, net of
accumulated amortization of $2,846,685 in 1997
and $1,897,790 in 1996.......................... 8,540,055 9,488,950
Deferred gaming license cost, net of accumulated
amortization of $2,013,838 in 1997 and $395,489
in 1996......................................... 38,048,426 38,337,333
Property held for development.................... 525,000 3,040,357
Property held for sale........................... 5,606,265 15,108,541
Debt issuance costs, net of accumulated
amortization of $4,289,382 in 1997 and
$2,506,133 in 1996.............................. 8,957,645 10,195,688
Deposits and other............................... 3,194,954 1,421,979
------------ ------------
Total other long-term assets.................... 68,970,578 84,952,623
------------ ------------
$372,704,817 $369,799,517
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes and contracts payable...................... $ 305,925 $ 4,708,603
Current maturities of long-term debt............. 8,590,945 4,648,638
Accounts Payable................................. 9,323,949 7,945,068
Accrued Expenses................................. 11,522,887 11,320,101
Accrued Interest................................. 9,783,784 8,830,040
Accrued payroll and related benefits............. 7,719,441 8,341,720
Accrued progressive gaming liabilities........... 1,445,257 1,121,623
Other current liabilities........................ 2,338,909 731,018
------------ ------------
Total current liabilities....................... 51,031,097 47,646,811
------------ ------------
Deferred income taxes.............................. -- 266,761
------------ ------------
Other long-term liabilities and minority interest.. 8,748,212 --
------------ ------------
Long-term debt, net of current maturities.......... 253,471,219 258,261,231
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par, 50,000,000 shares,
authorized 35,722,124 issued and outstanding in
1997 and 35,637,083 in 1996 issued and
outstanding..................................... 357,221 356,371
Undesignated stock, 2,500,000 shares authorized,
None issued..................................... -- --
Additional paid-in capital....................... 67,122,852 67,123,702
Retained earnings (deficit)...................... (7,762,270) (2,513,062)
Unrealized holding loss on securities............ -- (850,156)
Less unearned compensation....................... (263,514) (492,141)
------------ ------------
Total shareholders' equity...................... 59,454,289 63,624,714
------------ ------------
$372,704,817 $369,799,517
============ ============
See notes to consolidated financial statements.
F-57
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Additional Foreign
------------------- paid-in currency
Shares Amount capital adjustment
---------- -------- ----------- ----------
Balance at December 31, 1994 29,961,750 $299,618 $41,127,168 --
Amortization of unearned
compensation..................... -- -- -- --
Write-off of unearned
compensation..................... -- -- (1,642,886) --
Stock options granted to executive
officers......................... -- -- 101,563 --
Vested stock grants to executive
officers......................... 16,250 162 (162) --
Net proceeds from exercise of
employee stock options........... 308,564 3,086 376,726 --
Net proceeds from common stock
issued pursuant to Reg. S........ 1,771,000 17,710 8,303,095 --
Stock issued for consultants'
compensation..................... 12,000 120 63,632 --
Stock issued for land............. 3,210,000 32,100 17,758,277 --
Foreign currency translation...... -- -- -- (224,195)
Net loss.......................... -- -- -- --
---------- -------- ----------- --------
Balance at December 31, 1995 35,279,564 $352,796 $66,087,413 (224,195)
Amortization of unearned
compensation..................... -- -- -- --
Stock options granted to executive
officers......................... -- -- 567,188 --
Net proceeds from exercise of
warrants......................... -- -- 500 --
Net proceeds from exercise of
employee and non-employee
director stock options........... 357,519 3,575 453,654 --
Casino One Corp. acquisition...... -- -- 14,947 --
Unrealized Holding Loss on
Securities Available for Sale.... -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- 224,195
Net loss.......................... -- -- -- --
---------- -------- ----------- --------
Balance at December 31, 1996 35,637,083 $356,371 $67,123,702 --
Amortization of unearned
compensation
Vested stock grants to executive
officers......................... 85,041 850 (850)
Available for Sale................ -- -- -- --
Loss on Securities................ -- -- -- --
Net loss.......................... -- -- -- --
Balance at December 31, 1997....... 35,722,124 $357,221 $67,122,852 --
========== ======== =========== ========
See notes to consolidated financial statements.
F-58
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY--(Continued)
Unrealized
holding loss
on securities Retained Less
available for (deficit) Unearned
sale earnings compensation Total
------------- ------------ ------------ ------------
Balance at December 31,
1994 -- $ 39,368,464 $(1,218,751) $ 79,576,499
Amortization of
unearned
compensation.......... -- -- 470,962 470,962
Write-off of unearned
compensation.......... -- -- 735,819 (907,067)
Stock options granted
to executive
officers.............. -- -- (101,563) --
Vested stock grants to
executive officers.... -- -- -- --
Net proceeds from
exercise of employee
stock options......... -- -- -- 379,812
Net proceeds from
common stock issued
pursuant to Reg. S.... -- -- -- 8,320,805
Stock issued for
consultants'
compensation.......... -- -- -- 63,752
Stock issued for land.. -- -- -- 17,790,377
Foreign currency
translation........... -- -- -- (224,195)
Net loss............... -- (10,292,179) -- (10,292,179)
-------- ------------ ----------- ------------
Balance at December 31,
1995 -- $ 29,076,285 $ (113,533) $ 95,178,766
Amortization of
unearned
compensation.......... -- -- 188,580 188,580
Stock options granted
to executive
officers.............. -- -- (567,188) --
Net proceeds from
exercise of warrants.. -- -- -- 500
Net proceeds from
exercise of employee
and non-employee
director stock
options............... -- -- -- 457,229
Casino One Corp.
acquisition........... -- -- -- 14,947
Unrealized Holding Loss
on Securities
Available for Sale.... (850,156) -- -- (850,156)
Foreign currency
translation
adjustment............ -- -- -- 224,195
Net loss............... (31,589,347) (31,589,347)
-------- ------------ ----------- ------------
Balance at December 31,
1996 (850,156) $ (2,513,062) $ (492,141) $ 63,624,714
Amortization of
unearned
compensation.......... 228,627 228,627
Vested stock grants to
executive officers.... --
Loss on Securities..... --
Available for Sale..... 850,156 850,156
Net loss............... (5,249,208) (5,249,208)
-------- ------------ ----------- ------------
Balance at December 31,
1997................... -- $ (7,762,270) $ (263,514) $ 59,454,289
======== ============ =========== ============
See notes to consolidated financial statements.
F-59
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
---------------------------------------
1997 1996 1995
----------- ------------ ------------
Cash flows from operating activities:
Net loss............................ $(5,249,208) $(31,589,347) $(10,292,179)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation........................ 17,655,235 16,263,270 13,387,345
Amortization........................ 2,591,428 2,082,932 2,381,201
Loss (gain) on disposal of property
and equipment...................... (2,632,633) 339,056 466,712
Amortization of original issue
discount and deferred debt issuance
costs.............................. 1,966,074 1,496,259 94,351
Amortization of unearned stock
compensation, net of recoveries.... 228,627 188,580 (436,105)
Consultants' compensation recognized
on issuance of stock............... -- -- 63,752
Gain on contract settlement......... -- -- (855,000)
Write-off of preopening costs,
development project costs, land
options and deposits & property
held for development............... -- 7,054,532 12,104,212
Net loss on investment in
unconsolidated subsidiaries........ 505,424 22,436,241 112,250
Minority interest................... 1,404,180 -- --
Decrease in income tax receivable... -- 4,225,047 1,899,459
(Increase) decrease in prepaid
expenses........................... (507,361) 88,861 1,634,019
Decrease in notes and accounts
receivable, net.................... 2,327,826 (147,705) (4,753,232)
Decrease in deferred income taxes--
current............................ 3,157,856 2,923,171 (720,628)
Increase in other current assets.... (139,210) (277,793) (129,225)
Decrease in net deferred income tax
liability--non current............. (266,759) (4,173,197) (1,063,610)
Increase (decrease) in accounts
payable............................ (2,251,299) 2,924,820 (389,241)
Increase (decrease) in accrued
expenses........................... 3,595,066 (4,278,518) (2,026,436)
Increase in accrued interest........ 888,886 3,487,883 208,449
Increase (decrease) in accrued
payroll and related benefits....... (622,279) 1,255,364 2,236,447
Increase (decrease) in accrued
progressive gaming liabilities..... 323,634 55,376 (393,866)
Decrease in income taxes payable.... 805,716 (228,591) 959,609
----------- ------------ ------------
Net cash provided by operating
activities....................... $23,781,203 $ 24,126,241 $ 15,348,284
=========== ============ ============
See notes to consolidated financial statements.
F-60
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Years ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and
equipment......................... $ 19,895,616 $ 1,436,821 $ 173,389
Acquisitions of property and
equipment......................... (37,176,995) (67,850,010) (11,396,332)
Acquisitions of gaming license..... -- (15,250,000) --
Acquisitions of property held for
sale.............................. (126,400) 40,437 --
Investments in unconsolidated
subsidiaries...................... (260,628) (651,206) (6,117,636)
Expenditures for organizational and
acquisition cost.................. -- (359) (80,788)
Expenditures for land options and
deposits.......................... -- (480,000) (1,326,130)
Expenditures for development and
preopening costs.................. -- (6,554,535) (130,794)
(Increase) decrease in deposits and
other long-term assets............ (2,920,936) 2,530,873 (1,898,786)
(Increase) decrease in marketable
securities........................ (10,629,405) -- 10,244,233
------------ ------------ ------------
Net cash used in investing
activities...................... (31,218,748) (86,777,979) (10,532,844)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of debt or
notes payable..................... 6,350,000 121,043,749 202,011
Payments of debt issuance costs.... (349,955) (5,419,575) (2,000)
Principal payments on notes
payable........................... (4,606,480) (1,010,180) (1,185,342)
Principal payments on long-term
debt.............................. (7,515,676) (48,644,469) (2,261,096)
Net proceeds from sale of common
stock............................. -- 14,947 8,320,805
Net proceeds from exercise of
employee stock options............ -- 457,734 379,812
------------ ------------ ------------
Net cash provided by (used in)
financing activities............ (6,122,111) 66,442,206 5,454,190
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... (13,559,656) 3,790,468 10,269,630
Cash and cash equivalents, beginning
of period........................... 34,546,166 30,755,698 20,486,068
------------ ------------ ------------
Cash and cash equivalents, including
restricted cash,
end of period....................... $ 20,986,510 $ 34,546,166 $ 30,755,698
============ ============ ============
See notes to consolidated financial statements.
F-61
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Interest paid, net of amount
capitalized............................ $29,551,551 $12,379,128 $15,406,868
Income taxes paid, net of refunds....... (6,382,324) (7,604,043) (4,236,206)
Supplemental schedule of non-cash
operating, investing, and financing
activities:
Other current assets.................... 22,315 -- --
Other current liabilities............... 302,758 -- --
Property and equipment and other asset
acquisitions financed with short-term
notes payable.......................... -- -- 850,208
Property and equipment and other asset
acquisitions included in accounts and
construction payable and accrued
expenses............................... 1,805,945 5,455,469 177,091
Gaming license acquisition financed with
long-term debt......................... -- 21,617,612 --
Land acquired through the issuance of
common stock........................... -- -- 22,140,969
Property and equipment under capital
leases................................. 375,891 81,114 63,632
Property and equipment and property held
for sale financed with long-term debt.. -- 30,728,879 --
Consulting services performed for common
stock.................................. -- -- 63,752
Common stock granted to officers........ -- 567,188 101,563
Commitment for land options............. $ -- $ -- $ (156,725)
See notes to consolidated financial statements.
F-62
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Organization and basis of presentation:
Casino Magic Corp. and Subsidiaries is an international gaming company with
operations in Bay Saint Louis, Mississippi ("Casino Magic-BSL"), Biloxi,
Mississippi ("Casino Magic-Biloxi"), Bossier City, Louisiana ("Casino Magic-
Bossier City"), and the Argentina Province of Neuquen in the cities of
Neuquen City and San Martin de los Andes ("Casino Magic-Neuquen").
Unless the context requires otherwise, reference in this Annual Report to
the "Company" means Casino Magic Corp. and its relevant subsidiaries, and
reference to "Casino Magic" means Casino Magic Corp.
The consolidated financial statements include the accounts of Casino Magic
Corp. and its wholly-owned and majority-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Casino revenues and complimentaries:
In accordance with common industry practice, casino revenues are the net of
gaming wins less losses. Revenues exclude the retail value of complimentary
rooms, food and beverage furnished gratuitously to customers. The estimated
departmental costs of providing rooms is not significant, and the estimated
departmental costs of providing food and beverage services are included in
casino expense as follows:
Years Ended December 31,
------------------------------------
1997 1996 1995
------------ ----------- -----------
$ 21,846,000 $13,838,000 $12,072,000
============ =========== ===========
Cash and cash equivalents:
For purposes of the consolidated balance sheets and statements of cash
flows, the Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Marketable Securities:
The Company holds U.S. agency securities as held to maturity and as such,
the investments are recorded at amortized costs, which, based on the short term
nature of the investments approximates fair value.
Restricted Funds:
The Louisiana First Mortgage Notes (See Note 8), restrict the use of certain
cash amounts. At December 31, 1997, funds relating to the net proceeds from the
sale of the Crescent City Queen Riverboat ($11.7 million) are restricted to be
used for capital improvements at Casino Magic-Bossier City. The balances that
remain in these restricted accounts at December 31, 1997 are shown as
restricted marketable securities. At December 31, 1996, funds shown as
restricted cash relate to proceeds from the issuance of the Louisiana First
Mortgage Notes and were restricted for use in the original construction of the
land based pavilion and facilities at Casino Magic-Bossier City.
Property and equipment:
Property and equipment are stated at cost. Depreciation, including
amortization of capital leases and leasehold improvements, is computed using
the straight-line method. Estimated useful lives for property and
F-63
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
equipment are 15-31 1/2 years for barges and buildings, life of the lease for
leasehold improvements and 5-7 years for furniture and equipment.
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of capital assets are
capitalized.
In June 1997, the Company changed the depreciable lives on the asset
categories, land improvements, buildings and improvements, and barges and
improvements from originally estimated useful lives of 10 or 15 years to 31
years. The useful lives for these assets originally reflected their tax lives
and have been changed to anticipated useful lives. These changes reduced the
December 31, 1997, net loss by $859,796 and the loss share by $0.02. Excluding
the change in depreciable lives net loss and earnings per share would have been
$(6,109,004) and $(0.17), respectively.
Investments in unconsolidated subsidiaries:
Investments in unconsolidated subsidiaries where the Company exercises
significant influence are accounted for under the equity method.
Options and land deposits:
The costs of land options are amortized over the life of the option until
such time as the option is exercised or considered impaired by Management. As
of December 31, 1997, all land options were fully reserved.
Amortization of intangibles:
Deferred charges relating to debt issuance costs and original issue
discounts on long-term debt instruments are amortized over the life of the
related debt using the effective interest rate method to provide a constant
yield.
Included under other long term assets is "Deferred gaming license cost."
Deferred gaming license cost represents the estimated fair value of the
Louisiana gaming license, an asset acquired in conjunction with the purchase of
Crescent City Development Corporation ("Crescent City" see Note 5). This cost
is being amortized on a straight-line basis over twenty-five years, the
estimated period to be benefited by the license which commenced at the time
gaming operations began in Bossier City.
The costs capitalized to acquire the foreign casino concession agreement are
being amortized on a straight-line basis over the twelve-year life of the
agreement.
Development and preopening costs:
All internal salary and related costs of the Company's development
activities are expensed as incurred. Amounts paid for outside consultants and
professional fees are expensed until gaming has been legalized in the
jurisdiction, the Company has an approved site and there is a reasonable
likelihood that the Company will be granted a gaming license. Preopening costs
are capitalized then expensed when the related business commences operations.
Income taxes:
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis.
F-64
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Earnings per share:
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FAS 128"), "Earnings Per Share", which simplifies the computation of
earnings per share ("EPS"). FAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, and requires restatement for
all prior period earnings per share data presented. Under FAS 128, the Company
computes two earnings per share amounts--basic EPS and EPS assuming dilution.
Basic Weighted average number of shares of common stock outstanding for the
1997, 1996 and 1995 periods were 35,662,616, 35,448,068 and 33,260,904
respectively. EPS assuming dilution is based on the weighted average number of
shares of common stock outstanding for the periods, including common equivalent
shares which reflect the dilutive effect of stock options granted to certain
employees and outside directors on various dates through December 31, 1997.
Dilutive options that are issued during a period or that expire or are
cancelled during a period are reflected in EPS assuming dilution computations
for the time they were outstanding during the periods being reported. There
were no common equivalent shares for 1997, 1996 and 1995. For the years ended
December 31, 1997, 1996 and 1995, the Company had 2,943,535, 2,320,292, and
2,2107,642 options which were considered antidilutive as a result of the
exercise price of the options exceeding the average price for the period, or
that the Company had a net loss for the period and therefore are not included
in the calculation of common stock outstanding.
Certain significant risks and uncertainties:
Gaming regulation licensing. The Company has gaming operations in the United
States and abroad that depend on the continued licensability or qualification
of the Company and subsidiaries that hold gaming licenses in various
jurisdictions. Such licensing and qualifications are reviewed periodically by
the gaming authorities in those jurisdictions.
Competition. The gaming industry is extremely competitive and the Company
faces competition from new developments in both the United States, specifically
on the Mississippi Gulf Coast and in Louisiana, and abroad.
Foreign operations. The Company has investments and net assets of
approximately $9 million in gaming operations outside of the United States
which are subject to risks associated with the distance of these casino
facilities from the Company's executive offices, the stability of the relevant
government, regulations imposed by foreign governments, the continued ability
to repatriate cash, and currency exchange issues.
Severe weather. The Mississippi Gulf Coast is subject to severe weather,
including hurricanes. Severe weather could cause damage to one or both of the
Company's Mississippi casino facilities. The Company maintains insurance
against casualty losses resulting from severe weather and against business
interruption. Such insurance may not adequately compensate the Company for loss
of profits resulting from severe weather.
Construction. Risk include cost overruns, delay in receipt of governmental
approvals, shortages in materials or skilled labor, labor disputes, unforeseen
environmental or engineering problems, work stoppage, fire and other natural
disasters, construction scheduling problems and weather interferences, any of
which, if it occurred, could delay construction or result in a substantial
increase in costs to the Company.
Pervasiveness 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 and disclosure of contingent assets and liabilities at the date of
the financial
F-65
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to the 1996 and 1995 amounts to
conform with the December 31, 1997 presentation.
2. Proposed Merger:
On February 19, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Hollywood Park, Inc. ("Hollywood"), and
Acquisition II, Inc. ("HP") a wholly-owned subsidiary of Hollywood. Under the
Merger Agreement, the Company has agreed to merge (the "Merger") with HP. Upon
such Merger, the Company shall be the surviving entity and will become a
wholly-owned subsidiary of Hollywood. Upon the Merger, the shareholders of the
Company will be entitled to receive $2.27 for each share of the Company's stock
held.
The Merger is subject to the approval of the Company's shareholders prior to
October 31, 1998, and to the approval of the Mississippi Gaming Commission, the
Nevada Gaming Commission, and the Louisiana Gaming Control Board. If the Merger
Agreement is terminated for certain reasons, the Company will be required to
pay Hollywood $3,500,000.
The Merger Agreement restricts the ability of the Company to engage in
certain transactions prior to the time of the Merger, except those which are in
the ordinary course of business consistent with past practice, unless the
Company obtains the consent of Hollywood, which consent may not be unreasonably
withheld. The Merger Agreement also imposes limits on the capital expenditures
and borrowing which the Company may effect, which are not inconsistent with the
Company's current plans.
3. Notes and Accounts Receivable:
Notes and accounts receivable consist of the following:
December 31,
---------------------
1997 1996
---------- ----------
Current:
Notes receivable.................................... $ 885,995 $ 790,228
Accounts receivable--air charter.................... 156,818 548,239
Accounts receivable--trade.......................... 3,601,778 2,505,463
Other............................................... 581,376 606,631
---------- ----------
5,225,967 4,450,561
Less allowance for doubtful accounts.................. 1,444,022 1,561,075
---------- ----------
Total Notes and Accounts Receivable (current)......... 3,781,945 2,889,486
Noncurrent:
Notes receivable.................................... 3,385,198 4,119,700
---------- ----------
Total Notes and Accounts Receivable................. $7,167,143 $7,009,186
========== ==========
Included in notes receivable is a commercial loan in which the Company,
through a wholly-owned subsidiary, participated in the initial amount of $5
million. The entire loan amount is $17,500,000. A
F-66
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consortium of lenders made the loan to the Sisseton-Wahpeton Dakota Nation, a
Native American Tribe, for the construction of a casino facility on Tribal
land. The term loan is repayable over a sixty-month period beginning February
1997, in monthly installments of $105,230 including principal and interest at a
fixed rate of 10% through February 2002.
4. Property and Equipment:
Property and equipment consists of the following:
December 31,
--------------------------
1997 1996
------------ ------------
Land and improvements... $ 85,020,923 $ 67,658,624
Buildings and
improvements........... 69,193,225 44,554,665
Barges and
improvements........... 57,568,009 55,203,063
Leasehold improvements.. 300,801 382,907
Furniture and
equipment.............. 75,876,943 69,663,192
Construction in
progress............... 33,843,154 48,549,525
------------ ------------
321,803,055 286,011,976
Less accumulated
depreciation and
amortization........... (57,809,603) (42,319,405)
------------ ------------
$263,993,452 $243,692,571
============ ============
5. Stock Acquisitions:
In May 1996, Casino Magic, through its wholly-owned subsidiary, Jefferson
Casino Corporation ("Jefferson Corp") acquired Crescent City Capital
Development Corp.("Crescent City") for $50 million plus the assumption of $5.7
million in equipment liabilities. Jefferson Corp paid $15 million in cash at
closing and caused Crescent City to issue $35 million of 11.5% secured, three
year notes. Crescent City, which was the subject of a plan of reorganization
under Chapter 11 of the U.S. Bankruptcy Code, owned the Crescent City Queen
riverboat ("Crescent City Riverboat"), gaming and related equipment and
surveillance equipment and a license to conduct riverboat gaming operations in
Louisiana. Crescent City emerged from the Bankruptcy proceedings as Casino
Magic of Louisiana Corp. ("Casino Magic-Bossier City"). The Company is using
Casino Magic-Bossier City's gaming license in Bossier City, Louisiana, where it
currently owns 23 acres of land. Although Jefferson Corp. was required to
purchase the Crescent City Riverboat to obtain the Louisiana gaming license,
the Crescent City Riverboat could not be used at Casino Magic-Bossier City
because of its width. Therefore, the Company purchased a casino riverboat (the
"Bossier Riverboat") for use at Casino Magic-Bossier City for $20 million. The
Crescent City Riverboat, was sold and the proceeds will be used to assist in
the funding of the pavilion expansion and construction of a hotel at Casino
Magic-Bossier City.
No assurances can be given that the proceeds from the sale of the Crescent
City Riverboat and the cash flow from the operations of Casino Magic-Bossier
City will be sufficient to complete such hotel and related facilities.
6. Dispositions:
In September 1997, the Company sold the Crescent City Riverboat for $11.7
million. Other income for the period ended December 31, 1997, includes the gain
on the sale of $1.4 million. The proceeds from the sale are restricted by the
Indenture governing the $115 First Mortgage Notes issued by Casino Magic-
Bossier City. The
F-67
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Indenture restriction requires the proceeds from the sale of the Crescent City
Riverboat to be used for capital improvements at the Casino Magic-Bossier City
facility or returned to the Indenture trustee.
On June 1, 1997, the Company sold a 49% interest in its wholly-owned
subsidiary, Casino Magic Neuquen S.A., for $7.0 million. The Company retained a
controlling interest in Casino Magic-Neuquen and manages its two facilities
located in Neuquen City and San Martin de Los Andes, Argentina for a fee equal
to two percent of Casino Magic-Neuquen's gross monthly revenues. The gain of
$1.3 million is recorded in other income.
At September 30, 1996, management determined that its 49% equity investment
in Porto Carras Casino S.A., and notes and accounts receivable relating to
unpaid management fees and royalties were impaired. Because of this impairment,
management wrote off its investment in such gaming facilities in Porto Carras,
Greece, ("Porto Carras") and all unpaid notes and receivables related thereto.
The total charge recorded relating to the write off of Porto Carras was $26.1
million. Management's decision was based, primarily, on the results from Porto
Carras after the opening of a competing casino. Although the Company
anticipated some revenue loss as a result of this increased competition, the
actual effects were much greater than anticipated and resulted in a $2.0
million loss from operations at Porto Carras for the month of September 1996.
Despite new marketing and cost containment efforts, these losses continued;
furthermore, the majority owner in Porto Carras venture was unwilling or unable
to advance any funds to the operation. Additionally, the majority owner
informed the Company that it did not intend to operate a substantial portion of
the Porto Carras resort area, consisting of two hotels and amenities, during
the 1997 season. These factors, among others, led to the Company's decision to
write off its investment in Porto Carras and led to the sale of Porto Carras,
for a nominal amount in December 1996.
7. Notes and Contracts Payable:
Short-term notes and contracts payable consist of the following:
December 31,
-------------------
1997 1996
-------- ----------
Construction contracts (a).............................. $ 382 $4,540,434
Other (b)............................................... 305,543 168,169
-------- ----------
$305,925 $4,708,603
- --------
(a) Consists of various payables relating to both fixed and cost plus
contracts.
(b) In 1997, the balance consisted of five notes payable. The detail of these
notes is as follows: (i) $199,763 equipment, payable in monthly
installments of $15,814. (ii) $164,989 note collateralized by equipment,
payable in monthly installments of $14,892. (iii) three notes totaling
$12,000 collateralized by equipment, payable in total monthly installments
of $500.
F-68
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Long-Term Debt:
Long-term debt, including capital lease obligations, consists of the
following:
December 31,
--------------------------
1997 1996
------------ ------------
Notes payable, bank(a)........................... $ 8,170,063 $ 9,585,130
Equipment contracts(b)........................... 2,099,465 622,274
Notes payable, land(c)........................... 2,052,569 3,470,415
Other(d)......................................... 920,422 308,514
Capital lease obligations (Note 9)............... 726,018 1,207,986
Louisiana First Mortgage Notes(e)................ 115,000,000 115,000,000
First Mortgage Notes(f).......................... 135,000,000 135,000,000
Unamortized original issue discount.............. (1,906,373) (2,284,450)
------------ ------------
262,062,164 262,909,869
Less current maturities.......................... (8,590,945) (4,648,638)
------------ ------------
$253,471,219 $258,261,231
============ ============
- --------
(a) Consists of four notes payable to banks. The detail of these notes is as
follows: (i) Original balance of $3,000,000 uncollateralized promissory
note, payable in monthly installments of interest only through July 1996;
thereafter, principal and interest based on a 60 month amortization through
February 2000. The promissory note bears interest at prime plus 1% (9.5% at
December 31, 1997) throughout the life of the note with a final balloon
payment of $305,243 due in February 2000. (ii) Original balance of
$1,700,000 note collateralized by gaming equipment. Payments of principal
and interest based on a 36 month amortization through May 1998. The note
bears interest at prime plus .25%. (8.75% at December 31, 1997) with a
final balloon payment of $1,065,807 due in May 1998. (iii) Original balance
of $3,850,000 note collateralized by the equipment. The note is payable in
10 quarterly payments of $385,000, including interest at 8.25%. (iv)
Original balance of $2,500,000 uncollateralized line of credit due in March
1998 bearing interest at prime plus 1/4% (8.75% at December 31, 1997). In
March 1998 this note was refinanced to a term loan payable in eighteen
monthly installments of $142,760 bearing interest at 8.75%.
During 1997 the Company was not in compliance with certain debt covenants
relating to notes (iii) and (iv). The Company has received a waiver of the
covenants at December 31, 1997, and has restructured these covenants to
allow the Company to maintain compliance.
(b) Consists of two notes payable collateralized by equipment. The detail of
these notes is as follows: (i) Original balance of $946,005 note payable in
eleven monthly payments of $78,833, including interest at prime plus 3%.
(11.5% at December 31, 1997) with final balloon payment due at term of
note. (ii) Original balance of $1,075,740 note collateralized by equipment,
payable in twenty-three monthly payments of $44,823, including interest at
prime plus 1%. (9.50% at December 31, 1997) with final balloon payment due
at term of note. In March 1998 these notes were refinanced to a term loan
payable in twenty-three monthly installments of $93,465 bearing interest at
10.5% with a final balloon payment of $101,319 due in March 2000.
(c) Consists of three notes payable for land acquisitions. The detail of the
three notes is as follows: (i) Original balance of $700,000 note payable in
monthly installments of $14,959 including interest at prime plus 2% (10.50%
at December 31, 1997), through April 1999. (ii) Original balance of
$870,942 note payable in monthly installments of $12,134 including interest
at 8% through July 2003. (iii) Original
F-69
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
balance of $3,000,000 note payable in monthly installments of $111,699
including interest at 8.75% through November 1998.
(d) Consists of various collateralized notes payable through the year 2004. The
interest rates on these notes vary from 9.5% to 13.25% at fixed rates.
(e) On August 22, 1996, a wholly owned subsidiary of the Company, Casino Magic-
Bossier City, sold $115,000,000 aggregate principal amount of 13%, First
Mortgage Notes securities due in 2003 ("Louisiana First Mortgage Notes").
Contingent Interest is payable on the Louisiana First Mortgage Notes, on
each interest payment date, in an aggregate amount equal to 5% of Casino
Magic-Bossier City's Adjusted Consolidated Cash Flow (as defined in the
Louisiana First Mortgage Notes Indenture ("Louisiana Indenture") for the
Accrual Period (as defined in the Louisiana Indenture, but generally a
six month period) last completed prior to such interest payment date;
provided that no Contingent Interest is payable with respect to any period
prior to the Commencement Date (as defined in the Louisiana Indenture).
Payment of all or a portion of any installment of Contingent Interest may
be deferred, at the option of Casino Magic-Bossier City, if, and only to
the extent that, (i) the payment of such portion of Contingent Interest
will cause Casino Magic-Bossier City's Adjusted Fixed Charge Coverage Ratio
(as defined in the Louisiana Indenture) for Casino Magic-Bossier City's
most recently completed Reference Period prior to such interest payment
date to be less than 1.5 to 1.0 on a pro forma basis after giving effect to
the assumed payment of such Contingent Interest and (ii) the principal
amount of the Louisiana First Mortgage Notes corresponding to such
Contingent Interest has not then matured and become due and payable (at
stated maturity, upon acceleration, upon redemption, upon maturity of a
repurchase obligation or otherwise). The aggregate amount of Contingent
Interest payable in any Semiannual Period will be reduced pro rata for
reductions in the outstanding principal amount of notes prior to the close
of business on the record date immediately preceding such payment of
Contingent Interest. During 1997, the Company accrued $677,251 of
contingent interest, none of which was paid.
The Louisiana First Mortgage Notes are secured by a first priority security
interest, subject to permitted liens, in substantially all of the existing
and future assets of Bossier City, including the Bossier Riverboat and
substantially all of the other assets that comprise Casino Magic-Bossier
City.. The Jefferson Guarantee will be secured by a pledge of all of the
capital stock of Jefferson Casino Corp., a wholly owned subsidiary of the
Company.
Casino Magic-Bossier City has contractually committed to apply net proceeds
from the asset sale of the Crescent City Riverboat to the construction of
an entertainment facility or hotel.
The Louisiana First Mortgage Notes are governed by the Louisiana Indenture.
The Louisiana Indenture pursuant to which the Louisiana First Mortgage
Notes have been issued contains certain covenants that will limit the
ability of Casino Magic-Bossier City and its subsidiaries to, among other
things, incur additional indebtedness and issue preferred stock, pay
dividends, make investments or make other restricted payments, incur liens,
enter into mergers or consolidations, enter into transactions with
affiliates or sell assets.
The proposed Merger (See Note 2), if effected, is a Change of Control as
defined in the Louisiana Induenture. Upon a Change of Control, each holder
of Louisiana First Mortgage Notes will have the right to require Casino
Magic-Bossier City to repurchase all or any part of the Louisiana First
Mortgage Notes at a price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, thereon to the
date of repurchase. Within 30 days following any Change of Control, the
Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to
repurchase the Louisiana First Mortgage Notes pursuant to the procedures
required by the Louisiana Indenture and described in such notice.
F-70
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Louisiana First Mortgage Notes are redeemable at the option of the
Company. The redemption amounts are as follows:
August 15,
2000............................................................. 106.500%
2001............................................................. 104.332%
2002............................................................. 102.166%
(f) On October 14, 1993, a wholly owned indirect subsidiary of the Company,
Casino Magic Finance Corp. ("Finance Corp."), sold $135,000,000 in
aggregate principal amount of 11 1/2% First Mortgage Notes due in 2001
(the "Finance Notes") and warrants to purchase 810,000 shares of Casino
Magic Corp. common stock. Proceeds from the Notes were allocated by the
underwriter between the Finance Corp. and the Company based on the
estimated fair market value at the time of issuance of the Finance Notes
and the warrants in the amounts of $131,760,000 and $3,240,000 ($4 per
warrant), respectively. The value of the warrants is treated as original
issue discount for financial statement purposes, and is reflected in the
balance sheet net of amortization as an adjustment to the carrying value
of long-term debt. The Finance Notes are governed by an Indenture (the
"Indenture") entered into on the same date between Finance Corp., the
Company and IBJ Schroder Bank & Trust Company as the Trustee. Under
Section 4.10 of the Indenture, the Company's ability to pay dividends on
its common stock is restricted to an amount which is determined under a
formula based primarily on the Company's future income, and is precluded
upon the occurrence of an "Event of Default" as defined under the
Indenture. Events of Default include, among other things, the failure to
pay the interest or principal due on the Finance Notes, the entry of a
judgment in excess of $10,000,000 against the Company or Casino Magic-BSL,
Casino Magic-Biloxi and Finance Corp., which is not discharged within 60
days after entry, and the default by the Casino Magic or Casino Magic-BSL,
Casino Magic-Biloxi and Finance Corp. under indebtedness due to third
parties. The Indenture also contains certain covenants that restrict,
among other things, the making of certain investments, payments of
dividends and other distributions, the incurrence of additional
indebtedness and future guarantees of indebtedness, certain transactions
with shareholders and affiliates, certain mergers and consolidations,
certain asset sales and the creation of certain liens. The Finance Notes
are secured by a pledge of the stock of Finance Corp., Bay Saint Louis and
Biloxi along with the accounts receivable, inventories, property and
equipment, property held for development and deposits of Casino Magic-BSL
and Casino Magic-Biloxi.
The Merger (See Note 2) if completed would constitute a Change in Control
under the Finance Notes Induenture. If there is a decrease by one or more
gradations by a rating agency within 90 days of the public notice of the
Merger (February 19, 1998) would required Finance Corp to make an offer to the
holders of the Finance Notes to redemm them at a price equal to 101% of the
principal balance together with accrued and unpaid interest. The offer would
be required to be made, if at all, within 30 days after the Change of Control.
The Finance Notes are redeemable at the option of the Company. The
redemption amounts are as follows:
October 15,
1997............................................................ 105.750%
1998............................................................ 103.833%
1999............................................................ 101.917%
2000 and thereafter............................................. 100.000%
F-71
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Maturities of the Company's long-term debt, including capital lease
obligations, as of December 31, 1997, are as follows:
Year ending
December 31,
------------
1998.......................................................... $ 8,590,945
1999.......................................................... 3,503,955
2000.......................................................... 1,017,061
2001.......................................................... 250,963
2002.......................................................... 135,273,782
Thereafter.................................................... 115,331,829
------------
263,968,535
Unamortized Original Issue Discount........................... (1,906,371)
------------
$262,062,164
============
9. Lease commitments:
The Company has long-term lease agreements for land for the site of Casino
Magic-Biloxi and additional land at Casino Magic-BSL. The Casino Magic-Biloxi
land is classified as an operating lease. The annual rental payments for the
initial five-year term of the Casino Magic-Biloxi land lease began June 5,
1993, and are $550,000, $250,000, $450,000, $450,000 and $200,000 for the first
through fifth year. The land lease contains seventeen, five-year renewal
options at contractually higher rentals, plus inflation adjustments not to
exceed 4.5% per year.
On June 4, 1993, the Company entered into a long-term agreement with the
State of Mississippi to lease 283,217 square foot of submerged lands or
tidelands for Casino Magic-Biloxi. The initial lease term expires May 31, 2003,
with one five year extension. Annual rental payments are due in advance on the
first of June in the amount of $595,000, plus an annual increase of $45,000 for
the first five years. In May 1998 the lease amount will be determined under
Mississippi law regarding the leasing of public trust tidelands.
The following is a schedule of future minimum lease payments for capital and
operating leases (with initial or remaining terms in excess of one year) as of
December 31, 1997:
Year ending
December 31,
-------------------
Capital Operating
Leases Leases
-------- ----------
1998.................................................... $192,065 $1,479,257
1999.................................................... 207,325 1,164,357
2000.................................................... 153,856 1,026,287
2001.................................................... 20,348 782,454
2002.................................................... 22,007 775,000
Thereafter.............................................. 130,417 4,650,000
-------- ----------
Total minimum lease payments............................ 726,018 $9,877,355
==========
Less amount representing interest (9% to 13%)........... 145,059
--------
Present value of net minimum capital lease payments..... $580,959
========
Rent expense for all non-cancelable operating leases were $3,644,000
$1,800,000, and $3,048,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
F-72
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Other Commitments and Contingencies:
Ongoing legal proceedings:
A class action lawsuit was filed on April 26, 1994, in the United States
District Court, Middle District of Florida (the "Poulos Lawsuit"), naming as
defendants 41 manufacturers, distributors and casino operators of video poker
and electronic slot machines, including the Company. The lawsuit alleges that
such defendants have engaged in a course of fraudulent and misleading conduct
intended to induce people to play such games based on a false belief concerning
the operation of the gaming machines, as well as the extent to which there is
an opportunity to win. The suit alleges violations of the Racketeer Influenced
and Corrupt Organization Act, as well as claims of common law fraud, unjust
enrichment and negligent misrepresentation, and seeks damages in excess of $6
billion. On May 10, 1994, a second class action lawsuit was filed in the United
States District Court, Middle District of Florida (the "Ahern Lawsuit"), naming
as defendants the same defendants who were named in the Poulos Lawsuit and
adding as defendants the owners of certain casino operations in Puerto Rico and
the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims
in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because
of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit
were consolidated into one case file in the United States District Court,
Middle District of Florida. On December 9, 1994 a motion by the defendants for
change of venue was granted, transferring the case to the United States
District Court for the District of Nevada, in Las Vegas. In response to a
motion to dismiss the Complaint brought by the Company and other defendants,
the United States District Court for the District of Nevada entered an order
dated April 17, 1996, granting the motions and dismissing the complaint without
prejudice.
The plaintiffs then filed an amended Complaint on May 31, 1996, in which the
plaintiffs sought damages against the Company and other defendants in excess of
$1 billion and punitive damages for violations of the Racketeer Influenced and
Corrupt Organizations Act and for state common law claims for fraud, unjust
enrichment and negligent misrepresentation. The Company and other defendants
have moved to dismiss the amended Complaint. The Company believes that the
claims are without merit and does not expect that the lawsuit will have a
material adverse effect on the financial condition or results of operations of
the Company.
On or about September 6, 1996, Casino America, Inc. commenced litigation in
the Chancery Court of Harrison County, Mississippi, Second Judicial District,
against the Company, and James Edward Ernst, its Chief Executive Officer
(collectively "Defendants"), seeking injunctive relief and unspecified
compensatory damages in an amount to be proven at trial as well as punitive
damages. Plaintiff claims, among other things, that Defendants (i) breached the
terms of an agreement they had with Plaintiff, (ii) tortiously interfered with
certain business relations of plaintiff; and (iii) breached covenants of good
faith and fair dealing they allegedly owed to plaintiff. On or about October 8,
1996, Defendants interposed an answer to plaintiff's complaint denying the
allegations contained in the complaint. The discovery phase of this litigation
is continuing and a trial date has been set for August 1998. While the
Company's management cannot predict the outcome of this action, management
believes plaintiff's claims are without merit and the Company intends to
vigorously defend this action.
In addition, the Company is a litigant in legal matters arising in the
normal course of business. In the opinion of management, all such pending legal
matters are either adequately covered by insurance, or if not insured, will not
have a material adverse effect on the financial position or results of
operations of the Company.
Contractual agreements:
Argentina. In December 1994, the Company, through its wholly-owned
subsidiary, Casino Magic-Neuquen, entered into a 12-year concession agreement
with the Province of Neuquen, Argentina. Casino
F-73
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Magic-Neuquen which began operations in January 1995 operates two casinos in
the Province of Neuquen in the cities of Neuquen City and San Martin de los
Andes. The Company has unrestricted rights to increase the number of gaming
positions at both locations.
Camptown Greyhound Racing, Inc. On July 7, 1994, the Company and Alliance
Gaming Corp. (formerly United Gaming) formed two joint ventures ("KGP" and
"KFP") to lend Camptown Greyhound Racing, Inc. ("Camptown') approximately $3.2
million. On October 28, 1994, KFP executed a loan agreement with Boatmen's Bank
of Kansas City ("Boatmen's") whereby Boatmen's lent $3.2 million to Camptown.
KFP had collateralized the loan with a $3.1 million certificate of deposit
(one-half funded by each party to the joint venture) and, in addition,
guaranteed the repayment of the loan. In January 1996, Camptown filed for
protection under Chapter 11 of U.S. Bankruptcy Code. The Company's $1,580,000
share of the amount lent by KFP to Camptown was expensed in 1995.
In January 1997, the Company transferred all of its interest in KGP and KFP
to Alliance Gaming Corp., an unrelated third party, except for a deminimus
interest. The consideration for the transfer was Alliance Gaming Corp.'s
agreement to assume certain current financial obligations and to repay the
Company all of its cost in the project if they are successful in commencing
gaming operations at Camptown.
Indiana. The Company, through its wholly owned subsidiary, Crawford County
Casino, Corp. ("Indiana Corp.") is one of two applicants for the tenth gaming
license expected to be issued in the State of Indiana. If successful in
obtaining this gaming license, the Company has entered into an option agreement
to sell to Harrah's Operating Company the common stock of Indiana Corp. for
approximately $5.0 million. The option expires on January 2001. The Company can
give no assurances that a gaming license will be obtained in Indiana. All land
options held by Indiana Corp. associated with a possible gaming site are fully
reserved at December 31, 1997.
Land Acquisitions.
In 1993, the Company exercised its option to purchase of approximately 3.5
acres of unimproved land in downtown St. Louis, Missouri at a cost of
approximately $4,000,000. At December 31, 1997, approximately $4,000,000 is
included in property held for sale related to this transaction.
In 1994, the Company exercised an option and to purchase additional real
estate located in Downtown St. Louis, Missouri at a cost of approximately
$800,000. At December 31, 1997, approximately $800,000 is included in property
held for sale related to this transaction.
In 1992, the Company purchased real estate located in downtown Bay Saint
Louis, Mississippi at a cost of approximately $1,200,000. At December 31, 1997,
the Company had written down the value of the property to $800,000 and this
value is included in property held for sale.
The Company had acquired land and options to purchase land in order to
enhance the Company's developmental and licensing procurement potential in
various States. Management has significantly reduced its development of new
gaming venues and because of this all land options are reserved for on the
Company's financial statements at December 31, 1997.
11. Stock and employee benefit plans:
Incentive stock option plan:
In 1992, the Company adopted an incentive stock option plan (the "Plan") in
which directors, officers, and key employees of the Company participate. The
Company has registered 3,700,000 shares of the Company's common stock currently
authorized for issuance under the Plan pursuant to stock options.
F-74
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," effective in
1996. Under SFAS 123, companies can either record expense based on the fair
value of stock based compensation upon issuance or elect to remain under the
current "APB Opinion No. 25" method whereby no compensation cost is recognized
upon grant if certain requirements are met. The Company is continuing to
account for its stock-based compensation plans under APB Opinion No. 25.
However, pro forma disclosures as if the Company adopted the cost recognition
requirements under SFAS 123 are presented below.
A summary of the status of the Company's stock options, non-qualified
options, and warrants as of December 31, 1997, 1996 and 1995 and changes during
the years ended on those dates is presented below (shares in thousands):
December 31,
--------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ----------------------
Weighted Average Weighted Average Weighted Average
---------------------- ---------------------- ----------------------
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding at beginning
of year................ 4,200 $ .67 5,108 $ 7.60 4,943 $7.42
Granted................. 400 $1.69 1,998 $ 3.56 950 $5.06
Exercised............... (239) $1.59 (424) $ 1.72 (344) $1.43
Canceled................ (915) $2.23 (2,482) $12.00 (441) $4.61
Outstanding at end of
year................... 3,446 $3.96 4,200 $ 3.67 5,108 $7.60
Options exercisable at
end of year............ 1,985 $3.96 2,655 $ 3.11 3,072 $9.12
Options available for
future grants.......... 2,582 2,068 1,583
Weighted average fair
value of options
granted during the
year................... $1.69 $1.11 $1.28
The following table summarizes information about stock options and warrants
outstanding at December 31, 1997:
Options Outstanding Options Exercisable
----------------------- ---------------------------------
Number Wgtd. Avg. Wgtd. Avg. Number Wgtd. Avg.
Exercise Outstanding Remaining Exercise Exercisable Exercise
Price at 12/31/97 Contr. Life Price at 12/31/97 Price
-------- ----------- ----------- ---------- ----------- ----------
$ 1.69............... 399,500 4.77 1.69 15,000 $ 1.69
2.75............... 980,000 0.81 2.75 980,000 2.75
3.50............... 150,000 4.56 3.50 30,000 3.50
3.63............... 1,288,200 3.70 3.63 575,375 3.63
3.75............... 3,000 4.66 3.75 600 3.75
5.81............... 200,000 4.48 5.81 200,000 5.81
7.20............... 69,100 1.30 7.20 69,100 7.20
7.35............... 50,000 1.88 7.35 50,000 7.35
15.30............... 200,000 6.30 15.30 60,000 15.30
--------- ---- ------ --------- ------
Totals............. 3,339,800 3.15 $ 3.96 1,980,075 $ 3.96
========= ==== ====== ========= ======
F-75
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Had compensation cost for the Company's 1997, 1996 and 1995 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's net income and net earnings (loss) per common share for the years
ended December 31, 1997, 1996 and 1995 would approximate the pro forma amounts
below (in thousands, except per share data):
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 20%, (3) risk-free interest rates of 5.2%, 5.26%, 5.47% and 5.5%,
and (4) expected life of 2.25, 4.5, 6.75, and 9 years.
December 31,
--------------------------------------------------------
1997 1996 1995
---------------- ------------------ ------------------
As Reported As Reported As Reported
Pro Forma Pro Forma Pro Forma
---------------- ------------------ ------------------
Net Income (Loss)....... $(5,249) $(5,958) $(31,589) $(32,563) $(10,292) $(10,660)
Earnings per common
share
Basic................. $ (0.15) $ (0.17) $ (0.89) $ (0.92) $ (0.31) $ (0.32)
Diluted............... $ (0.15) $ (0.17) $ (0.89) $ (0.92) $ (0.31) $ (0.32)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
Pensions and other benefits:
In July 1993, the Company adopted The Casino Magic Corp. 401(k) Plan (the
"401(k) Plan"), a defined contribution plan covering all eligible employees of
the Company who have one year of service and are age twenty-one or older. The
401(k) Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). Each year, participants may contribute up to 15%
of pretax annual compensation, as defined in the 401(k) Plan. The Company's
matching and/or additional contributions may be contributed at the discretion
of the Company's Board of Directors. The Company's contributions to the 401(k)
Plan are allocated to employed participants' accounts as of the last day of the
plan year. Total employer contributions to the 401(k) Plan at December 31,
1997, 1996 and 1995 were approximately $201,000, $176,000, and $177,000,
respectively.
12. Write-off of capitalized costs relating to inactive developments:
In 1995, the Company decided to terminate development efforts with respect
to specific properties and jurisdictions. Because of this determination,
significant capitalized amounts relating to land, land options, joint ventures
and construction projects were written-off or revalued. In addition, certain
consulting agreements that were entered into to pursue gaming opportunities in
new jurisdictions were terminated. The amount expensed in the fourth quarter of
1995 was $14,542,164.
13. Advertising:
The company expenses all production and communication costs of advertising
as incurred. Advertising expense was approximately $7,815,000, $5,470,000, and
$4,472,000 for years ended December 31, 1997, 1996, and 1995, respectively.
14. Related Party Transactions:
During the years ended December 31, 1997, 1996, and 1995, the Company
incurred $7,247, $1,346,861 and $353,888, respectively, for architectural and
design services provided by an architectural firm that is wholly-owned by an
outside director and shareholder of the Company. The director resigned in
October 1996.
F-76
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the years ended December 31, 1997, 1996, and 1995, the Company
incurred $145,744, $154,028 and $388,944, respectively, for legal services
provided by a law firm in which an outside director of the Company is a
shareholder.
During the year ended December 31, 1996 and 1995, the Company incurred
$219,800, and $387,422, respectively, for charter plane rentals provided by a
company that is wholly owned by the Company's Chairman.
The Company purchased a jet airplane in February 1996 from the Company's
Chairman. The Company paid $1.7 million for the airplane which approximated
fair value at the date of purchase. The plane was sold in February 1997 to an
unrelated third party for $1.4 million, which approximated fair value.
15. Income taxes:
Pretax financial income (loss) generated from domestic and foreign sources
was as follows:
December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
Domestic........................... $(12,132,945) $(15,322,992) $(15,336,975)
Foreign............................ 4,948,737 (20,942,537) 1,813,932
------------ ------------ ------------
Total pretax loss.................. $ (7,184,208) $(36,265,529) $(13,523,043)
============ ============ ============
Provision (benefit) for income taxes for the years ended December 31 are as
follows:
December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Federal and state current............ $(2,733,203) $(4,253,704) $(2,546,443)
Foreign current...................... 1,064,963 827,548 1,099,816
Federal deferred..................... (266,760) (1,250,026) (1,221,514)
Foreign deferred..................... -- -- (562,723)
----------- ----------- -----------
Total................................ $(1,935,000) $(4,676,182) $(3,230,864)
=========== =========== ===========
Components of deferred tax liabilities (assets) are as follows:
December 31,
--------------------------
1997 1996
------------ ------------
Depreciation and amortization.................. $ 12,154,826 $ 9,535,121
Foreign source income.......................... 257,949 257,949
------------ ------------
Gross deferred tax liabilities................. 12,412,775 9,793,070
------------ ------------
Write-off of preopening costs.................. (1,781,870) (2,493,074)
Tax benefits related to non-statutory stock
Options....................................... (504,000) (504,000)
Accrued employee benefits and liabilities...... (1,428,370) (1,433,067)
Abandoned development projects................. (1,515,657) (10,229,821)
Net operating loss carry-forward............... (21,299,675) (2,269,344)
Other.......................................... (902,737) (798,293)
------------ ------------
Gross deferred tax assets...................... (27,432,309) (17,727,599)
------------ ------------
Less valuation allowance....................... 15,019,534 8,201,290
============ ============
Net deferred tax liabilities................... $ -- $ 266,761
============ ============
F-77
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income from continuing operations as a result of the following
differences:
December 31,
--------------------------------------
1997 1996 1995
----------- ------------ -----------
Statutory U.S. tax rate (35%)...... $(2,023,010) $(12,692,935) $(4,733,065)
Increase (decrease) in rates
resulting from:
Expenses which were non-deductible
for tax purposes.................. 1,299,010 357,805 733,876
Expenses which were deductible for
tax purposes and not book......... (6,988,244) -- --
Foreign taxes...................... 1,064,963 827,548 1,099,816
Valuation allowance................ 6,818,244 8,201,290 --
State tax benefit.................. -- (802,174) --
Other.............................. (2,105,996) (567,716) (331,491)
----------- ------------ -----------
Effective tax rate (33%), (13%) and
(24%), respectively............... $(1,935,000) $ (4,676,182) $(3,230,864)
=========== ============ ===========
The valuation allowance against net deferred tax assets was recorded in
recognition of the significant operating losses incurred by the Company for
the last three years.
Mississippi State taxes were offset by a tax credit for state gaming taxes
based on gross revenues realized by Casino Magic-BSL and Casino Magic-Biloxi.
The credit is the lesser of the annual total gaming taxes paid or the state
income tax. Credit carry-forwards are not permitted.
Louisiana State taxes do not allow for an offset of state gaming taxes
based on gross revenues realized by Louisiana.
16. Fair value of financial instruments:
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1997 are as follows:
Carrying Fair
Amount Value
-------- -------
(in thousands)
Cash and cash equivalents............................... 20,902 20,902
Marketable securities................................... 10,629 10,629
Notes receivable........................................ 3,385 3,385
Notes payable and current maturities of long-term debt
and long-term debt..................................... 262,368 247,568
The following methods and assumptions were used by the Company in
estimating its fair value disclosure:
Cash and cash equivalents, and marketable securities. The carrying amount
reported on the consolidated balance sheet approximates its fair value
because of the short term nature of these instruments.
Notes receivable. This is a long-term note receivable from an Indian
Tribe. The fair value of the note approximates market value based on the
interest rate of the note and the collateral securing the note.
F-78
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes payable and current maturities of long-term debt and long-term
debt. The fair value of the Company's debt either approximates its carrying
value or is based upon the market price of the debt instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
17. Selected quarterly financial information (Unaudited):
Year ended December 31, 1997
-------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Totals
------- ------- ------- ------- --------
(in thousands, except per share amounts)
Revenue....................... $65,781 $65,958 $66,495 $63,240 $261,474
Income from operations........ 1,997 5,927 10,125 6,506 24,555
Income (loss) before tax and
minority interest............ (5,607) (1,020) 3,390 (2,543) (5,780)
Net income (loss)............. (3,672) (1,222) 2,675 (3,030) (5,249)
Earnings (loss) per share:
Basic....................... (0.10) (0.03) 0.08 (.08) (0.15)
Diluted..................... (0.10) (0.03) 0.08 (.08) (0.15)
Year ended December 31, 1996
------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Totals
------- ------- ------- ------- --------
(in thousands, except per share amounts)
Revenue......................... $43,125 42,368 $43,271 $51,514 $180,278
Income from operations.......... 5,565 6,473 5,355 (8,550) 8,843
Income (loss) before tax........ 2,352 2,456 (26,024) (15,050) (36,266)
Net income (loss)............... 1,644 1,660 (20,683) (14,210) (31,589)
Earnings (loss) per share:
Basic......................... 0.05 0.05 (0.57) (0.40) (0.89)
Diluted....................... 0.05 0.05 (0.57) (0.40) (0.89)
NOTE: Earnings (loss) per share totals will not necessarily agree to the
sum of the quarterly information
F-79
We have not authorized any dealer, salesperson or other person to give any
information or to make any representations not contained in this prospectus in
connection with the exchange offer made by this prospectus and you must not
rely on any such information or representations as having been authorized by
us. Neither the delivery of this prospectus nor any sale made hereunder will,
under any circumstances, create any implication that there has been no change
in our affairs since the date as of which information is given in this
prospectus. This prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such
solicitation.
----------------
Dealer Prospectus Delivery Obligation
Until June 27, 1999 (90 days after commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in the exchange offer, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to any unsold allotments or
subscriptions.
$350,000,000
[LOGO OF HOLLYWOOD PARK, INC.]
HOLLYWOOD PARK, INC.
Offer to Exchange
9 1/4% Senior Subordinated Notes
due 2007
------------------
PROSPECTUS
------------------
March 29, 1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that the person is or was a director, officer, employee or agent of the
corporation or is or was serving at its request in such capacity in another
corporation or business association, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if
the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe the person's conduct was unlawful.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit.
As permitted by Section 102(b)(7) of the DGCL, the Company's Certificate of
Incorporation, as amended, includes a provision that limits a director's
personal liability to the Company or its stockholders for monetary damages for
breaches of his or her fiduciary duty as a director. Article XIII of the
Company's Certificate of Incorporation, as amended, provides that no director
of the Company shall be personally liable to such Issuer or its stockholders
for monetary damages for breach of fiduciary duty to the fullest extent
permitted by the DGCL.
As permitted by Section 145 of the DGCL, the Company's Bylaws provide that,
to the fullest extent permitted by the DGCL, directors, officers and certain
other persons who are made, or are threatened to be made, parties to, or are
involved in, any action, suit or proceeding will be indemnified by the Company
with respect thereto.
The Company maintains insurance policies under which its directors and
officers are insured, within the limits and subject to the limitations of the
policies, against expenses in connection with the defense of actions, suits or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings, to which they are parties by reason of being or
having been directors or officers of the Company.
ITEM 21. EXHIBITS
A list of exhibits included as part of the Registration Statement is set
forth below:
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 Agreement and Plan of Merger, by and among Hollywood Park, Inc., HP
Acquisition, Inc., and Boomtown, Inc., dated April 23, 1996, is hereby
incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K, filed May 3, 1996.
2.2 Agreement and Plan of Merger, dated as of February 19, 1998, among
Casino Magic Corp., Hollywood Park, Inc. and HP Acquisition II, Inc.,
is hereby incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K, filed February 26, 1998.
3.1** Certificate of Incorporation of Hollywood Park, Inc.
3.2** Restated By-laws of Hollywood Park, Inc.
II-1
Exhibit
Number Description of Exhibit
------- ----------------------
3.3 Certificate of Incorporation of Hollywood Park Operating Company, is
hereby incorporated by reference to Exhibit 3.3 to the Company's Form
S-4 Registration Statement dated August 27, 1997.
3.4 Amended By-laws of Hollywood Park Operating Company, are hereby
incorporated by reference to Exhibit 3.4 to the Company's Form S-4
Registration Statement dated August 27, 1997.
3.5 Certificate of Incorporation of Hollywood Park Fall Operating Company,
is hereby incorporated by reference to Exhibit 3.5 to the Company's
Amendment No. 1 to Form S-4 Registration Statement dated October 30,
1997.
3.6 By-laws of Hollywood Park Fall Operating Company are hereby
incorporated by reference to Exhibit 3.6 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated October 30, 1997.
3.7 Articles of Incorporation of Hollywood Park Food Services, Inc., are
hereby incorporated by reference to Exhibit 3.7 to the Company's
Amendment No. 1 to Form S-4 Registration Statement dated October 30,
1997.
3.8 By-laws of Hollywood Park Food Services, Inc., are hereby incorporated
by reference to Exhibit 3.8 to the Company's Amendment No. 1 to Form
S-4 Registration Statement dated October 30, 1997.
3.9 Articles of Incorporation of HP/Compton, Inc., are hereby incorporated
by reference to Exhibit 3.9 to the Company's Amendment No. 1 to Form
S-4 Registration dated October 30, 1997.
3.10 By-laws of HP/Compton, Inc., are hereby incorporated by reference to
Exhibit 3.10 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.11 Articles of Organization of Crystal Park Hotel and Casino Development
Company, LLC, are hereby incorporated by reference to Exhibit 3.11 to
the Company's Amendment No. 1 to Form S-4 Registration Statement dated
October 30, 1997.
3.12 Operating Agreement of Crystal Park Hotel and Casino Development
Company, LLC, are hereby incorporated by reference to Exhibit 3.12 to
the Company's Amendment No. 1 to Form S-4 Registration Statement dated
October 30, 1997.
3.13 Restated Articles of Incorporation of Turf Paradise, Inc., are hereby
incorporated by reference to Exhibit 3.13 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated October 30, 1997.
3.14 By-laws of Turf Paradise, are hereby incorporated by reference to
Exhibit 3.14 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.15 Certificate of Incorporation of HP Yakama, Inc., is hereby
incorporated by reference to Exhibit 3.15 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated October 30, 1997.
3.16 By-laws of HP Yakama, Inc., are hereby incorporated by reference to
Exhibit 3.16 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.17 Amended and Restated Certificate of Incorporation of Boomtown, Inc.,
is hereby incorporated by reference to Exhibit 3.17 to the Company's
Amendment No. 1 to Form S-4 Registration Statement dated October 30,
1997.
3.18 By-laws of Boomtown, Inc., are hereby incorporated by reference to
Exhibit 3.18 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.19 Certificate of Amended and Restated Articles of Incorporation of
Boomtown Hotel & Casino, Inc., are hereby incorporated by reference to
Exhibit 3.19 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
II-2
Exhibit
Number Description of Exhibit
------- ----------------------
3.20 Revised and Restated By-laws of Boomtown Hotel & Casino, Inc., are
hereby incorporated by reference to Exhibit 3.20 to the Company's
Amendment No. 1 to Form S-4 Registration Statement dated October 30,
1997.
3.21 Articles of Incorporation of Bayview Yacht Club, Inc., are hereby
incorporated by reference to Exhibit 3.21 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated October 30, 1997.
3.22 By-laws of Bayview Yacht Club, Inc., are hereby incorporated by
reference to Exhibit 3.22 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated October 30, 1997.
3.23 Certificate of Mississippi Limited Partnership of Mississippi-I
Gaming, L.P., are hereby incorporated by reference to Exhibit 3.23 to
the Company's Amendment No. 1 to Form S-4 Registration Statement dated
October 30, 1997.
3.24 Amended and Restated Agreement of Limited Partnership of Mississippi-I
Gaming, L.P., is hereby incorporated by reference to Exhibit 10.31 to
the Company's Quarterly Report on Form 10-Q for quarter ended June 30,
1997.
3.25 Articles of Incorporation of Louisiana Gaming Enterprises, Inc., are
hereby incorporated by reference to Exhibit 3.25 to the Company's
Amendment No. 1 to Form S-4 Registration Statement dated October 30,
1997.
3.26** Second Amended and Restated Partnership Agreement of Louisiana-I
Gaming, a Louisiana Partnership in Commendam
3.27** Certificate of Incorporation of HP Yakama Consulting, Inc.
3.28** By-laws of HP Yakama Consulting, Inc.
3.29** Articles of Incorporation of Casino Magic Corp.
3.30** Amended By-laws of Casino Magic Corp.
3.31** Articles of Incorporation of Casino Magic American Corp.
3.32** By-laws of Casino Magic American Corp.
3.33** Articles of Incorporation of Biloxi Casino Corp.
3.34** By-laws of Biloxi Casino Corp.
3.35** Articles of Incorporation of Casino Magic Finance Corp.
3.36** By-laws of Casino Magic Finance Corp.
3.37** Articles of Incorporation of Casino One Corporation
3.38** By-laws of Casino One Corporation
3.39** Articles of Incorporation of Bay St. Louis Casino Corp.
3.40** By-laws of Bay St. Louis Casino Corp.
3.41** Articles of Incorporation of Mardi Gras Casino Corp.
3.42** By-laws of Mardi Gras Casino Corp.
3.43** Articles of Incorporation of Boomtown Hoosier, Inc.
3.44** By-laws of Boomtown Hoosier, Inc.
3.45** Articles of Organization of Indiana Ventures LLC
3.46** Operating Agreement of Indiana Ventures LLC
3.47** Amended Articles of Incorporation of Switzerland County Development
Corp. (f/k/a Conrad (New Zealand) Corporation)
II-3
Exhibit
Number Description of Exhibit
------- ----------------------
3.48** By-laws of Switzerland County Development Corp. (f/k/a Conrad (New
Zealand)
Corporation)
3.49** Amended Articles of Incorporation of Pinnacle Gaming Development Corp.
3.50** By-laws of Pinnacle Gaming Development Corp.
3.51** Articles of Incorporation of HP Casino, Inc.
3.52** By-laws of HP Casino, Inc.
4.1 Hollywood Park 1996 Stock Option Plan is hereby incorporated by
reference to Exhibit 10.24 to the Company's Registration Statement on
Form S-4 dated September 18, 1996.
4.2** Hollywood Park 1993 Stock Option Plan
4.3 Indenture, dated August 1, 1997, by and among the Company, Hollywood
Park Operating Company, Hollywood Park Food Services, Inc., Hollywood
Park Fall Operating Company, HP/Compton, Inc., Crystal Park Hotel and
Casino Development Company, LLC, HP Yakama, Inc., Turf Paradise, Inc.,
Boomtown, Inc., Boomtown Hotel & Casino, Inc., Louisiana-I Gaming,
Louisiana Gaming Enterprises, Inc., Mississippi-I Gaming, L.P.,
Bayview Yacht Club, Inc. and The Bank of New York, as trustee, is
hereby incorporated by reference to Exhibit 10.37 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
4.4* First Supplemental Indenture, dated as of February 5, 1999, to
Indenture dated as of August 1, 1997 governing the 9 1/2% Senior
Subordinated Notes due 2007, by and among the Company and Hollywood
Park Operating Company, as co-issuers, and Bayview Yacht Club, Inc.,
Boomtown Hotel & Casino, Inc., Boomtown, Inc., Crystal Park Hotel and
Casino Development Company, LLC, Hollywood Park Fall Operating
Company, Hollywood Park Food Services, Inc., Hollywood Park Operating
Company, HP/Compton, Inc., HP Yakama, Inc., Louisiana Gaming
Enterprises, Inc., Louisiana-I Gaming, a Louisiana Partnership in
Commendam, Mississippi-I Gaming, LP., and Turf Paradise, Inc. as
guarantors, and The Bank of New York, as trustee.
4.5 Form of Series B 9 1/2% Senior Subordinated Note due 2007 (included in
Exhibit 4.3), is hereby incorporated by reference to the Company's
Amendment No. 1 to Registration Statement on Form S-4 dated October
30, 1997.
4.6* Indenture, dated as of February 18, 1999, governing the 9 1/4% Senior
Subordinated Notes due 2007, by and among the Company as issuer, and
Bay St. Louis Casino Corp., Bayview Yacht Club, Inc., Biloxi Casino
Corp., Boomtown Hoosier, Inc., Boomtown Hotel & Casino, Inc.,
Boomtown, Inc., Casino Magic American Corp., Casino Magic Corp.,
Casino Magic Finance Corp., Casino One Corporation, Crystal Park Hotel
and Casino Development Company, LLC, Hollywood Park Fall Operating
Company, Hollywood Park Food Services, Inc., Hollywood Park Operating
Company, HP Casino, Inc., HP/Compton, Inc., HP Yakama, Inc., HP Yakama
Consulting, Inc., Indiana Ventures LLC, Louisiana Gaming Enterprises,
Inc., Louisiana-I Gaming, a Louisiana Partnership in Commendam, Mardi
Gras Casino Corp., Mississippi-I Gaming, L.P., Pinnacle Gaming
Development Corp., Switzerland County Development Corp., and Turf
Paradise, Inc. as initial guarantors, and The Bank of New York, as
trustee.
4.7* Form of Series B 9 1/4% Senior Subordinated Note due 2007 (included in
Exhibit 4.6).
5** Opinion of Irell & Manella LLP
10.1** Directors Deferred Compensation Plan for Hollywood Park, Inc.
10.2** Aircraft Time Sharing Agreement, dated June 2, 1998, by and between
Hollywood Park, Inc. and R.D. Hubbard Enterprises, Inc.
II-4
Exhibit
Number Description of Exhibit
------- ----------------------
10.3 Amended and Restated Disposition and Development Agreement of Purchase
and Sale, and Lease with Option to Purchase, dated August 2, 1995, by
and between The Community Redevelopment Agency of the City of Compton
and Compton Entertainment, Inc., is hereby incorporated by reference
to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995.
10.4 Guaranty, dated July 31, 1995, by Hollywood Park, Inc., in favor of
the Community Redevelopment Agency of the City of Compton, is hereby
incorporated by reference to Exhibit 10.17 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.
10.5 Assignment, Assumption and Consent Agreement, by and among HP/Compton,
Inc., and Crystal Park Hotel and Casino Development Company LLC,
Hollywood Park, Inc. and The Community Redevelopment Agency of the
City of Compton, dated July 18, 1996, is hereby incorporated by
reference to Exhibit 10.20 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
10.6 Operating Agreement for Crystal Park Hotel and Casino Development
Company, LLC, a California Limited Liability Company, dated July 18,
1996, effective August 28, 1996, is hereby incorporated by reference
to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
10.7 Lease, by and between Crystal Park Hotel and Casino Development
Company, LLC and California Casino Management, Inc., dated December
19, 1997, is hereby incorporated by reference to Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997.
10.8 Addendum to the Lease Agreement dated December 19, 1997, by and
between Crystal Park Hotel and Casino Development Company, LLC and
California Casino Management, Inc., dated June 30, 1998, is hereby
incorporated by reference to Exhibit 10.46 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
10.9 Blue Diamond Swap Agreement by and among Boomtown, Inc., Blue Diamond
Hotel & Casino, Inc., Hollywood Park, Inc., Edward P. Roski, Jr., IVAC
and Majestic Realty Co., dated August 12, 1996, is hereby incorporated
by reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-4 filed September 18, 1996.
10.10 Stock Purchase Agreement, by and between Hollywood Park, Inc. and
Edward P. Roski, Jr., dated August 12, 1996, is hereby incorporated by
reference to Exhibit 10.23 to the Company's Registration Statement on
Form S-4 filed September 18, 1996.
10.11** Second Addendum to the Lease Agreement dated December 19, 1997, by and
between Crystal Park Hotel and Casino Development Company, LLC and
California Casino Management, Inc., dated March 8, 1999.
10.12 Ground Lease, dated October 19, 1993, between Raphael Skrmetta as
Landlord and Mississippi-I Gaming, L.P. as Tenant, is hereby
incorporated by reference to Exhibit 10.33 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
10.13 First Amendment to Ground Lease dated October 19, 1993, between
Raphael Skrmetta and Mississippi-I Gaming, L.P., is hereby
incorporated by reference to Exhibit 10.34 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
10.14 Second Amendment to Ground Lease dated October 19, 1993, between
Raphael Skrmetta and Mississippi-I Gaming, L.P., is hereby
incorporated by reference to Exhibit 10.35 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
II-5
Exhibit
Number Description of Exhibit
------- ----------------------
10.15 Purchase Agreement, dated August 1, 1997, by and among the Company,
Hollywood Park Operating Company, Hollywood Park Food Services, Inc.,
HP/Compton, Inc., Crystal Park Hotel and Casino Development Company,
LLC, Hollywood Park Fall Operating Company, HP Yakama, Inc., Turf
Paradise, Inc., Boomtown, Inc., Boomtown Hotel & Casino, Inc.,
Louisiana Gaming-I Gaming, Louisiana Gaming Enterprises, Inc.,
Mississippi-I Gaming, L.P., Bayview Yacht Club, Inc., and the Initial
Purchasers named therein, is hereby by incorporated by reference to
Exhibit 10.36 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
10.16 Registration Rights Agreement, dated August 1, 1997, by and among the
Company, Hollywood Park Operating Company, Hollywood Park Food
Services, Inc., HP/Compton, Inc., Crystal Park Hotel and Casino
Development Company, LLC, Hollywood Park Fall Operating Company, HP
Yakama, Inc., Turf Paradise, Inc., Boomtown, Inc., Boomtown Hotel &
Casino, Inc., Louisiana-I Gaming, Louisiana Gaming Enterprises, Inc.,
Mississippi-I Gaming, L.P., Bayview Yacht Club, Inc., and the Initial
Purchasers named therein is hereby incorporated by reference to
Exhibit 10.38 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
10.17 Profit Participation Agreement, by and between Hollywood Park, Inc.,
and North American Sports Management, Inc., dated July 14, 1997, is
hereby incorporated by reference to Exhibit 10.40 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
10.18 Loan Agreement, by and between Yakama Tribal Gaming Corporation and HP
Yakama, Inc., dated September 11, 1997, is hereby incorporated by
reference Exhibit 10.41 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
10.19 Security Agreement, by and between Yakama Tribal Gaming Corporation
and HP Yakama, Inc., dated September 11, 1997, is hereby incorporated
by reference to Exhibit 10.42 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997.
10.20 Master Lease, by and between The Confederated Tribes and Bands of the
Yakama Indian Nation and HP Yakama, Inc., dated September 11, 1997, is
hereby incorporated by reference to Exhibit 10.43 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
10.21 Sublease, by and between HP Yakama, Inc. and Yakama Tribal Gaming
Corporation, dated September 11, 1997, is hereby incorporated by
reference to Exhibit 10.44 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
10.22 Construction and Development Agreement, by and between Yakama Tribal
Gaming Corporation and HP Yakama Consulting, Inc., dated September 11,
1997, is hereby incorporated by reference to Exhibit 10.45 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
10.23 Consulting Agreement, by and between Yakama Tribal Gaming Corporation
and HP Yakama Consulting, Inc., dated September 11, 1997, is hereby
incorporated by reference to Exhibit 10.46 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
10.24 Termination of Consulting Agreement, among Yakama Tribal Gaming
Corporation, HP Yakama, Inc., and the Confederated Tribes and Bands of
the Yakama Indians, dated January 1, 1998, is hereby incorporated by
reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
10.25 Voting Agreement, dated as of February 25, 1998, by and between
Hollywood Park, Inc., and Marlin F. Torguson, is hereby incorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K, filed February 26, 1998.
10.26 Public Trust Tidelands Lease, dated August 15, 1994, by and between
the Secretary of State on behalf of the State of Mississippi and
Mississippi-I Gaming, L.P., is hereby incorporated by reference to
Exhibit 10.43 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
II-6
Exhibit
Number Description of Exhibit
------- ----------------------
10.27 Public Trust Tidelands Lease Amendment, dated March 31, 1997, by and
between the Secretary of State on behalf of the State of Mississippi
and Mississippi-I Gaming, L.P., is hereby incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
10.28 Option agreement, by and among The Webster Family Limited Partnership
and The Diuguid Family Limited Partnership, and Pinnacle Gaming
Development Corp., dated June 2, 1998, is hereby incorporated by
reference to Exhibit 10.47 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
10.29 Memorandum of Option Agreement, by and between the Webster Family
Limited Partnership and The Duiguid Family Limited Partnership, and
Pinnacle Gaming Development Corp., dated June 2, 1998, is hereby
incorporated by reference to Exhibit 10.48 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
10.30 Amended and Restated Option Agreement, by and among Daniel Webster,
Marsha S. Webster, William G. Duiguid, Sara T. Diuguid, J.R. Showers,
III and Carol A. Showers, and Pinnacle Gaming Development Corp., dated
June 2, 1998, is hereby incorporated by reference to Exhibit 10.49 of
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998.
10.31 Memorandum of Amended and Restated Option Agreement, by and between
Daniel Webster, Marsha S. Webster, William Diuguid, Sara T. Diuguid,
J.R. Showers, III and Carol A. Showers, and Pinnacle Gaming
Development Corp., dated June 4, 1998, is hereby incorporated by
reference to Exhibit 10.50 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
10.32 Assignment of Option Agreement, by Daniel Webster and Marsha S.
Webster, and Pinnacle Gaming Development Corp., dated June 2, 1998, is
hereby incorporated by reference to Exhibit 10.51 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
10.33 Amended and Restated Reducing Revolving Loan Agreement, dated October
14, 1998, among Hollywood Park, Inc., and the banks named therein,
Societe Generale and Bank of Scotland (as Managing Agents), First
National Bank of Commerce (as Co-Agent), and Bank of America National
Trust and Savings Association (as Administrative Agent), is hereby
incorporated by reference to Exhibit 2 of the Company's Current Report
on Form 8-K, filed October 30, 1998.
10.34* Purchase Agreement, dated February 12, 1999, by and among the Company
Bay St. Louis Casino Corp., Bayview Yacht Club, Inc., Biloxi Casino
Corp., Boomtown Hoosier, Inc., Boomtown Hotel & Casino, Inc.,
Boomtown, Inc., Casino Magic American Corp., Casino Magic Corp.,
Casino Magic Finance Corp., Casino One Corporation, Crystal Park Hotel
and Casino Development Company, LLC, Hollywood Park Fall Operating
Company, Hollywood Park Food Services, Inc., Hollywood Park Operating
Company, HP Casino, Inc., HP/Compton, Inc., HP Yakama, Inc., HP Yakama
Consulting, Inc., Indiana Ventures LLC, Louisiana Gaming Enterprises,
Inc., Louisiana-I Gaming, a Louisiana Partnership in Commendam, Mardi
Gras Casino Corp., Mississippi-I Gaming, L.P., Pinnacle Gaming
Development Corp., Switzerland County Development Corp., and Turf
Paradise, Inc., and Lehman Brothers, Inc., CIBC Oppenheimer Corp.,
Morgan Stanley & Co., Incorporated, NationsBanc Montgomery Securities
LLC, SG Cowen Securities Corporation, and Wasserstein Perella
Securities, Inc., as initial purchasers.
10.35* Registration Rights Agreement, dated as of February 18, 1999, by and
among the Company and Bay St. Louis Casino Corp., Bayview Yacht Club,
Inc., Biloxi Casino, Corp., Boomtown Hoosier, Inc., Boomtown Hotel &
Casino, Inc., Boomtown, Inc., Casino Magic American Corp., Casino
Magic Finance Corp., Casino One Corporation, Crystal Park Hotel and
Casino Development Company, LLC, Hollywood Park Fall Operating
Company, Hollywood Park Food Services, Inc., Hollywood Park Operating
Company, HP Casino, Inc., HP/Compton, Inc., HP Yakama, Inc., HP Yakama
Consulting, Inc., Indiana Ventures LLC, Louisiana Gaming Enterprises,
Inc., Louisiana-I Gaming, a Louisiana Partnership in Commendam, Mardi
Gras Casino Corp., Mississippi-I Gaming L.P. Pinnacle Gaming
Development Corp., Switzerland County Development Corp., and Turf
Paradise, Inc., and Lehman
II-7
Exhibit
Number Description
------- -----------
Brothers Inc., CIBC Oppenheimer Corp., Morgan Stanley & Co.
Incorporated, NationsBanc Montgomery Securities LLC, SG Cowen
Securities Corporation and Wasserstein Perella Securities, Inc., as
initial purchasers.
10.36** Employment Agreement, dated December 23, 1998, by and between
Hollywood Park, Inc. and G. Michael Finnigan.
10.37** Employment Agreement, dated September 10, 1998, by and between
Hollywood Park, Inc. and Paul Alanis.
10.38** Employment Agreement, dated September 10, 1998, by and between
Hollywood Park, Inc. and Mike Allen.
10.39** Employment Agreement, dated January 1, 1999, by and between Hollywood
Park, Inc. and Donald Robbins.
10.40** Purchase Agreement, dated as of February 25, 1998, among Hilton Gaming
(Switzerland County) Corporation and Boomtown Hoosier, Inc.
12.1* Calculation of Historical Ratio of Earnings to Fixed Charges
12.2* Calculation of Pro Forma Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of Hollywood Park, Inc.
23.1** Consent of Irell & Manella LLP (included in Exhibit 5).
23.2** Consent of Arthur Andersen LLP
23.3** Consent of Ernst & Young LLP
24.1* Powers of Attorney of officers and directors of Hollywood Park, Inc.
24.2* Powers of Attorney of officers and directors of Hollywood Park
Operating Company
24.3* Powers of Attorney of officers and directors of Hollywood Park Fall
Operating Company
24.4* Powers of Attorney of officers and directors of Hollywood Park Food
Services, Inc.
24.5* Powers of Attorney of officers and directors of HP/Compton, Inc.
24.6* Powers of Attorney of directors of HP/Compton, Inc. in the capacity of
manager of Crystal Park Hotel and Casino Development Company, LLC
24.7* Powers of Attorney of officers and directors of Turf Paradise, Inc.
24.8* Powers of Attorney of officers and directors of HP Yakama, Inc.
24.9* Powers of Attorney of officers and directors of Boomtown, Inc.
24.10* Powers of Attorney of officers and directors of Boomtown Hotel &
Casino, Inc.
24.11* Powers of Attorney of officers and directors of Bayview Yacht Club,
Inc.
24.12* Powers of Attorney of directors of Bayview Yacht Club, Inc. in the
capacity of General Partner of Mississippi I-Gaming, L.P.
24.13* Powers of Attorney of officers and directors of Louisiana Gaming
Enterprises, Inc.
24.14* Powers of Attorney of directors of Louisiana Gaming Enterprises, Inc.
in the capacity of General Partner of Louisiana I-Gaming, a Louisiana
Partnership in Commendam
24.15* Powers of Attorney of officers and directors of Bay St. Louis Casino
Corp.
24.16* Powers of Attorney of officers and directors of Biloxi Casino Corp.
24.17* Powers of Attorney of officers and directors of Boomtown Hoosier, Inc.
24.18* Powers of Attorney of officers and directors of Casino Magic American
Corp.
24.19* Powers of Attorney of officers and directors of Casino Magic Corp.
24.20* Powers of Attorney of officers and directors of Casino Magic Finance
Corp.
II-8
Exhibit
Number Description
------- -----------
24.21* Powers of Attorney of officers and directors of Casino One Corporation
24.22* Powers of Attorney of officers and directors of HP Casino, Inc.
24.23* Powers of Attorney of officers and directors of HP Yakama Consulting,
Inc.
24.24* Powers of Attorney of directors of Boomtown Hoosier, Inc. in the
capacity of manager of Indiana Ventures LLC
24.25* Powers of Attorney of officers and directors of Mardi Gras Casino
Corp.
24.26* Powers of Attorney of officers and directors of Pinnacle Gaming
Development Corp.
24.27* Powers of Attorney of officers and directors of Switzerland County
Development Corp.
25.1* Form T-1 Statement of Eligibility and Qualification, under the Trust
Indenture Act of 1939, of The Bank of New York, as Trustee
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
- --------
* Previously filed
** Filed herewith
ITEM 22. UNDERTAKINGS
1. The undersigned Registrants hereby undertake:
(a)(1) To file, during any period in which offers or 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 of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such 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) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 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
II-9
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(c) 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 the registration statement when
it became effective.
(d) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Issuers' annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of an action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company 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 Act and will be governed by the final
adjudication of such issue.
(f) The undersigned Registrants hereby undertake to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act.
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
HOLLYWOOD PARK, INC.,
a Delaware corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Chairman of the Board and March 26, 1999
____________________________________ Chief Executive Officer
R.D. Hubbard (Principal Executive
Officer)
/s/ G. Michael Finnigan Chief Financial Officer March 26, 1999
____________________________________ (Principal Financial and
G. Michael Finnigan Accounting Officer)
Michael Ornest* Director March 26, 1999
____________________________________
Michael Ornest
Director
____________________________________
J.R. Johnson
Robert T. Manfuso* Director March 26, 1999
____________________________________
Robert T. Manfuso
Timothy J. Parrott* Director March 26, 1999
____________________________________
Timothy J. Parrott
Lynn P. Reitnouer* Director March 26, 1999
____________________________________
Lynn P. Reitnouer
Warren B. Williamson* Director March 26, 1999
____________________________________
Warren B. Williamson
Herman Sarkowsky* Director March 26, 1999
____________________________________
Herman Sarkowsky
Marlin Torguson* Director March 26, 1999
____________________________________
Marlin Torguson
*By: /s/ G. Michael Finnigan
-----------------------
G. Michael Finnigan
Attorney-in-Fact
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
BAY ST. LOUIS CASINO CORP.,
a Mississippi corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Assistant
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Marlin F. Torguson* Chairman of the Board, March 26, 1999
____________________________________ President and
Marlin F. Torguson Chief Executive Officer
(Principal Executive
Officer)
/s/ G. Michael Finnigan Vice President and Assistant March 26, 1999
____________________________________ Treasurer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
BAYVIEW YACHT CLUB, INC.,
a Mississippi corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Timothy J. Parrott* Chairman of the Board and March 26, 1999
____________________________________ Chief Executive Officer
Timothy J. Parrott (Principal Executive
Officer)
Robert F. List* Director March 26, 1999
____________________________________
Robert F. List
/s/ G. Michael Finnigan Vice President, and Chief March 26, 1999
____________________________________ Financial Officer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
BILOXI CASINO CORP.,
a Mississippi corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Assistant
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Marlin F. Torguson* Chairman of the Board, March 26, 1999
____________________________________ President and
Marlin F. Torguson Chief Executive Officer
(Principal Executive
Officer)
/s/ G. Michael Finnigan Vice President and Assistant March 26, 1999
____________________________________ Treasurer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
BOOMTOWN, INC.,
a Delaware corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Timothy J. Parrott* Chairman of the Board and March 26, 1999
____________________________________ Chief Executive Officer
Timothy J. Parrott (Principal Executive
Officer)
Robert F. List* Director March 26, 1999
____________________________________
Robert F. List
/s/ G. Michael Finnigan Vice President, and Chief March 26, 1999
____________________________________ Financial Officer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
BOOMTOWN HOOSIER, INC.,
a Nevada corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Timothy J. Parrott* Director and President March 26, 1999
____________________________________ (Principal Executive
Timothy J. Parrott Officer)
Robert F. List* Director March 26, 1999
____________________________________
Robert F. List
/s/ G. Michael Finnigan Vice President and Chief March 26, 1999
____________________________________ Financial Officer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
BOOMTOWN HOTEL & CASINO, INC.,
a Nevada corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Timothy J. Parrott* Chairman of the Board and March 26, 1999
____________________________________ Chief Executive Officer
Timothy J. Parrott (Principal Executive
Officer)
Robert F. List* Director March 26, 1999
____________________________________
Robert F. List
/s/ G. Michael Finnigan Senior Vice President and March 26, 1999
____________________________________ Chief Financial Officer
G. Michael Finnigan (Principal Financial and
Accounting Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
CASINO MAGIC AMERICAN CORP.,
a Minnesota corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Assistant
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Marlin F. Torguson* Chairman of the Board, March 26, 1999
____________________________________ President and
Marlin F. Torguson Chief Executive Officer
(Principal Executive
Officer)
/s/ G. Michael Finnigan Vice President and Assistant March 26, 1999
____________________________________ Treasurer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
CASINO MAGIC CORP.,
a Minnesota corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Assistant
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Marlin F. Torguson* Chairman of the Board, March 26, 1999
____________________________________ President and
Marlin F. Torguson Chief Executive Officer
(Principal Executive
Officer)
/s/ G. Michael Finnigan Vice President and Assistant March 26, 1999
____________________________________ Treasurer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
CASINO MAGIC FINANCE CORP.,
a Mississippi corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Assistant
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Marlin F. Torguson* Chairman of the Board, March 26, 1999
____________________________________ President and
Marlin F. Torguson Chief Executive Officer
(Principal Executive
Officer)
/s/ G. Michael Finnigan Vice President and Assistant March 26, 1999
____________________________________ Treasurer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
CASINO ONE CORPORATION,
a Mississippi corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Assistant
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Marlin F. Torguson* Chairman of the Board, March 26, 1999
____________________________________ President and
Marlin F. Torguson Chief Executive Officer
(Principal Executive
Officer)
/s/ G. Michael Finnigan Vice President and Assistant March 26, 1999
____________________________________ Treasurer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
CRYSTAL PARK HOTEL AND CASINO
DEVELOPMENT COMPANY, LLC
By: its Manager
HP/COMPTON, INC.,
a California corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
HP/COMPTON, INC. MANAGER of Crystal Park March 26, 1999
Hotel & Casino Development
Company, LLC
R.D. Hubbard* Director and President of March 26, 1999
____________________________________ HP/Compton, Inc.
R.D. Hubbard
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
HOLLYWOOD PARK FALL OPERATING
COMPANY,
a Delaware corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Executive Vice President,
Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Director and President March 26, 1999
____________________________________ (Principal Executive
R.D. Hubbard Officer)
Warren B. Williamson* Director March 26, 1999
____________________________________
Warren B. Williamson
/s/ G. Michael Finnigan Executive Vice President, March 26, 1999
____________________________________ Treasurer and Assistant
G. Michael Finnigan Secretary (Principal
Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
HOLLYWOOD PARK FOOD SERVICES, INC.,
a California corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Executive Vice President,
Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Director and President March 26, 1999
____________________________________ (Principal Executive
R.D. Hubbard Officer)
Warren B. Williamson* Director March 26, 1999
____________________________________
Warren B. Williamson
/s/ G. Michael Finnigan Executive Vice President, March 26, 1999
____________________________________ Treasurer and Assistant
G. Michael Finnigan Secretary (Principal
Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
HOLLYWOOD PARK OPERATING COMPANY,
a Delaware corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Executive Vice President,
Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Chairman of the Board and March 26, 1999
____________________________________ Chief Executive Officer
R.D. Hubbard (Principal Executive
Officer)
/s/ G. Michael Finnigan Executive Vice President, March 26, 1999
____________________________________ Treasurer and Chief
G. Michael Finnigan Financial Officer (Principal
Financial and Accounting
Officer)
Warren B. Williamson* Director March 26, 1999
____________________________________
Warren B. Williamson
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
HP CASINO, INC.,
a California corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* President (Principal March 26, 1999
____________________________________ Executive Officer)
R.D. Hubbard
Robert F. List* Director March 26, 1999
____________________________________
Robert F. List
Timothy J. Parrott* Director March 26, 1999
____________________________________
Timothy J. Parrott
/s/ G. Michael Finnigan Vice President and Chief March 26, 1999
____________________________________ Financial Officer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
HP/COMPTON INC.,
a California corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Director and President March 26, 1999
____________________________________ (Principal Executive
R.D. Hubbard Officer)
/s/ G. Michael Finnigan Vice President and Chief March 26, 1999
____________________________________ Financial Officer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
HP YAKAMA, INC.,
a Delaware corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President, Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Director, President and March 26, 1999
____________________________________ Chief Executive Officer
R.D. Hubbard (Principal Executive
Officer)
Bruce Rimbo* Director March 26, 1999
____________________________________
Bruce Rimbo
/s/ G. Michael Finnigan Director, Vice President, March 26, 1999
____________________________________ Treasurer and Assistant
G. Michael Finnigan Secretary (Principal
Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
HP YAKAMA CONSULTING, INC.,
a Delaware corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President, Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Director, President and March 26, 1999
____________________________________ Chief Executive Officer
R.D. Hubbard (Principal Executive
Officer)
Bruce Rimbo* Director, Vice President and March 26, 1999
____________________________________ Secretary
Bruce Rimbo
/s/ G. Michael Finnigan Director, Vice President, March 26, 1999
____________________________________ Treasurer and Assistant
G. Michael Finnigan Secretary (Principal
Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
INDIANA VENTURES LLC
By: its Manager
BOOMTOWN HOOSIER, INC.
a Nevada corporation
/s/ G. Michael Finnigan
By: _______________________________
G. Michael Finnigan
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
BOOMTOWN HOOSIER, INC. MANAGER of Indiana Ventures March 26, 1999
LLC
Timothy J. Parrott* Director of Boomtown March 26, 1999
____________________________________ Hoosier, Inc.
Timothy J. Parrott
Robert F. List* Director of Boomtown March 26, 1999
____________________________________ Hoosier, Inc.
Robert F. List
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
LOUISIANA GAMING ENTERPRISES, INC.,
a Louisiana corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Timothy J. Parrott* Chairman of the Board and March 26, 1999
____________________________________ Chief Executive Officer
Timothy J. Parrott (Principal Executive
Officer)
Robert F. List* Director March 26, 1999
____________________________________
Robert F. List
/s/ G. Michael Finnigan Vice President and Chief March 26, 1999
____________________________________ Financial Officer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
LOUISIANA-I GAMING, A LOUISIANA
PARTNERSHIP IN COMMENDAM
By: its General Partner
LOUISIANA GAMING ENTERPRISES,
INC.,
a Louisiana corporation
/s/ G. Michael Finnigan
By: ___________________________
G. Michael Finnigan
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
LOUISIANA GAMING ENTERPRISES, INC. GENERAL PARTNER of March 26, 1999
Louisiana-I Gaming, a
Louisiana Partnership in
Commendam
Timothy J. Parrott* Director of Louisiana March 26, 1999
______________________________________ Gaming Enterprises, Inc.
Timothy J. Parrott
Robert F. List* Director of Louisiana March 26, 1999
______________________________________ Gaming Enterprises, Inc.
Robert F. List
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
MARDI GRAS CASINO CORP.,
a Mississippi corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President and Assistant
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Marlin F. Torguson* Chairman of the Board, March 26, 1999
____________________________________ President and
Marlin F. Torguson Chief Executive Officer
(Principal Executive
Officer)
/s/ G. Michael Finnigan Vice President and Assistant March 26, 1999
____________________________________ Treasurer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
MISSISSIPPI-I GAMING, L.P.
By: its General Partner
BAYVIEW YACHT CLUB, INC.,
a Mississippi corporation
/s/ G. Michael Finnigan
By: ___________________________
G. Michael Finnigan
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
BAYVIEW YACHT CLUB, INC. GENERAL PARTNER of March 26, 1999
Mississippi-I Gaming,
L.P.
Timothy J. Parrott* Director of Bayview March 26, 1999
______________________________________ Yacht Club, Inc.
Timothy J. Parrott
Robert F. List* Director of Bayview March 26, 1999
______________________________________ Yacht Club, Inc.
Robert F. List
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
PINNACLE GAMING DEVELOPMENT CORP.,
a Colorado corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Chairman of the Board and March 26, 1999
____________________________________ Chief Executive Officer
R.D. Hubbard (Principal Executive
Officer)
Timothy J. Parrott* Director March 26, 1999
____________________________________
Timothy J. Parrott
Robert F. List* Director March 26, 1999
____________________________________
Robert F. List
/s/ G. Michael Finnigan Director and President March 26, 1999
____________________________________ (Principal Financial and
G. Michael Finnigan Accounting Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-35
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
SWITZERLAND COUNTY DEVELOPMENT CORP.,
a Nevada corporation
/s/ G. Michael Finnigan
By: __________________________________
G. Michael Finnigan
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Timothy J. Parrott* Director and President March 26, 1999
____________________________________ (Principal Executive
Timothy J. Parrott Officer)
Robert F. List* Director March 26, 1999
____________________________________
Robert F. List
/s/ G. Michael Finnigan Vice President and Chief March 26, 1999
____________________________________ Financial Officer (Principal
G. Michael Finnigan Financial and Accounting
Officer)
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on the 26th day of March, 1999.
TURF PARADISE, INC.,
an Arizona corporation
/s/ G. Michael Finnigan
By: _________________________________
G. Michael Finnigan
Vice President, Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
R.D. Hubbard* Director and Chief March 26, 1999
____________________________________ Executive Officer
R.D. Hubbard (Principal Executive Officer)
/s/ G. Michael Finnigan Director, Vice President, March 26, 1999
____________________________________ Treasurer and Assistant
G. Michael Finnigan Secretary
(Principal Financial and
Accounting Officer)
Donald M. Robbins* Director March 26, 1999
____________________________________
Donald M. Robbins
*By: /s/ G. Michael Finnigan
-------------------------
G. Michael Finnigan
Attorney-in-Fact
II-37