AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 2002
REGISTRATION NO. 333-81584
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
MAJESTIC INVESTOR HOLDINGS, LLC
MAJESTIC INVESTOR CAPITAL CORP.
AND THE GUARANTORS NAMED IN THE TABLE BELOW
(Exact names of Co-Registrants as Specified in their Charters)
<Table>
DELAWARE 7900 36-4468392
DELAWARE 7900 36-4471622
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Numbers) Numbers)
</Table>
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA 46406-3000
(219) 977-7777
(Address, including zip code, and telephone number,
including area code, of Co-Registrants'
principal executive offices)
MICHAEL E. KELLY
EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING AND FINANCIAL OFFICER
MAJESTIC INVESTOR HOLDINGS, LLC
MAJESTIC INVESTOR CAPITAL CORP.
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA 46406-3000
(219) 977-7823
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
With a copy to:
MICHAEL D. LEVIN, ESQ.
LATHAM & WATKINS
5800 SEARS TOWER
233 S. WACKER DRIVE, SUITE 5800
CHICAGO, ILLINOIS 60606
(312) 876-7700
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of 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. [ ] ____________
---------------------
THE CO-REGISTRANTS HEREBY AMEND THIS 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF GUARANTORS
<Table>
<Caption>
PRIMARY STANDARD
STATE OR OTHER JURISDICTION OF INDUSTRIAL CLASSIFICATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER INCORPORATION OR ORGANIZATION CODE NUMBER
- ---------------------------------------------------- ------------------------------ -------------------------
Barden Colorado Gaming, LLC Colorado 7900
Barden Mississippi Gaming, LLC Mississippi 7900
Barden Nevada Gaming, LLC Nevada 7900
<Caption>
I.R.S. EMPLOYER
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER IDENTIFICATION NUMBER
- ---------------------------------------------------- ---------------------
Barden Colorado Gaming, LLC 91-2118674
Barden Mississippi Gaming, LLC 62-1868783
Barden Nevada Gaming, LLC 88-0453840
</Table>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY SECURITIES IN
ANY PLACE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 7, 2002
PROSPECTUS
MAJESTIC INVESTOR HOLDINGS, LLC
MAJESTIC INVESTOR CAPITAL CORP.
OFFER TO EXCHANGE
11.653% SENIOR SECURED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
11.653% SENIOR SECURED NOTES DUE 2007
We are offering to exchange all of our outstanding 11.653% Senior Secured
Notes due 2007, which we refer to as the unregistered notes, for our registered
11.653% Senior Secured Notes due 2007, which we refer to as the registered
notes. We refer to the unregistered notes and the registered notes collectively
as the notes. We issued the unregistered notes on December 6, 2001. The terms of
the registered notes are substantially identical to the terms of the
unregistered notes in all material respects, except for the elimination of some
transfer restrictions, registration rights and liquidated damages provisions
relating to the unregistered notes.
PLEASE CONSIDER THE FOLLOWING:
- Our offer to exchange the notes expires at 5:00 p.m. New York City time,
on , 2002, unless we extend the offer.
- You should carefully review the procedures for tendering the unregistered
notes beginning on page 58 of this prospectus. If you do not follow these
procedures, we may not exchange your unregistered notes for registered
notes.
- If you fail to tender your unregistered notes, you will continue to hold
unregistered notes and your ability to transfer them could be adversely
affected.
- No public market currently exists for the unregistered notes. We do not
intend to list the registered notes on any securities exchange and,
therefore, no active public market is anticipated.
- You may withdraw tenders of unregistered notes at any time before the
exchange offer expires.
- The exchange of registered notes for unregistered notes will not be a
taxable exchange for U.S. federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
- We are not asking you for a proxy and you are requested not to send us a
proxy.
INFORMATION ABOUT THE REGISTERED NOTES:
- The notes will mature on November 30, 2007.
- We will pay interest on the notes at a rate of 11.653% per year payable
semi-annually on May 31 and November 30, beginning May 31, 2002.
- The notes will rank senior to all of our existing and future subordinated
indebtedness and equal in right of payment with all of our existing and
future senior indebtedness.
- Our restricted subsidiaries will guarantee the notes on a senior secured
basis.
- As security for the notes, we have pledged our equity interests and
substantially all of our and the subsidiary guarantors' current and future
assets. These equity interests and assets are also subject to a lien
securing our credit facility, which is senior to the lien securing the
notes.
- We may redeem the notes on or after November 30, 2005, from time to time
at a price that will decrease over time from 105.827% of the principal
amount in 2005 to 100% of the principal amount in 2006, plus, in each
case, accrued and unpaid interest. Prior to November 30, 2004, we may also
apply a portion of the net proceeds from certain equity offerings to
redeem up to 35% of the principal amount of the notes at 111.653% of their
face amount, plus accrued and unpaid interest.
- Following certain determinations by any gaming regulatory authority, you
may be required to dispose of your notes and we may be required to redeem
the notes.
- If we experience a change of control, you will have the right to require
us to purchase your notes at a price equal to 101% of the principal
amount, plus accrued and unpaid interest.
- If we sell assets, we may have to use the proceeds to offer to purchase
some of the notes at a price equal to 100% of the principal amount, plus
accrued and unpaid interest.
FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE
PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 16 OF
THIS PROSPECTUS.
NONE OF THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION, ANY STATE GAMING COMMISSION OR ANY OTHER GAMING AUTHORITY OR OTHER
REGULATORY AGENCY HAS APPROVED OR DISAPPROVED OF THE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE NOTES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2002
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AS IF WE HAD
AUTHORIZED IT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, NOR DOES THIS PROSPECTUS CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
---------------------
TABLE OF CONTENTS
<Table>
Where You Can Find More Information......................... ii
Incorporation of Certain Documents by Reference............. ii
Industry and Market Data.................................... iii
Forward-Looking Statements.................................. iii
Prospectus Summary.......................................... 1
Risk Factors................................................ 16
The Majestic Entities....................................... 28
Use of Proceeds............................................. 29
Capitalization.............................................. 29
Selected Financial Data..................................... 30
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 32
Quantitative and Qualitative Disclosure About Market Risk... 43
Business.................................................... 44
Management.................................................. 53
Summary Compensation Table.................................. 54
Principal Owner............................................. 55
Certain Relationships and Related Transactions.............. 56
Description of Credit Facility and Intercreditor
Agreement................................................. 56
The Exchange Offer.......................................... 57
Description of Registered Notes............................. 68
Material Agreements......................................... 102
Government Regulation and Licensing......................... 103
United States Federal Income Tax Considerations............. 118
Plan of Distribution........................................ 123
Legal Matters............................................... 124
Experts..................................................... 124
Index to Unaudited Pro Forma Consolidated Financial
Statement................................................. PF-1
Index to Consolidated Financial Statements and Schedule..... MF-1
Index to Historical Combined Financial Statements........... F-1
</Table>
i
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we
have filed with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"). This prospectus does
not contain all of the information set forth in the registration statement. For
further information about us and the 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 filed these documents as exhibits to our registration
statement.
Upon the effectiveness of the registration statement, we will be subject to
the informational reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). We have agreed that, whether or not required to
do so by the rules and regulations of the SEC (and within the time periods that
are or would be prescribed thereby), for so long as any of the notes remain
outstanding, we will furnish to the holders of the notes and file with the SEC
(unless the SEC will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the SEC on Forms 10-Q and 10-K if we were 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 our independent certified public accountants and (ii) all information that
would be required to be contained in a filing with the SEC on Form 8-K if we
were required to file such reports. In addition, for so long as any of the
unregistered notes remain outstanding, we have agreed to make available, upon
request, to any prospective purchaser or beneficial owner of the unregistered
notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act. Information also may be obtained from us at
Majestic Investor Holdings, LLC, One Buffington Harbor Drive, Gary, Indiana
46406, Attention: Michael E. Kelly, telephone (219) 977-7823.
The registration statement (including the exhibits and schedules thereto)
and the periodic reports and other information that we file with the SEC may be
inspected and copied at the public reference facilities of the SEC, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
copies of such material from the SEC by mail at prescribed rates. You should
direct requests to the SEC's Public Reference Section, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the SEC
maintains a website (http://www.sec.gov) that contains such reports and other
information filed by us.
---------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents and reports filed by Majestic Investor Holdings or Majestic
Investor Capital Corp. pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this prospectus and prior to the
termination of the exchange offer to which this prospectus relates shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such documents and reports.
All information contained in a document or report incorporated or deemed to
be incorporated by reference is part of this prospectus, unless and until that
information is updated and superseded by the information contained in this
prospectus or any information filed with the SEC and incorporated later. Any
information that we subsequently file with the SEC that is incorporated by
reference will automatically update and supersede any previous information that
is part of this prospectus.
Majestic Investor Holdings will provide a copy of any and all such
documents (exclusive of exhibits unless such exhibits are specifically
incorporated by reference therein) without charge to each person to whom a copy
of this prospectus is delivered, upon written or oral request to us at Majestic
Investor Holdings at One Buffington Harbor Drive, Gary, Indiana 46406,
Attention: Michael E. Kelly, telephone (219) 977-7823. To obtain timely delivery
of information, we must receive your request no later than five (5) business
days before the expiration date of the exchange offer.
ii
INDUSTRY AND MARKET DATA
Market data used throughout this prospectus, including information relating
to our relative position in the casino and gaming industry, is based on our good
faith estimates, which estimates we based upon our review of internal surveys,
independent industry publications and other publicly available information.
Although we believe these sources are reliable, we have not independently
verified the information and cannot guarantee its accuracy and completeness.
---------------------
FORWARD-LOOKING STATEMENTS
Throughout this prospectus we make forward-looking statements.
Forward-looking statements include the words "may," "will," "would," "could,"
"likely," "estimate," "intend," "plan," "continue," "believe," "expect" or
"anticipate" and other similar words and include all discussions about our
acquisition and development plans. We do not guarantee that the transactions and
events described in this prospectus will happen as described or that any
positive trends noted in this prospectus will continue. The forward-looking
statements contained in this prospectus are generally located in the material
set forth under the headings "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business," but may be found in other
locations as well. These forward-looking statements generally relate to our
plans, objectives and expectations for future operations and are based upon
management's reasonable estimates of future results or trends. Although we
believe that our plans and objectives reflected in or suggested by such
forward-looking statements are reasonable, we may not achieve such plans or
objectives. You should read this prospectus completely and with the
understanding that actual future results may be materially different from what
we expect. We will not update forward-looking statements even though our
situation may change in the future.
SPECIFIC FACTORS THAT MIGHT CAUSE ACTUAL RESULTS TO DIFFER FROM OUR
EXPECTATIONS, MAY AFFECT OUR ABILITY TO PAY TIMELY AMOUNTS DUE UNDER THE NOTES
OR MAY AFFECT THE VALUE OF THE NOTES, INCLUDE, BUT ARE NOT LIMITED TO:
- the availability and adequacy of our cash flow to meet our requirements,
including payment of amounts due under the notes;
- economic, competitive, demographic, business and other conditions in our
local and regional markets;
- changes or developments in laws, regulations or taxes in the casino and
gaming industry;
- actions taken or omitted to be taken by third parties, including our
customers, suppliers, competitors and members as well as legislative,
regulatory, judicial and other governmental authorities;
- competition in the gaming industry, including the availability and
success of alternative gaming venues and other entertainment attractions;
- a decline in the public acceptance of gaming;
- changes in personnel or compensation, including federal minimum wage
requirements;
- our failure to obtain, delays in obtaining or the loss of any licenses,
permits or approvals, including gaming and liquor licenses, or the
limitation, conditioning, suspension or revocation of any such licenses,
permits or approvals, or our failure to obtain an unconditional renewal
of any such licenses, permits or approvals on a timely basis;
- the loss of any of our casino facilities due to casualty, weather,
mechanical failure or any extended or extraordinary maintenance or
inspection that may be required;
- other adverse conditions, such as adverse economic conditions, changes in
general customer confidence or spending, increased transportation costs,
travel concerns or weather-related factors, that may adversely affect the
economy in general and/or the casino and gaming industry in particular;
- our substantial indebtedness, debt service requirements and liquidity
constraints;
- risks related to the registered notes and to high-yield securities and
gaming securities generally;
iii
- changes in our business strategy, capital improvements or development
plans;
- the availability of additional capital to support capital improvements
and development;
- factors relating to the current state of world affairs and any further
acts of terrorism or any other destabilizing events in the United States
or elsewhere; and
- other factors discussed under "Risk Factors" or elsewhere in this
prospectus.
All future written and verbal forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed
in this prospectus might not occur.
iv
PROSPECTUS SUMMARY
This summary highlights information that we believe is especially important
concerning our business and this exchange offer, and may not contain all of the
information that may be important to you. The following summary is qualified in
its entirety by the more detailed information and the financial statements and
notes thereto appearing elsewhere in this prospectus. You should carefully read
this entire prospectus and should consider, among other things, the matters set
forth under "Risk Factors" before making an investment decision. Majestic
Investor Holdings, LLC will conduct its operations through its subsidiaries. In
this prospectus, unless indicated otherwise, "Majestic," "the Company," "we,"
"us," and "our" refer to Majestic Investor Holdings, LLC and its wholly owned
subsidiaries, Majestic Investor Capital Corp., Barden Mississippi Gaming, LLC,
Barden Colorado Gaming, LLC and Barden Nevada Gaming, LLC, and the term
"issuers" refers to Majestic Investor Holdings, LLC and Majestic Investor
Capital Corp., collectively. The term "unregistered notes" refers to our
outstanding 11.653% Senior Secured Notes due 2007 that we issued on December 6,
2001 and that have not been registered under the Securities Act. The term
"registered notes" refers to the 11.653% Senior Secured Notes due 2007 offered
pursuant to this prospectus. The term "notes" refers to the unregistered notes
and the registered notes collectively.
Slot machines and table counts, unless otherwise stated, are as of March
31, 2002. EBITDA is defined in note (2) to "Summary Financial and Operating
Data."
THE COMPANY
Our operations consist of three casino properties formerly owned and
operated by Fitzgeralds Gaming Corporation in Tunica, Mississippi, Black Hawk,
Colorado and downtown Las Vegas, Nevada. We acquired these casino properties
from Fitzgeralds Gaming Corporation and certain of its affiliates on December 6,
2001. Our properties collectively contain approximately 2,903 slot machines, 63
table games and 1,145 hotel rooms. Our properties are well established, each
having been in operation for at least five years, and are located within
significant gaming markets. We operate our properties under the Fitzgeralds name
to continue to benefit from the strong name brand recognition we believe is
enjoyed by Fitzgeralds.
We are indirectly wholly owned subsidiaries of The Majestic Star Casino,
LLC (the "Parent") and are indirectly wholly owned and controlled by Don H.
Barden, our Chairman, President and Chief Executive Officer. Mr. Barden has an
established track record of operating, developing and acquiring properties in
the gaming industry and in other industries. Mr. Barden, through Parent, owns
and operates the Majestic Star Casino, a gaming facility containing 1,445 slot
machines and 52 table games in Gary, Indiana that serves the Chicago
metropolitan area. We have no ownership interest in Parent or the Majestic Star
Casino.
1
OUR PROPERTIES AND THEIR MARKETS
The following table summarizes some key operating data of our properties
and the performance of their respective gaming markets:
<Table>
<Caption>
FITZGERALDS FITZGERALDS FITZGERALDS
TUNICA BLACK HAWK LAS VEGAS
------------------ ------------------ ------------------------
(DOLLARS IN THOUSANDS)
PROPERTY DATA:
Date Opened.................. June 1994 May 1995 July 1980
Gaming Square Feet........... 36,000 16,000 42,000
Slot Machines(1)............. 1,375 594 934
Table Games(1)............... 34 6 23
Hotel Rooms(1)............... 435 standard -- 624 standard
72 suites 14 suites
Amenities(1)................. - 3 restaurants - Restaurant - 5 restaurants
- 2 bars - Bar - 3 bars
- Ballroom - Keno lounge
- Gift shop - Sports book
- Jewelry store
- Car rental kiosk
- Special events center
- Gift shop
Parking(1)................... 411 covered 392 covered valet 335 covered
1,264 surface 41 surface
120 covered valet
Gaming Revenues(2)........... $84,764 $38,622 $39,019
Growth Rate since 1998(3).... 11.14% 2.85% 2.26%
Operating Income (Loss)(2)... $41,873 $7,366 $(25,435)
Net Income (Loss)(2)......... $41,887 $7,340 $(25,503)
Year-to-Date Growth
Rate(4).................... 8.39% 3.43% (6.92)%
Fair Share(5)................ 86.36% 125.10% 105.96%
MARKET DATA:
Market....................... Tunica Black Hawk/ Downtown Las Vegas
Central City
Primary Population Center.... Memphis MSA Denver MSA Las Vegas MSA
MSA Population(6)............ 1.1 million 2.1 million 1.6 million
Tourists(7).................. 26.8 million Not available 35.0 million
Gaming Revenues(2)........... $1,108,719 $553,908 $674,836
Growth Rate since 1998(3).... 4.31% 13.60% (0.18)%
Year-to-Date Growth
Rate(4).................... 4.27% 12.30% (4.73)%
</Table>
- ---------------
(1) As of March 31, 2002.
(2) For the period April 2, 2001 to December 6, 2001 and the period December 7,
2001 to March 31, 2002 for property data and for the twelve reporting months
ended March 2002 for market data. The properties discontinued recording
depreciation and amortization of their property and equipment and interest
on the senior secured notes subsequent to the filing of the bankruptcy cases
on December 5, 2000.
2
(3) Compounded annual growth rate of gaming revenues over the period from
January 1, 1998 through March 31, 2002 for property data, and over the
period from January 1998 through March 2002 for market data. See
"Business -- Markets" for annual growth rates.
(4) Growth rate of gaming revenues for the three months ended March 31, 2002 for
property data, and during the period from January 2002 through March 2002
for market data, in each case as compared to the comparable period in the
prior year.
(5) This statistic generally reflects whether a property has captured its pro
rata share (based on the property's gaming positions compared to all gaming
positions in the market) of the gaming revenue in a market and is computed
using the best available data, but it is not a precise measure. If the "Fair
Share" number exceeds 100%, the property has more than its pro rata share of
revenues in the market. If the "Fair Share" number is less than 100%, the
property has less than its pro rata share of revenues. The "Fair Share"
number equals property's market share of gaming revenues divided by
property's market share of gaming positions for the period April 2, 2001 to
December 6, 2001 and the period December 7, 2001 to March 31, 2002 for
property data, and for the twelve reporting months ended March 2002 for
market data. The number of gaming positions for a specified period is
determined by averaging the number of gaming positions for each reporting
month in such period. The number of gaming positions for a reporting month
is equal to the sum of (i) the number of slot machines reported to the
applicable gaming regulatory agency for such month and (ii) the product of
six times the number of table games reported to the applicable gaming
regulatory agency for such month.
(6) Based on U.S. Census data for 2000.
(7) For the year ended December 31, 2001. Based on data from the Mississippi
Gaming Commission, in the case of Tunica, and the Las Vegas Convention and
Visitors Bureau, in the case of Las Vegas.
OUR OPERATING STRATEGY
The principal elements of our operating strategy include:
Focus on Quality and Service at an Affordable Price. Our casinos provide a
high-quality casino entertainment experience at an affordable price to attract
middle income guests. We believe these middle income guests constitute the
largest segment of potential gaming customers whom we can then identify, qualify
and target for direct marketing activities. Our approach to business at our
three properties focuses on guest service and includes:
- trained hosts to personally assist guests;
- friendly employees;
- quality food, beverages and lodging (except for Black Hawk, which does
not include a hotel) at a moderate price;
- a mix of gaming machines tailored to our customers; and
- personal attention through direct mail promotions, targeted incentives
and the use of the Fitzgeralds Card as part of a frequent player
recognition program.
This strategy was developed, in part, based on our experience in operating our
Parent's casino (in which we have no ownership interest). As with any strategy,
its success can only be measured by actual results. While we may not have
correctly assessed the nature of our customers, or what they prefer, we believe
that our approach to business creates a comfortable, familiar and friendly
environment that promotes customer loyalty and satisfaction, enhances playing
time, leads to a high rate of repeat business and is the basis for the further
development of the Fitzgeralds gaming brand, which we believe is nationally
recognized, and our reputation for quality and service at an affordable price.
Capitalize on Fully Integrated Player Tracking and Extensive Guest
Database. Direct marketing to our guests is a key component of our customer
service. Each of our properties contains a fully integrated player tracking
system that permits detailed player tracking at each individual property. The
system uses the Fitzgeralds Card to track individual or combined play at slot
machines, table games and keno, as well as food
3
and beverage and hotel expenditures at each individual property. This fully
integrated system allows us to identify players and their gaming preferences and
practices and to develop a comprehensive customer database for marketing and
guest services purposes. Our player tracking program allows us to target our
marketing programs to categories of players, including through advertising
programs, promotions, tournaments with substantial cash prizes, special group
and tour packages and other events and incentives designed to promote customer
loyalty and increase repeat business. Our tracking system also allows us to
better tailor our pricing, promotions, gaming machine selection and other guest
services to customer preferences. In the future, we intend to use the tracking
system data to encourage customers of each individual property to patronize our
other properties. We realize that the value of the tracking system is dependent
on the quality of the data and our ability to use the information to generate
revenue. We currently have over 670,000 active players in our database.
Promote Nationally Recognized Gaming Brand. We believe the Fitzgeralds
brand has developed into a nationally recognized gaming brand by using a
consistent Irish Luck theme throughout the casinos, hotels, restaurants and bars
at all of its properties. The Irish Luck theme allows us to capitalize on our
belief that every casino guest wants to feel lucky. The Irish Luck theme
incorporates various aspects of Irish folklore, such as leprechauns, horseshoes,
four-leaf clovers, the Blarney Stone and a pot of gold at the end of a rainbow,
as well as Irish music. We believe that this theme creates an exciting and
comfortable environment together with a distinctive brand identity for
customers. Although there can be no assurance that we will attract customers
based on the Fitzgeralds gaming brand, we believe that Fitzgeralds customers
have come to associate the Irish Luck theme and the associated trade dress and
Fitzgeralds brand trademarks with strong guest services such as the personal
attention and quality product and gaming experience that we seek to provide at
each of our properties.
Leverage Existing Majestic Star Customer Base. Parent has established the
Club Majestic and Club Majestic Premier Slot Club to increase the frequency of
visits by Parent's existing customers. This program enables Parent to maintain a
comprehensive database of information on approximately 118,000 of its active
gaming patrons, including their gaming levels, duration of play and preferences.
Parent uses this information to create a comprehensive direct mail marketing
program. Although we will be able to use this information and the marketing
program to market our properties to existing customers of Parent, there can be
no assurance that existing customers of Parent will become our customers.
Capitalize on Market Growth Opportunities. We believe there are
substantial future growth opportunities within each of the markets where our
properties are located, including the following:
- Fitzgeralds Tunica. A 168-acre, $20 million Tunica River Front Park is
under development adjacent to our Fitzgeralds Tunica property. The park
as currently planned will include a marina and boat dock along the
Mississippi River (including space for sightseeing paddle wheel
riverboats), a historic Mississippi River museum, nature trails, retail
space, and parking. Construction began on the park in mid October 2001,
and we expect the park to open in phases beginning in July 2002 through
March 2003. Tunica County has assumed the full obligation to fund this
project and will require no financial contribution from us. Fitzgeralds
Tunica conveyed approximately 71 acres of the river park land to the
County, and as consideration for the conveyance, the County granted
Fitzgeralds Tunica a rent-free lease to use and further sublease the boat
dock for 15 years from the date of substantial completion of the marina,
as well as a perpetual easement allowing ingress and egress between the
Fitzgeralds Tunica property and the boat dock. We have licensed our right
to use the boat dock to a riverboat operator who will provide riverboat
excursions along the Mississippi River from the marina and boat dock. In
an effort to increase customer traffic in the Tunica area, Tunica County
also is expanding its airport into a regional airport, with the first
phase of expansion scheduled for completion in 2003 and the second phase
scheduled for completion in 2005. Although there can be no assurance, we
believe that both the Tunica River Front Park and the regional airport
will attract new customers to our Tunica property.
- Fitzgeralds Black Hawk. The Black Hawk/Central City market serves the
rapidly growing Denver area, of which the population of the metropolitan
statistical area grew 30.0% from 1990 to 2000. The compounded annual
growth rate of gaming revenues for the Black Hawk/Central City market was
4
13.60% for the period from January 1998 through March 2002. The market
continues to experience rapid growth as gaming revenues for the three
months ended March 2002 increased 12.30% over the comparable period in
the prior year. We believe that the market has potential for future
growth as well, in part due to a proposal to improve access to Black
Hawk. The City of Black Hawk Development Authority is currently pursuing
plans to expand the road leading to Black Hawk and construct a tunnel
leading to the downtown gaming area from I-70, the major interstate
highway from Denver. A referendum is expected to be held in May 2002 to
approve the financing for the proposed tunnel. We cannot assure you that
the financing for the proposed tunnel will be approved, or if the
financing is approved, when or if the proposed tunnel will be built. Our
Fitzgeralds Black Hawk property has available adjacent land for expansion
if market conditions warrant and we are currently evaluating the
possibility of such an expansion to better serve this growing market.
- Fitzgeralds Las Vegas. The downtown Las Vegas area has long been the
focus of continued efforts to increase tourist traffic, beginning with
the Fremont Street Experience, an entertainment and retail promenade,
which opened in December 1995. The most recent development is the
approximately $100 million Neonopolis project, a 250,000 square foot
retail and entertainment venue with a 14 screen movie theater that opened
in May 2002. The project includes a $32 million, 600 space underground
parking garage. This project is located at the east end of the Fremont
Street Experience and across from our Fitzgeralds Las Vegas property. We
believe that this project will attract more potential customers to
downtown Las Vegas and shift the focus of traffic along the Fremont
Street Experience towards our Fitzgeralds Las Vegas property.
Additionally, a project has been proposed to visually enhance the Fremont
Street Experience "Sound and Light Shows" by replacing the existing light
display with flat panel display screens which have the capability to show
televised and other multimedia events and programming, thereby
dramatically enhancing the range of entertainment programming options.
While we believe we have the ability to capitalize on these market growth
opportunities, there can be no assurance that these opportunities will become
available, and if they do, that we will be able to take advantage of them.
MAJESTIC INVESTOR CAPITAL CORP.
Majestic Investor Capital Corp. is a wholly owned subsidiary of Majestic
Investor Holdings, LLC, and was formed specifically to facilitate the offering
of the notes. It does not have any material assets, obligations or operations.
SUMMARY OF THE TERMS OF EXCHANGE OFFER
SECURITIES TO BE EXCHANGED.... On December 6, 2001, we issued $152,632,000 in
aggregate principal amount of unregistered
notes in a transaction exempt from the
registration requirements of the Securities
Act. In connection with the initial sale of the
unregistered notes, we entered into a
registration rights agreement in which we
agreed, among other things, to deliver this
prospectus to you and to complete an exchange
offer. The terms of the registered notes and
the unregistered notes are substantially
identical in all material respects, except for
the elimination of some transfer restrictions,
registration rights and liquidated damages
provisions relating to the unregistered notes.
See "Description of Registered Notes."
THE EXCHANGE OFFER............ We are offering to exchange $1,000 principal
amount of our registered notes for each $1,000
principal amount of unregistered notes. As of
the date of this prospectus, unregistered notes
representing $152,632,000 in aggregate
principal amount are outstanding.
5
Based on interpretations by the staff of the
SEC set forth in published no-action letters,
we believe you may offer for resale, resell and
otherwise freely transfer the registered notes
without further registering those notes or
delivering a prospectus to a buyer, unless you:
- are our "affiliate" within the meaning of
Rule 405 promulgated under the Securities
Act;
- are a broker-dealer who purchased
unregistered notes directly from us for
resale pursuant to Rule 144A or any other
available exemption under the Securities Act;
- are acquiring the registered notes in the
exchange offer other than in the ordinary
course of your business; or
- have an arrangement or understanding with any
person to engage in the distribution of the
registered notes.
However, the SEC has not considered this
exchange offer in the context of a no-action
letter and we cannot be sure that the staff of
the SEC would make a similar determination with
respect to the exchange offer as in these other
circumstances. Furthermore, you must
acknowledge that (i) you are not affiliated
with us, (ii) you are not engaged in, a
distribution of registered notes, and (iii) you
are not acquiring the registered notes in your
ordinary course of business. If you are a
broker-dealer that receives registered notes
for your own account pursuant to the exchange
offer, you must deliver a prospectus in
connection with any resale of your registered
notes.
If you are a broker-dealer who acquired
original notes directly from us or our
affiliates, you may not rely on the SEC staff's
interpretations discussed above and must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale transaction.
Such secondary resale transaction must be
covered by an effective registration statement
containing the required selling security holder
information.
REGISTRATION RIGHTS
AGREEMENT..................... We sold the unregistered notes to the initial
purchaser on December 6, 2001. The initial
purchaser resold the unregistered notes to
qualified institutional buyers under Rule 144A
under the Securities Act. In connection with
the initial sale of the unregistered notes, we
entered into a registration rights agreement
requiring us to make the exchange offer. The
registration rights agreement also requires us
to use our best efforts:
- to cause the registration statement with
respect to the exchange offer to become
effective under the Securities Act by April
5, 2002; and
- Complete the exchange offer no later than 30
days after the SEC declares the registration
statement with respect to the exchange offer
effective.
See "The Exchange Offer -- Purpose and Effect."
If we do not do so, we will pay special
additional interest on the unregistered notes
at an initial per week rate of $0.05 per $1,000
principal amount for
6
the first 90 days, and this amount will
increase by an additional $0.05 per week for
each subsequent 90 day period, to a maximum of
$0.20 per week.
EXPIRATION DATE............... The exchange offer will expire at 5:00 p.m.,
New York City time, , 2002, or a
later date and time if we extend it.
WITHDRAWAL.................... You may withdraw the tender of your
unregistered notes at any time prior to 5:00
p.m., New York City time, on the expiration
date of the exchange offer. We will return to
you any of your unregistered notes that we do
not accept for exchange for any reason, without
expense to you, promptly after the exchange
offer expires or terminates.
INTEREST ON THE REGISTERED
NOTES AND THE UNREGISTERED
NOTES......................... The registered notes will bear interest at the
rate of 11.653% per year beginning December 6,
2001. This interest will be payable
semi-annually on each May 31 and November 30,
with the first payment on May 31, 2002. We will
not pay interest on the unregistered notes
after we accept them for exchange. See
"Description of Registered Notes."
NO MINIMUM CONDITION.......... We are not conditioning the exchange offer on
the tender of any minimum principal amount of
old notes.
CONDITIONS TO THE EXCHANGE
OFFER......................... The exchange offer is subject to customary
conditions, some of which we may waive. We
currently anticipate that each of the
conditions will be satisfied and that we will
not need to waive any conditions. For
additional information, see "The Exchange
Offer -- Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
UNREGISTERED NOTES............ If you wish to accept the exchange offer and
tender your unregistered notes, you must:
- complete, sign and date the letter of
transmittal, or a copy of the letter of
transmittal, in accordance with the
instructions contained in this prospectus and
in the letter of transmittal, and mail or
otherwise deliver the letter of transmittal,
or the copy, together with the unregistered
notes and all other required documentation,
to the exchange agent at the address set
forth in this prospectus; or
- arrange for The Depository Trust Company to
transmit certain required information,
including an agent's message forming part of
a book-entry transfer in which you will agree
to be bound by the letter of transmittal, to
the Exchange Agent in connection with a
book-entry transfer. By executing or agreeing
to be bound by the letter of transmittal, you
will represent to us that, among other
things:
- the registered notes you receive pursuant
to the exchange offer are being acquired in
the ordinary course of your business;
7
- 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 our "affiliate."
SHELF REGISTRATION............ Pursuant to the registration rights agreement
if:
- we are not permitted to consummate the
exchange offer because the exchange offer is
not permitted by applicable law or SEC
policy; or
- specified holders of unregistered notes
notify us within 20 days after consummation
of the exchange offer:
- that they are prohibited by law or SEC
policy from participating in the exchange
offer;
- that they may not resell the registered
notes acquired by them in the exchange
offer to the public without delivering a
prospectus and that this prospectus is not
appropriate or available for these resales;
or
- that they are broker-dealers and own
unregistered notes acquired directly from
us or one of our affiliates,
we may be required to file a "shelf"
registration statement for a continuous
offering pursuant to Rule 415 under the
Securities Act in respect of the unregistered
notes.
ACCEPTANCE OF UNREGISTERED
NOTES AND DELIVERY OF
REGISTERED NOTES.............. Subject to the satisfaction or waiver of the
conditions to the exchange offer, we will
accept for exchange any and all unregistered
notes which are properly tendered (and are not
withdrawn) in the exchange offer prior to 5:00
p.m., New York City time, on , 2002.
The registered notes issued pursuant to the
exchange offer will be delivered promptly
following the expiration date. For additional
information, see "The Exchange Offer -- Terms
of the Exchange Offer."
SPECIAL PROCEDURE FOR
BENEFICIAL OWNERS............. If you beneficially own unregistered notes that
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your unregistered notes
in the exchange offer, you should promptly
contact the person in whose name your
outstanding unregistered notes are registered
and instruct that person to tender your
unregistered notes 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 and executing the
letter of transmittal and delivering your
unregistered notes, either arrange to have your
unregistered 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 unregistered notes
and time will not permit your required
documents to reach the exchange agent by
8
the expiration date, or the procedures for
book-entry transfer cannot be completed on
time, you may tender your unregistered notes
according to the guaranteed delivery procedures
described in "The Exchange Offer -- Procedures
for Tendering Unregistered Notes."
EXCHANGE AGENT................ The Bank of New York is serving as exchange
agent for the exchange offer.
USE OF PROCEEDS............... We will not receive any proceeds from the
issuance of the registered notes in the
exchange offer. We will pay for our expenses
incident to the exchange offer.
FEDERAL INCOME TAX
CONSIDERATIONS................ The exchange of unregistered notes for
registered notes pursuant to the exchange offer
will not constitute a taxable exchange for
federal income tax purposes. Therefore, you
will not have to pay federal income tax as a
result of your participation in the exchange
offer. For additional information, see "United
States Federal Income Tax Considerations."
CONSEQUENCES OF FAILING TO
EXCHANGE YOUR UNREGISTERED
NOTES......................... The exchange offer satisfies our obligations
and your rights under the registration rights
agreement. After the exchange offer is
completed, you will not be entitled to any
registration rights with respect to your
unregistered notes.
Therefore, if you do not exchange your
unregistered notes, you will not be able to
reoffer, resell or otherwise dispose of your
unregistered notes unless:
- you comply with the registration and
prospectus delivery requirements of the
Securities Act; or
- you qualify for an exemption from the
Securities Act registration requirements.
Please review the information beginning on page 54 under the heading "The
Exchange Offer" for more detailed information concerning the exchange offer.
SUMMARY OF THE TERMS OF REGISTERED NOTES
The terms of the registered notes will be identical in all material
respects to the terms of the unregistered notes, except that the registration
rights and related liquidated damages provisions, and the transfer restrictions
that apply to the unregistered notes do not apply to the registered notes. The
registered notes will evidence the same debt as the unregistered notes. The
registered notes and the unregistered notes will be governed by the same
indenture.
The following summary contains basic information about the registered notes
and is not intended to be complete. It does not contain all the information that
may be important to you. For a more complete understanding of the registered
notes, please refer to the section of this prospectus entitled "Description of
the Registered Notes." For purposes of the description of the notes included in
this prospectus, references to the "Company," "Issuers," "us," "we" and "our"
refer only to Majestic Investor Holdings, LLC and Majestic Investor Capital
Corp., collectively, and do not include our subsidiaries or any other entities.
ISSUERS....................... Majestic Investor Holdings, LLC and its wholly
owned subsidiary, Majestic Investor Capital
Corp.
9
REGISTERED NOTES OFFERED...... $152,632,000 million aggregate principal amount
of 11.653% Senior Secured Notes due 2007.
MATURITY DATE................. November 30, 2007.
INTEREST RATE................. We will pay interest on the registered notes at
an annual rate of 11.653%.
INTEREST PAYMENT DATES........ May 31 and November 30 of each year, beginning
May 31, 2002.
SECURITY INTEREST............. The registered notes will be secured by, among
other things, a pledge or assignment of the
assets of each of our casinos; all of our
furniture, fixtures and equipment; the equity
interests in Majestic Investor Holdings, LLC;
the equity interests in the subsidiary
guarantors; our rights to the service mark
"Fitzgeralds" and any of our other intellectual
property; and substantially all of our and the
subsidiary guarantors' other assets, other than
the excluded assets. The lien on the collateral
securing our $15.0 million senior secured
credit facility will be senior to the lien on
the collateral securing the registered notes
and the guarantees.
GUARANTEES.................... The registered notes will be unconditionally
guaranteed on a senior secured basis by each of
our restricted subsidiaries. The guarantees
will rank senior in right of payment to all
existing and future subordinated indebtedness
of these restricted subsidiaries and equal in
right of payment with all existing and future
senior indebtedness of these restricted
subsidiaries.
RANKING....................... The registered notes will rank senior in right
of payment to all of our existing and future
subordinated indebtedness and equal in right of
payment with all of our other existing and
future senior indebtedness but, because of the
security interests, will be effectively senior
to all of our future unsecured senior
indebtedness and unsecured trade credit.
OPTIONAL REDEMPTION........... On or after November 30, 2005, we will have the
right to redeem registered notes, from time to
time, at the following redemption prices
(expressed as percentages of the principal
amount), plus accrued and unpaid interest, if
redeemed during the 12-month period commencing
November 30 of the year indicated below:
<Table>
<Caption>
FOR THE PERIOD PERCENTAGE
-------------- ----------
2005................................... 105.827%
2006 and thereafter.................... 100.000%
</Table>
In addition, at any time on or prior to
November 30, 2004, we may, at our option, apply
part of the net proceeds from certain equity
offerings to redeem up to 35% of the principal
amount of the registered notes at 111.653% of
their face amount, plus accrued and unpaid
interest.
GAMING REDEMPTION............. The registered notes will be subject to
mandatory disposition and redemption
requirements following certain determinations
by any gaming regulatory authority.
CHANGE OF CONTROL OFFER....... If we experience a change in control, the
holders of the registered notes will have the
right to require us to purchase their
registered notes at a price equal to 101% of
the principal amount, plus accrued and unpaid
interest, if any.
10
ASSET SALE OFFER.............. If we sell assets, we may have to use the
proceeds to offer to purchase some of the
registered notes at a price equal to 100% of
the principal amount, plus accrued and unpaid
interest, if any.
CERTAIN INDENTURE
PROVISIONS.................... We will issue the registered notes under an
indenture with The Bank of New York, as
trustee. The indenture will contain covenants
limiting our ability to, among other things:
- incur more debt;
- pay dividends or make other distributions;
- redeem our equity interests;
- make certain investments;
- create liens;
- enter into transactions with affiliates;
- merge or consolidate; and
- transfer or sell assets, including the equity
interests of our subsidiaries.
These covenants will be subject to a number of
important exceptions.
FORM OF THE REGISTERED
NOTES......................... The registered notes will be represented by a
permanent global note in definitive, fully
registered form. The global note will be
registered in the name of a nominee of The
Depository Trust Company and will be deposited
with The Bank of New York, as custodian for The
Depository Trust Company's nominee.
USE OF PROCEEDS............... We will not receive any proceeds from the
exchange offer. For a description of the use of
proceeds from the offering of the unregistered
notes, see "Use of Proceeds."
TRANSFER RESTRICTIONS; ABSENCE
OF A PUBLIC MARKET FOR THE
NOTES......................... There has been no public market for the
unregistered notes, and we do not anticipate
that an active market for the registered notes
will develop. We do not intend to apply to list
the registered notes on any securities exchange
or to include them in any automated quotation
system. We cannot make any assurances regarding
the liquidity of the market for the registered
notes, your ability to sell your registered
notes or the price at which you may sell your
registered notes. See "Plan of Distribution."
RISK FACTORS
Before making an investment in the registered notes, you should carefully
consider the information included in "Risk Factors" beginning on page 16, as
well as all other information set forth in this prospectus.
11
SUMMARY FINANCIAL AND OPERATING DATA
The following tables summarize, on a combined basis and by property, the
historical financial data set forth in the section "Selected Financial Data" and
provide certain pro forma financial and operating data giving effect to our
acquisition of the Fitzgeralds casino properties on December 6, 2001. You should
read this historical and pro forma data in conjunction with the sections of this
prospectus entitled "Capitalization," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and the historical combined financial statements, the historical
consolidated financial statements and the unaudited pro forma consolidated
financial statement and the notes thereto included in this prospectus. The
summary historical financial data for the years ended December 31, 1998, 1999
and 2000, presented below, have been derived from the audited combined financial
statements for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and
101 Main Street Limited Liability Company for those periods. The summary
historical financial data for the year ended December 31, 1997 has been derived
from the unaudited combined financial statements for Fitzgeralds Las Vegas,
Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability
Company for that period. The summary historical data for the year ended December
31, 2001 has been derived from the audited combined financial statements for
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street
Limited Liability Company for the period from January 1, 2001 to December 6,
2001, and the audited consolidated financial statements for Majestic Investor
Holdings, LLC for the period from inception (September 14, 2001) through
December 31, 2001. The summary financial data at March 31, 2002 and for the
quarter ended March 31, 2002, presented below, have been derived from the
unaudited consolidated financial statements for Majestic Investor Holdings, LLC
at March 31, 2002 and for the three months ended March 31, 2002. The summary
financial data for the quarter ended April 1, 2001, presented below, has been
derived from the unaudited combined financial statements for Fitzgeralds Las
Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability
Company for the quarter ended April 1, 2001. Results for the quarters ended
April 1, 2001 and March 31, 2002 are not necessarily indicative of results for
the full year. The unaudited financial statements have been prepared on a basis
consistent with the audited financial statements. All adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation of the
interim combined financial statements, have been included.
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
<Table>
<Caption>
FOR THE QUARTER
ENDED
FOR THE YEAR ENDED DECEMBER 31, --------------------
--------------------------------------------------------- APRIL 1, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
STATEMENT OF OPERATIONS
DATA:
Net operating
revenues............. $149,261 $149,222 $152,776 $159,738 $ 168,180 $43,421 $43,313
Income from
operations........... 14,677 10,543 11,723 15,396 25,249(5) 8,700 5,489
Net income (loss)...... (11,475) (21,269) (16,248) (10,535) 24,088(5) 8,711 994
OTHER DATA:
Depreciation and
amortization......... 10,320 11,052 11,726 11,688 836(5) -- 3,387
Capital expenditures... 3,014 6,047 4,715 9,336(6) 1,177 418 1,172
CASH FLOW DATA:
Operating activities... 10,008 7,803 8,773 12,131 (5,289)
Investing activities... (28,701)(7) (4,126) (4,268) (9,003) (144,907)(4)
Financing activities... 17,164(7) (3,875) (2,976) (454) 158,711(4)
PRO FORMA DATA:(1)
EBITDA(2).............. 30,761
Ratio of EBITDA to cash interest expense(3)......................... 1.7x
Ratio of total long-term debt (including current portion) to
EBITDA.............................................................. 4.9x
</Table>
12
<Table>
<Caption>
AT DECEMBER 31, AT
---------------------------------------------------- MARCH 31,
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 8,945 $ 8,748 $ 10,278 $ 2,840 $ 17,705 $ 17,325
Total assets........................... 168,341 162,025 157,033 147,320 183,429 182,851
Total long-term debt (including current
portion)............................. 4,558 3,326 719 -- 151,997 147,461
Total stockholder's deficiency/member's
equity............................... (30,993) (52,262) (68,510) (79,045) 12,532 13,339
</Table>
- ---------------
(1) Gives effect to our acquisition of the Fitzgeralds casino properties as if
it occurred on January 1, 2001. Pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the
operating results that would have occurred if the Fitzgeralds acquisition
had occurred as of January 1, 2001 nor is it necessarily indicative of our
future operating results or financial position. The pro forma data should be
read in conjunction with the unaudited pro forma consolidated financial
statement and the notes thereto included elsewhere in this prospectus.
(2) EBITDA, pro forma for the Fitzgeralds acquisition, is defined as historical
earnings before interest, taxes, depreciation and amortization, represented
here as historical income from operations plus historical depreciation and
amortization, adjusted (a) to exclude $10.5 million for certain
non-recurring reorganization items related to the bankruptcy restructuring,
(b) to exclude a $13.0 million write-down of assets, (c) to exclude $1.0
million of pre-opening costs, and (d) to include cost reductions, which we
expect to realize as a result of the Fitzgeralds acquisition, of $1.2
million. For more detailed information on these items, see Notes to
Unaudited Pro Forma Consolidated Financial Statement beginning on page PF-4.
There can be no assurance that the expected cost reductions will occur.
EBITDA is presented to enhance the understanding of our financial
performance and our ability to service our indebtedness, including the
registered notes. Although EBITDA is not necessarily a measure of our
ability to fund our cash needs, we understand that it is used by certain
investors as one measure of cash flow and to compare our performance with
the performance of other companies that report EBITDA. EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles ("GAAP"), is unaudited and should not be considered an
alternative to, or more meaningful than, net income or income from
operations, as an indicator of our operating performance, or cash flows from
operating activities, as a measure of liquidity. This definition of EBITDA
may not be the same as that of similarly named measures used by other
companies or the definition used in any of our debt agreements.
(3) Pro forma interest expense for the year ended December 31, 2001 is $17.8
million, which includes interest related to the registered notes and assumed
capital lease obligations, and excludes $1.3 million related to the
amortization of debt discount related to this offering. See Notes to
Unaudited Pro Forma Consolidated Financial Statement beginning on page PF-4.
(4) Cash flows from investing activities reflects the acquisition of the
Fitzgeralds properties on December 6, 2001. Cash flows from financing
activities reflects the proceeds from the issuance of the unregistered
notes.
(5) Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main
Street Limited Liability Company discontinued recording depreciation and
amortization of their property and equipment and interest on the senior
secured notes subsequent to the filing of the bankruptcy cases on December
5, 2000.
(6) Includes $5.6 million for construction of the parking garage and additional
surface parking at Fitzgeralds Mississippi, Inc.
(7) Activity reflects the purchase of the remaining 78% interest in 101 Main
Street Limited Liability Company by Fitzgeralds Gaming Corporation on August
15, 1997.
13
SUMMARY FINANCIAL AND OPERATING DATA BY PROPERTY
<Table>
<Caption>
FOR THE QUARTER
ENDED
FOR THE YEAR ENDED DECEMBER 31, --------------------
----------------------------------------------------- APRIL 1, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NET OPERATING REVENUES
Fitzgeralds Tunica............................. $ 68,734 $ 64,012 $ 69,582 $ 75,062 $ 82,080 $21,236 $22,250
Fitzgeralds Black Hawk......................... 33,987 34,223 32,284 32,537 33,584 7,875 8,005
Fitzgeralds Las Vegas.......................... 46,540 50,987 50,910 52,139 52,516 14,309 13,058
-------- -------- -------- -------- -------- ------- -------
Total........................................ $149,261 $149,222 $152,776 $159,738 $168,180 $43,420 $43,313
======== ======== ======== ======== ======== ======= =======
INCOME (LOSS) FROM OPERATIONS
Fitzgeralds Tunica............................. $ 6,013 $ 2,063 $ 5,321 $ 9,018 $ 42,687 $ 5,442 $ 4,628
Fitzgeralds Black Hawk......................... 9,208 9,074 7,517 6,385 7,701 1,594 1,259
Fitzgeralds Las Vegas.......................... (544) (594) (1,115) (7) (24,011) 1,664 240
-------- -------- -------- -------- -------- ------- -------
Total........................................ $ 14,677 $ 10,543 $ 11,723 $ 15,396 $ 26,377(3) $ 8,700 $ 6,127
======== ======== ======== ======== ======== ======= =======
NET INCOME (LOSS)
Fitzgeralds Tunica............................. $ (4,692) $(10,355) $ (7,399) $ (2,803) $ 42,685 $ 5,440 $ 4,642
Fitzgeralds Black Hawk......................... 2,205 (81) 194 (384) 7,670 1,592 1,262
Fitzgeralds Las Vegas.......................... (8,988) (10,833) (9,043) (7,348) (24,060) 1,679 236
-------- -------- -------- -------- -------- ------- -------
Total........................................ $(11,475) $(21,269) $(16,248) $(10,535) $ 26,295(3) $ 8,711 $ 6,140
======== ======== ======== ======== ======== ======= =======
DEPRECIATION AND AMORTIZATION
Fitzgeralds Tunica............................. $ 5,731 $ 5,987 $ 6,231 $ 6,235 $ 485 $ -- $ 1,780
Fitzgeralds Black Hawk......................... 1,440 1,789 1,786 1,755 100 -- 364
Fitzgeralds Las Vegas.......................... 3,149 3,276 3,709 3,698 167 -- 617
-------- -------- -------- -------- -------- ------- -------
Total........................................ $ 10,320 $ 11,052 $ 11,726 $ 11,688 $ 752(3) $ -- $ 2,761
======== ======== ======== ======== ======== ======= =======
CAPITAL EXPENDITURES
Fitzgeralds Tunica............................. $ 928 $ 2,903 $ 2,393 $ 6,199(1) $ 727 $ 247 $ 513
Fitzgeralds Black Hawk......................... 265 1,312 687 1,518 178 59 104
Fitzgeralds Las Vegas.......................... 1,821 1,832 1,635 1,619 272 112 555
-------- -------- -------- -------- -------- -------
Total........................................ $ 3,014 $ 6,047 $ 4,715 $ 9,336 $ 1,177 $ 1,172
======== ======== ======== ======== ======== =======
PRO FORMA EBITDA(2)
Fitzgeralds Tunica............................. $ 19,176
Fitzgeralds Black Hawk......................... 8,504
Fitzgeralds Las Vegas.......................... 2,073
--------
Total........................................ $ 29,753
========
</Table>
- ---------------
(1) Includes $5.6 million for construction of the parking garage and additional
surface parking.
(2) Gives effect to the Fitzgeralds acquisition as if it occurred on January 1,
2001. 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 Fitzgeralds acquisition had occurred as of
January 1, 2001, nor is it necessarily indicative of our future operating
results or financial position. The pro forma data should be read in
conjunction with the unaudited pro forma consolidated financial statement
and the notes thereto included elsewhere in this prospectus.
EBITDA, pro forma for the Fitzgeralds acquisition, is defined as historical
earnings before interest, taxes, depreciation and amortization, represented
here as historical income (loss) from operations plus historical
depreciation and amortization, adjusted (a) to exclude, for the three
properties on a combined basis, an aggregate of $10.5 million for certain
non-recurring reorganization items related to the bankruptcy restructuring,
(b) to exclude a $13.0 million write-down of assets, and (c) to include cost
reductions, which we expect to realize as a result of the Fitzgeralds
acquisition, of $1.2 million, for the
14
three properties on a combined basis. For more detailed information on these
items, see Notes to Unaudited Pro Forma Consolidated Financial Statement
beginning on page PF-4. There can be no assurance that the expected cost
reductions will occur.
EBITDA is presented to enhance the understanding of our financial
performance and our ability to service our indebtedness, including the
registered notes. Although EBITDA is not necessarily a measure of our
ability to fund our cash needs, we understand that it is used by certain
investors as one measure of cash flow and to compare our performance with
the performance of other companies that report EBITDA. EBITDA is not a
measurement determined in accordance with GAAP, is unaudited and should not
be considered an alternative to, or more meaningful than, net income or
income from operations, as an indicator of our operating performance, or
cash flows from operating activities, as a measure of liquidity. This
definition of EBITDA may not be the same as that of similarly named measures
used by other companies or the definition used in any of our debt
agreements.
(3) Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main
Street Limited Liability Company discontinued recording depreciation and
amortization of their property and equipment and interest on the senior
secured notes subsequent to the filing of the bankruptcy cases on December
5, 2000.
GENERAL
Our executive offices are located at One Buffington Harbor Drive, Gary,
Indiana 46406, and our telephone number is (219) 977-7823. Our World Wide Web
site address is http://www.majesticstar.com. The information in our website is
not part of this prospectus. Additionally, none of the information contained in
the website of Fitzgeralds Gaming Corporation, located at
http://www.fitzgeralds.com, or any of the related sites for its properties, is
part of this prospectus.
15
RISK FACTORS
Our business, operations and financial condition are subject to various
risks. Some of these risks are described below and under "Forward-Looking
Statements," and you should take these risks into account in evaluating us or
any investment decision involving us or in deciding whether to participate in
the exchange offer proposed in this prospectus. This section does not describe
all risks applicable to us or our industry, and it is intended only as a summary
of certain material factors.
RISKS RELATED TO OUR SUBSTANTIAL DEBT
OUR SIGNIFICANT INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES AND OUR OTHER
OUTSTANDING INDEBTEDNESS.
We have now and, after the exchange offer, will continue to have a
significant amount of debt. We currently have outstanding $152.6 million of
long-term debt represented by the unregistered notes. We also have a $15.0
million senior credit facility, under which $1.7 million is currently
outstanding. In addition, the indenture governing the notes will permit us to
incur additional debt in certain circumstances, including to finance the
purchase of furniture and equipment.
Our high level of debt could have important consequences to you and
significant effects on our business. For example, it could, among other things:
- make it more difficult for us to satisfy our obligations with respect to
the notes and our other outstanding indebtedness;
- increase our vulnerability to adverse economic and industry conditions or
a downturn in our business;
- limit our ability to fund a required regulatory redemption or a change of
control offer;
- result in an event of default if we fail to comply with the financial and
other restrictive covenants contained in the indenture or our credit
facility , which event of default could result in all of our indebtedness
becoming immediately due and payable and would permit some or all of our
lenders to foreclose on our assets securing such indebtedness;
- limit our ability to fund or obtain additional financing for future
working capital, capital expenditures and other general financial
requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, development projects, acquisitions and other general
corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and industry; and
- place us at a competitive disadvantage compared to our competitors that
have less debt.
The occurrence of any one of these events could have a material adverse
effect on our business, financial condition, results of operations, prospects
and ability to satisfy our obligations under the notes. For more information on
the terms of the registered notes, see the discussion under the section entitled
"Description of Registered Notes."
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO SERVICE OUR DEBT.
We might not be able to generate sufficient cash flow to service our debt,
to repay the notes when due or to meet unanticipated capital needs or shortfalls
in our projections. We plan to be able to service our debt and repay the notes
when due with cash from operations. Our debt-to-equity ratio as of December 31,
2001 is 12.1x, our ratio of total long-term debt to pro forma EBITDA is 4.9x,
our ratio of pro forma EBITDA to cash interest expense is 1.7x and our pro forma
ratio of earnings to fixed charges would have been approximately 1.0x. For the
ratio of earnings to fixed charges, "earnings" are defined as earnings before
income taxes and fixed charges. "Fixed charges" consist of interest on
indebtedness, imputed interest on capital lease obligations and the portion of
rent expense deemed to represent interest. Based on the combined historical
financial
16
statements for the period January 1, 2001 to December 31, 2001, earnings were
insufficient to cover fixed charges by $1,771,075. However, this shortfall in
earnings does not give effect to the revised cost structure implemented by us
following the acquisition.
Our ability to generate sufficient cash flow to satisfy our obligations
will depend on the future performance of our gaming operations, which is subject
to many economic, political, competitive, regulatory and other factors that we
are not able to control. However, if cash flows from operations are not
sufficient to satisfy our obligations, we may need to seek additional financing
in the debt or equity markets, refinance the notes, sell selected assets or
reduce or delay planned activities and capital expenditures. Any such financings
or sale of assets might not be available on economically favorable terms, if at
all. In the event that we are left without sufficient liquidity to meet our debt
service requirements, an event of default would occur under the indenture and
our credit facility.
RISKS RELATED TO THE NOTES
YOUR FAILURE TO TENDER YOUR UNREGISTERED NOTES IN THE EXCHANGE OFFER COULD
LIMIT THE TRADING MARKET AND TRADING VALUE OF YOUR UNREGISTERED NOTES.
We will only issue registered notes in exchange for unregistered notes that
are timely received by the exchange agent together with all required documents,
including a properly completed and signed letter of transmittal. Therefore, you
should allow sufficient time to ensure timely delivery of the unregistered notes
and you should carefully follow the instructions on how to tender your
unregistered notes. Neither we nor the exchange agent are required to tell you
of any defects or irregularities with respect to your tender of the unregistered
notes. If you do not tender your unregistered notes or if we do not accept your
unregistered notes because you did not tender your unregistered notes properly,
then, after we consummate the exchange offer, you may continue to hold
unregistered notes that are subject to the existing transfer restrictions. In
addition, if you tender your unregistered notes for the purpose of participating
in a distribution of the registered notes, you will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the registered notes. If you are a broker-dealer
that receives registered notes for your own account in exchange for unregistered
notes that you acquired as a result of market-making activities or any other
trading activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale of those registered notes.
The trading market for unregistered notes that are not exchanged in the
exchange offer could be adversely affected due to the limited amount, or
"float," of the unregistered notes that are expected to remain outstanding
following the exchange offer. Generally, a lower "float" of a security could
result in less demand to purchase that security and could, therefore, result in
lower prices for that security. For the same reason, to the extent that a large
amount of unregistered notes are not exchanged in the exchange offer, the
trading market for the unregistered notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES WILL BE EFFECTIVELY SUBORDINATED
TO PAYMENTS UNDER OUR CREDIT FACILITY AND ANY EQUIPMENT FINANCING TO THE
EXTENT OF THE COLLATERAL SECURING THIS OTHER DEBT. THE PROCEEDS FROM THE
COLLATERAL SECURING THE NOTES MAY NOT BE SUFFICIENT TO PAY ALL AMOUNTS OWED
UNDER THE REGISTERED NOTES IF AN EVENT OF DEFAULT OCCURS, EVEN IF THE FAIR
MARKET VALUE OF THE COLLATERAL WOULD OTHERWISE BE SUFFICIENT TO PAY THE
AMOUNTS OWED UNDER THE NOTES.
The notes and guarantees will be effectively subordinated to (a) up to
$15.0 million principal amount of indebtedness that may be incurred under our
credit facility, pursuant to the intercreditor agreement described below, and
(b) any future equipment financing and purchase money debt, in each case to the
extent of the assets securing that indebtedness. As a result, upon any
distribution to our creditors or the creditors of any subsidiary guarantors in
bankruptcy, liquidation, reorganization or similar proceedings, or following
acceleration of our indebtedness or an event of default under such indebtedness,
our lenders under our credit facility, our equipment financing and our purchase
money indebtedness will be entitled to be repaid in full from the proceeds of
the assets securing such indebtedness, or the sale of the equipment subject to
such equipment financing, before any payment is made to you from such proceeds.
Consequently, it is unlikely that the
17
liquidation of the collateral securing the notes would produce proceeds in an
amount sufficient to pay the principal of, or premium, if any, and accrued
interest and liquidated damages, if any, on the notes after also satisfying the
obligations to pay any other senior secured creditors, even if the fair market
value of the collateral would otherwise be sufficient to pay the amounts owed
under the notes. The market value of the collateral will also impact our ability
to make payments due on the notes, as described above. There can be no assurance
that the fair market value of the collateral securing the notes would be
sufficient to pay the amounts due under the notes, even absent our credit
facility and any equipment financing. An event of default under or acceleration
of our other senior secured debt also may prohibit us and the subsidiary
guarantors from paying the notes or the guarantees.
The trustee under the indenture and the lenders under our credit facility
have entered into an intercreditor agreement to govern the relationships among
them and their obligations and rights. Financing by multiple lenders with
security interests in common collateral may result in increased complexity and
lack of flexibility in a debt restructuring or other work-out arrangements
relating to us. Furthermore, under the intercreditor agreement, the trustee's
remedies in the event of a default will be limited. Under the intercreditor
agreement, if the notes become due and payable prior to the stated maturity or
are not paid in full at the stated maturity at a time during which we have
indebtedness outstanding under our credit facility, the trustee will not have
the right to foreclose upon the collateral unless and until the lenders under
our credit facility fail to take steps to exercise remedies with respect to or
in connection with the collateral within 180 days following notice to such
lenders of the occurrence of an event of default under the indenture. In
addition, the intercreditor agreement will prevent the trustee and the holders
of the notes from pursuing remedies with respect to the collateral in an
insolvency proceeding. The intercreditor agreement also provides that the net
proceeds from the sale of collateral will first be applied to repay indebtedness
outstanding under our credit facility and thereafter to the holders of the
notes.
GAMING LAWS, OTHER REGULATIONS AND LESSOR GROUND LEASE ISSUES MAY DELAY OR
OTHERWISE IMPEDE THE TRUSTEE'S ABILITY TO FORECLOSE ON THE COLLATERAL.
The licensing process and the terms of certain ground leases, along with
other foreclosure and sale laws, could substantially delay or prevent the
ability of the trustee or any noteholder to obtain the benefit of any collateral
securing the registered notes, and may adversely affect the sales price for such
collateral and may reduce the number of potential bidders. See "Government
Regulation and Licensing." The trustee's ability to foreclose on a number of the
assets in which we will grant security interests will be subject to (i) the
prior approval of gaming authorities and the senior lender under our credit
facility and (ii) the terms of certain ground leases. The notes and the
guarantees will be secured by substantially all of our and the subsidiary
guarantors' current and future assets (including the equity interests of our
gaming licensee subsidiaries), other than the excluded assets. Approval of
gaming regulatory authorities is required before any person may foreclose on,
take possession of or dispose of certain of such assets. In the event we fail to
pay the notes or otherwise default under the indenture, before the trustee or
the holders of the notes can foreclose or take possession of the assets or
exercise certain other rights, they may need to become licensed under the local
state gaming laws and the regulations promulgated thereunder. See "Risks Related
to Our Business -- Extensive government regulation continuously impacts our
operations." Further, the Merchant Marine Act of 1936 imposes additional
restrictions and limitations on the ability of non-U.S. citizens to foreclose on
the barges at Fitzgeralds Tunica. Such restrictions and limitations may
adversely affect the trustee's ability to foreclose on such collateral if you or
any other holder of our notes is not a U.S. citizen.
In addition, a significant portion of our Las Vegas real property is not
owned in fee title, but is leased by us under four ground leases, under which
our gaming licensee subsidiary is the lessee. Due to restrictions contained in
two of the ground leases, we are only able to grant security interests in two of
the four leasehold interests. The two leasehold interests in which we have not
granted a security interest are among the excluded assets for the Las Vegas real
property. However, the trustee will receive a pledge of the equity interests in
our gaming licensee subsidiary which is the tenant under all the ground leases.
Although there can be no assurances, a foreclosure of such equity interests by
the trustee should result in the noteholders controlling the leasehold
interests.
18
With respect to the two excluded leasehold interests, there is an absence
of provisions characteristic of financeable ground leases, including
requirements that the lessors thereunder provide notices of default to the
trustee, grant independent cure rights to the trustee, or otherwise reinstate
such ground leases in favor of the trustee or the note holders upon a
termination of the ground lease. In the absence of these provisions, we have
agreed to take certain actions, as described below, to attempt to provide the
trustee and the noteholders with some protections under these leases; however,
there can be no assurances as to the effectiveness or sufficiency of these
limited protections. One of the excluded ground leases gives the tenant the
right to amend the notice provisions and provides for a thirty (30) day cure
period for tenant defaults. With respect to this ground lease, we have agreed to
amend the notice provision to require the landlord to copy the trustee on all
notices. Although such notice, together with the thirty (30) day cure period for
tenant defaults could provide the trustee or the note holders with time to cure
any default under such ground lease there can be no assurances that any default
can be remedied within such cure period. The other excluded ground lease does
not provide for any amendment to the notice provisions (although we have agreed
to send a notice to such landlord requesting that any notices be copied to the
trustee) and has no cure period. There can be no assurance that the landlord
thereunder will provide such notices to the trustee, and, even if such notice is
provided to the trustee, that the default could be remedied since there is no
cure period.
WE ARE A HOLDING COMPANY AND THEREFORE OUR ABILITY TO MAKE PAYMENTS ON THE
NOTES AND SERVICE OUR OTHER DEBT DEPENDS ON CASH FLOW FROM OUR SUBSIDIARIES.
We are a holding company. Our only material assets are our ownership
interests in our subsidiaries. Consequently, we will depend on distributions or
other intercompany transfers of funds from our subsidiaries to make payments on
the notes and service our other debt. In addition, distributions and
intercompany transfers to us from our subsidiaries will depend on:
- their earnings;
- covenants contained in our debt agreements (including our credit facility
and the registered notes) and the debt agreements of our subsidiaries;
- covenants contained in other agreements to which we or our subsidiaries
are or may become subject;
- business and tax considerations; and
- applicable law, including regulations of gaming authorities and state
laws regulating the payment of dividends and distributions.
We cannot assure you that the operating results of our subsidiaries at any
given time will be sufficient to make distributions or other payments to us or
that any distributions and/or payments will be adequate to pay principal and
interest, and any other amounts, on the notes when due.
A COURT COULD VOID OUR SUBSIDIARIES' GUARANTEES OF THE NOTES UNDER FRAUDULENT
TRANSFER LAW.
Our restricted subsidiaries will guarantee the notes, and each guarantor
will grant a security interest in certain of its assets to secure its guarantee.
Although the guarantees provide you with a direct claim against the assets of
the subsidiary guarantors, under federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, under certain circumstances a
court could avoid (i.e., cancel) a guarantee and order the return of any
payments made thereunder to the guarantor or to a fund for the benefit of its
other creditors.
A court might take these actions if it found, among other things, that when
the guarantor incurred the indebtedness evidenced by its guarantee, (i) it
received less than reasonably equivalent value or fair consideration for the
incurrence of the guarantee, and (ii) that any one of the following conditions
was satisfied:
- the guarantor was insolvent or rendered insolvent by reason of such
incurrence;
- the guarantor was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
19
- the guarantor intended to incur, or believed (or reasonably should have
believed) that it would incur, debts beyond its ability to pay as those
debts matured.
In applying the above factors, a court would likely find that a subsidiary
guarantor did not receive fair consideration or reasonably equivalent value for
its guarantee, except to the extent that it benefited directly or indirectly
from the registered notes' issuance or from the Fitzgeralds acquisition. The
determination of whether a subsidiary was or was rendered "insolvent" when it
entered into its guarantee will vary depending on the law of the jurisdiction
being applied. Generally, an entity would be considered insolvent if the sum of
its debts (including contingent or unliquidated debts) is greater than all of
its property at a fair valuation or if the present fair salable value of its
assets is less than the amount that will be required to pay its probable
liability on its existing debts as they become absolute and matured.
If a court avoided a subsidiary's guarantee, you would no longer have a
claim against that subsidiary. We cannot assure you that the assets of the other
subsidiary guarantors would be sufficient to pay amounts then due under the
notes.
THE INDENTURE GOVERNING THE NOTES AND OUR CREDIT FACILITY CONTAIN COVENANTS
THAT SIGNIFICANTLY RESTRICT OUR OPERATIONS.
The indenture governing the notes, our credit facility and any other future
debt agreement does and will contain numerous covenants imposing financial and
operating restrictions on our business. These restrictions may affect our
ability to operate our business, may limit our ability to take advantage of
potential business opportunities as they arise and may adversely affect the
conduct of our current business. These covenants will place restrictions on our
ability and the ability of our subsidiaries to, among other things:
- incur more debt;
- pay dividends, redeem or repurchase our stock or make other
distributions;
- make acquisitions or investments;
- use assets as security in other transactions;
- enter into transactions with affiliates;
- merge or consolidate with others;
- dispose of assets or use asset sale proceeds;
- create liens on our assets; and
- extend credit.
The credit facility also requires us to meet a number of financial ratios
and tests. Our ability to meet these ratios and tests and to comply with other
provisions governing our indebtedness may be adversely affected by our
operations and by changes in economic or business conditions or other events
beyond our control. Our failure to comply with our debt-related obligations
could result in an event of default under the notes.
WE MAY BE UNABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of specific change of control events, we will be
required to offer to repurchase your notes at 101% of their principal amount,
plus accrued interest. The lenders under our credit facility will have a similar
right to be repaid upon a change on control. Any of our future debt agreements
also may contain a similar provision. Our ability to pay cash to the holders of
the notes in connection with such repurchase will be limited by our then
existing financial resources. Accordingly, 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. The terms of our credit facility also limit our ability to
purchase your notes until all debt under our credit facility is paid in full.
Any of our future debt agreements may contain similar restrictions. Accordingly,
it is possible that restrictions in our credit facility will not allow such
repurchases. If we fail to repurchase any notes submitted in a change of control
offer, it would constitute an event of default under the indenture which would,
in turn, constitute an
20
event of default under our credit facility and could constitute an event of
default under our other indebtedness, even if the change in control itself would
not cause a default.
THERE IS CURRENTLY NO PUBLIC MARKET FOR THE REGISTERED NOTES, AND AN ACTIVE
TRADING MARKET MAY NOT DEVELOP FOR THESE REGISTERED NOTES.
We are offering the registered notes to the holders of the unregistered
notes. The unregistered notes were sold on December 6, 2001 and are eligible for
trading in the Private Offerings, Resale and Trading through Automatic Linkages
(PORTAL) Market. To the extent that unregistered notes are tendered and accepted
in the exchange offer, the trading market for untendered and tendered but
unaccepted unregistered notes will be adversely affected. We cannot assure you
that this market will provide liquidity for you if you want to sell your
unregistered notes.
The registered notes are a new issue of securities, and there is no
existing market for the registered notes. An active market may not develop for
the registered notes, and there can be no assurance as to the liquidity of any
market that may develop for the registered notes. If an active market does not
develop, the market price and liquidity of the registered notes may be adversely
affected. If any of the registered notes are traded after their initial
issuance, they may trade at a discount from their initial offering price. Future
trading prices of the registered notes will depend on many factors, including,
among other things, prevailing interest rates, our operating results and the
market for similar securities. Historically, the market for high-yield debt has
been subject to disruptions that have caused substantial fluctuations in the
prices of these securities. In addition, securities of gaming companies
historically have been more volatile than securities of other companies. The
market for the registered notes may be subject to such disruptions, and there
can be no assurance that the registered notes will not be subject to such
volatility, either of which could have an adverse effect on the price and
liquidity of the registered notes. We do not intend to apply for listing of the
registered notes on any securities exchange or for quotation of the registered
notes in any automated dealer quotation system.
THE NOTES WERE ISSUED WITH ORIGINAL ISSUE DISCOUNT. AS A RESULT, YOU WILL
GENERALLY BE REQUIRED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES TO INCLUDE
IN GROSS INCOME ACCRUED ORIGINAL ISSUE DISCOUNT ON THE NOTES BEFORE THE
RECEIPT OF A CASH PAYMENT ON ACCOUNT THEREOF, AND IN THE EVENT OF A BANKRUPTCY
OF THE COMPANY, A NOTE HOLDER'S CLAIM WOULD NOT INCLUDE ANY UNAMORTIZED
ORIGINAL DISCOUNT.
Original issue discount (the difference between the notes' stated
redemption price at maturity and their issue price) will accrue from the issue
date of the notes, and purchasers of the notes generally will be required to
include such amounts in gross income for United States federal income tax
purposes in advance of their receipt of the cash payments to which the income is
attributable. See "United States Federal Income Tax Considerations."
If a bankruptcy case is commenced by or against us under the United States
Bankruptcy Code after the issuance of the notes, the claim of a holder of the
notes may be limited to an amount equal to the sum of (1) the notes' issue
price, (2) accrued and unpaid interest thereon through the date of the
bankruptcy filing, and (3) that portion of the original issue discount deemed to
have accrued from the issue date through the date of the bankruptcy filing. Any
original issue discount deemed not to have accrued as of the date of any such
bankruptcy filing would constitute "unmatured interest" and would not be allowed
under the Bankruptcy Code. Accordingly, the holder's claim would likely be less
than the notes' stated redemption price at maturity.
RISKS RELATED TO OUR BUSINESS
WE MAY FACE DISRUPTION IN MANAGING THE THREE FITZGERALDS CASINO PROPERTIES OR
IN PURSUING ANY EXPANSION OF THOSE PROPERTIES, AND WE MAY NOT REALIZE ANY OF
THE ANTICIPATED BENEFITS OF THE ACQUISITION.
We acquired the three Fitzgeralds Casino properties, which constitute all
of our current operations, from Fitzgeralds Gaming Corporation and certain of
its affiliates on December 6, 2001. We cannot assure you that we will be able to
integrate or manage the Fitzgeralds properties effectively or realize any of the
anticipated benefits of the acquisition, including expected cost reductions. Our
ability to integrate the three Fitzgeralds casino properties, to realize the
expected cost reductions and to achieve our objectives in connection with the
21
Fitzgeralds acquisition is highly dependent on, among other things, our ability
to maintain effective senior management teams at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas. We plan to maintain such management
through retention of certain current executives, relocation of certain Majestic
executives to the Fitzgeralds properties and the attraction of new executives.
If, for any reason, these executives do not continue to be active in management
after the acquisition, or we fail to attract capable new executives, our
operations after consummation of the Fitzgeralds acquisition could be materially
adversely affected.
In addition, we may pursue expansion and acquisition opportunities in the
future and would face significant challenges not only in managing and
integrating the combined operations, but also in managing our expansion projects
and any other gaming operations that we might acquire in the future. Management
of such new projects will require that we increase our managerial resources. If
we fail to manage our growth effectively, it could materially adversely affect
our operating results.
Although we believe there are substantial future growth opportunities
within each of the markets where our properties are located, including without
limitation the growth opportunities described under "Prospectus Summary -- Our
Operating Strategy -- Capitalize on Market Growth Opportunities," we cannot
assure you that such growth will take place, or that we will be able to
capitalize on such growth opportunities.
WE FACE SIGNIFICANT COMPETITION IN EACH MARKET WHERE WE OPERATE.
We face intense competition in each of the markets in which our gaming
facilities are located. Many of our competitors have significantly greater name
recognition and financial, marketing and other resources than we do. Our
properties compete principally with other gaming properties in or near
California, Nevada, Mississippi and Colorado. In some of these jurisdictions,
competition is expected to intensify as new gaming operations enter these
markets and existing competitors consolidate with one another or expand or
enhance their operations. Our Black Hawk property will face additional
competition from the new Black Hawk Casino by Hyatt, which opened on December
19, 2001. At this time we are unable to determine what impact this casino will
have on our operations. In addition to these regional competitors, we compete
with gaming facilities nationwide, including casinos located on Indian
reservations and other land-based casinos in Nevada and Atlantic City, as well
as elsewhere, not only for customers but also for employees and potential future
gaming sites. We also compete, to some extent, with other forms of gaming on
both a local and national level, including state-sponsored lotteries, Internet
gaming, on- and off-track wagering and card parlors. The expansion of legalized
gaming to new jurisdictions throughout the United States also has increased
competition faced by us and will continue to do so in the future. Additionally,
if gaming were legalized in jurisdictions near our properties where gaming
currently is not permitted, we would face additional competition.
Increased competition may require us to make substantial capital
expenditures to maintain and enhance the competitive positions of our
properties, including updating slot machines to reflect changing technology,
refurbishing rooms and public service areas periodically, replacing obsolete
equipment on an ongoing basis and making other expenditures to increase the
attractiveness and add to the appeal of our properties. Because we are highly
leveraged, after satisfying our obligations under our outstanding indebtedness,
there can be no assurance that we will have sufficient funds to undertake these
expenditures or that we will be able to obtain sufficient financing to fund such
expenditures. If we are unable to make such expenditures, our competitive
position and our results of operations could be materially adversely affected.
EXTENSIVE GOVERNMENT REGULATION CONTINUOUSLY IMPACTS OUR OPERATIONS.
The ownership, management and operation of gaming facilities is subject to
extensive laws, regulations and ordinances which are administered by various
federal, state and local government entities and agencies. The gaming
authorities located in the jurisdictions in which we operate have broad
authority and discretion to require us and our officers, directors, managers,
members, employees and certain security holders to obtain various licenses,
registrations, permits, findings of suitability and other approvals. To enforce
applicable gaming regulations, gaming authorities may, among other things,
limit, suspend or revoke the licenses of any
22
gaming entity or individual, and may levy fines or forfeiture of assets against
us or individuals for violations of gaming laws or regulations. Any of these
actions would have a material adverse effect on us. See "Government Regulation
and Licensing."
Government regulations require us to:
- pay gaming fees and taxes in each state where we operate a casino;
- obtain a gaming license in each state where we operate a casino, which we
must have renewed periodically and which may be suspended or revoked if
we do not meet detailed regulatory requirements;
- receive and maintain federal and state environmental approvals; and
- receive and maintain local licenses to sell alcoholic beverages in our
casinos.
No assurances can be given that any new gaming licenses, liquor licenses,
registrations, findings of suitability, permits and approvals, particularly
those related to any proposed expansion, will be given or that existing ones
will be renewed when they expire. We know of no reason why our existing gaming
licenses would not be renewed or maintained, or why new licenses would not be
granted to us; however, any failure to renew or maintain our licenses or receive
new licenses when necessary would have a material adverse effect on us.
The compliance costs associated with these laws, regulations and licenses
are significant. A change in the laws, regulations and licenses applicable to
our business or a violation of any current or future laws or regulations or our
gaming licenses could require us to make material expenditures or could
otherwise materially adversely affect our business or financial results.
LOCAL REFERENDA ON GAMING MAY RESTRICT OR ADVERSELY IMPACT OUR OPERATIONS.
In some of the jurisdictions in which we currently operate or from which we
attract customers, or in which we may expand, gaming is subject to local
referenda. If the results of a referendum held in a jurisdiction in which we
operate were to restrict gaming in whole or in part or if the results of a
referendum in a nearby non-gaming jurisdiction were to permit gaming, our
results of operations could be negatively impacted.
For example, in three separate instances in Mississippi, 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
entities to cease operations within two years of the ban. All three of the
proposed referenda have been ruled illegal by Mississippi courts because, among
other reasons, each of the proposed referenda failed to include required
information regarding the anticipated effect of such a ban on government
revenues. 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. While we are unable to
predict whether such a referendum will appear on a future ballot or the
likelihood of the passage of such a referendum, if such a referendum were passed
and gaming were prohibited in Mississippi, it would have a material adverse
effect on us and our Mississippi gaming operations. See "Government Regulation
and Licensing." In addition, the Arkansas Attorney General certified for the
November 2000 general election ballot at least three ballot initiatives,
including a proposed constitutional amendment, that would have permitted casino
gambling in Arkansas. Although none of the initiatives was approved in the
November 2000 election, there can be no assurance that similar initiatives will
not be proposed in the future. Our Tunica property, in particular, could be
negatively impacted by the existence of casino gambling in Arkansas. See "-- We
face significant competition in each market where we operate."
In Colorado, the legislation establishing the Colorado Division of Gaming
is scheduled to be repealed effective July 1, 2003, unless continued by act of
the Colorado General Assembly. This is a "sunset" provision common in assessing
the continuing necessity for the existence of administrative agencies within
Colorado. If the repeal takes effect, Colorado law provides a procedure for
winding up the affairs of the Colorado Division of Gaming, public hearings,
analysis and evaluation, and for determining claims by or against the Colorado
Division of Gaming. The potential effect of the possible repeal upon the
regulatory structure governing limited gaming in Colorado is unknown.
23
YOU MAY BE REQUIRED TO DISPOSE OF YOUR NOTES, OR WE MAY BE REQUIRED TO REDEEM
YOUR NOTES, AS A RESULT OF GAMING REGULATORY MATTERS.
Gaming authorities have the power to investigate any of our security
holders, including noteholders. These authorities may require a person who is a
holder or beneficial owner of our securities, including the notes, to provide
information, respond to questions or be licensed, qualified, found suitable or
make filings or submissions within a required time period. If a gaming authority
determines that a holder is unsuitable to own any of our securities, including
the notes, such holder will have no further right to exercise any right
conferred by the securities, to receive any economic benefit or payment,
including payments of interest, with respect to the securities or to continue
its ownership or economic interest in us. For more information, refer to
"Government Regulation and Licensing" and "Description of Registered
Notes -- Redemption."
THE RIGHT OF FITZGERALDS GAMING CORPORATION TO CONTINUE TO USE THE NAME
"FITZGERALDS" MAY NEGATIVELY IMPACT OUR NATIONAL BRAND RECOGNITION.
Under an exclusive license from us, Fitzgeralds Gaming Corporation has the
right to use the name "Fitzgeralds" in connection with its operation of its
existing casino property in Reno, Nevada and in connection with any casino
properties it may operate in the future in Northern California, Northern Nevada,
Oregon and Washington. We have all other rights to the Fitzgeralds name and all
Fitzgeralds trademarks, service marks and trade dress for use in connection with
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas. In
connection with any use of the Fitzgeralds name, the terms of the license
require Fitzgeralds Gaming Corporation to comply with certain requirements,
including operating any casino property using the Fitzgeralds name in accordance
with our current operating standards. We may terminate the license under certain
circumstances, including if Fitzgeralds Gaming Corporation fails to comply with
these operating standards. Because Fitzgeralds Gaming Corporation operates the
existing Reno casino property and may operate any future casino properties in
certain geographic areas under the Fitzgeralds name, we cannot assure you that
our customers will not associate Fitzgeralds Reno and these other casino
properties with our Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds
Las Vegas properties, which association may negatively impact our nationally
recognized brand.
MEMBERS OF THE FITZGERALDS GAMING CORPORATION SENIOR MANAGEMENT TEAM MAY
BECOME EMPLOYED BY OUR COMPETITORS IN THE FUTURE, AND THIS COULD ADVERSELY
IMPACT OUR OPERATIONS.
In connection with the Fitzgeralds acquisition, certain members of the
senior management team of Fitzgeralds Gaming Corporation entered into limited
noncompete agreements that will expire on June 6, 2003. Following the expiration
of these noncompete agreements, these former members of the management team of
Fitzgeralds may operate, control, manage or consult for any of our competitors
in Tunica, Mississippi, Black Hawk, Colorado, Las Vegas, Nevada and the
surrounding areas.
These managers have specific knowledge regarding our customer base and the
markets in which we operate. If these managers provide this information to our
competitors, it may adversely affect our ability to compete with other casino
properties in the markets in which we operate.
WE HAVE LIMITED OPERATING HISTORY.
Prior to our acquisition of the Fitzgeralds casino properties on December
6, 2001, we had limited cash assets, our only liabilities were those under the
purchase agreement with Fitzgeralds, and we had no significant operating
history. We cannot assure you that we will be able to operate the Fitzgeralds
casino properties effectively or realize any of the anticipated benefits of the
acquisition, including expected cost reductions. In addition, although we
present in this prospectus historical data for a number of periods for the
Fitzgeralds properties we are acquiring, such historical data may not
necessarily be meaningful, as our cost structure and capitalization will be
significantly different following the acquisition, nor should it be relied upon
as a reliable indicator of our future performance with respect to the acquired
properties. In addition, our operating results may fluctuate significantly from
quarter to quarter as a result of a variety of factors, including integration
issues, labor disruptions or shortages, and changes in government regulation of
the gaming industry, many of
24
which are outside of our control, and any of which could materially adversely
affect our business going forward.
MANY OF OUR EMPLOYEES BELONG TO UNIONS; ANY LABOR DISRUPTIONS, WORK STOPPAGES
OR SIGNIFICANT UNION IMPOSED WAGE INCREASES COULD HAVE AN ADVERSE IMPACT ON
OUR BUSINESS.
Approximately 14% of our workforce is unionized. As of March 31, 2002,
Fitzgeralds Las Vegas employed approximately 881 people, approximately 338 of
whom are represented by the Culinary Workers Union, Local No. 226 and the
Bartenders Union, Local 165, under a five-year contract expiring on May 31,
2002. In addition, four employees are represented by the United Brotherhood of
Carpenters and Joiners of America, Southern California-Nevada Regional Council
of Carpenters and its Affiliated Local No. 1780, under a three-year contract
that expired on July 31, 2001. This contract is currently being renegotiated and
we can give no assurances that such contract will be renegotiated without a
significant increase in wages, or the imposition of other adverse terms. As of
March 31, 2002, Fitzgeralds Tunica and Fitzgeralds Black Hawk employed
approximately 1,228 and 363 people, respectively, none of whom are represented
by a union. Any labor disruptions or work stoppages could have a material
adverse effect on our operations. See "Business -- Employees."
LOSS OF OUR CASINO PROPERTIES FROM SERVICE WOULD ADVERSELY AFFECT OUR
OPERATIONS.
The operations of our properties are subject to disruptions or reduced
patronage as a result of severe weather conditions. Our Tunica vessel and its
dockside facilities 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 or inspection (including routine
inspections required by the U.S. Coast Guard) and access restrictions which may
be imposed by the Mississippi authorities controlling the mainline Mississippi
River levee in Tunica. Although there can be no assurances, we believe that
these authorities will not exercise their right to impose access restrictions in
the absence of flood or other flood related effects, hurricane or other severe
weather conditions. Reduced patronage and the loss of our Tunica dockside vessel
or either of our land-based casino properties from service for any period of
time due to severe weather could adversely affect our business, financial
condition and results of operations.
WE ARE SUBJECT TO POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES.
Generally, we are subject to a variety of federal, state and local
governmental laws and regulations relating to the use, storage, discharge,
emission and disposal of hazardous materials. Failure to comply with such laws
could result in the imposition of severe penalties or restrictions on operations
by governmental agencies or courts that could adversely affect operations. We
are not aware of any environmental contamination at the Fitzgeralds properties.
The Fitzgeralds Black Hawk property, however, is located within a 400-square
mile area that in 1983 was designated as the Clear Creek/Central City National
Priorities List Site Study Area ("Study Area") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended.
Although Fitzgeralds Black Hawk is not within any of the specific areas of the
Study Area currently identified for investigation or remediation, no assurance
can be given that environmental problems will not subsequently be discovered,
including in connection with any future construction on the expansion parcel of
the property. Furthermore, the EPA or other governmental authorities could
broaden their investigations and identify areas of concern within the site, we
could be identified as a "potentially responsible party" and any liability
related thereto could have a material adverse effect on us. We do not have
insurance to cover environmental liabilities, if any. Under our purchase and
sale agreement with Fitzgeralds, we are entitled to indemnification for
environmental matters relating to the properties only in very limited
circumstances. For additional information regarding environmental regulation,
see "Business -- Environmental Matters."
ENERGY PRICE INCREASES MAY ADVERSELY AFFECT OUR COSTS OF OPERATIONS AND OUR
REVENUES.
Our casino properties use significant amounts of electricity, natural gas
and other forms of energy. While no shortages of energy have been experienced,
the recent substantial increases in the cost of electricity in the
25
United States will negatively affect our operating results. The extent of the
impact is subject to the magnitude and duration of the energy price increases,
but this impact could be material. In addition, energy price increases in cities
that constitute a significant source of customers for our properties could
result in a decline in disposable income of potential customers and a
corresponding decrease in visitation to our properties, which could negatively
impact our revenues.
THE CASINO INDUSTRY GENERALLY IS DEPENDENT IN PART ON A NUMBER OF FACTORS THAT
ARE BEYOND OUR CONTROL.
The economic health of the casino industry is affected by a number of
factors that are beyond our control, including: (i) general economic conditions;
(ii) levels of disposable income of casino patrons; (iii) increased
transportation costs resulting in decreased travel by patrons; (iv) local
conditions in key gaming markets, including seasonal and weather-related
factors; (v) increase in gaming taxes or fees; (vi) competitive conditions in
the gaming industry and in particular gaming markets, including the effect of
such conditions on the pricing of our games and products; and (vii) the relative
popularity of entertainment alternatives to casino gaming that compete for the
leisure dollar. Any of these factors could negatively impact the casino industry
generally, and as a result, our revenues and results of operations.
CONTINUING EFFECTS OF THE TERRORIST ATTACKS ON THE WORLD TRADE CENTER IN NEW
YORK AND THE PENTAGON IN WASHINGTON, D.C., AND ANY FUTURE OCCURRENCES OF
TERRORIST OR OTHER DESTABILIZING EVENTS, COULD NEGATIVELY AFFECT OUR REVENUES
AND CASH FLOW.
On September 11, 2001, the World Trade Center buildings in New York City
and the Pentagon in Washington, D.C. were attacked by terrorists using hijacked
airplanes. The effects of these events have included a decline in vacation
travel and tourism due to, among other factors, fears regarding additional acts
of terrorism, and reduced operations by airlines due to decreased demands for
air travel, new security directives and increased costs. The magnitude and
duration of these effects is unknown and cannot be predicted. Any decline in
vacation travel and tourism could adversely affect our revenues, particularly
with respect to Fitzgeralds Las Vegas, where the majority of our customers rely
on air travel to visit our casino property. Continued or even worsening negative
market conditions related to those terrorist actions, any future occurrences of
terrorist or other destabilizing events, and other actions that perpetuate a
climate of war could cause existing and potential customers to further delay and
cancel travel, convention and vacation plans, could decrease wagering and
increase costs, and as a result could adversely affect our revenues and cash
flow in the future.
OUR PRINCIPAL OWNER EXERCISES SIGNIFICANT CONTROL OVER OUR BUSINESS AND
OPERATIONS AND IS NOT RESTRICTED FROM PURSUING OTHER ACTIVITIES THAT MAY
COMPETE WITH US.
Barden Development, Inc. ("BDI"), an entity wholly owned and controlled by
Don H. Barden, beneficially owns all of our outstanding equity interests and
voting power. Mr. Barden is our Chairman of the Board, President and Chief
Executive Officer and the Chairman of the Board, President and Chief Executive
Officer of Majestic Investor, LLC, which is our parent, and Parent, which is the
parent of Majestic Investor, LLC. See "Management" and "Principal Owner." In
addition, we have entered into a management agreement with BDI which provides
for, among other things, a management fee payable by us to BDI for acting as our
manager, and an expense sharing agreement pursuant to which we will reimburse
Parent for a specified percentage of the costs and expenses of executives and
certain other employees who will also provide services to us and our
subsidiaries, rent and other similar costs and expenses. See "Material
Agreements -- Management Agreement."
Accordingly, Mr. Barden has the power to elect a majority of our managers,
appoint new management and approve any action requiring the approval of the
holders of our membership interests, including adopting amendments to our
certificate of formation and operating agreement, approving mergers or sales of
substantially all of our assets or pursuing other transactions which may
increase the value of the principal owner's equity investment even though these
transactions may involve risks to you as a holder of notes. The managers elected
by our principal owner also have the authority to make decisions affecting our
capital structure. Accordingly, there can be no assurance that the interests of
our principal owner will not conflict with
26
your interests as a holder of notes. In addition, neither Mr. Barden nor any of
the entities which he controls is restricted from pursuing other opportunities
which may compete for business with our operations.
WE AND MAJESTIC INVESTOR, LLC ARE PROHIBITED BY THE INDENTURE GOVERNING THE
OUTSTANDING SENIOR SECURED NOTES OF PARENT FROM ENGAGING IN CERTAIN
TRANSACTIONS WITH PARENT.
We and Majestic Investor, LLC have been designated as unrestricted
subsidiaries by Parent under the indenture governing Parent's outstanding senior
secured notes. As a result, Parent and certain of its other subsidiaries are
prohibited from providing cash or credit support to us or our subsidiaries or to
Majestic Investor. We and our subsidiaries and Majestic Investor also are
prohibited from engaging in transactions with Parent and certain of its
subsidiaries other than on an arm's length basis and, if a proposed transaction
exceeds $2.0 million in value, Parent and certain of its subsidiaries may only
participate in such transaction with the approval of a majority of the
disinterested members of Parent's board of managers or following receipt of a
written fairness opinion from a nationally recognized investment banking firm
stating that the transaction is fair to Parent from a financial point of view.
Such restrictions could have an adverse effect on us by limiting our ability and
the ability of Majestic Investor to engage in transactions with Parent and its
other subsidiaries, which could potentially impact any synergies we realize from
the Fitzgeralds acquisition.
On the other hand, Parent may redesignate us or Majestic Investor as a
restricted subsidiary under its indenture. In such a case, our business and
operations and the business and operations of Majestic Investor, respectively,
would become subject to, and would be required to comply with, the restrictions
set forth in such indenture. These restrictions, many of which are similar to
those contained in the indenture governing the notes, could impair our ability
to raise capital, enter into certain transactions and conduct our business,
which could have a material effect on our business, growth, financial condition
and results of operations and our ability to make payments on the notes and our
other outstanding indebtedness.
WE NO LONGER OPERATE THE HOTEL LOCATED AT OUR LAS VEGAS PROPERTY AS A HOLIDAY
INN, WHICH MAY IMPACT OUR ABILITY TO ATTRACT CUSTOMERS.
Prior to our acquisition of the Fitzgeralds properties on December 6, 2001,
the hotel located at the Las Vegas property was operated as a Holiday Inn,
pursuant to a franchise agreement. We did not assume this agreement from
Fitzgeralds Gaming Corporation as part of the acquisition. Although the failure
to assume this contract and continue to operate this hotel as a Holiday Inn may
adversely impact our ability to attract customers, and therefore our revenues,
we believe any potential revenue loss will be offset by the cost savings we will
realize from the elimination of the franchise fee payment.
27
THE MAJESTIC ENTITIES
MAJESTIC INVESTOR HOLDINGS, LLC AND MAJESTIC INVESTOR CAPITAL CORP.
We are indirect wholly owned subsidiaries of Parent, owner and operator of
The Majestic Star Casino, a riverboat casino located at Buffington Harbor in
Gary, Indiana, and are indirectly wholly owned and controlled by Don H. Barden,
our Chairman, President and Chief Executive Officer.
Majestic Investor Holdings, LLC was formed solely for the purposes of
acquiring substantially all of the assets of Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas. We completed this acquisition on December
6, 2001. Majestic Investor Holdings is a holding company and currently its only
material assets are its ownership interests in Majestic Investor Capital Corp.
and in Barden Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Barden
Nevada Gaming, LLC, the three newly formed subsidiaries which hold the
Fitzgeralds assets. Majestic Investor Capital Corp., the co-issuer of the
registered notes, was formed specifically to facilitate the offering of the
unregistered notes and the exchange of unregistered notes for registered notes,
and will have no material assets or operations.
Our ownership structure following the Fitzgeralds acquisition on December
6, 2001, is as follows:
[STRUCTURE CHART]
- ---------------
(1) An Indiana corporation wholly owned and controlled by Don H. Barden.
(2) An Indiana limited liability company formed in December 1993 that commenced
operations in June 1996. Wholly owned by BDI, the sole member and manager.
(3) A Delaware limited liability company formed in September 2000 as an
"unrestricted subsidiary" of Parent under the indenture relating to Majestic
Star's 10 7/8% Senior Secured Notes due 2006. Wholly owned by Parent, the
sole member. Managed by certain of its officers.
(4) A Delaware limited liability company formed in September 2001 as an indirect
"unrestricted subsidiary" of Parent under the Majestic Star indenture.
Wholly owned by Majestic Investor, the sole member. Managed by our executive
officers.
(5) Formed in August 2001 solely to facilitate the offering of the notes.
(6) Barden Mississippi Gaming, LLC was formed in March 2001, Barden Colorado
Gaming, LLC was formed in April 2001 and Barden Nevada Gaming, LLC was
formed in November 2000, each to hold a gaming license in the applicable
jurisdiction and, upon consummation of the Fitzgeralds acquisition, to hold
the Fitzgeralds assets. Until the consummation of the Fitzgeralds
acquisition on December 6, 2001,
28
these subsidiaries had no material assets or operations. Wholly owned by
Majestic Investor Holdings, the sole member.
For a description of the casino properties that we acquired in the
Fitzgeralds acquisition, please see "Business."
USE OF PROCEEDS
We will not receive any proceeds from the exchange of the registered notes
for the unregistered notes pursuant to the exchange offer. We intend the
exchange offer to satisfy our obligations under the registration rights
agreement that we entered into in connection with the private offering of the
unregistered notes. Unregistered notes surrendered in exchange for the
registered notes will be retired and canceled and cannot be reissued.
We used the aggregate net proceeds from the offering of the unregistered
notes, together with the contribution of an aggregate of $14.0 million of equity
from our member and one of our managers, (i) to acquire the three Fitzgeralds
casino properties and (ii) to pay related fees and expenses. The acquisition of
the Fitzgeralds properties closed concurrently with the offering of the
unregistered notes.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 2002 on an historical basis, giving effect to the
offering of the unregistered notes, borrowings under our credit facility and the
application of the net proceeds of the offering of the unregistered notes. The
following table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes thereto appearing elsewhere in this prospectus.
<Table>
<Caption>
AT MARCH 31, 2002
----------------------
(DOLLARS IN THOUSANDS)
Current portion of long-term debt(1)........................ $ 1,836
Long-term debt, net of current portion
11.653% Senior Secured Notes due 2007(2).................. 145,624
Total member's equity....................................... 13,339
--------
TOTAL CAPITALIZATION................................... $160,799
========
</Table>
- ---------------
(1) We entered into a new $15.0 million senior secured credit facility, and
borrowed $4.5 million under that credit facility, concurrently with the
closing of the offering of the unregistered notes. As of March 31, 2002, we
have $1.7 million outstanding under that credit facility.
(2) Reflects issuance of $152.6 million aggregate principal amount of registered
notes at 95.0% of the principal amount thereof.
The Company was formed in September 2001 solely for the purpose of
acquiring substantially all of the assets of Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company. The
Company is a holding company and its only material assets are the membership
interests of Barden Nevada Gaming, LLC, Barden Mississippi, LLC and Barden
Colorado Gaming, LLC, the three newly formed subsidiaries that hold the acquired
Fitzgeralds assets. The Company was capitalized concurrently with the
acquisition of the Fitzgeralds properties and therefore historical information
does not exist.
29
SELECTED FINANCIAL DATA
The following table presents selected historical combined financial data
for Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas at
December 31, 1997, 1998, 1999, 2000 and 2001 and at March 31, 2002 and for the
years ended December 31, 1997, 1998, 1999, 2000 and 2001 and the quarters ended
April 1, 2001 and March 31, 2002. The selected historical financial data for the
year ended December 31, 2001 has been derived from the audited combined
financial statements for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi,
Inc. and 101 Main Street Limited Liability Company for the period from January
1, 2001 to December 6, 2001, and the audited consolidated financial statements
for Majestic Investor Holdings, LLC for the period from inception (September 14,
2001) through December 31, 2001. The selected historical financial data as of
December 31, 2001 has been derived from the audited consolidated financial
statements of Majestic Investor Holdings, LLC for the period from inception
(September 14, 2001) through December 31, 2001. The selected historical
financial data at December 31, 1999 and 2000, and for the years ended December
31, 1998, 1999 and 2000, presented below, have been derived from the audited
combined financial statements for Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc. and 101 Main Street Limited Liability Company at those dates
and for those periods. The selected historical financial data for the year ended
December 31, 1997, and for the quarter ended April 1, 2001, presented below, has
been derived from the unaudited combined financial statements for Fitzgeralds
Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited
Liability Company for those periods. The selected historical financial data at
March 31, 2002 and for the three months ended March 31, 2002, have been derived
from the unaudited consolidated financial statements for Majestic Investor
Holdings, LLC at March 31, 2002 and for the three months ended March 31, 2002.
The unaudited financial statements have been prepared on a basis consistent with
the audited financial statements. All adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the interim combined
financial statements, have been included. Results for the quarters ended April
1, 2001 and March 31, 2002 are not necessarily indicative of results for the
full year. Because the data in this table is only a summary and does not provide
all of the data contained in the financial statements, including the notes
thereto, you should read "Management's Discussion
30
and Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes thereto appearing elsewhere in this prospectus.
<Table>
<Caption>
FOR THE QUARTER
ENDED
FOR THE YEAR ENDED DECEMBER 31, ---------------------
---------------------------------------------------- APRIL 1, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Casino...................................... $124,599 $130,465 $138,929 $148,777 $161,029 $40,978 $42,355
Food and beverage........................... 17,581 19,300 18,729 19,586 19,445 5,136 4,089
Rooms....................................... 15,932 15,822 16,293 16,600 16,232 4,235 5,096
Other....................................... 3,185 3,109 3,285 3,530 3,749 1,031 888
-------- -------- -------- -------- -------- ------- -------
Total..................................... 161,297 168,696 177,236 188,493 200,455 51,380 52,428
Less: promotional allowances................. 12,036 19,474 24,460 28,755 32,275 7,959 9,115
-------- -------- -------- -------- -------- ------- -------
Net operating revenues.................... 149,261 149,222 152,776 159,738 168,180 43,421 43,313
Operating costs and expenses:
Casino...................................... 60,273 62,958 64,147 69,113 73,869 18,248 15,840
Food and beverage........................... 13,448 14,648 11,793 11,509 11,332 2,920 3,412
Rooms....................................... 10,674 10,747 10,701 10,905 10,447 2,696 6,295
Other operating expenses.................... 1,778 1,911 1,877 1,717 2,574 400 513
Selling, general and administrative......... 38,091 37,363 40,809 39,371 40,348 10,451 8,370
Depreciation and amortization............... 10,320 11,052 11,726 11,688 836(1) -- 3,387
Write-down of assets........................ -- -- -- -- 13,006 -- --
Reorganization items........................ -- -- -- 39 (10,499) 6 --
Pre-opening costs........................... -- -- -- -- 1,018 -- 7
-------- -------- -------- -------- -------- ------- -------
Total..................................... 134,584 138,679 141,053 144,342 142,931 34,721 37,824
-------- -------- -------- -------- -------- ------- -------
Income from operations........................ 14,677 10,543 11,723 15,396 25,249 8,700 5,489
Other income (expense):
Interest income............................. 445 191 130 167 257 13 32
Interest expense............................ (20,987) (28,695) (28,200) (26,102) (1,337)(1) (17) (4,516)
Other income (expense)...................... (1,706) (3,308) 99 4 (81) 14 (11)
-------- -------- -------- -------- -------- ------- -------
Income (loss) before income tax provision and
extraordinary item.......................... (7,571) (21,269) (16,248) (10,535) 24,088 8,710 994
Income tax provision.......................... -- -- -- -- -- -- --
Extraordinary loss on early extinguishment of
debt........................................ (3,904) -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income (loss)............................. $(11,475) $(21,269) $(16,248) $(10,535) $ 24,088 $ 8,710 $ 994
======== ======== ======== ======== ======== ======= =======
</Table>
- ---------------
(1) Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main
Street Limited Liability Company discontinued recording depreciation and
amortization of their property and equipment and interest on the senior
secured notes subsequent to the filing of the bankruptcy cases on December
5, 2000.
<Table>
<Caption>
AT DECEMBER 31,
----------------------------------------------------- AT MARCH 31,
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- ------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 8,945 $ 8,748 $ 10,278 $ 2,840 $ 17,705 17,325
Net assets held for sale................ -- -- -- 143,343(1) -- --
Total assets............................ 168,341 162,025 157,033 147,320 183,429 182,851
Total long-term debt (including current
portion).............................. 4,558 3,326 719 -- 151,997 147,461
Liabilities subject to compromise....... -- -- -- 225,873(1) -- --
Total members' equity (stockholder's
deficiency)........................... (30,993) (52,262) (68,510) (79,045) 12,532 13,339
</Table>
- ---------------
(1) The presentation relates to the planned sale of Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company
and the related bankruptcy proceedings.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section discusses the combined results of operations of the three
Fitzgeralds casino properties, on a pro forma basis, giving effect to our
acquisition of those properties, and on a historical basis. The following
discussion should be read in conjunction with the "Summary Financial and
Operating Data," and the "Selected Financial Data" and the unaudited pro forma
consolidated financial statement, the historical combined financial statements
and the historical consolidated financial statements and the notes thereto
appearing elsewhere in this prospectus. Certain statements contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations constitute "forward-looking statements" within the meaning of the
Litigation Reform Act, which statements involve risks and uncertainties. See
"Forward-Looking Statements" for additional information.
Historical information, other than revenues, may not necessarily be
meaningful, as our cost structure and capitalization following the acquisition
of the three Fitzgeralds casino properties is significantly different, nor
should it be relied upon as a reliable indicator of our future performance with
respect to the acquired properties. See "Pro Forma Results of Operations" below,
which should be read in conjunction with the unaudited pro forma consolidated
financial statement and the notes thereto included elsewhere in this prospectus.
THE FITZGERALDS ACQUISITION
On November 22, 2000, Majestic Investor, LLC entered into a definitive
purchase and sale agreement (amended as of December 4, 2000 and as further
amended November 1, 2001) with Fitzgeralds Gaming Corporation and certain of its
subsidiaries to purchase substantially all of the assets of Fitzgeralds Las
Vegas, Inc. (Fitzgeralds Las Vegas), Fitzgeralds Mississippi, Inc. (Fitzgeralds
Mississippi) and 101 Main Street Limited Liability Company (Fitzgeralds Black
Hawk) from Fitzgeralds Gaming Corporation for $149.0 million in cash, subject to
adjustment in certain circumstances, plus the assumption of certain liabilities.
Majestic Investor assigned all of its rights and obligations under the purchase
and sale agreement to Majestic Investor Holdings, LLC following its formation on
September 14, 2001. We completed the Fitzgeralds acquisition on December 6,
2001, and we refer to the Fitzgeralds casino properties in this Management's
Discussion and Analysis of Financial Condition and Results of Operations as the
"properties." We do not currently own or operate any other properties. Majestic
Investor Holdings, LLC is a holding company and its only material assets are its
ownership interests in Majestic Investor Capital Corp. and the three
subsidiaries which hold the Fitzgeralds casino properties.
To facilitate our acquisition of the Properties, Fitzgeralds Gaming
Corporation and its subsidiaries voluntarily filed for Chapter 11 Bankruptcy in
the United States Bankruptcy Court for the Northern District of Nevada on
December 5, 2000. The bankruptcy cases were commenced in accordance with a
restructuring agreement with the holders of a majority in interest of
Fitzgeralds Gaming Corporation's outstanding senior secured registered notes.
We financed the acquisition with the net proceeds of our offering of $152.6
million of our 11.653% senior secured notes due 2007, together with $14.0
million of equity contributed by our member and one of our managers. The terms
of those notes are substantially identical to the terms of the registered notes
offered by this prospectus in all material respects, except for the elimination
of some transfer restrictions, registration rights and liquidated damages
provisions. For more information regarding the terms of the notes, please see
"Description of Registered Notes."
32
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain historical operating results for the
properties for the periods indicated.
<Table>
<Caption>
FOR THE FOR THE PERIOD
PERIOD FROM INCEPTION FOR THE
JANUARY 1, (SEPTEMBER 14, QUARTER ENDED
FOR THE YEAR ENDED DECEMBER 31, 2001 TO 2001) TO --------------------
--------------------------------- DECEMBER 6, DECEMBER 31, APRIL 1, MARCH 31,
1998 1999 2000 2001 2001 2001 2002
--------- --------- --------- ----------- -------------- -------- ---------
(DOLLARS IN THOUSANDS)
NET OPERATING REVENUES
Fitzgeralds Tunica........ $ 64,012 $ 69,582 $ 75,062 $ 76,713 $ 5,368 $21,236 $22,250
Fitzgeralds Black Hawk.... 34,223 32,284 32,537 31,511 2,072 7,875 8,005
Fitzgeralds Las Vegas..... 50,987 50,910 52,139 49,435 3,081 14,309 13,058
-------- -------- -------- -------- ------- ------- -------
Total................. $149,222 $152,776 $159,738 $157,659 $10,521 $43,420 $43,313
======== ======== ======== ======== ======= ======= =======
INCOME (LOSS) FROM
OPERATIONS
Fitzgeralds Tunica........ $ 2,063 $ 5,321 $ 9,018 $ 42,033 $ 654 $ 5,442 $ 4,628
Fitzgeralds Black Hawk.... 9,074 7,517 6,385 7,027 674 1,594 1,259
Fitzgeralds Las Vegas..... (594) (1,115) (7) (23,618) (393) 1,664 240
-------- -------- -------- -------- ------- ------- -------
Total................. $ 10,543 $ 11,723 $ 15,396 $ 25,442 $ 935 $ 8,700 $ 6,127
======== ======== ======== ======== ======= ======= =======
</Table>
QUARTER ENDED MARCH 31, 2002 COMPARED TO QUARTER ENDED APRIL 1, 2001
For the three months ended March 31, 2002, the Company utilized a calendar
financial reporting period resulting in ninety days of operations, as compared
to the period ended April 1, 2001, in which a "4-4-5" (weeks) reporting period
was used resulting in ninety-one days of operations. The additional day of
operations in the prior year period does not have a significant impact on the
comparability of financial information used in the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Financial information for the quarters ended April 1, 2001 and March 31, 2002 is
set forth in "Selected Financial Data" on pages 30-31 of this prospectus.
Consolidated gross revenues for the three months ended March 31, 2002
amounted to approximately $52.4 million an increase of approximately $1.1
million or 2.0% from gross revenues recorded in the period ended April 1, 2001.
For the three months ended March 31, 2002, gross revenues for Fitzgeralds Tunica
accounted for $28.2 million or 53.9% of consolidated gross revenues, Fitzgeralds
Las Vegas accounted for $14.4 million or 27.4% and Fitzgeralds Black Hawk
accounted for $9.8 million or 18.7% compared to $26.2 million or 51.0%, $15.7
million or 30.5% and $9.5 million or 18.5%, respectively, for the period ended
April 1, 2001.
The Company's business can be separated into four operating departments:
casino, rooms (except Fitzgeralds Black Hawk), food and beverage, and other.
Consolidated casino revenues for the three months ended March 31, 2002 totaled
approximately $42.4 million of which slot machines accounted for approximately
$37.3 million or 87.9% and table games accounted for approximately $5.1 million
or 12.1% as compared to the period ended April 1, 2001. Casino revenues
attributed to Fitzgeralds Tunica were $23.4 million for the three months ended
March 31, 2002 compared to $21.5 million in the prior year period, an increase
of $1.8 million or 8.4%. The increase in casino revenues is primarily
attributable to a $1.9 million or 9.8% increase in slot revenues. Casino
revenues attributed to Fitzgeralds Las Vegas were $9.8 million for the
three-month period compared to $10.5 million in the prior period, a decrease of
$0.7 million or 7.0%. The decrease in casino revenues is primarily attributable
to lower overall visitor volumes in the Las Vegas marketplace. Casino revenues
attributed to Fitzgeralds Black Hawk were $9.2 million for the three month
period compared to $8.9 million, an increase of $0.3 million or 3.4%.
The consolidated average number of slot machines in operation was 2,915
during the three month period ended March 31, 2002 compared to 2,870 during the
period ended April 1, 2001. Fitzgeralds Tunica
33
accounted for 1,382 or 47.4%; Fitzgeralds Las Vegas accounted for 940 or 32.2%
and Fitzgeralds Black Hawk accounted for 593 or 20.4%. The consolidated average
win per slot per day was approximately $142 for the three months ended March 31,
2002 compared to $140 in the period ended April 1, 2001, with an average of
approximately $168, $87, and $169 compared to $159, $94, and $167 at Fitzgeralds
Tunica, Fitzgeralds Las Vegas and Fitzgeralds Black Hawk. The consolidated
average win per table per day was approximately $848 for the three month period
ended March 31, 2002 compared to $824 in the period ended April 1, 2002 with an
average of approximately $814, $1,023, and $365 compared to $818, $957, and $345
at Fitzgeralds Tunica, Fitzgeralds Las Vegas, and Fitzgeralds Black Hawk
respectively.
Consolidated room revenues totaled $4.1 million or 7.8% of gross revenues
for the three months ended March 31, 2002 compared to $4.2 million or 8.2% of
gross revenues in the period ended April 1, 2001. Of this amount, Fitzgeralds
Tunica accounted for $2.1 million or 51.0% and $2.0 million or 47.7%,
respectively. Fitzgeralds Las Vegas accounted for $2.0 million or 49.0% and $2.2
million or 52.3%, respectively. At Fitzgeralds Tunica, the average daily rate
was $48 for both periods, with an occupancy of 95.5% and 93.1%, respectively. At
Fitzgeralds Las Vegas, the average daily rate was $41 and $40, respectively,
with an occupancy of 84.4% and 93.9%, respectively.
Consolidated food and beverage revenues for the three months ended March
31, 2002, totaled approximately $5.1 million or 9.7% of gross revenues, compared
to approximately $5.1 million or 10.0% of gross revenues for the period ended
April 1, 2001. Of this amount, Fitzgeralds Tunica accounted for $2.5 million or
48.6% and $2.3 million or 45.3%, respectively, and Fitzgeralds Las Vegas
accounted for $2.1 million or 41.5% and $2.2 million or 43.6%, respectively, for
the three-month period ended March 31, 2002 and the period ended April 1, 2001,
respectively.
Other consolidated revenues consisted primarily of commission and retail
income and for the three months ended March 31, 2002 totaled approximately $0.9
million or 1.7% of gross revenues, compared to approximately $1.0 million or
2.0% of gross revenues, for the period ended April 1, 2001.
Consolidated promotional allowances included in the consolidated gross
revenues for the three months ended March 31, 2002 were $9.1 million or 17.4% of
gross revenues compared to approximately $8.0 million or 15.5% of gross
revenues, for the period ended April 1, 2001. The $1.2 million or 14.5% increase
is primarily attributable to a $1.1 million or 21.2% increase at Fitzgeralds
Tunica as a result of a 9.8% increase in slot revenues.
Consolidated casino operating expenses including gaming taxes, food and
beverage, rooms, and other for the three months ended March 31, 2002 were $26.1
million or 49.7% of gross revenues and 61.5% of casino revenues compared to
$24.3 million or 47.2% of gross revenues and 59.2% of casino revenues in the
period ended April 1, 2001. The $1.8 million or 7.4% increase in casino
operating expenses is attributable to $0.3 million in additional payroll costs,
$0.4 million for higher costs related to complementaries, $0.1 million for
increased costs for slot machines leases, and $0.2 million for higher gaming
taxes.
Consolidated selling, general, and administrative expenses for the three
months ended March 31, 2002 totaled $8.4 million or 16.0% of gross revenues
compared to $10.5 million or 20.3% of gross revenues in the period ended April
1, 2001. The $2.1 million or 19.9% decrease in selling, general, and
administrative expenses is primarily attributable to lower costs associated with
marketing and advertising programs and administrative salaries and wages.
Consolidated depreciation and amortization for the three months ended March
31, 2002 totaled $3.4 million or 6.5% of gross revenues compared to $0 in the
period ended April 1, 2001. The increase of $3.4 million was due to recognition
of these items following the Fitzgeralds acquisition after the discontinuance of
the recognition of depreciation and amortization by Fitzgeralds Gaming
Corporation subsequent to the filing of the bankruptcy cases on December 5,
2000.
Consolidated operating income for the three months ended March 31, 2002 was
$5.5 million, or 10.5% of gross revenues, of which Fitzgeralds Tunica accounted
for operating income of $4.6 million, or 84.3%, Fitzgeralds Black Hawk accounted
for operating income of $1.3 million, or 22.9% and Fitzgeralds Las Vegas
34
accounted for operating income of $0.2 million, or 4.4%. The unallocated
corporate loss principally for amortization was $0.6 million or 1.2% of gross
revenues.
Consolidated net interest expense for the three months ended March 31, 2002
was approximately $4.5 million or 8.6% of gross revenues, as compared to $4,000
for the period ended April 1, 2001. The increase of $4.5 million is attributable
to interest expense associated with the 11.653% Senior Secured Notes. The
Fitzgeralds companies discontinued accruing interest on the Notes on December 5,
2000 with the commencement of the Bankruptcy Cases.
As a result of the foregoing, the Company realized consolidated net income
of $1.0 million for the three months ended March 31, 2002.
EBITDA for the three months ended March 31, 2002 was $8.9 million, of which
Fitzgeralds Tunica accounted for $6.4 million, Fitzgeralds Black Hawk accounted
for $1.6 million and Fitzgeralds Las Vegas accounted for $0.9 million. EBITDA
should be viewed only in conjunction with all of the Company's financial data
and statements, and should not be construed as an alternative either to income
from operations (as an indicator of the Company's operating performance) or to
cash flows from operating activities as a measure of liquidity.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had cash and cash equivalents of
approximately $17.3 million. Cash and cash equivalents included $1.3 million at
the Company, $8.0 million at Fitzgeralds Mississippi, $3.1 million at
Fitzgeralds Black Hawk and $4.9 million at Fitzgeralds Las Vegas.
The Company has met its capital requirements to date through net cash from
operations, capital contributions, equipment loans and borrowings under its
credit facility. For the three months ended March 31, 2002, net cash provided by
operating activities totaled approximately $7.0 million. For the three months
ended March 31, 2002, cash used by investing activities totaled approximately
$2.0 million. Approximately $797,000 was expended during the three months ended
March 31, 2002 for professional fees related to the Fitzgeralds acquisition. For
the three months ended March 31, 2002, cash used by financing activities totaled
approximately $5.4 million primarily resulting from the cash paid on the
outstanding line of credit. Approximately $505,000 was expended during the three
months ended March 31, 2002 for professional fees related to the issuance of the
Company's 11.653% Senior Secured Notes. Approximately $4.8 million was repaid on
the credit facility during the three months ended March 31, 2002. As of May 15,
2002, the outstanding borrowings under the credit facility were approximately
$1.7 million. The Nevada Regulatory Authorities in April, 2002 approved pledging
the assets of Barden Nevada pursuant to the terms of the Company's credit
facility. Therefore, the credit facility has been increased by the lender to
$15.0 million from $12.0 million. Also, a cash distribution related to the
fourth quarter of 2001 totaling approximately $188,000 was made to Barden
Development, Inc. during the three months ended March 31, 2002 under the
Management Agreement.
We are required to pay weekly liquidated damages under the 11.653% Senior
Secured Notes until such Notes are registered at an amount per week per
principal amount of such Notes equal to $0.05 for the first 90-day period
following April 5, 2002, increasing by an additional $0.05 per week with respect
to each subsequent 90-day period, up to a maximum amount of $0.20 per week. On
May 31, 2002, we paid $61,053 in liquidated damages to the holders of the Notes,
together with our semi-annual interest payment.
Management believes that the Company's cash flow from operations and its
current lines of credit will be adequate to meet the Company's anticipated
future requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on the Company's 11.653% Senior Secured Notes
and other permitted indebtedness for the year 2002. No assurance can be given,
however, that such proceeds and operating cash flow, in light of increased
competition will be sufficient for such purposes. If necessary and to the extent
permitted under the Investor Holdings Indenture, the Company will seek
additional financing through borrowings and debt or equity financing. There can
be no assurance that additional financing, if needed, will be available to the
Company, or that, if available, the financing will be on terms favorable to the
35
Company. In addition, there is no assurance that the Company's estimate of its
reasonably anticipated liquidity needs is accurate or that unforeseen events
will not occur, resulting in the need to raise additional funds.
PERIOD FROM INCEPTION (SEPTEMBER 14, 2001) TO DECEMBER 31, 2001
Consolidated gross revenues were $12,832,000 for the period from inception
(September 14, 2001) through December 31, 2001. Revenues for Fitzgeralds Tunica
accounted for $6,708,000, or 52.3% of total revenues, Fitzgeralds Las Vegas
accounted for $3,445,000, or 26.8% of total revenues, and Fitzgeralds Black Hawk
accounted for $2,679,000, or 20.9% of total revenues.
Operating Revenues. The Company's business can be separated into four
operating departments: casino, rooms (except Fitzgeralds Black Hawk), food and
beverage and other. Consolidated casino revenues were $10,359,000, of which
$9,011,000, or 87.0% were derived from slot machine revenues, and $1,348,000, or
13.0%, were derived from table game revenues for the period from inception
through December 31, 2001.
Casino revenues attributed to Fitzgeralds Tunica were $5,494,000, of which
$4,800,000, or 87.4% were derived from slot machine revenues, and $694,000, or
12.6% were derived from table games revenues for the period from inception
through December 31, 2001. Casino revenues attributed to Fitzgeralds Las Vegas
were $2,355,000, of which $1,764,000, or 74.9% were derived from slot machine
revenues, and $591,000, or 25.1% were derived from table game revenues for the
period from inception through December 31, 2001. Casino revenues attributed to
Fitzgeralds Black Hawk were $2,510,000, of which $2,446,000, or 97.5% were
derived from slot machine revenues, and $64,000, or 2.5% were derived from table
game revenues for the period from inception through December 31, 2001.
The consolidated average number of slot machines in operation was 2,935
during the period from inception through December 31, 2001, of which Fitzgeralds
Tunica accounted for 1,388, or 47.3%, Fitzgeralds Las Vegas accounted for 951 or
32.4%, and Fitzgeralds Black Hawk accounted for 596 or 20.3%. The consolidated
average win per slot machine per day was approximately $123 for the period from
inception through December 31, 2001, with an average of approximately $138, $74
and $164 at Fitzgeralds Tunica, Fitzgeralds Las Vegas and Fitzgeralds Black
Hawk, respectively. The consolidated average number of table games in operation
during the period from inception through December 31, 2001, was 64, of which
Tunica accounted for 34, or 53.1%, Fitzgeralds Las Vegas accounted for 24, or
37.5%, and Fitzgeralds Black Hawk accounted for 6, or 9.4%. The average win per
table game per day during the period from inception through December 31, 2001,
was approximately $843, with an average of approximately $839, $947, and $424 at
Fitzgeralds Tunica, Fitzgeralds Las Vegas and Fitzgeralds Black Hawk,
respectively.
Consolidated room revenues for the period from inception through December
31, 2001 was $1,079,000, or 8.41% of the total revenue. Of this amount,
Fitzgeralds Tunica accounted for $544,000 or 50.4% with 507 rooms and
Fitzgeralds Las Vegas accounted for $535,000 or 49.6% with 638 rooms. At
Fitzgeralds Tunica during this period the average daily rate was $50 and the
occupancy rate was 86.5%. At Fitzgeralds Las Vegas during this period the
average daily rate was $42 and the occupancy rate was 79.8%.
Consolidated food and beverage revenues for the period from inception
through December 31, 2001, amounted to $1,190,000, or 9.3% of the total revenue.
Of this amount, Fitzgeralds Tunica accounted for $586,000, or 49.3%, Fitzgeralds
Las Vegas accounted for $448,000, or 37.6% and Fitzgeralds Black Hawk accounted
for $156,000 or 13.1%.
Other consolidated revenues consisted primarily of commission and retail
income and totaled approximately $204,000, or 1.6% of total revenue. Of this
amount, Fitzgeralds Tunica accounted for $84,000 or 41.2%, Fitzgeralds Las Vegas
accounted for approximately $107,000 or 52.4%, and Fitzgeralds Black Hawk
accounted for $13,000 or 6.4%.
Promotional allowances included in the consolidated gross revenues for the
period from inception through December 31, 2001 were $2,311,000, or 18.0% of
gross revenues. Of this amount, Fitzgeralds Tunica accounted for $1,340,000, or
58.0%, Fitzgeralds Las Vegas accounted for $365,000, or 15.8%, and Fitzgeralds
Black Hawk accounted for $606,000, or 26.2%.
36
Operating Costs and Expenses. Consolidated casino operating expenses for
the period from inception through December 31, 2001 were $4,112,000 or 32.0% of
gross revenues and 39.7% of casino revenues. These expenses were primarily
comprised of salaries, wages and benefits, and operating expenses of the
casinos. Of the consolidated casino operating expenses, Fitzgeralds Tunica
accounted for $2,076,000, or 50.5%, Fitzgeralds Las Vegas accounted for
$1,344,000 or 32.7%, and Fitzgeralds Black Hawk accounted for $692,000 or 16.8%.
Gaming taxes are levied on adjusted gross receipts (as defined in each of
the applicable state's gaming laws). Gaming taxes were $808,000 or 6.3% of the
gross revenues for the period from inception through December 31, 2001. Of this
amount, Fitzgeralds Tunica accounted for $654,000, or 80.9%, Fitzgeralds Las
Vegas accounted for $139,000, or 17.2%, and Fitzgeralds Black Hawk accounted for
$15,000, or 1.9%.
Consolidated advertising and promotion expenses included salaries, wages
and benefits of the marketing and casino service departments, as well as
promotions, advertising and special events. Advertising and promotion expenses
for the period from inception through December 31, 2001, totaled $926,000, or
7.2% of gross revenues. Of this amount, Fitzgeralds Tunica accounted for
$423,000, or 45.7%, Fitzgeralds Las Vegas accounted for $322,000, or 34.8%, and
Fitzgeralds Black Hawk accounted for $181,000 or 19.5%.
Consolidated general and administrative expenses for the period from
inception through December 31, 2001 were $1,570,000, or 12.2% of gross revenues,
of which Fitzgeralds Tunica accounted for $642,000, or 40.9%, Fitzgeralds Las
Vegas accounted for $599,000, or 38.2%, and Fitzgeralds Black Hawk accounted for
$302,000, or 19.2%. Corporate expenses accounted for $27,000, or 1.7%.
Consolidated depreciation and amortization for the period from inception
through December 31, 2001, was approximately $921,000, or 7.2% of gross
revenues, of which Fitzgeralds Tunica accounted for $485,000, or 52.7%,
Fitzgeralds Las Vegas accounted for $167,000, or 18.1%, and Fitzgeralds Black
Hawk accounted for $100,000 or 10.9%. Corporate amortization of deferred
financing costs accounted for $169,000, or 18.3% of consolidated depreciation
and amortization expense. Of the consolidated depreciation and amortization
expense, approximately $642,000, or 69.7%, is depreciation expense, and
$279,000, or 30.3%, is amortization expense.
Consolidated pre-opening costs of approximately $1,018,000 were expenses
incurred prior to the acquisition of the Fitzgeralds properties. These costs
include salaries and wages, professional fees and other administrative expenses.
Income (Loss) from Operations. Consolidated operating loss for the period
from inception through December 31, 2001, was $278,000, or 2.2% of gross
revenues, of which Fitzgeralds Tunica accounted for operating income of
$654,000, or 235.3%, Fitzgeralds Las Vegas accounted for an operating loss of
$393,000, or (141.4)% and Fitzgeralds Black Hawk accounted for operating income
of $674,000, or 242.4%.
Net Interest Expense. Consolidated net interest expense for the period
from inception through December 31, 2001, was $993,000, or approximately 7.7% of
gross revenues, of which the Company accounted for net interest expense of
$993,000, Fitzgeralds Tunica accounted for interest income of $1,500,
Fitzgeralds Las Vegas accounted for interest expense of $2,100 and Fitzgeralds
Black Hawk accounted for interest income of $900.
Net Income (Loss). As a result of the foregoing, the Company realized a
net loss of $1,271,000 for the period from inception through December 31, 2001.
Adjusted EBITDA, defined as earnings before interest, income taxes,
depreciation and amortization and excluding pre-opening costs associated with
the acquisition, for the period from inception through December 31, 2001 was
$1,661,000, of which Fitzgeralds Tunica accounted for $1,138,000, Fitzgeralds
Las Vegas accounted for $(225,000) and Fitzgeralds Black Hawk accounted for
$774,000. The Company accounted for $(26,000). Adjusted EBITDA is a supplemental
financial measurement used by the Company in the evaluation of its gaming
business and by many gaming industry analysts. Adjusted EBITDA should be viewed
only in conjunction with all of the Company's financial data and statements, and
should not be construed as an
37
alternative either to income from operations (as an indicator of the Company's
operating performance) or to cash flows from operating activities as a measure
of liquidity.
PERIOD FROM JANUARY 1, 2001 TO DECEMBER 6, 2001 COMPARED TO YEAR ENDED
DECEMBER 31, 2000
As a result of the sale of Fitzgeralds Las Vegas, Fitzgeralds Tunica and
Fitzgeralds Black Hawk to the Company on December 6, 2001, comparative data for
the year 2001 is available only for January 1, 2001 to December 6, 2001.
Operating Revenues. Total operating revenues for the properties were
$187.6 million and net operating revenues were $157.7 million for the period
from January 1, 2001 to December 6, 2001, representing decreases of 0.5% and
1.3%, respectively, over total operating revenues for the properties of $188.5
million and net operating revenues of $159.7 million for the year ended December
31, 2000. Such decreases were largely the result of the sale of Fitzgeralds Las
Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to the Company on December
6, 2001.
Casino revenues (of which approximately 89.2% and 87.8% are derived from
slot machine revenues for the period from January 1, 2001 to December 6, 2001
and the year ended December 31, 2000, respectively) increased 1.3% to $150.7
million for the period from January 1, 2001 to December 6, 2001 from the $148.8
million recorded for the year ended December 31, 2000.
Room revenues (at 8.0% and 10.5% of total revenues for the period from
January 1, 2001 to December 6, 2001 and the year ended December 31, 2000,
respectively) decreased 9.6% from $16.6 million for the year ended December 31,
2000 to $15.0 million in the period from January 1, 2001 to December 6, 2001.
Fitzgeralds Las Vegas room revenues decreased 11.7% from $8.5 million in the
year ended December 31, 2000 to $7.5 million for the period from January 1, 2001
to December 6, 2001, as its average daily rate decreased 7.4%, and the average
occupancy rate decreased to 91.9% for the period from January 1, 2001 to
December 6, 2001 from 92.1% in the year ended December 31, 2000. Fitzgeralds
Tunica room revenues decreased 6.5%, from $8.1 million for the year ended
December 31, 2000 to $7.6 million for the period from January 1, 2001 to
December 6, 2001, as an increase in the average occupancy rate to 94.5% for the
period from January 1, 2001 to December 6, 2001 from 92.5% in the year ended
December 31, 2000 was offset by a 2.2% decrease in the average daily rate.
Food and beverage revenues (at 9.8% and 10.4% of total revenues for 2001
and 2000, respectively) decreased 6.1%, from $19.6 million for the year ended
December 31, 2000 to $18.4 million for the period from January 1, 2001 to
December 6, 2001, primarily due to the sale of assets to the Company.
Other revenues remained constant at $3.5 million in the year ended December
31, 2000 and for the period from January 1, 2001 to December 6, 2001.
Promotional allowances showed a net increase of 4.0% to $30.0 million for
the period from January 1, 2001 to December 6, 2001 from $28.8 million for the
year ended December 31, 2000, reflecting the increased level of competition in
all four markets.
Operating Costs and Expenses. Total operating costs and expenses for the
properties decreased 8.4%, to $132.2 million for the period from January 1, 2001
to December 6, 2001 from $144.3 million for the year ended December 31, 2000.
This decrease was largely the result of the sale of Fitzgeralds Las Vegas,
Fitzgeralds Tunica and Fitzgeralds Black Hawk to the Company on December 6,
2001.
Casino expenses were $69.8 million for the period from January 1, 2001 to
December 6, 2001, a 1.1% decrease from $69.1 million for the year ended December
31, 2000. Food and beverage expenses decreased 7.8% to $10.6 million for the
period from January 1, 2001 to December 6, 2001 from $11.5 million for the year
ended December 31, 2000. Room expenses decreased 10.1% to $9.8 million in the
period from January 1, 2001 to December 6, 2001 from $10.9 million in the year
ended December 31, 2000. Selling, general and administrative expenses decreased
3.8% to $37.9 million for the period from January 1, 2001 to December 6, 2001
from $39.4 million for the year ended December 31, 2000, which includes $3.2
million for the year ended December 31, 2000 of pre-petition professional fees
and expenses incurred in conjunction with the ongoing
38
development, negotiation and implementation of the restructuring of Fitzgeralds
Gaming Corporation. Such expenses also include professional fees and expenses
paid by Fitzgeralds Gaming Corporation for the financial and legal advisors to
the informal committee (the "Committee") representing holders of a majority in
interest of the notes of Fitzgeralds Gaming Corporation.
Personnel expenses decreased 2.8%, to $63.4 million for the period from
January 1, 2001 to December 6, 2001 from $65.2 million for the year ended
December 31, 2000 as a result of the December 6, 2001 sale. Such expenses are
included in the operating departmental expense to which they relate on the
consolidated statements of operations.
Marketing expenses, which include advertising, promotional material and
special events, decreased 5.3 %, to $10.7 million for the period from January 1,
2001 to December 6, 2001 from $11.3 million for the year ended December 31,
2000. The Company's strategy was to utilize its expanded and renovated
facilities as additional marketing elements and to continue to adjust marketing
expense levels as needed to respond to competition. Such expenses are included
in selling, general and administrative expenses on the consolidated statements
of operations.
Depreciation and amortization expense decreased 100% to $0 for the period
from January 1, 2001 to December 6, 2001 from $11.7 million for the year ended
December 31, 2000, due to the discontinuation of recording depreciation and
amortization expense for property and equipment included in net assets held for
sale subsequent to filing to Bankruptcy Cases in December 2000.
Income from Operations. Income from operations for the properties
increased from $15.4 million for the year ended December 31, 2000 to $25.4
million for the period from January 1, 2001 to December 6, 2001. The increase in
results is primarily due to the $11.4 million gain on sale of assets to the
Company and a $13.9 million decrease in depreciation and amortization expense
resulting from the discontinuation of recording substantially all depreciation
and amortization expense for assets held for sale in the year ended December 31,
2001.
Net Interest Expense. Interest expense (net of interest income) decreased
to $(1,552) for the period from January 1, 2001 to December 6, 2001 from $96,064
for the year ended December 31, 2000, due to the discontinuation of accruing
interest on the Notes on December 5, 2000 with the commencement of the
Bankruptcy Cases.
Net Income. Net income for the Properties increased to $25.4 million for
the period from January 1, 2001 to December 6, 2001 compared to a net loss of
$10.5 million for the year ended December 31, 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Operating Revenues. Total operating revenues for the properties were
$188.5 million and net operating revenues were $159.7 million for 2000,
representing increases of $11.3 million or 6.4% and $6.9 million or 4.6%,
respectively, over total revenues for the properties of $177.2 million and net
operating revenues of $152.8 million for 1999. Such increases were largely the
result of the improved performance of Fitzgeralds Tunica, which opened a
411-space covered parking garage in June 2000. To maintain market share in each
of their existing markets, the properties found it necessary to increase their
promotional and complimentary expenses in 2000, as described below, to meet the
challenges of the intense competition.
Casino revenues (of which approximately 87.8% and 86.7% are derived from
slot machine revenues for 2000 and 1999, respectively) increased $9.9 million or
7.1% to $148.8 million for 2000 from the $138.9 million recorded for 1999.
Room revenues (at 8.8% and 9.2% of total operating revenues for 2000 and
1999, respectively) increased $306,000 or 1.9% from $16.3 million in 1999 to
$16.6 million in 2000. Fitzgeralds Las Vegas room revenue decreased 0.2% as its
average daily rate decreased 0.8%, while occupancy rates remained the same at
92.1% for 2000 and 1999. Fitzgeralds Tunica room revenue increased 4.1% due to a
3.2% increase in the average daily rate while occupancy rates increased to 92.5%
in 2000 from 92.1% in 1999.
39
Food and beverage operating revenues (at 10.4% and 10.6% of total revenues
for 2000 and 1999, respectively) increased $857,000 or 4.6% from $18.7 million
in 1999 to $19.6 million in 2000. There were increases in food revenues of 0.4%,
4.2% and 9.1% at Fitzgeralds Las Vegas, Fitzgeralds Black Hawk and Fitzgeralds
Tunica, respectively. The food revenue increase at Fitzgeralds Tunica was due
primarily to an increase in volumes, while the food revenue increases at
Fitzgeralds Las Vegas and Fitzgeralds Black Hawk were due to pricing increases.
Other revenues increased $245,000 or 7.5% from $3.3 million in 1999 to $3.5
million in 2000, primarily due to an additional $0.2 million of revenue
generated from lease income and management fees paid to Fitzgeralds Las Vegas by
e.three Custom Energy Solutions, LLC, which owns and operates a chilled water
plant on land leased from Fitzgeralds Las Vegas and for which Fitzgeralds Las
Vegas provides maintenance services.
Promotional allowances showed a net increase of $4.3 million or 17.6% to
$28.8 million for 2000, as compared to $24.5 million for 1999, reflecting the
increased level of competition in all three markets.
Operating Costs and Expenses. Total operating costs and expenses for the
properties increased $3.2 million or 2.3%, to $144.3 million for 2000 from
$141.1 million for 1999. The increase is a result of increased competition in
the Tunica and Black Hawk/Central City markets as personnel expenses at
Fitzgeralds Tunica and Fitzgeralds Black Hawk increased 4.9% and 9.0%,
respectively, from 1999, due to increased wages in response to competition. Such
expenses are included in the operating departmental expense to which they relate
on the combined statements of operations. The increase also reflects more
intensive marketing efforts at each property undertaken in response to
increasing competition in each of the markets in which the properties operate,
particularly at Fitzgeralds Tunica, in addition to Fitzgeralds Black Hawk.
Casino expenses were $69.1 million for 2000, a $5.0 million or 7.7%
increase from $64.1 million for 1999, primarily due to increases in expenses
associated directly with increased casino revenues, particularly personnel
expenses and gaming taxes. Food and beverage expenses decreased $284,000 or 2.4%
to $11.5 million for 2000 from $11.8 million for 1999. Room expenses increased
$203,000 or 1.9% to $10.9 million for 2000 from $10.7 million in 1999. Selling,
general and administrative expenses decreased $1.4 million or 3.5% to $39.4
million for 2000 from $40.8 million for 1999.
Depreciation and amortization expense decreased $38,000 or 0.3% to $11.7
million for 2000, due to the discontinuation of recording depreciation and
amortization expense for property and equipment included in net assets held for
sale subsequent to filing the bankruptcy cases in December 2000.
Corporate expense of $3.0 million for each of 2000 and 1999 is allocated to
the properties as a selling, general and administrative expense.
Income from Operations. As a result of the foregoing, income from
operations for the properties increased $3.7 million or 31.3% to $15.4 million
for 2000 from $11.7 million in 1999.
Net Interest Expense. Interest expense (net of interest income) declined
$2.2 million or 7.6% to $25.9 million for 2000 from $28.1 million for 1999.
Fitzgerald Gaming Corporation ceased accruing interest on its senior secured
notes on December 5, 2000 with the commencement of the bankruptcy cases.
Net Loss. Net loss for the properties decreased by $5.7 million to $10.5
million in 2000 compared to $16.2 million in 1999.
PRO FORMA RESULTS OF OPERATIONS
The pro forma results of operations include several pro forma adjustments
to the historical combined financial statements of the properties. These
adjustments fall into two principal categories: (i) cost reductions and (ii)
other adjustments related to the offering of the unregistered notes, the
acquisition and the restructuring and bankruptcy.
We expect to reduce costs by approximately $1.2 million per year. These
expected cost reductions include a reduction in selling, general and
administrative costs to more closely approximate those expenses expected to be
incurred under the new ownership. These cost reductions exclude a reduction of
$2.4 million in casino costs to reflect employment terminations and
cancellations of certain leases and marketing agreements for the year ended
December 31, 2001 as these cost reductions may not fall within the SEC's
Regulation S-X definition of
40
"pro forma adjustments." See the Notes to Unaudited Pro Forma Consolidated
Financial Statement for more detailed information on this adjustment.
The pro forma results of operations also reflect a $25.9 million net
increase in expenses for the year ended December 31, 2001, as a result of
adjustments related to the offering of the unregistered notes, the acquisition
of the properties, the bankruptcy, and the related restructuring. These
adjustments primarily are to record depreciation and amortization and to accrue
interest expense, which, in each case, the properties had ceased to record
following the filing of the bankruptcy cases and the entering into of the
restructuring agreement, in December 2000. For the year ended December 31, 2001,
depreciation and amortization expense has been increased $11.8 million related
to depreciation for previous periods for which no depreciation had been
recognized, as the related assets had been classified as "net assets held for
sale" following the restructuring and amortization of the fees and expenses
relating to the offering of the unregistered notes. Interest expense has been
adjusted to include $17.8 million of interest expense related to the notes for
the year ended December 31, 2001, (based on the 11.653% annual interest rate and
the issuance price of 95.0%) and amortization of debt discount.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, the Company had cash and cash equivalents of
approximately $17.7 million. Cash and cash equivalents included $498,000 at the
Company, $8.5 million at Barden Mississippi, $3.8 million at Barden Colorado and
$5.0 million at Barden Nevada.
The Company has met its capital requirements to date through net cash from
operations, capital contributions and equipment loans. For the period from
inception through December 31, 2001, net cash provided by operating activities
totaled approximately $2.6 million. For the period from inception through
December 31, 2001, cash used by investing activities totaled approximately
$143.9 million. Approximately $152.7 million was invested by the Company to
acquire the three Fitzgeralds brand casinos. For the period from inception
through December 31, 2001, cash provided by financing activities totaled
approximately $159.0 million primarily resulting from the Company's offering of
the unregistered notes. As of May 15, 2002, the outstanding borrowings under the
credit facility were approximately $1.7 million.
Management believes that the Company's cash flow from operations and its
current line of credit will be adequate to meet the Company's anticipated future
requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on the unregistered notes and other permitted
indebtedness for the year 2002. No assurance can be given, however, that such
proceeds and operating cash flow, in light of increased competition will be
sufficient for such purposes. If necessary and to the extent permitted under the
Investor Holdings Indenture, the Company will seek additional financing through
borrowings and debt or equity financing. There can be no assurance that
additional financing, if needed, will be available to the Company, or that, if
available, the financing will be on terms favorable to the Company. In addition,
there is no assurance that the Company's estimate of its reasonably anticipated
liquidity needs is accurate or that unforeseen events will not occur, resulting
in the need to raise additional funds.
BUSINESS SEASONALITY
The gaming operations of the properties may be seasonal and, depending on
the location and other circumstances, the effects of such seasonality could be
significant. At Fitzgeralds Las Vegas, business levels are generally weaker from
Thanksgiving through the middle of January (except during the week between
Christmas and New Year's) and throughout the summer, and generally stronger from
mid-January through Easter and from mid-September through Thanksgiving. At
Fitzgeralds Tunica and Fitzgeralds Black Hawk, business levels are typically
weaker from Thanksgiving through the end of the winter and typically stronger
from mid-June to mid-November.
The properties' results are also affected by inclement weather in relevant
markets. For example, the Fitzgeralds Black Hawk site, located in the Rocky
Mountains of Colorado, is subject to snow and icy road conditions during the
winter months. Any such severe weather conditions may discourage potential
customers from visiting the Black Hawk facilities.
41
RECENTLY ISSUED ACCOUNTING STANDARDS
We have adopted Emerging Issues Task Force ("EITF") No. 00-14, "Accounting
for Certain Sales Incentives," EITF 00-22, "Accounting for 'Points' and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to Be Delivered in the Future," and EITF 00-25, "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products," which required the cash-back component of
the Company's Slot Club reward program, including promotional coupons, be
classified as a reduction of revenues.
In June 2001, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
143, "Accounting for Asset Retirement Obligations," SFAS No. 141 requires all
business combinations to be accounted for using the purchase method of
accounting. SFAS No. 141 is required to be implemented for all acquisitions
initiated after June 30, 2001, and all business combinations accounted for using
the purchase method for which the date of acquisition is July 1, 2001, or later.
We applied SFAS No. 141 for our acquisition of the Fitzgeralds assets.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets
are no longer subject to amortization over their useful lives, rather, they are
subject to assessments for impairment at least annually. Also, under SFAS No.
142, an intangible asset should be recognized if the benefit of the intangible
asset is obtained through contractual or other legal rights or if the intangible
asset can be sold, transferred, licensed, rented or exchanged. Such intangibles,
will be amortized over their useful lives. Under SFAS No. 142, our acquisition
of the Fitzgeralds assets was immediately subject to the provisions of SFAS No.
142. We will test these assets for impairment at least annually.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 will be implemented by us on January 1, 2002. Adoption of SFAS No.
143 will not have a material impact on our consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and amends Accounting Principles Board ("APB") Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effect of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. Adoption of SFAS No. 144 will not have a material impact on
our consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Recision of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections."
This Statement updates, clarifies and simplifies existing accounting
pronouncements relating to extinguishments of debt, accounting for leases and
other matters. Management does not expect the standard to have a material impact
on the Company's consolidated financial position, results of operations or cash
flows.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
requires management to make estimates and assumptions about the effects of
matters that are inherently uncertain. We have summarized our significant
accounting policies in Note 2 to our consolidated financial statements. Of our
accounting policies, we believe the following may involve a higher degree of
judgment and complexity.
Revenue Recognition. Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. Hotel and other revenue
is recognized at the time the related service is performed.
Goodwill. We have approximately $10.6 million of goodwill recorded on our
balance sheet at December 31, 2001 related to the acquisition of the Fitzgeralds
properties. We regularly evaluate our acquired
42
businesses for potential impairment indicators. Additionally, we adopted the
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," that require
us to perform impairment testing at least annually. Our judgments regarding the
existence of impairment indicators are based on, among other things, the
regulatory and market status and operational performance of each of our acquired
businesses. Future events could significantly impact our judgments and any
resulting impairment loss could have a material adverse impact on our financial
condition and results of operations.
Property and Equipment. At December 31, 2001 we have approximately $122.4
million of net property and equipment recorded on our balance sheet. Third-party
valuations have been obtained for property and equipment and intangible assets.
We depreciate our assets on a straight-line basis over their estimated useful
lives. The estimate of the useful lives is based on the nature of the asset as
well as our current operating strategy. Future events, such as property
expansions, new competition and new regulations, could result in a change in the
manner in which we are using certain assets requiring a change in the estimated
useful lives of such assets. In assessing, the recoverability of the carrying
value of property and equipment, we must make assumptions regarding estimated
future cash flows and other factors. If these estimates or the related
assumptions change in the future, we may be required to record impairment
charges for these assets.
Slot Club Liability. The Company offers a program whereby participants can
accumulate points for casino wagering that can currently be redeemed for cash,
lodging, food and beverages and merchandise. A liability is recorded for the
estimate of unredeemed points based upon the Company's redemption history. This
liability can be impacted by changes in the program, increases in membership and
changes in the redemption patterns of the participants.
CONTRACTUAL COMMITMENTS
The following table summarizes our obligations and commitments to make
future payments under contracts, including long-term debt obligations,
capitalized leases and operating leases at December 31, 2001:
<Table>
<Caption>
PAYMENTS DUE BY YEAR
----------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS 2002 2003 2004 2005 2006 THEREAFTER TOTAL
- ------------------------ ---------- ---------- ---------- -------- -------- ------------ ------------
Long-Term Debt.......... $ -- $ -- $ -- $ -- $ -- $145,085,432 $145,085,432
Capital Leases.......... 156,574 133,066 84,346 37,460 -- -- 411,446
Operating Leases........ 1,374,495 1,206,426 925,036 774,092 774,092 774,092 5,828,233
---------- ---------- ---------- -------- -------- ------------ ------------
Total............... $1,531,069 $1,339,492 $1,009,382 $811,552 $774,092 $145,859,524 $151,325,111
</Table>
<Table>
<Caption>
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
-----------------------------------------------------------------
TOTAL AMOUNTS LESS THAN 1-3 4-5 OVER 5
OTHER COMMERCIAL COMMITMENTS COMMITTED 1 YEAR YEARS YEARS YEARS
- ---------------------------------------- ------------- ---------- ---------- ---------- ----------
Lines of Credit......................... $6,500,000 $6,500,000 $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
Total............................... $6,500,000 $6,500,000 $ -- $ -- $ --
</Table>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have approximately $152.6 million principal amount of notes outstanding
under our indenture. Our fixed rate debt instruments are not generally affected
by a change in the market rates of interest and therefore, such instruments
generally do not have an impact on future earnings. However, as our fixed rate
debt matures, future earnings and cash flows may be impacted by changes in
interest rates related to debt incurred to fund repayments under maturing
facilities. In conjunction with the issuance of our fixed rate debt instruments,
we also entered into a credit agreement with a maximum credit line of $15.0
million. This line of credit creates a variable rate debt instrument, which
would be affected by changes in the market rates of interest. Assuming we have
borrowed against the maximum available under our line of credit, a one-half
percentage point change in the underlying variable rate would result in a change
in related interest expense of $75,000. Additionally, should we assume variable
rate debt in the future, we will be subject to market risk, which is the risk of
loss from changes in market prices and interest rates.
43
BUSINESS
GENERAL
Our operations consist of three casino properties formerly owned and
operated by Fitzgeralds Gaming Corporation in Tunica, Mississippi, Black Hawk,
Colorado, and downtown Las Vegas, Nevada. We acquired these casino properties
from Fitzgeralds Gaming Corporation and certain of its affiliates on December 6,
2001. Our properties collectively contain approximately 2,900 slot machines, 60
table games, and 1,100 hotel rooms. Our properties are well established, each
having been in operation for at least five years, and are located within
significant gaming markets. We operate our properties under the Fitzgeralds name
in order to continue to benefit from the strong name brand recognition we
believe is enjoyed by Fitzgeralds.
We are indirectly wholly owned subsidiaries of Parent and are indirectly
wholly owned and controlled by Don H. Barden, our Chairman, President and Chief
Executive Officer. Mr. Barden has an established track record of operating,
developing and acquiring properties in the gaming industry and in other
industries. Mr. Barden, through Parent, owns and operates the Majestic Star
Casino, a gaming facility containing 1,445 slot machines and 52 table games in
Gary, Indiana that serves the Chicago metropolitan area. We have no ownership
interest in Parent or the Majestic Star Casino.
PROPERTIES
Fitzgeralds Tunica. Fitzgeralds Tunica is located in north Tunica County,
Mississippi, approximately 30 miles from downtown Memphis, Tennessee.
Fitzgeralds Tunica has an Irish castle theme and is the focal point of a heavily
wooded, 50-acre site situated by the Mississippi River. The Fitzgeralds Tunica
casino barge facility opened in June 1994 at a cost of approximately $46.0
million. The facility was expanded to include a hotel and related amenities,
which improvements were substantially completed in October 1996 at a cost of
approximately $34.0 million. Fitzgeralds Tunica is a full-service entertainment
destination and its customer base has been increased and diversified by its
ability to attract, in addition to local customers, independent travelers,
tour-and-travel customers and guests for special events and conventions.
Fitzgeralds Tunica includes a 507-room hotel (including 72 suites), a special
events center, an indoor swimming pool and a casino offering 1,375 slot machines
and 34 table games, two bars, three restaurants and a gift shop. Under
Mississippi law, gaming vessels in Tunica County must be located on the
Mississippi River or on navigable waters within counties bordering the
Mississippi River. Fitzgeralds Tunica was constructed on barges situated in a
specially constructed basin. In June 2000, construction was completed on a
411-space parking garage and an additional 170 spaces of surface parking at a
cost of $5.6 million, bringing the total number of spaces to 1,675, plus 120
valet spaces. Fitzgeralds Tunica has conveyed approximately 71 acres of adjacent
land to the County of Tunica, as part of the County's 168-acre, $20 million
river park project, which will include, among other things, a marina and boat
dock (including space for sight-seeing paddlewheel riverboats) and a nature
park. As consideration for the conveyance, the County granted Fitzgeralds Tunica
a rent-free lease to use and further sublease the boat dock for 15 years from
the date of substantial completion of the marina, as well as a perpetual
easement allowing ingress and egress between the Fitzgeralds Tunica property and
the boat dock. Fitzgeralds has granted Mississippi Riverboat Company LLC, an
unrelated third-party operator, an exclusive license to operate riverboat
excursions along the Mississippi River from the boat dock in return for monthly
license fees. Construction began on the park in mid October 2001, and we expect
the park to open in phases beginning in July 2002 through March 2003.
Fitzgeralds Black Hawk. Fitzgeralds Black Hawk is located adjacent to the
entrance to the downtown gaming area of Black Hawk, Colorado, next to the Gilpin
Casino and across the street from Bullwhackers. Fitzgeralds Black Hawk consists
of a two-story building, the interior of which features high ceilings and other
architectural details which set it apart visually from many other Black Hawk
casinos. The casino offers 594 slot machines, 6 table games, a restaurant and a
bar. The second floor is mostly unfinished and currently is partially used for
offices and storage space. Fitzgeralds Black Hawk also has a 392-space, all
valet parking garage adjacent to the casino. In addition, we recently authorized
and began a $304,000 partial demolition project on property adjacent to
Fitzgeralds Black Hawk. This property is available for expansion if market
conditions warrant and we are currently evaluating the possibility of such an
expansion to better serve this
44
growing market. Fitzgeralds has obtained some, but not all, of the permits
necessary to undertake the proposed expansion.
Fitzgeralds Las Vegas. Fitzgeralds Las Vegas is located on the city block
bounded by Fremont, Carson, Third and Fourth Streets at the Fremont Street
Experience in downtown Las Vegas. The property is accessible via Interstate 15
and U.S. 95 and markets to downtown Las Vegas tourists, numbering approximately
35 million in 2001, and, to a lesser extent, to the approximately 1.6 million
residents of the Las Vegas MSA. The 34-story building underwent a refurbishment
of the hotel and remodeling expansion of the casino which was substantially
completed in December 1996 at a cost of approximately $19.4 million. Fitzgeralds
Las Vegas offers 934 slot machines, 23 table games, 638 hotel rooms (including
14 suites), a 42-seat keno lounge and a sports book (operated by a third party).
Fitzgeralds Las Vegas amenities include five restaurants (including a McDonald's
restaurant), three bars, a special events center, a gift shop and an
entertainment area. The facility includes a 335-space parking structure and an
adjacent surface parking area with an additional 41 spaces.
MAJESTIC INVESTOR CAPITAL CORP.
Majestic Investor Capital Corp. is a wholly owned subsidiary of Majestic
Investor Holdings, LLC, and was formed specifically to facilitate the offering
of the notes. It does not have any material assets.
MARKETS
FITZGERALDS TUNICA
The Tunica market, which primarily serves the Memphis, Tennessee area, also
attracts drive-in customers from Northern Mississippi and Little Rock, Arkansas,
as well as regional weekend travelers flying into Memphis. The market draws most
of its customers from within a 200-mile radius of the Tunica market. The
population within this 200-mile radius was approximately 7.3 million in 2000.
There were approximately 26.8 million visitors to Tunica in 2001.
The following table sets forth certain data for the Tunica gaming market,
based on information reported by the Mississippi Gaming Commission based on data
from the Tunica County Administrator's tax records with respect to the Tunica
gaming market, and for Fitzgeralds Tunica, for the periods indicated.
<Table>
<Caption>
FOR THE QUARTER ENDED
FOR THE TWELVE MONTHS ENDED DECEMBER ----------------------
----------------------------------------------- APRIL 1, MARCH 31,
1998 1999 2000 2001 2001 2002
-------- ---------- ---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
TUNICA MARKET DATA:(1)
Gaming Revenues.............. $966,664 $1,058,231 $1,099,142 $1,097,094 $272,406 $284,031
Growth Rate(2)............... 9.5% 3.9% (0.19)% 4.27%
Gaming Positions(3).......... 17,261 18,116 18,282 18,056 18,343 17,868
FITZGERALDS TUNICA PROPERTY
DATA:(4)
Gaming Revenues.............. $ 59,566 $ 65,676 $ 73,507 $ 82,956 $ 21,549 $ 23,357
Growth Rate(2)............... 10.3% 11.9% 12.9% 8.39%
Gaming Positions(3).......... 1,379 1,415 1,486 1,592 1,511 1,579
Operating Income (Loss)...... $ 2,063 $ 5,321 $ 9,018 $ 42,687 $ 5,442 $ 4,628
Net Income (Loss)............ $(10,355) $ (7,399) $ (2,803) $ 42,685 5,440 $ 4,642
Fair Share(5)................ 77.1% 79.5% 82.3% 92.75% 96.03% 93.06%
</Table>
- ---------------
(1) Tunica uses either a 28-day or a 35-day reporting month instead of a
calendar reporting month. As a result: (a) the twelve months ended December
1998, 1999, 2000 and 2001 mean, respectively, the periods from December 21,
1997 through December 22, 1998; December 23, 1998 through December 18, 1999;
December 19, 1999 through December 16, 2000; and December 17, 2000 through
December 15, 2001,
45
and (b) the three months ended March 2001 and 2002 mean, respectively, the
periods from December 17, 2000 through March 17, 2001 and December 16, 2001
through March 16, 2002.
(2) % change from comparable prior-year period.
(3) Determined by averaging the number of gaming positions for each reporting
month in such period.
(4) Property data is presented (a) for the years ended December 31, 1998, 1999
and 2000 and for the twelve months ended December 31, 2001, respectively and
(b) for the quarter ended April 1, 2001 and March 31, 2002, respectively.
(5) This statistic generally reflects whether a property has captured its pro
rata share (based on the property's gaming positions compared to all gaming
positions in the market) of the gaming in a market and is computed using the
best available data, but it is not a precise measure. If the "Fair Share"
number exceeds 100%, the property has more than its pro rata share of
revenues in the market. If the "Fair Share" number is less than 100%, the
property has less than its pro rata share of revenues. The "Fair Share"
number equals property's market share of gaming revenues divided by
property's market share of gaming positions for each of the periods
presented. The number of gaming positions for a specified period is
determined by averaging the number of gaming positions for each reporting
month in such period. The number of gaming positions for a reporting month
is equal to the sum of (i) the number of slot machines reported to the
applicable gaming regulatory agency for such month and (ii) the product of
six times the number of table games reported to the applicable gaming
regulatory agency for such month.
(6) The properties discontinued recording depreciation and amortization of their
property and equipment and interest on the senior secured notes subsequent
to the filing of the bankruptcy cases on December 5, 2000.
FITZGERALDS BLACK HAWK
The Black Hawk/Central City market, which includes the City of Black Hawk
and Central City, attracts drive-in or "day trip" customers from the population
centers of Denver, Boulder and Fort Collins, Colorado as well as Cheyenne,
Wyoming. These population centers are located within a 100-mile radius of the
Black Hawk/Central City market. The population within this 100-mile radius has
experienced steady growth from a population of approximately 2.8 million in 1990
to approximately 3.7 million in 2000.
The following table sets forth certain data for the Black Hawk/Central City
market, based on information reported by the Colorado Division of Gaming with
respect to the Black Hawk/Central City market, and for Fitzgeralds Black Hawk,
for the periods indicated.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER FOR THE QUARTER ENDED
----------------------------------------- ------------------------------
1998 1999 2000 2001 APRIL 1, 2001 MARCH 31, 2002
-------- -------- -------- -------- ------------- --------------
(DOLLARS IN THOUSANDS)
BLACK HAWK/CENTRAL CITY
MARKET DATA:
Gaming Revenues.............. $365,987 $428,708 $497,222 $538,057 $128,936 $144,790
Growth Rate(1)............... 17.1% 16.0% 8.2% 12.3%
Gaming Positions(2).......... 9,748 10,663 11,170 11,090 11,040 12,245
FITZGERALD BLACK HAWK
PROPERTY DATA(3):
Gaming Revenues.............. $ 35,086 $ 35,123 $ 36,794 $ 38,316 $ 8,911 $ 9,217
Growth Rate(1)............... 0.1% 4.8% 4.1% 3.43%
Gaming Positions(2).......... 612 602 627 632 630 630
Operating Income (Loss)...... $ 9,074 $ 7,517 $ 6,385 $ 7,701 $ 1,594 $ 1,259
Net Income (Loss)............ $ (81) $ 194 $ (384) $ 7,670 $ 1,592 $ 1,262
Fair Share(4)................ 152.7% 145.1% 131.8% 126.2% 121.11% 123.73%
</Table>
46
- ---------------
(1) % change from comparable prior-year period.
(2) Determined by averaging the number of gaming positions for each reporting
month in such period.
(3) Property data is presented (a) for the years ended December 31, 1998, 1999
and 2000 and for the twelve months ended December 31, 2001, respectively (b)
for the quarter ended April 1, 2001 and March 31, 2002, respectively.
(4) For more information regarding this statistic, please see footnote 5 to the
table set forth under "Business -- Markets -- Fitzgeralds Tunica."
(5) The properties discontinued recording depreciation and amortization of their
property and equipment and interest on the senior secured notes subsequent
to the filing of the bankruptcy cases on December 5, 2000.
FITZGERALDS LAS VEGAS
Las Vegas continues to grow rapidly and is one of the world's largest
tourist destinations. The population of the Las Vegas MSA has nearly doubled,
from approximately 0.9 million in 1990 to approximately 1.6 million in 2000,
with casino, hotel and airport facilities growing concomitantly. In the same
time period, the number of visitors to downtown Las Vegas has increased 71.1%,
from approximately 21.0 million in 1990 to approximately 35 million in 2001.
In order to more fully participate in this growth, the downtown gaming
companies opened the Fremont Street Experience in December 1995 to revitalize
the central core of the downtown Las Vegas gaming district. The Fremont Street
Experience converts five blocks of Fremont Street into a "must see" attraction
that restores and enhances the intimacy and visual excitement of downtown Las
Vegas. The Fremont Street Experience includes a pedestrian mall, shops,
restaurants and entertainment beneath an approximately 1,500-foot long, 90-foot
high Space Frame, which incorporates approximately 2.1 million lights to offer a
number of "Sound and Light Shows" as well as a number of special events and
festivals. A project has been proposed to visually enhance the Fremont Street
Experience "Sound and Light Shows" by replacing the existing light display with
flat panel display screens which have the capability to show televised and other
multimedia events and programming, thereby dramatically enhancing the range of
entertainment programming options. With its appeal to adults, together with its
location on Fremont Street, the Fremont Street Experience is distinguishable
from other Las Vegas attractions and draws both locals and tourists who might
not otherwise visit the downtown area. In addition, the most recent development
in the downtown Las Vegas area is the approximately $100 million Neonopolis
project, a 250,000 square foot retail and entertainment venue with a 14 screen
movie theater that opened in May 2002. The project includes a $32 million, 600
space underground parking garage. This project is located at the east end of the
Fremont Street Experience and across from our Fitzgeralds Las Vegas property.
We believe that many gaming patrons choose to stay and play in downtown Las
Vegas because the downtown casinos have traditionally provided a more
comfortable and less intimidating environment and are perceived to offer more
liberal slot payouts and better odds on table games than casinos located on the
Las Vegas Strip.
The following table sets forth certain operating results for the downtown
Las Vegas gaming market, based on information reported by the Nevada State
Gaming Control Board with respect to the downtown Las Vegas gaming market, and
for Fitzgeralds Las Vegas, for the periods indicated.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER FOR THE QUARTER ENDED
----------------------------------------- ------------------------------
1998 1999 2000 2001 APRIL 1, 2001 MARCH 31, 2002
-------- -------- -------- -------- ------------- --------------
(DOLLARS IN THOUSANDS)
LAS VEGAS MARKET DATA:
Gaming Revenues.......... $678,704 $666,918 $673,768 $683,301 $178,976 $170,510
Growth Rate(1)........... (1.7)% 1.0% 1.4% (4.7)%
Gaming Positions(2)...... 21,766 21,159 20,976 20,699 20,769 19,694
</Table>
47
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER FOR THE QUARTER ENDED
----------------------------------------- ------------------------------
1998 1999 2000 2001 APRIL 1, 2001 MARCH 31, 2002
-------- -------- -------- -------- ------------- --------------
(DOLLARS IN THOUSANDS)
FITZGERALD LAS VEGAS
PROPERTY DATA(3):
Gaming Revenues.......... $ 35,813 $ 38,130 $ 38,476 $ 39,757 $ 10,518 $ 9,780
Growth Rate(1)........... 6.5% 0.9% 3.3% (7.02)%
Gaming Positions(2)...... 1,217 1,183 1,137 1,147 1,107 1,072
Operating Income
(Loss)................. $ (594) $ (1,115) $ (7) $(24,011) $ 1,664 $ 240
Net Income (Loss)........ $(10,833) $ (9,043) $ (7,348) $(24,060) $ 1,679 $ 236
Fair Share(4)............ 94.4% 102.3% 105.4% 105.0% 110.26% 105.48%
</Table>
- ---------------
(1) % change from comparable prior-year period.
(2) Determined by averaging the number of gaming positions for each reporting
month in such period.
(3) Property data is presented (a) for the years ended December 31, 1998, 1999
and 2000 and for the twelve months ended December 31, 2001, and (b) for the
quarter ended April 1, 2001 and March 31, 2002.
(4) For more information regarding this statistic, please see footnote 5 to the
table set forth under "Business -- Markets -- Fitzgeralds Tunica."
(5) The properties discontinued recording depreciation and amortization of their
property and equipment and interest on the senior secured notes subsequent
to the filing of the bankruptcy cases on December 5, 2000.
OUR OPERATING STRATEGY
The principal elements of our operating strategy include:
Focus on Quality and Service at an Affordable Price. Our casinos provide a
high-quality casino entertainment experience at an affordable price to attract
middle market guests. We believe these middle market guests constitute the
largest segment of potential gaming customers whom we can then identify, qualify
and target for direct marketing activities. Our approach to business at our
three properties focuses on guest service and includes:
- trained hosts to personally assist guests;
- friendly employees;
- quality food, beverages and lodging (except for Black Hawk, which does
not include a hotel) at a moderate price;
- a mix of gaming machines tailored to our customers; and
- personal attention through direct mail promotions, targeted incentives
and the use of the Fitzgeralds Card as part of a frequent player
recognition program.
This strategy was developed, in part, based on our experience in operating our
Parent's casino (in which we have no ownership interest). As with any strategy,
its success can only be measured by actual results. While we may not have
correctly assessed the nature of our customers or what they prefer, we believe
that our approach to business creates a comfortable, familiar and friendly
environment that promotes customer loyalty and satisfaction, enhances playing
time, leads to a high rate of repeat business and is the basis for the further
development of the Fitzgeralds gaming brand, which we believe is nationally
recognized, and our reputation for quality and service at an affordable price.
Capitalize on Fully Integrated Player Tracking and Extensive Guest
Database. Direct marketing to our guests is a key component of our customer
service. Each of our properties contains a fully integrated player tracking
system that permits detailed player tracking at each individual property. The
system uses the Fitzgeralds Card to track individual or combined play at slot
machines, table games and keno, as well as food
48
and beverage and hotel expenditures at each individual property. This fully
integrated system allows us to identify players and their gaming preferences and
practices and to develop a comprehensive customer database for marketing and
guest services purposes. Our player tracking program allows us to target our
marketing programs to categories of players, including through advertising
programs, promotions, tournaments with substantial cash prizes, special group
and tour packages and other events and incentives designed to promote customer
loyalty and increase repeat business. Our tracking system also allows us to
better tailor our pricing, promotions, gaming machine selection and other guest
services to customer preferences. In the future, we intend to use the tracking
system to encourage customers of each individual property to patronize our other
properties. We realize that the value of the tracking system is dependent on the
quality of the data and our ability to use the information to generate revenue.
We currently have over 670,000 active players in our database.
Promote Nationally Recognized Gaming Brand. We believe the Fitzgeralds
brand has developed into a nationally recognized gaming brand by using a
consistent Irish Luck theme throughout the casinos, hotels, restaurants and bars
at all of its properties. The Irish Luck theme allows us to capitalize on our
belief that every casino guest wants to feel lucky. The Irish Luck theme
incorporates various aspects of Irish folklore, such as leprechauns, horseshoes,
four-leaf clovers, the Blarney Stone and a pot of gold at the end of a rainbow,
as well as Irish music. We believe that this theme creates an exciting and
comfortable environment together with a distinctive brand identity for
customers. Although there can be no assurance that we will attract customers
based on the Fitzgeralds gaming brand, we believe that Fitzgeralds customers
have come to associate the Irish Luck theme and the associated trade dress and
Fitzgeralds brand trademarks with strong guest services such as the personal
attention and quality product and gaming experience that we seek to provide at
each of our properties.
Leverage Existing Majestic Star Customer Base. Parent has established the
Club M-Star Slot Club to increase the frequency of visits by Parent's existing
customers. This program enables Parent to maintain a comprehensive database of
information on approximately 118,000 of its active gaming patrons, including
their gaming levels, duration of play and preferences. Parent uses this
information to create a comprehensive direct mail marketing program. Although we
will be able to use this information and the marketing program, to market our
properties to existing customers of Parent there can be no assurance that
existing customers of Parent will become our customers.
Capitalize on Market Growth Opportunities. We believe there are
substantial future growth opportunities within each of the markets where our
properties are located, including the following:
- Fitzgeralds Tunica. A 168-acre, $20 million Tunica River Front Park is
under development adjacent to our Fitzgeralds Tunica Property. The park
will include a marina and boat dock facility along the Mississippi river
(including space for sight-seeing paddlewheel riverboats), a historic
Mississippi river museum, nature trails, retail space, and parking.
Construction began on the park in mid October 2001, and we expect the
park to open in phases beginning in July 2002 through March 2003. Tunica
County has assumed the full obligation to fund this project and will
require no financial contribution from us. Fitzgeralds Tunica conveyed
approximately 71 acres of the river park land to the County, and as
consideration for the conveyance, the County granted Fitzgeralds Tunica a
rent-free lease to use and further sublease the boat dock for 15 years
from the date of substantial completion of the marina, as well as a
perpetual easement allowing ingress and egress between the Fitzgeralds
Tunica property and the boat dock. We have licensed our right to use the
boat dock to a riverboat operator who will provide riverboat excursions
along the Mississippi River from the marina and boat dock. In an effort
to increase customer traffic in the Tunica area, Tunica County also is
expanding its airport into a regional airport, with the first phase of
expansion scheduled for completion in 2003 and the second phase scheduled
for completion in 2005. Although there can be no assurance, we believe
that both the Tunica River Front Park and the regional airport will
attract new customers to our Tunica property.
- Fitzgeralds Black Hawk. The Black Hawk/Central City market serves the
rapidly growing Denver area, of which the population of the metropolitan
statistical area grew 30.0% from 1990 to 2000. The compounded annual
growth rate of gaming revenues for the Black Hawk/Central City market was
49
13.60% for the period from January 1998 through March 2002. The market
continues to experience rapid growth as gaming revenues for the three
months ended March 2002 increased 12.30% over the comparable period in
the prior year. We believe that the market has potential for future
growth as well, in part due to a proposal to improve access to Black
Hawk. The City of Black Hawk Development Authority is currently pursuing
plans to expand the road leading to Black Hawk and construct a tunnel
leading to the downtown gaming area from I-70, the major interstate
highway from Denver. A referendum is expected to be held in May 2002 to
approve the financing for the proposed tunnel. We cannot assure you that
the financing for the proposed tunnel will be approved, or if the
financing is approved, when or if the proposed tunnel will be built. Our
Fitzgerald Black Hawk property has available adjacent land for expansion
if market conditions warrant and we are currently evaluating the
possibility of such an expansion to better serve this growing market.
- Fitzgeralds Las Vegas. The downtown Las Vegas area has long been the
focus of continued efforts to increase tourist traffic, beginning with
the Fremont Street Experience, an entertainment and retail promenade,
which opened in December 1995. The most recent development is the
approximately $100 million Neonopolis project, a 250,000 square foot
retail and entertainment venue with a 14 screen movie theater that opened
in May 2002. The project includes a $32 million, 600 space underground
parking garage. This project is located at the east end of the Fremont
Street Experience and across from our Fitzgeralds Las Vegas property. We
believe that this project will attract more potential customers to
downtown Las Vegas and shift the focus of downtown traffic along the
Fremont Street Experience towards our Fitzgeralds Las Vegas property.
Additionally, a project has been proposed to visually enhance the Fremont
Street Experience "Sound and Light Shows" by replacing the existing light
display with flat panel display screens which have the capability to show
televised and other multimedia events and programming, thereby
dramatically enhancing the range of entertainment programming options.
While we believe we have the ability to capitalize on these market growth
opportunities, there can be no assurance that these opportunities will become
available, and if they do, that we will be able to take advantage of them.
COMPETITION
We face intense competition in each of the markets in which our gaming
facilities are located. Many of our competitors have significantly greater name
recognition and financial, marketing and other resources than we do. Our
properties compete principally with other gaming properties in or near
California, Nevada, Mississippi and Colorado. Our Black Hawk property will face
additional competition from the new Black Hawk Casino by Hyatt, which opened on
December 19, 2001. At this time, we are unable to determine what impact this
casino will have on our operations. In addition to regional competitors, we
compete with gaming facilities nationwide, including land-based casinos in
Nevada and Atlantic City, as well as elsewhere, not only for customers but also
for employees and potential future gaming sites. We also compete, to some
extent, with other forms of gaming on both a local and national level, including
state-sponsored lotteries, Internet gaming, on- and off-track wagering and card
parlors. The expansion of legalized gaming to new jurisdictions throughout the
United States has increased competition faced by us and will continue to do so
in the future. Additionally, if gaming were legalized in jurisdictions near our
properties where gaming currently is not permitted, we would face additional
competition. For example, our casino in Tunica, Mississippi competes for
customers from Memphis, Tennessee and Little Rock, Arkansas, where gaming
activity is currently prohibited. The legalization of gaming in either of those
jurisdictions would likely have an adverse impact on our operations at
Fitzgeralds Tunica. Colorado has experienced recent legislative activity with
respect to expanding gaming venues, but no such legislation has been passed to
date. There can be no assurance that we will be able to continue to compete
successfully in our existing markets or that we will be able to compete
successfully against any such future competition.
50
EMPLOYEES AND UNIONS
We directly employ approximately 2,517 persons. Approximately 14% of our
workforce is unionized. As of March 31, 2002, Fitzgeralds Las Vegas employed
approximately 881 people, approximately 338 of whom are represented by the
Culinary Workers Union, Local No. 226 and the Bartenders Union, Local 165, under
a five-year contract expiring on May 31, 2002. In addition, four employees are
represented by the United Brotherhood of Carpenters and Joiners of America,
Southern California-Nevada Regional Council of Carpenters and its Affiliated
Local No. 1780, under a three-year contract that expired on July 31, 2001, which
is currently being renegotiated. As of March 31, 2002, Fitzgeralds Tunica and
Fitzgeralds Black Hawk employed approximately 1,228 and 363 people,
respectively, none of whom are represented by a union. Management believes that
it has excellent relations with its employees and unions.
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
We believe Fitzgeralds developed a national gaming brand by using a
consistent Irish Luck theme throughout the casinos, hotels, restaurants and bars
at all of its properties. As part of the Fitzgeralds acquisition, we acquired
proprietary rights in registered and common law trade names, trademarks and
service marks used in connection with the business and created to enhance the
Irish Luck theme, gaming activities and our association with the Fremont Street
Experience, including the marks "Fitzgeralds," "Fitz" and the "Mr. O'Lucky"
character design. In connection with the Fitzgeralds acquisition, we also
acquired several non-exclusive licenses and supply agreements, which permit us
to utilize and offer at our facilities a variety of casino games, gaming devices
and related software and technology which are subject to certain third party
patent, copyright and trademark rights. Under an exclusive license from us,
Fitzgeralds Gaming Corporation retained the right to use the name "Fitzgeralds"
in connection with its operation of its existing casino property in Reno, Nevada
and in connection with any casino properties it may operate in the future in
Northern California, Northern Nevada, Oregon and Washington. We retained all
other rights to the Fitzgeralds name and all Fitzgeralds trademarks, service
marks and trade dress for use in connection with Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas. In connection with any use of the
Fitzgeralds name, the terms of the license require Fitzgeralds Gaming
Corporation to comply with certain requirements, including operating any casino
property using the Fitzgeralds name in accordance with our current operating
standards. See "Risk Factors -- Risks Related to Our Business -- The right of
Fitzgeralds Gaming Corporation to continue to use the name "Fitzgeralds" may
negatively impact our national brand recognition."
LEGAL PROCEEDINGS
Currently we are not involved in any legal proceedings. In the future, we
anticipate we may be involved in routine litigation, including bankruptcies of
debtors, collection efforts, disputes with employees and customers and other
matters in the ordinary course of our business operations.
ENVIRONMENTAL MATTERS
We are subject to certain federal, state and local environmental, safety
and health laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Clear Air Act, Clean Water Act, Occupational Safety and
Health Act, Oil Pollution Act, Resource Conservation Recovery Act and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"). We have not made, and do not anticipate making, material
expenditures with respect to these environmental laws, regulations and
ordinances. In November 2000, independent environmental consultants conducted
Phase Is on all three casino properties and identified no recognized
environmental conditions meriting a Phase II investigation. However, the
coverage and attendant compliance costs associated with environmental laws,
regulations and ordinances may result in future additional costs to our
operations. For example, we may incur material liability if contamination is
discovered on any of our properties, either during the course of future
development or in connection with the properties designated for investigation or
remediation.
51
Specifically, the Black Hawk and Central City gaming districts, including
the Fitzgeralds Black Hawk site, are located within a 400-square mile area that
in 1983 was designated by the EPA as the Clear Creek/ Central City National
Priorities List Site Study Area ("Study Area") pursuant to CERCLA. The Study
Area includes numerous specifically identified areas of mine tailings and other
waste piles caused by historical mining activity in the area, which areas are
the subject of ongoing investigation and clean-up by the EPA and the Colorado
Department of Public Health and Environment ("CDPHE"). CERCLA requires
remediation of sites from which there has been a release or threatened release
of hazardous substances and authorizes the EPA to take any necessary response
actions at Superfund sites, including authorizing potentially responsible
parties ("PRPs") to clean up or contribute to the clean up of a Superfund site.
PRPs are broadly defined under CERCLA, and include past and present owners and
operators of a site. CERCLA imposes strict liability on PRPs, and courts have
commonly held PRPs to be jointly and severally liable for all response costs.
Fitzgeralds Black Hawk is not within any of the specific areas of the Study
Area currently identified by the EPA and CDPHE for investigation or remediation.
The property on which the Fitzgeralds Black Hawk casino is situated was not a
historical mining site but rather was the location for a general store. The
parking complex for the casino and an adjacent vacant lot, however, are situated
near a historical milling area. To date no remediation requirements have been
recommended or required with regard to any portion of the property although test
borings would likely be required in connection with any future construction on
the expansion parcel of the property (see "Business -- Property"). Based on the
assessments to date, we are not aware of any environmental problems affecting
Fitzgeralds Black Hawk which are likely to result in material costs to us. No
assurance can be given, however, that environmental problems will not
subsequently be discovered. Furthermore, the EPA or other governmental
authorities could broaden their investigations and identify areas of concern
within the site, we could be identified as a PRP, and any liability related
thereto could have a material adverse effect on us.
In addition, under environmental laws and regulations, a beneficiary of a
deed of trust or mortgage on real estate, such as the trustee, may be held
liable, under certain circumstances, for the costs of remediating or preventing
releases or threatened releases of hazardous materials. Under the indenture and
related documents, the trustee is indemnified against its costs, expenses and
liabilities, including environmental clean up costs and liabilities. This could
potentially reduce foreclosure proceeds to the holders of the registered notes.
In addition, in specified circumstances, holders may act directly rather than
through the trustee in order to pursue a remedy under the indenture. If the
holders exercise that right, they could be subject to the risks described above.
52
MANAGEMENT
EXECUTIVE OFFICERS/MANAGERS
Each of Majestic Investor Capital Corp., Barden Colorado Gaming, LLC,
Barden Mississippi Gaming, LLC and Barden Nevada Gaming, LLC are wholly owned
subsidiaries of Majestic Investor Holdings, LLC. The following table sets forth
the names and ages of the executive officers of Majestic Investor Capital Corp.
and of the managers and executive officers of each of Majestic Investor
Holdings, LLC, Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and
Barden Nevada, LLC.
<Table>
<Caption>
NAME AGE POSITION(S)
- ---- --- -----------
Don H. Barden........ 58 Manager of Majestic Investor Holdings, LLC, Barden Colorado Gaming,
LLC and Barden Mississippi Gaming LLC; Chairman, President and Chief
Executive Officer of Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC and Barden Nevada Gaming, LLC; Director of
Majestic Investor Capital Corp.
Michael E. Kelly..... 40 Manager of Majestic Investor Holdings, LLC and Barden Mississippi
Gaming, LLC; Executive Vice President, Chief Operating and Financial
Officer and Secretary of Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC and Barden Nevada Gaming, LLC; Director of
Majestic Investor Capital Corp.
</Table>
Barden Nevada Gaming, LLC is managed by Majestic Investor Holdings, LLC,
its member.
MANAGEMENT PROFILES
Following is a brief description of the business experience of each of the
executive officers of Majestic Investor Capital Corp. and of the managers and
executive officers of Majestic Investor Holdings, LLC, Barden Colorado Gaming,
LLC, Barden Mississippi Gaming, LLC and Barden Nevada Gaming, LLC listed in the
preceding table:
Don H. Barden, Manager of Majestic Investor Holdings, LLC, Barden Colorado
Gaming, LLC and Barden Mississippi Gaming LLC; Chairman, President and Chief
Executive Officer of Majestic Investor Holdings, LLC, Majestic Investor Capital
Corp., Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and Barden
Nevada Gaming, LLC; Director of Majestic Investor Capital Corp. Mr. Barden is
also the Chairman, President and Chief Executive Officer of our parent company,
Majestic Investor, LLC, and Parent, which is the parent of Majestic Investor,
LLC, and has served as Chairman and President of BDI, Parent's managing member,
since November 16, 1993. Mr. Barden also has served as a manager of Majestic
Investor Holdings, LLC and a director of Majestic Investor Capital Corp. since
their respective formations. Additionally, he is the President and Chief
Executive Officer of a group of other companies he owns and/or operates. Over
the past 30 years, Mr. Barden has successfully developed, owned and operated
many business enterprises in various industries including real estate
development, casino gaming, broadcasting, cable television and international
trade.
Michael E. Kelly, Manager of Majestic Investor Holdings, LLC and Barden
Mississippi Gaming, LLC; Executive Vice President, Chief Operating and Financial
Officer and Secretary of Majestic Investor Holdings, LLC, Majestic Investor
Capital Corp., Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and
Barden Nevada Gaming, LLC; Director of Majestic Investor Capital Corp. Mr. Kelly
is also the Executive Vice President, Chief Operating and Financial Officer of
Majestic Investor, LLC and Parent, and has maintained responsibility for
Parent's daily operations since October 17, 1998. Mr. Kelly also has served as a
manager of Majestic Investor Holdings, LLC and a director of Majestic Investor
Capital Corp. since their respective formations. From April 1996 through
December 31, 1998, Mr. Kelly served as Parent's Vice President and Chief
Financial Officer. Mr. Kelly has also served as a Vice President of BDI since
April, 1996. From June 1994 to April 1996, Mr. Kelly held various positions with
Fitzgeralds Gaming Corporation,
53
including Vice President of Finance. Mr. Kelly also was the Senior Director of
Operations and Chief Financial Officer of Fitzgeralds Tunica from July 1994 to
November 1995. From September 1991 to June 1994, Mr. Kelly was Vice President
and Chief Financial Officer of Empress River Casino Corporation and its
affiliates. From 1982 to 1991, Mr. Kelly was employed in various senior finance
and administrative functions by Harrah's Hotel & Casino in New Jersey and Nevada
and by the Fitzgeralds Group in Reno and Las Vegas, Nevada.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation earned for services
performed for Parent, Majestic Investor, LLC and, following its formation in
September of 2001, Majestic Investor Holdings, LLC and each of its subsidiaries,
during the years shown below by our Chief Executive Officer and our other
executive officer. All compensation is paid by Parent.
<Table>
<Caption>
ANNUAL COMPENSATION(1)
-------------------------- ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION(2)
- ----------------- ---- -------- -------- ---------------
Don H. Barden............................. 2001 $332,788 $ -- $ 1,271
Chairman, President and Chief 2000 331,250 -- 920
Executive Officer 1999 289,000 -- 1,139
Michael E. Kelly.......................... 2001 $296,635 $175,000 $24,901
Executive Vice President, Chief 2000 280,000 100,000 18,589
Operating and Financial Officer 1999 275,000 70,000 14,919
and Secretary
</Table>
- ---------------
(1) The incremental cost to Parent of providing perquisites and other personal
benefits did not exceed, as to any "Named Executive Officer," the lesser of
$50,000 or 10% of the total salary and bonus paid to such executive officer
for any such year and, accordingly, is omitted from the table.
(2) Amounts represent contractual payments under individual employment
agreements. In 2001, Parent contributed a 401(k) match of $17,530 to Mr.
Kelly, and Mr. Kelly was also reimbursed by Parent $4,647 for non-deductible
medical plan expenditures. In 2001, life insurance premiums of $1,271 and
$2,724 were paid by Parent on behalf of Messrs. Barden and Kelly,
respectively. In 2000, Parent contributed a 401(k) match of $11,520 to Mr.
Kelly, and Mr. Kelly was also reimbursed by Parent $5,045 for non-deductible
medical plan expenditures. In 2000, life insurance premiums of $920 and
$2,024 were paid by Parent on behalf of Messrs. Barden and Kelly,
respectively. In 1999, Parent contributed a 401(k) match of $7,601 to Mr.
Kelly, and Mr. Kelly was also reimbursed $4,904 for non-deductible medical
plan expenditures. In 1999, life insurance premiums of $1,139 and $2,414
were paid on behalf of Messrs. Barden and Kelly, respectively.
CERTAIN AGREEMENTS
Pursuant to an amended and restated management agreement entered into on
December 5, 2001, and effective on December 6, 2001, BDI, a company wholly owned
by Don H. Barden, will receive a management fee for acting as our manager. In
addition, pursuant to an expense sharing agreement entered into on October 22,
2001, we will reimburse Parent for a specified percentage of (i) the costs and
expenses of executives and certain other employees, including, but not limited
to, salaries, bonuses, benefit payments, insurance and supplies, (ii) rent and
(iii) other similar costs and expenses paid by Parent. These executives and
employees will provide services to both Parent and to us and our subsidiaries.
Please refer to the discussion of the management agreement and the expense
sharing agreement set forth under "Material Agreements -- Management Agreement."
EMPLOYMENT AGREEMENTS
Mr. Barden serves as our Chairman, President and Chief Executive Officer
and currently receives annual compensation of $370,000 as an employee, pursuant
to a letter agreement dated October 22, 2001 with Parent.
54
Mr. Kelly serves as our Executive Vice President, Chief Operating and
Financial Officer and Secretary pursuant to a three-year employment agreement
with Parent dated October 22, 2001. Under this agreement, Mr. Kelly will receive
base compensation of $400,000 per year and can also earn annual incentive
compensation based upon his performance and our performance. In addition to such
compensation, Mr. Kelly is entitled to term life insurance in an amount equal to
$2.5 million and other customary employee benefits, including participation in
our 401(k) plan, together with a $100,000 signing bonus and an interest free
loan in the amount of $200,000 to be repaid in three equal annual installments.
Mr. Kelly is also entitled to additional compensation, upon a change in control,
equal to his base salary and incentive compensation for the remainder of the
term of the agreement, plus 12 months thereafter. Mr. Kelly's employment
agreement contains certain non-competition provisions with a duration of 12
months following termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have no standing Compensation Committees. All compensation decisions are
made by Parent, whose sole manager is BDI.
PRINCIPAL OWNER
We are indirectly wholly owned by Don H. Barden, our Chairman, President
and Chief Executive Officer.
The following table sets forth the beneficial ownership of each of Majestic
Investor Holdings, LLC, Majestic Investor Capital Corp., Barden Colorado Gaming,
LLC, Barden Mississippi Gaming, LLC and Barden Nevada Gaming, LLC as of the date
hereof.
<Table>
<Caption>
NAME AND ADDRESS OF BENEFICIAL OWNER OF
MAJESTIC INVESTOR HOLDINGS, LLC % OWNERSHIP
- --------------------------------------- -----------
Don H. Barden............................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
</Table>
- ---------------
(1) Includes the membership interests in Majestic Investor Holdings, LLC, all of
which are beneficially owned directly by Majestic Investor, LLC, which is
directly wholly owned by Parent. All of the membership interests in Parent
are directly wholly owned by BDI, which is directly wholly owned by Mr.
Barden.
<Table>
<Caption>
NAME AND ADDRESS OF BENEFICIAL OWNER OF
MAJESTIC INVESTOR CAPITAL CORP. % OWNERSHIP
- --------------------------------------- -----------
Don H. Barden............................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
</Table>
- ---------------
(1) Includes the common stock of Majestic Investor Capital Corp., all of which
is beneficially owned directly by Majestic Investor Holdings, LLC, which is
directly wholly owned by Majestic Investor, LLC, which is directly wholly
owned by Parent. All of the membership interests in Parent are directly
wholly owned by BDI, which is directly wholly owned by Mr. Barden.
<Table>
<Caption>
NAME AND ADDRESS OF BENEFICIAL OWNER OF
BARDEN COLORADO GAMING, LLC % OWNERSHIP
- --------------------------------------- -----------
Don H. Barden............................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
</Table>
- ---------------
(1) Includes the membership interests in Barden Colorado Gaming, LLC, all of
which are beneficially owned directly by Majestic Investor Holdings, LLC,
which is directly wholly owned by Majestic Investor, LLC, which is directly
wholly owned by Parent. All of the membership interests in Parent are
directly wholly owned by BDI, which is directly wholly owned by Mr. Barden.
55
<Table>
<Caption>
NAME AND ADDRESS OF BENEFICIAL OWNER OF
BARDEN MISSISSIPPI GAMING, LLC % OWNERSHIP
- --------------------------------------- -----------
Don H. Barden............................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
</Table>
- ---------------
(1) Includes the membership interests in Barden Mississippi Gaming, LLC, all of
which are beneficially owned directly by Majestic Investor Holdings, LLC,
which is directly wholly owned by Majestic Investor, LLC, which is directly
wholly owned by Parent. All of the membership interests in Parent are
directly wholly owned by BDI, which is directly wholly owned by Mr. Barden.
<Table>
<Caption>
NAME AND ADDRESS OF BENEFICIAL OWNER OF
BARDEN NEVADA GAMING, LLC % OWNERSHIP
- --------------------------------------- -----------
Don H. Barden............................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
</Table>
- ---------------
(1) Includes the membership interests in Barden Nevada Gaming, LLC, all of which
are beneficially owned directly by Majestic Investor Holdings, LLC, which is
directly wholly owned by Majestic Investor, LLC, which is directly wholly
owned by Parent. All of the membership interests in Parent are directly
wholly owned by BDI, which is directly wholly owned by Mr. Barden.
Mr. Barden has also invested approximately $24.0 million in Parent to
design, develop, and construct the Majestic Star Casino and the Buffington
Harbor gaming complex and to make related expenditures. See "Management" and
"Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 2000, Majestic Investor, LLC was capitalized by its member
with $9.0 million of capital contributions, including interest earned thereon.
Majestic Investor subsequently contributed this $9.0 million to Majestic
Investor Holdings, LLC in connection with Majestic Investor's assignment of its
rights and obligations under the Fitzgeralds purchase and sale agreement to
Majestic Investor Holdings.
Prior to the consummation of the offering of the unregistered notes,
Majestic Investor Holdings issued a 35.71% membership interest to BDI, a company
wholly owned by Don H. Barden, in exchange for the contribution by BDI of a note
for $5.0 million. BDI subsequently contributed the 35.71% membership interest to
Majestic Investor, as additional paid-in equity. Majestic Investor currently
owns 100% of the membership interests in Majestic Investor Holdings. BDI, upon
the closing of the offering, of the unregistered notes, contributed $5.0 million
to Majestic Investor Holdings in repayment of the promissory note. Mr. Barden,
through BDI and The Majestic Star Casino, LLC, is the indirect, beneficial owner
of 100% of Majestic Investor. See "The Majestic Entities."
Interest of $185,750 remains outstanding at March 31, 2002 on a $2.0
million note made by Majestic Investor to BDI. The note was later assigned to
the Company from Majestic Investor. BDI paid the principal of the note in
conjunction with the closing of the Fitzgeralds acquisition on December 6, 2001.
During 2001, Majestic Investor Holdings made a $700,000 loan to BDI. This
loan accrues interest at 7% per annum and is due and payable on December 12,
2002.
Please refer to the discussion of the Majestic Investor Holdings operating
agreement, our management agreement with BDI and our expense sharing agreement
with Parent set forth under "Material Agreements" and the discussion of our
member agreement with Majestic Investor, LLC, Parent and BDI under "Description
of Notes -- Member Agreement."
DESCRIPTION OF CREDIT FACILITY AND INTERCREDITOR AGREEMENT
SENIOR CREDIT FACILITY
On December 6, 2001, we entered into a $15.0 million senior secured credit
facility with Foothill Capital Corporation. In April 2002, we received approval
by the Nevada Gaming Authorities of the pledge by
56
Majestic Investor Holdings, LLC of the membership interests in Barden Nevada
Gaming, LLC in connection with the credit facility, which allows to borrow up to
$15.0 million under the credit facility. The credit facility is secured by
substantially all of our and our subsidiaries' current and future assets, other
than the excluded assets. The lien on the collateral securing our credit
facility is senior to the lien on the collateral securing the registered notes
and the guarantees. Our credit facility contains customary conditions to
borrowing and representations and warranties customary in other gaming-related
financings. Our credit facility also contains certain financial covenants and
restrictions on, among other things, indebtedness, investments, distributions
and mergers.
INTERCREDITOR AGREEMENT
In connection with our entering into our credit facility, the trustee under
the indenture (as collateral agent) entered into an intercreditor agreement with
Foothill Capital Corporation, as the lender under our credit facility, which,
among other things, subordinates the liens securing the registered notes and the
guarantees to the liens securing the indebtedness under our credit facility. See
"Description of Registered Notes -- Intercreditor Agreement."
The intercreditor agreement, among other things, limits the trustee's
rights in an event of default under the registered notes. Under the
intercreditor agreement, if the registered notes become due and payable prior to
the stated maturity or are not paid in full at the stated maturity at a time
during which we have indebtedness outstanding under our credit facility, the
trustee will not have the right to foreclose upon the collateral unless and
until the lenders under our credit facility fail to take steps to exercise
remedies with respect to or in connection with the collateral within 180 days
following notice to such lenders of the occurrence of an event of default under
the indenture. In addition, the intercreditor agreement prevents the trustee and
the holders of the registered notes from pursuing remedies with respect to the
collateral in an insolvency proceeding. The intercreditor agreement also
provides that the net proceeds from the sale of collateral will first be applied
to repay indebtedness outstanding under our credit facility and thereafter to
the holders of the registered notes.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
We sold the unregistered notes to the initial purchaser in a private
offering on December 6, 2001. The initial purchaser resold the unregistered
notes to qualified institutional buyers under Rule 144A under the Securities
Act. As of the date of this prospectus, $152,632,000 aggregate principal amount
of unregistered notes are outstanding. In connection with the private offering
of the unregistered notes, we and our subsidiary guarantors entered into a
registration rights agreement in which we and our subsidiary guarantors agreed
to file a registration statement with the SEC relating to an offer to exchange
the unregistered notes and the guarantees under the Securities Act for
registered notes and guarantees.
The registration rights agreement further provides that we must use our
best efforts to:
- cause the registration statement with respect to the exchange offer to
become effective under the Securities Act by April 5, 2002; and
- complete the exchange offer no later than 30 days after the SEC declares
the registration statement with respect to the exchange offer effective.
Except as provided below, upon the completion of the exchange offer, our
obligations with respect to the registration of the unregistered notes and the
registered notes will terminate. We have filed the registration rights agreement
as an exhibit to the registration statement of which this prospectus is a part.
For additional information regarding our obligations under the registration
rights agreement, see "-- Registration Rights; Liquidity Damages."
57
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties unrelated to us, we believe that, with the
exceptions set forth below, you may offer for resale, resell or otherwise
transfer any registered notes issued to you in the exchange offer without
further registration under the Securities Act or delivery of a prospectus if
you:
- are acquiring the registered notes in the ordinary course of your
business;
- are not engaging in and do not intend to engage in a distribution of the
registered notes;
- do not have an arrangement or understanding with any person to
participate in a distribution of the registered notes;
- are not our "affiliate," as defined under Rule 405 under the Securities
Act; and
- are not a broker-dealer who acquired unregistered notes from us.
If you do not satisfy these criteria:
- you will not be able to rely on the interpretations of the staff of the
SEC in connection with any offer for resale, resale or other transfer of
registered notes; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act, or have an exemption available to
you, in connection with any offer for resale, resale or other transfer of
the registered notes.
Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the registered notes cannot rely on this
interpretation by the staff of the SEC and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives registered notes
for its own account in exchange for unregistered notes it acquired as a result
of market-making or other trading activities, may be a statutory underwriter and
must acknowledge that it will deliver a prospectus in connection with any resale
of those registered notes. This will not be an admission by the broker-dealer
that it is an underwriter within the meaning of the Securities Act. See "Plan of
Distribution." Broker-dealers who acquired unregistered notes directly from us
and not as a result of market-making activities or other trading activities may
not rely on the SEC staff's interpretations discussed above or participate in
the exchange offer and must comply with the prospectus delivery requirements of
the Securities Act in order to sell the unregistered notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of unregistered notes who do not exchange their unregistered notes
for registered notes pursuant to the exchange offer will continue to be subject
to the restrictions on transfer of the unregistered notes as described in the
legend on the unregistered notes. Unregistered notes not exchanged pursuant to
the exchange offer will continue to remain outstanding in accordance with their
terms. In general, the unregistered 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. We do not currently anticipate that we will register the unregistered
notes under the Securities Act.
Participation in the exchange offer is voluntary, and holders of
unregistered notes should carefully consider whether to participate. Holders of
unregistered 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 unregistered notes pursuant to the terms of, this exchange
offer, we will have fulfilled a covenant contained in the registration rights
agreement.
Holders of unregistered notes who do not tender their unregistered notes in
the exchange offer will continue to hold the unregistered notes and will be
entitled to all the rights and limitations applicable to the unregistered notes
under the indenture, except for any 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
58
untendered unregistered notes will continue to be subject to the restrictions on
transfer described in the indenture. To the extent that unregistered notes are
tendered and accepted in the exchange offer, the trading market for untendered
unregistered notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
- Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all unregistered
notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on , 2002.
- You should read "-- Expiration Date; Extensions; Amendments" below for an
explanation of how the expiration date may be amended.
- We will issue $1,000 principal amount of registered notes in exchange for
each $1,000 principal amount of outstanding unregistered notes accepted
in the exchange offer.
- Holders may exchange some or all of their unregistered notes pursuant to
the exchange offer. However, unregistered notes may be exchanged only in
integral multiples of $1,000 in principal amount.
- The form and terms of the registered notes are substantially the same as
the form and terms of the unregistered notes, except for the elimination
of some transfer restrictions, registration rights and liquidated damages
provisions relating to the unregistered notes. The registered notes will
evidence the same debt as the unregistered notes and will be issued
pursuant to, and entitled to the benefits of, the indenture pursuant to
which the unregistered notes were issued.
- As of the date of this prospectus, unregistered notes representing
$152,632,000 million in aggregate principal amount were outstanding and
there was one registered holder, a nominee of the Depository Trust
Company. This prospectus, together with the letter of transmittal, is
being sent to that registered holder and to others believed to have
beneficial interests in the unregistered notes.
- We will be deemed to have accepted validly tendered unregistered notes
when, as, and if it has given oral or written notice thereof to the
exchange agent. The exchange agent will act as agent for the tendering
holders for the purpose of receiving the registered notes from us. If any
tendered unregistered notes are not accepted for exchange because of an
invalid tender, the occurrence of other events set forth under the
heading "-- Conditions to the Exchange Offer" or otherwise, certificates
for any of these unaccepted unregistered notes will be returned, without
expense, to the tendering holder of those unregistered notes as promptly
as practicable after , 2002, unless the exchange offer is
extended.
- We are not conditioning the exchange offer upon the tender of any minimum
amount of unregistered notes.
- The exchange offer is subject to the condition that the exchange offer
not violate applicable law, rules or regulations, or applicable
interpretations of the staff of the SEC. See "-- Conditions of the
Exchange Offer."
- We may accept tendered unregistered notes by giving oral or written
notice to the exchange agent. We must promptly confirm oral notice in
writing. The exchange agent will act as your agent for the purpose of
receiving the registered notes from us and delivering them to you.
- You will not be required to pay brokerage commissions or fees or, subject
to the instructions in the letter of transmittal, transfer taxes with
respect to the exchange of unregistered notes. We will pay all charges
and expenses applicable to the exchange offer, other than taxes specified
under "-- Transfer Taxes." See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2002, unless we, in our sole discretion, extend the exchange offer.
We may extend the exchange offer at any time and from time to
59
time by giving oral or written notice to the exchange agent and by publicly
announcing the extension before 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. We must promptly
confirm oral notice in writing. We may also accept all properly tendered
unregistered notes as of the expiration date and extend the expiration date in
respect of the remaining outstanding unregistered notes. We may, in our sole
discretion:
- amend the terms of the exchange offer in any manner;
- delay acceptance of, or refuse to accept, any unregistered notes not
previously accepted;
- extend the exchange offer; or
- terminate the exchange offer.
We will give prompt notice of any amendment to the registered holders of
the unregistered notes. If we materially amend the exchange offer, we will
promptly disclose the amendment in a manner reasonably calculated to inform you
of the amendment and we will extend the exchange offer to the extent required by
law.
In order to keep the registration statement effective for the period
required by the exchange and registration rights agreement, we may file
post-effective amendments to the registration statement.
PROCEDURES FOR TENDERING
Only a holder of unregistered notes may tender them in the exchange offer.
For purposes of the exchange offer, the term "holder" or "registered holder"
includes any participant in The Depository Trust Company whose name appears on a
security position listing as a holder of unregistered notes.
Except as set forth under "-- Book Entry Transfer," to tender in the
exchange offer a holder must complete, sign, and date the letter of transmittal,
or a copy of the letter of transmittal, have the signatures on the letter of
transmittal guaranteed if required by the letter of transmittal, and mail or
otherwise deliver the letter of transmittal or copy to the exchange agent prior
to the expiration date. In addition:
- the exchange agent must receive certificates for the unregistered notes
along with the letter of transmittal prior to the expiration date;
- the exchange agent must receive prior to the expiration date a timely
confirmation of a book-entry transfer of the unregistered notes, if that
procedure is available, into the exchange agent's account at the
Depository Trust Company (the "Book-Entry Transfer Facility") following
the procedure for book-entry transfer described below; or
- you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the exchange agent must receive the letter of
transmittal and other required documents at the address set forth under
"-- Exchange Agent" prior to the expiration date.
If you wish to tender your unregistered notes and you cannot cause the
unregistered notes or any other required documents to be transmitted to and
received by the exchange agent before 5:00 p.m., New York City time, on the
expiration date, you may tender your unregistered notes according to the
guaranteed delivery procedures described in this section under the heading
"-- Guaranteed Delivery Procedures."
Your tender, if not withdrawn before the expiration date, will constitute
an agreement between you, us and the exchange agent in accordance with the terms
and subject to the conditions set forth in this prospectus and in the letter of
transmittal. If a holder tenders less than all the unregistered notes held, the
holder should fill in the amount of unregistered notes being tendered in the
appropriate box on the letter of transmittal. The exchange agent will deem the
entire amount of unregistered notes delivered to it to have been tendered unless
the holder has indicated otherwise.
THE METHOD OF DELIVERY OF UNREGISTERED NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND
RISK. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
60
THAT YOU USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. YOU SHOULD NOT SEND ANY LETTER OF TRANSMITTAL OR UNREGISTERED
NOTES TO US. YOU MAY REQUEST YOUR BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR YOU.
If you beneficially own unregistered notes that are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and you
wish to participate in the exchange offer, you should promptly contact the
registered holder and instruct that person to tender your unregistered notes 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
unregistered notes, either make appropriate arrangements to register ownership
of the unregistered notes in your name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered unregistered notes. Our determination will be final and binding. We
reserve the absolute right to reject any and all unregistered notes not properly
tendered or any unregistered notes that would, in the opinion of counsel, be
unlawful to accept. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular unregistered notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless we waive them, you must cure any defects or irregularities in
connection with tenders of unregistered notes within the time that we will
determine.
Although we intend to notify holders of defects or irregularities with
respect to tenders of unregistered notes, neither we, the exchange agent, nor
any other person will incur any liability for failure to give the notification.
Tenders of unregistered notes will not be deemed to have been made until the
defects or irregularities have been cured or waived. Any unregistered notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the exchange agent to the tendering holders, unless otherwise provided in the
letter of transmittal, as soon as practicable following , 2002, unless
the exchange offer is extended.
In addition, we reserve the right in our sole discretion:
- to purchase or make offers for any unregistered notes that remain
outstanding after the expiration date;
- to terminate the exchange offer; and,
- to the extent permitted by applicable law, purchase unregistered notes in
the open market, in privately negotiated transactions, or otherwise. The
terms of any of these purchases or offers could differ from the terms of
the exchange offer.
By tendering unregistered notes in exchange for registered notes and by
signing the letter of transmittal, or delivering an agent's message in lieu of
the transmittal letter, you will be representing that, among other things:
- the registered notes to be received by you will be acquired in the
ordinary course of your business;
- you are not engaging in and do not intend to engage in, and you have no
arrangement or understanding with any person to participate in, a
distribution of the registered notes;
- you acknowledge and agree that any person who is a broker-dealer or is
participating in the exchange offer for the purpose of distributing the
registered notes must comply with the registration and prospectus
delivery requirements of the Securities Act; and
- you are not an "affiliate of ours," as defined under Rule 405 of the
Securities Act.
In all cases, issuance of registered notes for unregistered 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 these unregistered
notes or a timely book-entry confirmation of these unregistered notes into the
exchange agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed letter of transmittal or,
61
with respect to the DTC and its participants, electronic instructions in which
the tendering holder acknowledges its receipt of and agreement to be bound by
the letter of transmittal and all other required documents. If any tendered
unregistered notes are not accepted for any reason set forth in the terms and
conditions of the exchange offer or if unregistered notes are submitted for a
greater principal amount than the holder desires to exchange, these unaccepted
or non-exchanged unregistered notes will be returned without expense to the
tendering Holder thereof or, in the case of unregistered 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 below, these
nonexchanged unregistered notes will be credited to an account maintained with
that Book-Entry Transfer Facility, in each case, as promptly as practicable
after the expiration or termination of the exchange offer.
Each broker-dealer that receives registered notes for its own account in
exchange for unregistered notes, where those unregistered notes were acquired by
that 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 those registered notes. See "Plan of Distribution."
SIGNATURE REQUIREMENTS AND SIGNATURE GUARANTEE
You must arrange for an "eligible institution" to guarantee your signature
on the transmittal letter or a notice of withdrawal, unless the unregistered
notes are tendered:
- by the registered holder of the unregistered notes; or
- for the account of an "eligible guarantor institution" within the meaning
of Rule 17Ad-15 under The Exchange Act.
The following are "eligible institutions:"
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States; or
- an eligible guarantor institution.
If a transmittal letter is signed by a person other than the registered
holder of any unregistered notes listed in the transmittal letter, the
unregistered notes must be endorsed or accompanied by a properly completed bond
power and signed by the registered holder as the registered holder's name
appears on the unregistered notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, sign or endorse any required documents, they should so indicate when
signing, and unless waived by us, submit evidence satisfactory to us of their
authority to so act with the transmittal letter.
BOOK-ENTRY TRANSFER
The exchange agent will make a request promptly after the date of this
prospectus to establish an account for the unregistered notes. Once the exchange
agent establishes the account, any financial institution that is a participant
in The Depository Trust Company's system may make book-entry delivery of
unregistered notes being tendered by causing DTC to transfer those unregistered
notes into the exchange agent's account for the unregistered notes. However, the
exchange agent will only exchange the unregistered notes so tendered after it
confirms their book-entry transfer into the exchange agent's account, and
receives an agent's message and any other documents required by the transmittal
letter in a timely manner.
62
The term "agent's message" means a message, transmitted by DTC to, and
received by, the exchange agent and forming part of the confirmation of a
book-entry transfer, which states that:
- DTC has received an express acknowledgement from a participant tendering
unregistered notes stating the aggregate principal amount of unregistered
notes that have been tendered by such participant;
- the participant has received the transmittal letter and agrees to be
bound by its terms; and
- we may enforce this agreement against the participant.
Although you may deliver unregistered notes through DTC into the exchange
agent's account at DTC, you must provide the exchange agent with a completed and
executed transmittal letter with any required signature guarantee -- or an
agent's message in lieu thereof -- and all other required documents before the
expiration date. If you comply with the guaranteed delivery procedures described
below, you must provide the transmittal letter -- or an agent's message in lieu
thereof -- to the exchange agent within the time period provided. DELIVERY OF
DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your unregistered notes and:
- your unregistered notes are not immediately available;
- you are unable to deliver on time your unregistered notes or any other
document that you are required to deliver to the exchange agent; or
- you cannot complete the procedures for delivery by book-entry transfer on
time;
you may tender your unregistered notes according to the guaranteed delivery
procedures described in the letter of transmittal.
These procedures require that:
- you make the tender through an eligible guarantor institution;
- prior to the expiration date, the exchange agent receives from that
eligible guarantor institution a properly completed and duly executed
letter of transmittal or a facsimile duly executed letter of transmittal
and notice of guaranteed delivery, substantially in the form provided by
us by telegram, telex, facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder of unregistered notes
and the amount of unregistered notes tendered, stating that the tender is
being made by guaranteed delivery and guaranteeing that within three New
York Stock Exchange, Inc. trading days after the date of execution of the
notice of guaranteed delivery, the certificates for all physically
tendered unregistered notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, will be deposited by the eligible
institution with the exchange agent; and
- the exchange agent receives the certificates for all physically tendered
unregistered notes, in proper form for transfer, or confirmation of a
book-entry transfer, as the case may be, are received by the exchange
agent within three NYSE trading days after the date of execution of the
notice of guaranteed delivery.
WITHDRAWAL RIGHTS
Except as otherwise provided in this prospectus, you may withdraw tenders
of unregistered notes at any time prior to 5:00 p.m., New York City time, on the
expiration date.
63
For a withdrawal of a tender of unregistered notes to be effective, you
must provide the exchange agent with a written or, for DTC participants,
electronic Automated Tender Offer Program transmission, notice of withdrawal
prior to 5:00 p.m., New York City time, on the expiration date. Any notice of
withdrawal must:
- specify the name of the person having deposited the unregistered notes to
be withdrawn;
- identify the unregistered notes to be withdrawn, including the
certificate number or numbers and principal amount of the unregistered
notes;
- in the case of a written notice of withdrawal, be signed by the holder in
the same manner as the original signature on the letter of transmittal by
which the unregistered notes were tendered, including any required
signature guarantees, or be accompanied by documents of transfer
sufficient to have the trustee register the transfer of the unregistered
notes into the name of the person withdrawing the tender; and
- specify the name in which these unregistered notes are to be registered,
if different from that of the person having deposited the unregistered
notes to be withdrawn.
All questions as to the validity, form, eligibility, and time of receipt of
these notices will be determined by us. This determination will be final and
binding on all parties. Any unregistered notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the exchange offer.
We will return any unregistered notes which have been tendered for exchange but
which are not exchanged for any reason to the holder of the unregistered notes
without cost as soon as practicable after withdrawal, rejection of tender, or
termination of the exchange offer. Properly withdrawn unregistered notes may be
retendered by following one of the procedures under "-- Procedures for
Tendering" at any time on or prior to the expiration date.
ACCEPTANCE OF UNREGISTERED NOTES FOR EXCHANGE; DELIVERY OF REGISTERED NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all unregistered notes that
have been validly tendered and not withdrawn, and will issue the applicable
registered notes in exchange for such unregistered notes promptly after our
acceptance of such unregistered notes. For purposes of the exchange offer, we
will be deemed to have accepted validly tendered unregistered notes for exchange
when, as, and if we have given written notice of such acceptance to the exchange
agent.
For each unregistered note accepted for exchange, the holder of the
unregistered note will receive a registered note having a principal amount equal
to that of the surrendered unregistered note. The registered notes will bear
interest from the most recent date to which interest has been paid on the
unregistered notes or, if no interest has been paid on the unregistered notes,
from December 6, 2001. Accordingly, registered holders of registered notes on
the relevant record date for the first interest payment date following the
completion of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from December 6, 2001. Unregistered notes accepted for exchange will cease to
accrue interest from and after the date we accept them for exchange. You will
not receive any payment for accrued interest on the unregistered notes otherwise
payable on any interest payment date if the record date occurs on or after date
on which we accept the unregistered notes for exchange and you will be deemed to
have waived your rights to receive the accrued interest on the unregistered
notes.
If we do not accept any tendered unregistered notes for any reason or if
you submit unregistered notes for a greater principal amount than you desire to
exchange, we will return the unaccepted or non-exchanged unregistered notes at
our expense or, if the unregistered notes were tendered by book-entry transfer,
the exchange agent will credit the non-exchanged unregistered notes to an
account maintained with the book-entry transfer facility. In either case, these
unregistered notes will be returned promptly after the expiration or termination
of the exchange offer.
64
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the terms of the registration rights agreement, we agreed to
use our best efforts to complete the exchange offer and issue the registered
notes in exchange for the unregistered notes. The following description is a
summary of the material provisions of the registration rights agreement. It does
not restate that agreement in its entirety. We urge you to read the registration
rights agreement.
Under the terms of the registration rights agreement we agreed, among other
things, to:
- file a registration statement with the SEC relating to the exchange offer
under the Securities Act no later than February 4, 2002;
- use our reasonable best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act on or before
April 5, 2002;
- use our reasonable best efforts to commence the exchange offer within 30
days after the exchange offer registration statement is declared
effective by the SEC;
- keep the exchange offer open for acceptance for at least 30 days after
notice of the exchange offer is mailed to holders of the unregistered
notes;
- keep the exchange offer registration statement effective until
consummation of the exchange offer pursuant to its terms;
- cause the exchange offer to be consummated not later than 30 business
days following the date of the effectiveness of the exchange offer
registration statement;
- promptly after the close of the exchange offer, accept for exchange all
unregistered notes validly tendered for exchange prior to the expiration
of the exchange offer;
- promptly after the close of the exchange offer, deliver all validly
tendered unregistered notes to The Bank of New York, as trustee, and
cause the trustee to promptly deliver registered notes to each holder
equal in aggregate principal amount to the unregistered notes tendered
for exchange by such holder.
Under the registration rights agreement, we agreed to file a shelf
registration statement if:
- we or the holders of a majority in aggregate principal amount of the
unregistered notes determine, in our or their reasonable judgment, that
they will not receive registered notes that would be tradable without
restriction under the Securities Act and the Exchange Act and without
material restrictions under applicable blue sky or state securities laws;
- we are not permitted to effect the exchange offer under applicable law or
applicable interpretations of law by the SEC staff;
- for any reason, the exchange offer is not consummated within 150 days
after we issued the unregistered notes;
- the initial purchaser so requests with respect to unregistered notes held
by the initial purchaser; or
- within 20 business days of the consummation of the exchange offer, any
holder of unregistered notes notifies us that it:
(1) is not entitled to participate in the exchange offer by law or SEC
policy;
(2) may not resell the registered notes acquired by it in the exchange
offer to the public without restriction under applicable state and federal
securities laws; or
(3) is a broker-dealer holding unregistered notes acquired directly from
us or any of our respective affiliates.
If we have not yet filed an exchange offer registration statement and we
are required to file a shelf registration statement, we must file the shelf
registration statement 30 days following delivery of the notice triggering our
obligation to file such shelf registration statement. We will use our reasonable
best efforts to
65
cause the shelf registration statement to be declared effective as promptly as
practicable after the filing thereof.
If the shelf registration statement is filed, we will use our best efforts
to keep the shelf registration statement continuously effective, supplemented
and amended until the second anniversary of the effective date of the shelf
registration statement or a shorter period that will terminate when all the
notes covered by the shelf registration statement have been sold pursuant to the
shelf registration statement, a subsequent shelf registration statement covering
all of the notes has been declared effected under the Securities Act. The notes
are eligible for resale pursuant to Rule 144(k) under the Securities Act or
there cease to be any outstanding notes.
A holder who sells unregistered notes pursuant to the shelf registration
statement generally will be required to be named as a selling securityholder in
the prospectus and to deliver a copy of the prospectus to purchasers. If we are
required to file a shelf registration statement, we will provide to each holder
of the unregistered notes copies of the prospectus that is a part of the shelf
registration statement and notify each such holder when the shelf registration
statement becomes effective. Such holder will be subject to some of the civil
liability provisions under the Securities Act in connection with these sales and
will be bound by the provisions of the registration rights agreement that are
applicable to such holder (including certain indemnification and contribution
obligations).
The registration rights agreement requires us to pay the holders of the
notes liquidated damages under certain circumstances. We have agreed to pay
liquidated damages to the holders if:
- we fail to file any of the registration statements required by the
registration rights agreement on or prior to the date specified for such
filing;
- any of such registration statements is not declared effective by the SEC
on or prior to the date specified for such effectiveness;
- we have not exchanged registered notes for all validly tendered
unregistered notes within 30 days after the exchange offer is declared
effective by the SEC; or
- the shelf registration statement is declared effective by the SEC, but
thereafter, during the period for which we are required to maintain the
effectiveness of the shelf registration statement, it ceases to be
effective or usable in connection with the resale of the registered notes
covered by the shelf registration statement, and we fail to file and have
declared effective within 30 days a subsequent shelf registration
statement.
If any of these events occurs, we will pay liquidated damages to each
holder of registrable notes, during the first 90-day period immediately
following the occurrence of such event in an amount equal to $.05 per week per
$1,000 principal amount of notes held by such Holder. Thereafter, the weekly
liquidated damages amount will increase by $.05 per $1,000 principal amount of
the notes following each subsequent 90-day period following such event up to a
maximum of $.20 per week per $1,000 principal amount of notes, until the event
is cured. All accrued liquidated damages will be paid in the same manner as
interest payments on the notes on semiannual damages payment dates that
correspond to interest payment dates for the notes. Following the cure of an
event, the accrual of liquidated damages will cease.
The exchange offer is intended to satisfy our exchange offer obligations
under the registration rights agreement.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, if the exchange
offer violates applicable law, any applicable interpretation of the staff of the
SEC or any order of any governmental agency or court of competent jurisdiction,
we will not be required to accept for exchange, or to issue registered notes
for, any unregistered notes, and we may terminate or amend the exchange offer as
provided in this prospectus before we accept unregistered notes. We must also
receive approval from the Nevada Gaming Authorities prior to
66
completing the exchange offer. We have filed an application for this approval,
and anticipate that hearings before the Nevada Gaming Authorities with regard to
such approval will occur in March 2002.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any of these conditions or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure to exercise any of the foregoing rights at any time is
not a waiver of any of these rights and each of these rights will be an ongoing
right which may be asserted at any time and from time to time.
If we waive or amend the conditions above, we will, if required by law,
extend the exchange offer for a minimum of five business days from the date that
we first give notice, by public announcement or otherwise, of the waiver or
amendment , if the exchange offer would otherwise expire within the five
business-day period. Any determination by us concerning the events described
above will be final and binding upon all parties.
The exchange offer is not conditioned upon any minimum principal amount of
old notes being tendered.
EXCHANGE AGENT
We have appointed The Bank of New York as the exchange agent for the
exchange offer. The Bank of New York also acts as trustee under the indenture.
You should send all executed transmittal letters to the exchange agent and
direct all communications with the exchange agent, including requests for
assistance or for additional copies of this prospectus or of the transmittal
letters as follows:
THE BANK OF NEW YORK, EXCHANGE AGENT
<Table>
By Registered or Certified Mail: The Bank of New York
Reorganization Unit
15 Broad Street, 16th Floor
New York, NY 10007
Attn:
---------------------------------
By Hand or Overnight Delivery: The Bank of New York
15 Broad Street
Corporate Trust Services Window
New York, NY 10007
Attn:
---------------------------------
By Facsimile for Eligible Institutions: ---------------------------------------
For Information: ---------------------------------------
</Table>
IF YOU DELIVER THE TRANSMITTAL LETTER TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, YOUR
DELIVERY OR INSTRUCTIONS WILL NOT BE EFFECTIVE.
FEES AND EXPENSES
We will bear all expenses of the exchange offer. We are making the
principal solicitation pursuant to the exchange offer by mail. Our officers and
employees and our affiliates may also make solicitations in person, by
telegraph, telephone or facsimile transmission.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse its
reasonable out-of-pocket costs and expenses and will indemnify the exchange
agent for all losses and claims incurred by it as a result of the exchange
offer. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus, letters of transmittal and related documents to the
beneficial owners of the unregistered notes and in handling or forwarding
tenders for exchange.
67
TRANSFER TAXES
We will pay any transfer taxes applicable to the exchange of unregistered
notes pursuant to the exchange offer. If, however, a transfer tax is imposed for
any reason other than the exchange of unregistered notes pursuant to the
exchange offer, then the amount of any of these transfer taxes -- whether
imposed on you or any other person -- will be payable by you.
For example, you will pay transfer taxes, if:
- registered notes for principal amounts not tendered, or accepted for
exchange are to be registered or issued in the name of any person other
than the registered holder of the unregistered notes tendered; or
- tendered unregistered notes are registered in the name of any person
other than the person signing the transmittal letter.
If you do not submit satisfactory evidence of payment of taxes for which
you are liable or exemption from them with your transmittal letter, we will bill
you for the amount of these transfer taxes directly.
ACCOUNTING TREATMENT
For accounting purposes, we will not recognize gain or loss upon the
exchange of the registered notes for unregistered notes. We will amortize
expenses incurred in connection with the issuance of the registered notes over
the term of the registered notes.
APPRAISAL OR DISSENTERS' RIGHTS
You will not have appraisal or dissenters' rights in connection with the
exchange offer.
DESCRIPTION OF REGISTERED NOTES
You can find the definitions of certain terms used in this description
under the subheading "-- Certain Definitions." In this description, references
to "issuers," "we," "our" and "us" refer only to Majestic Investor Holdings, LLC
and Majestic Investor Capital Corp., and not to our subsidiaries. For purposes
of this section, the term "notes" will refer to the registered notes.
GENERAL
We will issue the registered notes under an existing indenture dated as of
December 6, 2001 among the issuers, the Subsidiary Guarantors and The Bank of
New York, as trustee. The terms of the registered notes include those expressly
stated in the indenture and those made part of the indenture by reference to the
Trust indenture Act of 1939, as amended.
The following describes some general terms and provisions of the registered
notes, which are identical in all material respects to the terms of the
unregistered notes, except that the registration rights and liquidated damages
provisions, and the transfer restrictions that apply to the unregistered notes,
do not apply to the registered notes. The registered notes will be a separate
series of securities under the indenture. This description is a summary of
certain provisions of the indenture and the Security Documents (defined below).
It does not restate those agreements in their entirety, and is qualified in its
entirety by reference to the indenture and the Security Documents, including the
definitions therein of certain terms used below. We urge you to read the
indenture and the Security Documents because they, and not this description,
define your rights as holders of the registered notes. We have filed copies of
the indenture and the Security Documents as exhibits to the registration
statement which includes this prospectus. The definitions of certain terms used
in the following summary are set forth below under "-- Certain Definitions."
The notes will be senior secured obligations of the issuers and will rank
senior in right of payment to all existing and future subordinated Indebtedness
of the issuers and equal in right of payment with all existing and future senior
Indebtedness of the issuers. The notes will be without recourse to the Members.
68
Capital is a wholly owned subsidiary of the Company and was incorporated
solely for the purpose of serving as a co-issuer of the notes. Capital will not
have any material operations or assets and will not have any revenues. As a
result, prospective investors should not expect Capital to participate in
servicing the principal, interest, Liquidated Damages, if any, premium or any
other payment obligations on the notes. See "-- Certain
Covenants -- Restrictions on Activities of Capital."
The notes will be guaranteed (the "Subsidiary Guarantees") on a senior
secured basis by each of the Company's existing and future Restricted
Subsidiaries. As of the date of the indenture, none of the issuers' Subsidiaries
will be Unrestricted Subsidiaries. However, under certain circumstances, the
Company will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to any of the
restrictive covenants set forth in the indenture.
The notes and the Subsidiary Guarantees will be secured by the Collateral,
as set forth below under "Security."
The Lien on the collateral securing the Credit Facility will be senior to
the Lien on the Collateral securing the notes.
The notes will be issued in the form of one or more global notes, without
coupons, and in denominations of $1,000 and integral multiples thereof.
PRINCIPAL, MATURITY AND INTEREST
The indenture does not limit the aggregate principal amount of notes that
we may issue under the indenture and provides that, subject to the covenant in
the indenture described under "-- Certain Covenants -- Limitation on Incurrence
of Indebtedness," additional notes may be issued thereunder from time to time,
without the consent of the Holders of previously issued notes, in an aggregate
principal amount to be determined from time to time by the issuers; provided,
that additional notes may not be issued with original issue discount as
determined under section 1271 et seq. of the Internal Revenue Code of 1986, as
amended (the "Code"). The notes will mature on November 30, 2007. Interest on
the notes will be payable semi-annually on May 31 and November 30 of each year,
commencing on May 31, 2002, to Holders of record on the immediately preceding
May 15 and November 15, respectively. The notes will bear interest at 11.653%
per annum from the date of original issuance. Interest on the notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. The notes will be
payable both as to principal and interest at the office or agency of the issuers
maintained for such purpose within The City of New York or, at the option of the
issuers, payment of interest may be made by check mailed to the Holders at their
respective addresses set forth in the register of Holders. Until otherwise
designated by the issuers, the issuers' office or agency will be the office of
the Trustee maintained for such purpose. If a payment date is a Legal Holiday,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
REDEMPTION
At the Option of the Company. Except as set forth below, we may not redeem
the notes at our option before November 30, 2005. Thereafter, the notes will be
subject to redemption at our option, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest on the notes and Liquidated Damages, if any, to the applicable date of
redemption, if redeemed during the 12-month period beginning on November 30 of
the years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2005........................................................ 105.827%
2006 and thereafter......................................... 100.000%
</Table>
69
Notwithstanding the foregoing, at any time or from time to time prior to
November 30, 2004, we may redeem, at our option, up to 35% of the aggregate
principal amount of the notes then outstanding at a redemption price of 111.653%
of the principal amount of the notes, plus accrued and unpaid interest on the
notes and Liquidated Damages, if any, through the applicable date of redemption,
with the Net Cash Proceeds of one or more Qualified Equity Offerings; provided,
that (i) such redemption shall occur within 60 days of the date of closing of
such Qualified Equity Offerings and (ii) at least 65% of the aggregate principal
amount of notes issued on or after the Issue Date remains outstanding
immediately after giving effect to each such redemption.
The notes will also be redeemable by us, in whole or in part, at any time
upon not less than 20 Business Days nor more than 60 days' notice (or such
earlier date as may be required by any Gaming Authority) at 100% of the
principal amount of the notes plus accrued and unpaid interest on the notes (or,
if required by any Gaming Authority, the fair market value of such notes, or
such other amount as may be required by applicable law or order of such Gaming
Authority) and Liquidated Damages (if permitted by relevant Gaming Authorities),
if any, to the redemption date, pursuant to a Required Regulatory Redemption. In
addition, where such redemption is required because the Holder or beneficial
owner of notes is required to be found suitable or to otherwise qualify under
any gaming laws and is not found suitable or so qualified, we shall have the
right to require any such Holder or beneficial owner to dispose of its notes
upon 30 days' notice (or such earlier date as may be required by the applicable
Gaming Authority).
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee deems to be fair and reasonable; provided,
that notes of $1,000 or less may not be redeemed in part. Except in the case of
a Required Regulatory Redemption requiring less notice, notice of redemption
will be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder to be redeemed at such Holder's registered
address. If any note is to be redeemed in part only, the notice of redemption
that relates to such note will state the portion of the principal amount thereof
to be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder of that note upon cancellation
of the original note. On and after the date of redemption, interest will cease
to accrue on registered notes or portions thereof called for redemption, unless
we default in making such redemption payment.
Mandatory. The notes will not be subject to any mandatory redemption
(except for a Required Regulatory Redemption) or have the benefit of any sinking
fund.
SUBSIDIARY GUARANTORS
The repayment of the notes will be unconditionally and irrevocably
guaranteed, jointly and severally, by all present and future Restricted
Subsidiaries. The indenture will provide that so long as any notes remain
outstanding, any future Restricted Subsidiary shall enter into a Subsidiary
Guarantee.
If all of the Capital Stock of any Subsidiary Guarantor is sold by the
Company or any of its Subsidiaries to a Person (other than the Company or any of
its Subsidiaries) in a transaction that complies with the terms of the
indenture, and the Net Proceeds from such Asset Sale are used in accordance with
the terms of the covenant described under "-- Limitation on Asset Sales," then
such Subsidiary Guarantor shall be released and discharged from all of it
Obligations under its Subsidiary Guarantee and the indenture.
The Obligations of each Subsidiary Guarantor under its Subsidiary Guarantee
will be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the Obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee, result in the Obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law or
render a Subsidiary Guarantor insolvent.
70
SECURITY
Pursuant to certain mortgages and security agreements, we have assigned and
pledged to the Trustee, for the benefit of the Trustee and the Holders, as
security for our obligations with respect to the notes, substantially all of our
assets and the assets of the Restricted Subsidiaries, other than the Excluded
Assets. Subject to applicable Gaming Laws, the Collateral includes, among other
things, our Capital Stock and the Capital Stock of the Restricted Subsidiaries,
the assets of each of our and the Restricted Subsidiaries' casinos, all
furniture, fixtures and equipment belonging to us and the Restricted
Subsidiaries, each member's interest in the Company, and our and the Restricted
Subsidiaries' rights to the service mark "Fitzgeralds" and other related
trademarks. The Trustee's security interest in the Collateral is subordinated to
a lien securing up to $15.0 million Indebtedness outstanding under our Credit
Facility. See "-- Intercreditor Agreement."
The proceeds of any sale of the Collateral following an Event of Default
may not be sufficient to satisfy payments due on the notes. In addition, the
ability of the Holders to realize upon the Collateral may be limited pursuant to
applicable laws, including gaming, bankruptcy or securities laws.
If an Event of Default occurs and is continuing, the Trustee, on behalf of
the Holders, in addition to any rights or remedies available to it under the
indenture and the Security Documents, may, subject to the intercreditor
agreement and any applicable Gaming Laws, take such action as it deems advisable
and as is permitted under the Security Documents, to protect and enforce its
rights in the Collateral, including the institution of sale or foreclosure
proceedings. The proceeds received by the Trustee from any such sale or
foreclosure will, subject to the intercreditor agreement, be applied by the
Trustee first to pay the expenses of such sale or foreclosure and fees and other
amounts then payable to the Trustee under the indenture, and thereafter to pay
amounts due and payable with respect to the notes.
Certain Gaming Law Limitations. In Mississippi and Nevada, pledges of
membership interests in licensed and registered companies are ineffective unless
approved by the relevant Gaming Authorities. We have received all necessary
approvals from the relevant Gaming Authorities in Mississippi and Nevada in
connection with the pledges of membership interests relating to the notes. The
Trustee's ability to foreclose upon the Collateral also will be limited by
relevant gaming laws, which generally require that persons who own or operate a
casino or own equity securities of a gaming licensee (including capital stock)
or purchase, possess or sell gaming equipment hold a valid gaming license. No
person can hold a license in the State of Nevada, Colorado, Mississippi or
Indiana unless the person is found qualified or suitable by the relevant Gaming
Authorities. The pledge of such an interest in Colorado, while not per se
forbidden, does require regulatory approval before the holder of the pledge may
obtain the interest contemplated. Such Gaming Authorities have discretionary
authority to require the Trustee, any or all of the holders of the notes or any
purchaser of the Collateral to file applications and be investigated in order to
be found qualified or suitable as an owner or operator of gaming establishments.
Such requirements may limit the number of potential bidders in any foreclosure
and may delay any sale, either of which events may have an adverse effect on the
sale price of the Collateral. Moreover, the gaming industry could become subject
to different or additional regulations during the term of the notes, which could
further adversely affect the practical rights and remedies of the Trustee.
Therefore, the practical value of realizing on the Collateral may, without the
appropriate approvals, be limited.
Certain Bankruptcy Limitations. The right of the Trustee to repossess and
dispose of the Collateral upon the occurrence of an Event of Default is likely
to be significantly impaired by applicable bankruptcy law if a bankruptcy
proceeding were to be commenced by or against us prior to the Trustee having
repossessed and disposed of the Collateral. Under the Bankruptcy Code, a secured
creditor is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such debtor,
without bankruptcy court approval. Moreover, the Bankruptcy Code permits the
debtor in certain circumstances to continue to retain and to use collateral
owned as of the date of the bankruptcy filing (and the proceeds, products,
offspring, rents or profits of such collateral to the extent provided by the
Security Documents and by applicable nonbankruptcy law) even though the debtor
is in default under the applicable debt instruments; provided, that the secured
creditor is given "adequate protection." The meaning of the term "adequate
protection" may vary according to circumstances. In view of the lack of a
precise definition of the term "adequate protection" and the broad discretionary
powers of a bankruptcy court, it is impossible to
71
predict how long payments under the registered notes could be delayed following
commencement of a bankruptcy case, whether or when the Trustee could repossess
or dispose of the Collateral or whether or to what extent Holders would be
compensated for any delay in payment or loss of value of the Collateral through
the requirement of "adequate protection." Furthermore, if a bankruptcy court
determines the value of the Collateral is not sufficient to repay all amounts
due on the notes, the Holders would hold secured claims to the extent of the
value of the Collateral to which the Holders are entitled, and would hold
unsecured claims with respect to any such shortfall. Applicable Federal
bankruptcy laws do not permit the payment and/or accrual of post-petition
interest, costs and attorneys' fees during a debtor's bankruptcy case unless the
claims are oversecured or the debtor is solvent at the time of reorganization.
In addition, if either of us becomes the subject of a bankruptcy case, the
bankruptcy court, among other things, may avoid certain transfers made by the
entity that is the subject of the bankruptcy filing, including, without
limitation, transfers held to be fraudulent conveyances or preferences.
Further, certain limitations exist under the Merchant Marine Act of 1936,
as amended, on the ability of non-U.S. citizens to realize upon collateral, such
as the barges at Fitzgeralds Tunica, consisting of vessels documented under the
laws of the United States. If any of the holders of the notes are non-U.S.
citizens, such limitation could adversely affect the ability of the Trustee to
complete foreclosure on the Collateral. Also, the Trustee may be required to
foreclose through a federal court admiralty proceeding. Such a proceeding would
entail compliance with notice and other procedural requirements, and would
require a cash deposit to cover the costs of maintaining the vessels during the
foreclosure proceeding, which costs could be substantial. In addition, because
the barges at Fitzgeralds Tunica will be more or less permanently moored and
will not be used for transportation of cargo or passengers, it is possible the
barges may not be considered vessels for purposes of the ship mortgage which
will be placed on them. In such event, the Holders of the registered notes would
not have the benefit of a Preferred Ship Mortgage on the barges, although they
would have the benefit of other security provided in the Security Agreement.
INTERCREDITOR AGREEMENT
Concurrently with the execution of the Credit Agreement, the Trustee and
the lenders under the Credit Agreement entered into an intercreditor agreement.
The intercreditor agreement provides that the Liens on the Collateral securing
the registered notes and the Guarantees are subordinated to the Liens securing
up to $15.0 million of Indebtedness outstanding under the Credit Agreement and
related interest, fees, costs and expenses. Under the intercreditor agreement,
if the notes become due and payable prior to the stated maturity thereof for any
reason or are not paid in full at the stated maturity thereof at a time during
which Indebtedness is outstanding under a Credit Agreement, the Collateral Agent
will not have the right to foreclose upon the collateral that secures the
obligations under the Credit Agreement unless and until the lenders under the
Credit Agreement fail to take steps to exercise remedies with respect to or in
connection with the Collateral within 180 days following notice to such lenders
of the occurrence of an Event of Default under the indenture; provided that the
intercreditor agreement will prevent the Collateral Agent and the Holders from
pursuing remedies with respect to the Collateral in an insolvency proceeding.
The intercreditor agreement provides that the net proceeds from the sale of
Collateral will first be applied to repay Indebtedness outstanding under the
Credit Agreement and thereafter to the holders of the notes.
REPURCHASE UPON CHANGE OF CONTROL
The indenture provides that, if a Change of Control occurs, we will be
required to offer to repurchase all of the notes then outstanding at a purchase
price equal to 101% of the aggregate principal amount of the notes, plus accrued
and unpaid interest and Liquidated Damages if any, to the date of repurchase.
Within 30 days following any Change of Control, we must mail a notice or direct
a notice to be mailed to each Holder stating, among other things: (i) the
purchase price and the purchase date, which will be no earlier than 30 days nor
later than 45 days from the date the notice is mailed; (ii) that any Holder
electing to have notes purchased pursuant to a Change of Control offer will be
required to surrender the notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the notes completed, to the paying agent with
respect to the notes at the address specified in the notice prior to the close
of business on the third Business Day preceding the
72
Change of Control payment date; and (iii) that the Holder will be entitled to
withdraw his election if the paying agent receives, not later than the close of
business on the second Business Day preceding the Change of Control payment
date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of registered notes delivered for purchase,
and a statement that the Holder is withdrawing his election to have such
registered notes purchased.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations that apply to the repurchase of
notes pursuant to this covenant. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of the indenture, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations under the
"Change of Control" provisions of the indenture by virtue thereof.
On the Change of Control payment date, we will, to the extent lawful;
- accept for payment the notes or portions of notes tendered pursuant to
the Change of Control offer;
- deposit with the paying agent an amount equal to the Change of Control
payment in respect of all notes or portions of notes so tendered and not
withdrawn; and
- deliver or cause to be delivered to the Trustee the notes so accepted,
together with an Officers' Certificate stating that the notes or portions
of notes tendered to us are accepted for payment.
The paying agent will promptly mail to each Holder of notes so accepted
payment in an amount equal to the purchase price for such notes, and the Trustee
will authenticate and mail (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, if any; provided, that each such new note will be in the
principal amount of $1,000 or an integral multiple thereof. We will announce the
result of the Change of Control offer on or as soon as practicable after the
Change of Control payment date.
Except as described above with respect to a Change of Control, the
indenture does not contain provisions that permit the Holders to require that we
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar restructuring.
We cannot assure you that sufficient funds will be available at the time of
any Change of Control offer to make required repurchases.
We 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 us and purchases all
notes validly tendered and not withdrawn under such Change of Control offer.
The term "all or substantially all" as used in the definition of Change of
Control has not been interpreted under New York law (which is the governing law
of the indenture) to represent a specific quantitative test. As a consequence,
in the event the Holders elect to exercise their rights under the indenture and
we elect to contest such election, there could be no assurance as to how a court
would interpret the phrase under New York law, which may have the effect of
preventing the Trustee or the Holders from successfully asserting that a Change
of Control has occurred.
CERTAIN COVENANTS
Limitation on Restricted Payments. The indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly
(i) declare or pay any dividend or make any distribution on account of
any Equity Interests of the Company or any of its Subsidiaries or make any
other payment to any Excluded Person or Affiliate thereof (other than (A)
dividends or distributions payable in Equity Interests (other than
Disqualified Capital Stock) of the Company or (B) amounts payable to the
Company or any Restricted Subsidiary);
73
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interest of the Company or any Affiliate (other than any Restricted
Subsidiary of the Company) of the Company (other than any such Equity
Interest owned by the Company or any Restricted Subsidiary);
(iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value, any Indebtedness of the Company or
any Subsidiary Guarantor that is subordinated in right of payment to the
registered notes or such Subsidiary Guarantor's Subsidiary Guarantee
thereof, as the case may be, prior to any scheduled principal payment,
sinking fund payment or other payment at the stated maturity thereof; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
are collectively referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof, and
(b) immediately after giving effect to such Restricted Payment on a
pro forma basis, the Company could incur at least $1.00 of additional
Indebtedness under the Interest Coverage Ratio test set forth in the
covenant described under "-- Limitation on Incurrence of Indebtedness," and
(c) such Restricted Payment (the value of any such payment, if other
than cash, being determined in good faith by the Managers of the Company
and evidenced by a resolution set forth in an Officers' Certificate
delivered to the Trustee), together with the aggregate of all other
Restricted Payments made on or after the Issue Date (including Restricted
Payments permitted by clauses (i), (v) (to the extent such payments do not
reduce Consolidated Net Income), (vi) (to the extent such payments do not
reduce Consolidated Net Income), (vii), (viii), (ix), (x) and, to the
extent the Company is given credit for such Net Cash Proceeds pursuant to
clause (2) of this paragraph, (ii) of the next following paragraph and
excluding Restricted Payments permitted by clauses (iii) and (iv) of the
next following paragraph), is less than the sum, without duplication, of
(1) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing immediately after the Issue Date to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, 100% of such deficit), plus
(2) 100% of the aggregate Net Cash Proceeds received by the Company
from the issuance or sale, other than to a Subsidiary, of Equity
Interests of the Company (other than Disqualified Capital Stock) after
the Issue Date and on or prior to the time of such Restricted Payment
(other than the first $5,000,000 of Net Cash Proceeds from the issuance
or sale of Equity Interests to Majestic Star, BDI, or any Affiliate
thereof), plus
(3) 100% of the aggregate Net Cash Proceeds received by the Company
from the issuance or sale, other than to a Subsidiary, of any
convertible or exchangeable debt security of the Company that has been
converted or exchanged into Equity Interests of the Company (other than
Disqualified Capital Stock) pursuant to the terms thereof after the
Issue Date and on or prior to the time of such Restricted Payment
(including any additional net cash proceeds received by the Company upon
such conversion or exchange) (other than the first $5,000,000 of Net
Cash Proceeds from the issuance or sale of any convertible or
exchangeable debt securities to Majestic Star, BDI, or any Affiliate
thereof) plus
(4) the aggregate Return from Unrestricted Subsidiaries after the
Issue Date and on or prior to the time of such Restricted Payment.
74
The foregoing provisions will not prohibit the following Restricted
Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would not
have been prohibited by the provisions of the indenture;
(ii) the redemption, purchase, retirement or other acquisition of any
Equity Interests of the Company or Indebtedness of the Company or any
Restricted Subsidiary in exchange for, or out of the Net Cash Proceeds of,
the substantially concurrent sale (other than to a Subsidiary) of, other
Equity Interests of the Company (other than Disqualified Capital Stock)
(other than the first $5,000,000 of Net Cash Proceeds from the issuance or
sale of Equity Interests to Majestic Star, BDI, or any Affiliate thereof);
(iii) so long as clause (a) above is satisfied, with respect to each
taxable year that the Company qualifies as a Flow Through Entity, the
payment of Permitted Tax Distributions; provided, that (A) prior to any
payment of Permitted Tax Distributions the Company provides an Officers'
Certificate and Opinion of Counsel to the effect that the Company and each
Subsidiary in respect of which such distributions are being made, qualify
as Flow Through Entities for Federal income tax purposes and for the states
in respect of which such distributions are being made and (B) at the time
of such distribution, the most recent audited financial statements of the
Company provided to the Trustee pursuant to the covenant described under
the caption "-- Reports," provide that the Company and each such Subsidiary
were treated as Flow Through Entities for the period of such financial
statements, provided that the requirement set forth in this subclause (B)
shall not apply to the extent that such Subsidiary that is acquired after
the date hereof is not a Flow Through Entity on the date of such
acquisition but subsequently becomes a Flow Through Entity after any period
covered by such financial statements;
(iv) the redemption, repurchase or payoff of any Indebtedness of the
Company or a Restricted Subsidiary with cash proceeds of or in exchange for
any Refinancing Indebtedness permitted to be incurred pursuant to clause
(g) under the covenant "-- Limitation on Incurrence of Indebtedness";
(v) so long as clause (a) above is satisfied, any employment agreement
entered into, or any compensation or employee benefits paid to employees,
in each case, in the ordinary course of business, consistent with past
practices and not involving the purchase, redemption or other acquisition
or retirement for value of any Equity Interests of the Company or any
Affiliate (other than any Restricted Subsidiary of the Company);
(vi) so long as clause (a) above is satisfied, Overhead Reimbursements
under any of the Management Agreements, in each case, as in effect on the
Issue Date, without giving effect to any amendment, supplement or
modification thereof;
(vii) so long as clause (a) above is satisfied, Cash Flow-Based
Management Fees required under any of the Management Agreements, in each
case, as in effect on the Issue Date, without giving effect to any
amendment, supplement or modification thereof; provided, that the Interest
Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such payment is made would have been not less
than 1.50 to 1.0, determined on a pro forma basis, as if such payment had
been made during such four-quarter period;
(viii) so long as clause (a) above is satisfied, Revenue-Based
Management Fees required under any of the Management Agreements, in each
case, as in effect on the Issue Date, without giving effect to any
amendment, supplement or modification thereof; provided, that the Interest
Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such payment is made would have been not less
than 1.25 to 1.0, determined on a pro forma basis, as if such payment had
been made during such four-quarter period;
(ix) the redemption and repurchase of any Equity Interests or
Indebtedness of the Company or any of its Subsidiaries to the extent
required by any Gaming Authority or, if determined in the good faith
75
judgment of the Managers of the Company as evidenced by a resolution of the
Managers that has been delivered to the trustee, to prevent the loss, or to
secure the grant or establishment, of any gaming license or other right to
conduct lawful gaming operations; and
(x) any Unreimbursed Tax Distribution Amounts (as defined in the
definition of "Permitted Tax Distributions").
Not later than the date of making any Restricted Payment, the Company will
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed. These calculations may be based upon
the Company's latest available financial statements. Notwithstanding the
foregoing, the Company shall not be required to deliver an Officers' Certificate
to the Trustee pursuant to this covenant if any action is taken pursuant to
subsection (ii), (iv) or (v) of the immediately preceding paragraph.
Limitation on Incurrence of Indebtedness. The indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, (i) create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable with respect to, contingently or otherwise
(collectively, "incur"), any Indebtedness (including, without limitation,
Acquired Debt) or (ii) issue any Disqualified Capital Stock; provided, that the
Company and the Subsidiary Guarantors may incur Indebtedness (other than
Disqualified Capital Stock) (including, without limitation, Acquired Debt) and
the Company may issue shares of Disqualified Capital Stock if (x) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect on a pro forma basis to such incurrence or issuance,
and (y) the Interest Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Capital Stock is issued would have been not less than 2.0
to 1.0, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Capital Stock had been issued, as the case may be,
at the beginning of such four-quarter period. The foregoing provisions do not
prevent the incurrence of:
(a) Indebtedness under the Credit Facility in an aggregate principal
amount not to exceed at any time outstanding, $15.0 million less the
aggregate amount of repayments of such indebtedness contemplated by clause
(iii) under the caption "-- Limitation on Asset Sales";
(b) performance bonds, appeal bonds, surety bonds, insurance
obligations or bonds and other similar bonds or obligations (including
Obligations under letters of credit) incurred in the ordinary course of
business, and any guarantees thereof;
(c) Hedging Obligations incurred to fix the interest rate on any
variable rate Indebtedness otherwise permitted by the indenture; provided,
that the notional principal amount of each such Hedging Obligation does not
exceed the principal amount of the Indebtedness to which such Hedging
Obligation relates and that such Hedging Obligations shall not have been
incurred for purposes of speculation;
(d) Indebtedness outstanding on the Issue Date (other than
Indebtedness under the Credit Facility which shall not be deemed to be
outstanding pursuant to this clause (d)), including the registered notes
and the Security Documents, to the extent they constitute Indebtedness
outstanding on the Issue Date;
(e) Indebtedness incurred by the Company in an aggregate principal
amount not to exceed, at any time outstanding pursuant to this clause (e),
$3.0 million less the aggregate amount of repayments of such indebtedness
contemplated by clause (iii) under the caption "-- Limitation on Asset
Sales";
(f) any Subsidiary Guarantee of the registered notes or the
Indebtedness permitted by clause (e) above; and
(g) Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance"), Indebtedness incurred pursuant to the Interest
Coverage Ratio test set forth in the immediately preceding paragraph,
clause (d) above or this clause (g) (the "Refinancing Indebtedness");
provided, that (i) the principal amount of such Refinancing Indebtedness
does not exceed the principal amount of Indebtedness so Refinanced
76
(including any required premiums and out-of-pocket expenses reasonably
incurred in connection therewith), (ii) the Refinancing Indebtedness has a
final scheduled maturity that equals or exceeds the final stated maturity,
and a Weighted Average Life to Maturity that is equal to or greater than
the Weighted Average Life to Maturity, of the Indebtedness being
Refinanced, (iii) the Refinancing Indebtedness ranks, in right of payment,
no more favorable to the registered notes than the Indebtedness being
Refinanced, and (iv) such Refinancing Indebtedness shall only be used to
refinance outstanding Indebtedness of such Person issuing such Refinancing
indebtedness.
Limitation on Asset Sales. The indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless:
(i) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Sale not less than the fair market value of the
assets subject to such Asset Sale;
(ii) at least 75% of the consideration for such Asset Sale is in the
form of (A) cash or Cash Equivalents, (B) liabilities of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the registered notes or the Subsidiary Guarantees) that are
assumed by the transferee of such assets (provided, that following such
Asset Sale there is no further recourse to the Company or its Restricted
Subsidiaries with respect to such liabilities), or (C) fixed assets or
property that, in the good faith judgment of the Managers, at the time of
such Asset Sale will be used in a Related Business of the Company or its
Restricted Subsidiaries; and
(iii) within 270 days of such Asset Sale (or within 30 days in the
case of an Asset Sale or series of related Asset Sales with Net Proceeds of
$15,000,000 or more), the Net Proceeds thereof are (A) in the case of an
Asset Sale or series of related Asset Sales with Net Proceeds of less than
$15,000,000, invested in fixed assets or property that, in the good faith
judgment of the Managers, at the time of such Asset Sale will be used in a
Related Business of the Company or its Restricted Subsidiaries, (B) applied
to repay Indebtedness under Purchase Money Obligations incurred in
connection with the asset so sold, (C) applied to repay Indebtedness under
the Credit Facility and permanently reduce the commitment thereunder in the
amount of the Indebtedness so repaid or (D) to the extent not used as
provided in clauses (A), (B), or (C) applied to make an offer to purchase
registered notes as described below (an "Excess Proceeds Offer"); provided,
that the Company will not be required to make an Excess Proceeds Offer
until the amount of Excess Proceeds is greater than $5,000,000.
The foregoing provisions in (i) or (ii) above shall not apply to an Event
of Loss.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce Indebtedness under the Credit Facility or temporarily invest
such Net Proceeds in Cash Equivalents.
Net Proceeds not invested or applied as set forth in subclauses (A), (B) or
(C) of clause (iii) above constitute "Excess Proceeds." If the Company elects,
or becomes obligated to make an Excess Proceeds Offer, we will offer to purchase
notes having an aggregate principal amount equal to the Excess Proceeds (the
"Purchase Amount"), at a purchase price equal to 100% of the aggregate principal
amount of the notes, plus accrued and unpaid interest on the notes and
Liquidated Damages, if any, to the purchase date. We must consummate an Excess
Proceeds Offer not later than 30 days after the expiration of the 270-day period
following the Asset Sale that produced such Excess Proceeds. If the aggregate
purchase price for the notes tendered pursuant to the Excess Proceeds Offer is
less than the Excess Proceeds, the Company and its Restricted Subsidiaries may
use the portion of the Excess Proceeds remaining after payment of such purchase
price for general corporate purposes.
The indenture provides that each Excess Proceeds Offer will remain open for
a period of 20 Business Days and no longer, unless a longer period is required
by law (the "Excess Proceeds Offer Period"). Promptly after the termination of
the Excess Proceeds Offer Period (the "Excess Proceeds Payment Date"), we will
purchase and mail or deliver payment for the Purchase Amount for the notes or
portions of notes tendered, pro rata or by such other method as may be required
by law, or, if less than the Purchase Amount has been tendered, all notes
tendered pursuant to the Excess Proceeds Offer.
77
We will conduct any Excess Proceeds Offer in compliance with applicable
regulations under the federal securities laws, including without limitation
Exchange Act Rule 14e-1. To the extent that the provisions of any securities
laws or regulations conflict with the "Asset Sale" provisions of the indenture,
we will comply with the applicable securities laws and regulations and will not
be deemed to have breached our obligations under the "Asset Sale" provisions of
the indenture by virtue of such Excess Proceeds Offer.
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create or suffer to exist or become effective
any restriction that would impair our ability to make an Excess Proceeds Offer
upon an Asset Sale or, if such Excess Proceeds Offer is made, to pay for the
notes tendered for purchase.
Limitation on Liens. The indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset (including, without
limitation, all real, tangible or intangible property) of the Company or any
Restricted Subsidiary, whether now owned or hereafter acquired, or on any income
or profits therefrom, or assign or convey any right to receive income therefrom,
except Permitted Liens.
Limitation on Restrictions on Subsidiary Dividends. The indenture provides
that the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (a) on such Restricted Subsidiary's
Capital Stock or (b) with respect to any other interest or participation
in, or measured by, such Restricted Subsidiary's profits, or
(ii) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries, or
(iii) make loans or advances to the Company or any of its Restricted
Subsidiaries, or
(iv) transfer any of its assets to the Company or any of its
Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(1) any Credit Facility containing dividend or other payment
restrictions that are not more restrictive than those contained in the
documents governing the Credit Facility on the Issue Date;
(2) the indenture, the Security Documents and the registered notes;
(3) applicable law;
(4) Acquired Debt; provided, that such encumbrances and restrictions
are not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired;
(5) customary non-assignment and net worth provisions of any contract,
lease or license entered into in the ordinary course of business;
(6) customary restrictions on the transfer of assets subject to a
Permitted Lien imposed by the holder of such Lien; and
(7) the agreements governing permitted Refinancing Indebtedness;
provided, that such restrictions contained in any agreement governing such
Refinancing Indebtedness are no more restrictive than those contained in
any agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets. The indenture provides that we
may not consolidate or merge with or into (regardless of whether we are the
surviving corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets (determined on a
consolidated basis for the Company and its Restricted Subsidiaries) in one or
more related transactions to, any other Person, unless:
(i) we are the surviving Person or the Person formed by or surviving
any such consolidation or merger (if other than us) or to which such sale,
assignment, transfer, lease, conveyance or other
78
disposition has been made is a corporation organized and existing under the
laws of the United States of America, any state thereof or the District of
Columbia;
(ii) the Person formed by or surviving any such consolidation or
merger (if other than us) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition has been made assumes all
of our Obligations, pursuant to a supplemental indenture and in a form
reasonably satisfactory to the Trustee, under the registered notes, the
indenture, the Security Documents and the Registration Rights Agreement;
(iii) immediately after giving effect to such transaction on a pro
forma basis, no Default or Event of Default exists;
(iv) such transaction would not result in the loss or suspension or
material impairment of any Gaming License unless a comparable replacement
Gaming License is effective prior to or simultaneously with such loss,
suspension or material impairment; and
(v) we, or any Person formed by or surviving any such consolidation or
merger, or to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made, (A) has Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal to or greater than our
Consolidated Net Worth immediately preceding the transaction and (B) will
be permitted, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, to incur at least $1.00 of additional
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "-- Limitation on Incurrence of Indebtedness."
Notwithstanding the foregoing clause (v), the Company may reorganize as a
corporation or other business entity in accordance with the procedures
established in the indenture, provided that (x) such transaction is solely for
the purpose of such reorganization and not for the purpose of evading this
provision or any other provision of the indenture and not in connection with any
other transaction, and (y) prior to such reorganization, the Company has
delivered to the Trustee an Opinion of Counsel confirming that (i) the Holders
will not recognize income, gain or loss for Federal income tax purposes as a
result of the reorganization 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 reorganization had not occurred, and (ii) the Company will not
recognize income, gain or loss for Federal and state income tax purposes as a
result of the reorganization.
In the event of any transaction (other than a lease or a transfer of less
than all of our assets) described in and complying with the conditions listed in
the immediately preceding paragraph in which we are not the surviving Person,
such surviving Person or transferee shall succeed to, and be substituted for,
and may exercise every right and power of, us under, and we shall be discharged
from our Obligations under, the indenture, the Security Documents, the
registered notes and the Registration Rights Agreement.
Limitation on Transactions with Affiliates. The indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into, consummate or suffer to exist any Affiliate
Transaction except for:
(i) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $1,000,000;
provided, that (a) such transactions are conducted in good faith and on
terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction at such time by the Company or such Restricted Subsidiary on an
arm's-length basis from a Person that is not an Affiliate of the Company or
such Restricted Subsidiary and (b) the Company shall have delivered to the
Trustee an Officers' Certificate certifying to such effect;
(ii) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $5,000,000;
provided, that (i) a majority of the disinterested Managers determine that
such transactions are conducted in good faith and on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable
79
transaction at such time by the Company or such Restricted Subsidiary on an
arm's-length basis from a Person that is not an Affiliate of the Company or
such Restricted Subsidiary and (ii) prior to entering into such transaction
the Company shall have delivered to the Trustee an Officers' Certificate
certifying to such effect; or
(iii) Affiliate Transactions for which the Company delivers to the
Trustee an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing.
Notwithstanding the foregoing, the following will be deemed not to be
Affiliate Transactions:
(a) Restricted Payments (other than payments permitted under clause
(vi) of the second paragraph of the covenant described above under the
caption "-- Limitation on Restricted Payments") permitted by the provisions
of the indenture described above under "-- Limitation on Restricted
Payments";
(b) the Management Agreements and the Member Agreement, in each case,
as in effect on the Issue Date, without giving effect to any amendment,
supplement or modification thereof and payment of the Management Fees
thereunder;
(c) the non-exclusive licensing of any service mark or other
trademarks of the Company to an Affiliate or Affiliates of the Company; and
(d) transactions between or among the Company and any Wholly Owned
Subsidiary of the Company.
Restriction on Sale and Issuance of Subsidiary Stock. The indenture
provides that the Company will not sell, and will not permit any Restricted
Subsidiary to issue or sell, any Equity Interests (other than directors'
qualifying shares) of any Restricted Subsidiary to any Person other than the
Company or a Wholly Owned Subsidiary of the Company; provided, that the Company
and its Restricted Subsidiaries may sell all (but not less than all) of the
Capital Stock of a Restricted Subsidiary owned by the Company and its Restricted
Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance
with the terms of the covenant described under "-- Limitation on Asset Sales."
Rule 144A Information Requirement. We and the Subsidiary Guarantors will
furnish to the Holders or beneficial holders of notes, upon their request, and
to prospective purchasers thereof designated by such Holders or beneficial
holders, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act for so long as is required for an offer or sale of the
notes to qualify for an exemption under Rule 144A.
Subsidiary Guarantors. The indenture provides that the Company will cause
each of its present and future Restricted Subsidiaries to:
- execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee, pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Issuers'
Obligations under the registered notes and the indenture on the terms set
forth in the indenture; and
- deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and that the indenture constitutes a legal, valid,
binding and enforceable obligation, of such Restricted Subsidiary, in
each case subject to customary qualifications.
Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for all
purposes of the indenture.
Additional Collateral. The indenture provides that the Company will, and
will cause each of the Subsidiary Guarantors to, grant to the Trustee a valid
security interest in all property and assets of the Company and such Subsidiary
Guarantors, other than Excluded Assets, whether owned on the Issue Date or
thereafter acquired, and to execute and deliver all documents and opinions and
to take all action necessary or
80
desirable to perfect and protect such a security interest in favor of the
Trustee, subject only to Permitted Liens.
Restrictions on Activities of Capital. The indenture provides that Capital
will not hold any material assets or become liable for any obligations or engage
in any business activities; provided, that Capital may be a co-obligor of the
notes (including any additional notes incurred pursuant to the covenant
described above under the caption "Limitation on Incurrence of Indebtedness")
pursuant to the terms of the indenture and as contemplated by the Purchase
Agreement executed by us, the Subsidiary Guarantors and the Initial Purchaser.
Capital may, as necessary, engage in any activities directly related or
necessary in connection therewith.
Limitation on Lines of Business. The indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, engage to any substantial extent in any line or lines of business
activity other than a Related Business.
Reports. The indenture provides that, whether required by the rules and
regulations of the SEC, so long as any notes are outstanding, we will furnish to
the Trustee and Holders, within 15 days after we are or would have been required
to file such with the SEC, (i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if either of us were required to file such forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by our independent certified public accountants and (ii) all information that
would be required to be contained in a filing with the SEC on Form 8-K if either
of us were required to file such reports. From and after the time either of us
files a registration statement with the SEC with respect to the registered
notes, we will file such information with the SEC so long as the SEC will accept
such filings.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an Event of
Default under the indenture:
(i) default for 30 days in the payment when due of interest on the
notes;
(ii) default in payment of principal (or premium, if any) on the notes
when due at maturity, redemption, by acceleration or otherwise;
(iii) default in the performance or breach of the covenants in the
indenture described under "-- Repurchase Upon Change of Control,"
"-- Limitation on Asset Sales," or "-- Merger, Consolidation or Sale of
Assets";
(iv) failure by us or any Subsidiary Guarantor for 60 days after
notice to comply with any other agreements in the indenture or the notes;
(v) default under (after giving effect to any applicable grace periods
or any extension of any maturity date) any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness by the Issuers or any Restricted Subsidiary
(or the payment of which is guaranteed by the Issuers or any Restricted
Subsidiary), whether such Indebtedness or guaranty now exists or is created
after the Issue Date, if (A) either (1) such default results from the
failure to pay principal of or interest on such Indebtedness or (2) as a
result of such default the maturity of such Indebtedness has been
accelerated, and (B) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness with respect to
which such a payment default (after the expiration of any applicable grace
period or any extension of the maturity date) has occurred, or the maturity
of which has been so accelerated, exceeds $5,000,000 in the aggregate;
(vi) failure by us or any Restricted Subsidiary to pay final judgments
(other than any judgment as to which a reputable insurance company has
accepted full liability) aggregating in excess of $5,000,000, which
judgments are not discharged, bonded or stayed within 60 days after their
entry;
81
(vii) the cessation of a material portion of the gaming operations of
the Company and its Subsidiaries, taken as a whole, for more than 60 days,
except as a result of an Event of Loss;
(viii) any revocation, suspension, expiration (without previous or
concurrent renewal) or loss of any Gaming License for more than 60 days
other than as a result of any Asset Sale made in accordance with the
provisions of the indenture or any voluntary relinquishment that is, in the
judgment of the Managers, both desirable in the conduct of the business of
the Company and its Subsidiaries, taken as a whole, and not disadvantageous
to the Holders in any material respect;
(ix) any failure to comply with (after giving effect to any applicable
grace periods) any material agreement or covenant in, or material provision
of, any Security Document;
(x) certain events of bankruptcy or insolvency with respect to the
Issuers or any of the Subsidiary Guarantors; and
(xi) any breach or waiver of any provision of the Member Agreement.
Subject to the terms of the intercreditor agreement, if any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding notes may declare by written notice to
the Company and the Trustee all the notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding notes will become
due and payable without further action or notice. Holders may not enforce the
indenture or the notes except as provided in the indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
notes may direct the Trustee in its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the notes then
outstanding, by written notice to the Trustee, may on behalf of the Holders of
all of the notes (i) waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the notes or a Default or an
Event of Default with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each outstanding note
affected, and/or (ii) rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree if all existing Events
of Default (except nonpayment of principal or interest that has become due
solely because of the acceleration) have been cured or waived.
We are required, upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default
and what action we are taking or propose to take with respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, MEMBERS, MANAGERS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No director, member, manager, officer, employee, incorporator, stockholder
or controlling person of the issuers or any Subsidiary Grantor, as such, will
have any liability for any of our obligations or the obligations of any
Subsidiary Grantor under the notes, the indenture or the Security Documents or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a note waives and releases all such
liability. The waiver and release will be part of the consideration for issuance
of the notes and the Subsidiary Guarantees. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding notes ("Legal Defeasance") except
for:
- the rights of Holders of outstanding notes to receive payments in respect
of the principal of, premium, if any, and interest on such notes and
Liquidated Damages, if any, when such payments are due from the trust
referred to below;
82
- our obligations concerning issuing temporary registered notes,
registration of registered notes, mutilated, destroyed, lost or stolen
registered notes and the maintenance of an office or agency for payment
and money for security payments held in trust;
- the rights, powers, trusts, duties and immunities of the Trustee, and our
and the Subsidiary Guarantors' obligations in connection therewith; and
- the Legal Defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain material covenants that are
described herein ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) we must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and we must specify whether the notes
are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, we shall have delivered to the
Trustee an Opinion of Counsel confirming that (A) we have received from, or
there has been published by, the Internal Revenue Service a ruling or (B)
since the Issue Date, 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 will not recognize
income, gain or loss for Federal income tax purposes as a result of such
Legal Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, we shall have delivered to
the Trustee an Opinion of Counsel confirming that the Holders will not
recognize income, gain or loss for Federal income tax purposes as a result
of such Covenant Defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit);
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which we or any of
the Subsidiaries is a party or by which we or any of the Subsidiaries is
bound;
(vi) we must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by us with the intent of preferring the
Holders over our other creditors with the intent of defeating, hindering,
delaying or defrauding our creditors or others; and
(vii) we must deliver to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating, subject to certain factual assumptions
and bankruptcy and insolvency exceptions, that all conditions precedent
provided for in the indenture relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
83
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 we may require a
Holder to pay any taxes and fees required by law or permitted by the indenture.
We will not be required to transfer or exchange any note selected for
redemption. We will not be required to transfer or exchange any registered note
for a period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the indenture and the
notes may be amended or supplemented with the consent of the Holders of at least
a majority in aggregate principal amount of the notes then outstanding and any
existing Default or Event of 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 aggregate principal amount of the then outstanding 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):
(i) reduce the principal amount of notes whose Holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal of, or the premium (including, without
limitation, redemption premium) on, or change the fixed maturity of, any
note; alter the provisions with respect to the payment on redemption of the
notes; or alter the price at which repurchases of the notes may be made
pursuant to an Excess Proceeds Offer or Change of Control offer after the
Asset Sale or Change of Control, respectively, has occurred;
(iii) reduce the rate of or change the time for payment of interest on
any note;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the notes (except a rescission of
acceleration of the registered notes by the Holders of a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from such acceleration);
(v) make any note payable in money other than that stated in the
notes;
(vi) make any change in the provisions of the indenture relating to
waivers of past Defaults with respect to, or the rights of Holders to
receive, payments of principal of or interest on the notes;
(vii) waive a redemption payment with respect to any note;
(viii) adversely affect the contractual ranking of the notes or
Subsidiary Guarantees; or
(ix) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the Holders of not
less than two-thirds in aggregate principal amount of the notes at the time
outstanding, the issuers, the Subsidiary Guarantors and the Trustee may not
amend or supplement the Security Documents, or waive or modify the rights of the
Holders thereunder or the provisions of the indenture relating thereto.
Notwithstanding the foregoing, without the consent of the Holders, the
issuers and the Trustee may amend or supplement the indenture, the notes and the
Security Documents to:
- cure any ambiguity, defect or inconsistency;
- provide for uncertificated notes in addition to or in place of
certificated notes;
84
- provide for the assumption of our or the Subsidiary Guarantors'
obligations to Holders in the case of a merger or consolidation;
- make any change that would provide any additional rights or benefits to
the Holders or that does not adversely affect the legal rights of any
such Holder under the indenture or the notes;
- release any Subsidiary Guarantee permitted to be released under the terms
of the indenture;
- comply with requirements of the SEC in order to effect or maintain the
qualification of the indenture under the Trust indenture Act; or
- comply with the requirements of the Trustee and the Depositary (including
its nominees) with respect to transfers of beneficial interests in the
notes.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the Trustee,
should it become one of our creditors, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, that, if the Trustee acquires any conflicting interest,
it must eliminate such conflict within 90 days, apply to the SEC for permission
to continue, or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs (and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of his or
her own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any Holder, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
On December 6, 2001, the Company entered into a member agreement with: (1)
Majestic Investor, the sole member of the Company, (2) Majestic Star, the sole
member of Majestic Investor, and (3) BDI, the sole member of Majestic Star.
Under the member agreement, Majestic Star will not, directly or indirectly,
declare or pay any dividends or other similar distributions, other than
management fees and tax distributions, until Majestic Star has contributed $5.0
million in cash to Majestic Investor, less any amounts contributed in cash to
the Company by BDI after December 6, 2001, and Majestic Investor has contributed
such cash to the Company. Under the Member Agreement, BDI (1) will cause
Majestic Star not to, directly or indirectly, declare or pay any dividends or
other similar distributions, other than management fees and tax distributions,
until Majestic Star has contributed an aggregate of $5.0 million in cash to
Majestic Investor, less any amounts contributed in cash to the Company by BDI
after December 6, 2001, and Majestic Investor has contributed such cash to the
Company, (2) will not accept any such dividends or other similar distributions,
other than management fees and tax distributions, from Majestic Star until
Majestic Star has contributed an aggregate of $5.0 million to Majestic Investor,
less any amounts contributed in cash to the Company by BDI after December 6,
2001, and Majestic Investor has contributed such cash to the Company, and (3)
will contribute to the Company, directly or indirectly, the first $5.0 million
of net proceeds from any sales of Equity Interests of Majestic Star (other than
sales of Equity Interests to BDI), less any amounts previously contributed by
BDI and Majestic Star to Majestic Investor, pursuant to clauses (1) and (2) of
this sentence and this clause (3), which have been contributed to the Company,
after December 6, 2001. The Member Agreement is not a commitment by BDI or
Majestic Star to make such contributions to the Company or to Majestic Investor.
Majestic Star cannot make any of these dividends or distributions at this time
and it is unclear when, if ever, it will be able to do so.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
85
"Acquired Debt" means Indebtedness of a Person existing at the time such
Person is merged with or into the Company or a Restricted Subsidiary or becomes
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, means (a)
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise or (b) beneficial
ownership of 10% or more of the voting securities of such Person.
"Affiliate Transaction" means, with respect to any Person, (1) the sale,
lease, transfer or other disposition of any of such Person's properties or
assets to, or the purchaser of any property or assets from, any Affiliate, and
(2) the entering into by such Person, or the suffering to exist by such Person,
of any contract, agreement, understanding, loan, advance or guaranty with or for
the benefit of any Affiliate of such Person. Notwithstanding the foregoing,
payments to Majestic Star by the Company and its Restricted Subsidiaries of up
to an aggregate of $1,700,000 of Overhead Reimbursements required under the
Management Agreements in any one fiscal year shall not be deemed "Affiliate
Transactions"; provided, that (1) such transactions are conducted in good faith
and on terms that are no less favorable to the Company or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction at such time by the Company or such Restricted Subsidiary on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Restricted Subsidiary and (2) the Company shall have delivered to the Trustee an
Officers' Certificate certifying to such effect once during each such fiscal
year; provided, further, that, notwithstanding clause (i)(b) under the caption
"Limitation on Transactions with Affiliates," the Company may deliver a single
Officers' Certificate for all Overhead Reimbursements required under the
Management Agreements in any one single fiscal year.
"Applicable Capital Gain Tax Rate" means a rate equal to the sum of (i) the
highest marginal Federal capital gain tax rate applicable to an individual who
is a citizen of the United States plus (ii) an amount equal to the sum of the
highest marginal state and local capital gain tax rates applicable to an
individual who is a resident of the State of New York, multiplied by a factor
equal to 1 minus the rate described in clause (i) above.
"Applicable Income Tax Rate" means a rate equal to the sum of (i) the
highest marginal Federal income tax rate applicable to an individual who is a
citizen of the United States plus (ii) an amount equal to the sum of the highest
marginal state and local income tax rates applicable to an individual who is a
resident of the State of New York, multiplied by a factor equal to 1 minus the
rate described in clause (i) above.
"Asset Sale" means any (i) transfer (as defined), other than in the
ordinary course of business, of any assets of the Company or any Restricted
Subsidiary; (ii) direct or indirect issuance or sale of any Capital Stock of any
Restricted Subsidiary (other than directors' qualifying shares), in each case to
any Person; or (iii) Event of Loss. For purposes of this definition, (a) any
series of transactions that are part of a common plan shall be deemed a single
Asset Sale and (b) the term "Asset Sale" shall not include (1) any series of
transactions that have a fair market value (or result in gross proceeds) of less
than $1 million, until the aggregate fair market value and gross proceeds of the
transactions excluded from the definition of Asset Sale pursuant to this clause
(b)(1) exceed $5 million, (2) any disposition of all or substantially all of the
assets of the Company that is governed under and complies with the terms of the
covenant described under "-- Merger, Consolidation or Sale of Assets," (3) the
conveyance, sale, transfer, assignment or other disposition of inventory and
other assets acquired and held for resale in the ordinary course of business, in
each case made in the ordinary course of business, consistent with past
practices of the Company and its Restricted Subsidiaries, (4) the sale or
disposition by the Company or any of its Restricted Subsidiaries of damaged,
worn out or other obsolete personal property in the ordinary course of business
so long as such property is no longer necessary for the proper conduct of the
Company's business or the business of such Restricted
86
Subsidiary, as applicable, and (5) the liquidation of Cash Equivalents. A
transfer of assets by the Company to a Wholly Owned Subsidiary or by a Wholly
Owned Subsidiary to the Company or another Wholly Owned Subsidiary, and an
issuance of Equity Interests by a Wholly Owned Subsidiary to the Company or to
another Wholly Owned Subsidiary, shall not be deemed to be an Asset Sale. Any
Investment that is not prohibited by the Restricted Payments covenant will not
be deemed to be an Asset Sale.
"Bankruptcy Code" means the United States Bankruptcy Code, codified at 11
U.S.C. 101-1330, as amended.
"BDI" means Barden Development, Inc., an Indiana corporation.
"beneficial owner" has the meaning attributed to it in Rules 13d-3 and
13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not
applicable.
"Capital" means Majestic Investor Capital Corp., a Delaware corporation and
a wholly owned subsidiary of the Company.
"Capital Contribution" means any contribution to the equity of the Company
from a direct or indirect parent of the Company for which no consideration other
than the issuance of Qualified Capital Stock is given.
"Capital Lease Obligation" means, as to any Person, the obligations of such
Person under a lease that are required to be classified and accounted for as
capital lease obligations under GAAP, and the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means, (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (ii) with respect to a
limited liability company, any and all membership interests, and (iii) with
respect to any other Person, any and all partnership, joint venture or other
equity interests of such Person.
"Cash Equivalent" means (i) any evidence of Indebtedness issued or directly
and fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) time deposits and
certificates of deposit and commercial paper or bankers acceptance issued by the
parent corporation of any domestic commercial bank of recognized standing having
combined capital and surplus in excess of $250,000,000 and commercial paper
issued by others rated at least A-2 or the equivalent thereof by Standard &
Poor's Corporation or at least P-2 or the equivalent thereof by Moody's
Investors Service, Inc. and in each case maturing within one year after the date
of acquisition; (iii) investments in money market funds substantially all of
whose assets comprise securities of the type described in clauses (i) and (ii)
above and (iv) repurchase obligations for underlying securities of the types and
with the maturities described above.
"Casino" means a gaming establishment owned by the Company or a Restricted
Subsidiary and containing at least 400 gaming devices and 10,000 square feet of
space dedicated to the operation of games of chance.
"Change of Control" means
(i) any merger or consolidation of the Company with or into any Person
or any sale, transfer or other conveyance, whether direct or indirect, of
all or substantially all of the assets of the Company, on a consolidated
basis, in one transaction or a series of related transactions, if,
immediately after giving effect to such transaction(s), any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of
the Exchange Act, whether or not applicable) (other than an Excluded
Person) is or becomes the "beneficial owner," directly or indirectly, of
more than 50% of the total voting power in the aggregate of the Voting
Stock of the transferee(s) or surviving entity or entities,
(ii) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than an Excluded Person) is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the total voting power in the
aggregate of the Voting Stock of the Company,
87
(iii) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period constituted
the Managers of the Company (together with any new directors whose election
by such Managers or whose nomination for election by the members of the
Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved, including
new directors designated in or provided for in an agreement regarding the
merger, consolidation or sale, transfer or other conveyance, of all or
substantially all of the assets of the Company, if such agreement was
approved by a vote of such majority of directors) cease for any reason to
constitute a majority of the Managers of the Company then in office,
(iv) the Company adopts a plan of liquidation, or
(v) the first day on which the Company fails to own 100% of the issued
and outstanding Equity Interests of Capital.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Majestic Investor Holdings, LLC, a Delaware limited
liability company.
"Consolidated Cash Flow" means, with respect to any Person (the referent
Person) for any period,
(a) consolidated income (loss) from operations of such Person and its
subsidiaries for such period, determined in accordance with GAAP, plus
(b) to the extent such amounts are deducted in calculating such income
(loss) from operations of such Person for such period, and without
duplication (i) amortization, depreciation and other non-cash charges
(including, without limitation, amortization of goodwill, deferred
financing fees, and other intangibles but excluding (x) non-cash charges
incurred after the Issue Date that require an accrual of or a reserve for
cash charges for any future period and (y) normally recurring accruals such
as reserves against accounts receivables); (ii) provision for taxes based
on income or profits of such Person and its subsidiaries and Permitted Tax
Distributions; and (iii) Pre-Opening Expenses;
provided, that (1) the income from operations of any Person that is not a Wholly
Owned Subsidiary of the referent Person or that is accounted for by the equity
method of accounting will be included only to the extent of the amount of
dividends or distributions paid during such period to the referent Person or a
Wholly Owned Subsidiary of the referent Person, (2) the income from operations
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition will be excluded, and (3) the income from
operations of any Restricted Subsidiary will not be included to the extent that
declarations of dividends or similar distributions by that Restricted Subsidiary
are not at the time permitted, directly or indirectly, by operation of the terms
of its organizational documents or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its owners.
"Consolidated Interest Expense" means, with respect to any Person for any
period, (a) the consolidated interest expense of such Person and its
subsidiaries for such period, whether paid or accrued (including amortization of
original issue discount, noncash interest payment, and the interest component of
Capital Lease Obligations), to the extent such expense was deducted in computing
Consolidated Net Income of such Person for such period less (b) write-off of
deferred financing costs, the amortization of original issue discount for
Indebtedness in existence on the Issue Date, and any charge related to any
premium or penalty paid, in each case accrued during such period in connection
with redeeming or retiring any Indebtedness before its stated maturity, as
determined in accordance with GAAP, to the extent such expense, cost or charge
was included in the calculation made pursuant to clause (a) above.
"Consolidated Net Income" means, with respect to any Person (the referent
Person) for any period, the aggregate of the Net Income of such Person and its
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; provided, that (i) the Net Income of any Person relating to any
portion of such period that such Person (a) is not a Wholly Owned Subsidiary of
the referent Person or (b) is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or distributions
paid to the referent Person or a Wholly Owned Subsidiary of the referent Person
during such
88
portion of such period, (ii) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
will be excluded, (iii) the Net Income of any Restricted Subsidiary will not be
included to the extent that declarations of dividends or similar distributions
by that Restricted Subsidiary are not at the time permitted, directly or
indirectly, by operation of the terms of its organizational documents or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its owners, and (iv)
solely for the avoidance of doubt, any Returns from Unrestricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' (or members') equity of such Person determined on a consolidated
basis in accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (i) the amount of any such stockholders' (or members')
equity attributable to Disqualified Capital Stock or treasury stock of such
Person and its consolidated subsidiaries, (ii) all upward revaluations and other
write-ups in the book value of any asset of such Person or a consolidated
subsidiary of such Person subsequent to the Issue Date, and (iii) all
Investments in subsidiaries of such Person that are not consolidated
subsidiaries and in Persons that are not subsidiaries of such Person.
"Copyright Security Agreement" means that certain Copyright Security
Agreement, dated as of the Issue Date, by and among the Issuers, the Subsidiary
Guarantors and the Trustee.
"Credit Facility" means (a) our credit facility, dated as of December 6,
2001, between the Company and Foothill Capital Corporation (any related
registered notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith) and (b) any amendment, modification,
supplement, refunding, refinancing or replacement thereof that has terms and
conditions (including with respect to applicable interest rates and fees)
customary for similar facilities extended to borrowers comparable to the
Company, in each case, that does not permit the Company and its Restricted
Subsidiaries to incur Indebtedness in an aggregate principal amount at any time
outstanding in excess of $15.0 million.
"Default" means any event that is, or after notice or the passage of time
or both would be, an Event of Default.
"Disqualified Capital Stock" means any Equity Interest that (i) either by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable) is or upon the happening of an event would be required
to be redeemed or repurchased prior to the final stated maturity of the
registered notes or is redeemable at the option of the holder thereof at any
time prior to such final stated maturity, or (ii) is convertible into or
exchangeable at the option of the issuer thereof or any other Person for debt
securities.
"Equity Holder" means (a) with respect to a corporation, each holder of
stock of such corporation, (b) with respect to a limited liability company or
similar entity, each member of such limited liability company or similar entity
(in each case, which is not disregarded for Federal income tax purposes), (c)
with respect to a partnership, each partner of such partnership and (d) with
respect to any entity that is disregarded for Federal income tax purposes, the
owner of such entity.
"Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Event of Loss" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Excluded Assets" means (i) cash and cash equivalents to the extent a Lien
thereon may not be perfected through the filing of a UCC-1 financing statement
or through the obtaining of "control" (as defined in the Uniform Commercial
Code); (ii) assets securing Purchase Money Obligations or Capital Lease
Obligations permitted to be incurred pursuant to clause (e) under the covenant
described above under the caption "Limitation on Incurrence of Indebtedness";
(iii) all Gaming Licenses and any license, contract or agreement to which such
debtor is a party, to the extent, but only to the extent, that a grant of a Lien
on such
89
license (other than any Gaming License or license issued under any Liquor Laws),
contract or agreement is prohibited by law, results in a breach or termination
of the terms of, or constitutes a default under or termination of any such
license, contract or agreement (other than to the extent that any such term
would be rendered ineffective pursuant to Section 9-406, 9-407 or 9-408 of the
Uniform Commercial Code (or any successor provision or provisions) of any
relevant jurisdiction) and, in any event, immediately upon the ineffectiveness,
lapse or termination of any such terms of or default under such license,
contract or agreement, the Excluded Assets shall not include, and such debtor
shall be deemed to have granted a security interest in, all such licenses,
contracts or agreements as if such terms or defaults had never been in effect
and (iv) the Nevada Leasehold Interests; provided, that Excluded Assets does not
include the proceeds of the assets under clauses (ii) or (iii) or of any other
Collateral to the extent such proceeds do not constitute Excluded Assets under
clause (i) above; without limiting the foregoing, Excluded Assets shall include
gaming equipment subject to such Purchase Money Obligations or Capital Lease
Obligations.
"Excluded Person" means (i) any employee benefit plan of the Company or any
trustee or similar fiduciary holding Capital Stock of the Company for or
pursuant to the terms of any such plan, (ii) BDI, so long as it is controlled by
Don H. Barden or his spouse or an entity controlled by either of them, (iii)
Barden Management, Inc., so long as it is owned by Don H. Barden, (iv) Don H.
Barden or his spouse or an entity controlled by either of them, (v) the estate
of Don H. Barden, (vi) any descendant of Don H. Barden or the spouse of any such
descendant, (vii) the estate of any such descendant or the spouse of any such
descendant, (viii) any trust or other arrangement for the benefit of the spouse
of Don H. Barden or any such descendant or the spouse of any such descendant,
(ix) any charitable organization or trust established by Don H. Barden, (x) The
Majestic Star Casino, LLC, an Indiana limited liability company, as long as it
is controlled by Don H. Barden or his spouse or an entity controlled by either
of them and (xi) Majestic Investor, LLC, a Delaware limited liability company,
as long as it is controlled by Don H. Barden or his spouse or an entity
controlled by either of them.
"FF&E" means furniture, fixture and equipment acquired by the Company or a
Restricted Subsidiary in the ordinary course of business for use in the
operation of a Casino.
"FF&E Financing" means Purchase Money Obligations, Capital Lease
Obligations, or Industrial Revenue Bond Obligations incurred solely to acquire
or lease, respectively, FF&E; provided, that the principal amount of such
Indebtedness does not exceed the cost (including sales and excise taxes,
installation and delivery charges and other direct costs and expenses) of the
FF&E purchased or leased with the proceeds thereof.
"FF&E Lender" means a Person that is not an Affiliate of the Company and is
a lender under FF&E Financing.
"Flow Through Entity" means an entity that (a) for Federal income tax
purposes constitutes (i) an "S corporation" (as defined in Section 1361(a) of
the Code), (ii) a "qualified subchapter S subsidiary" (as defined in Section
1361(b)(3)(B) of the Code), (iii) a "partnership" (within the meaning of Section
7701(a)(2) of the Code) other than a "publicly traded partnership" (as defined
in Section 7704 of the Code), (iv) a business entity that is disregarded as an
entity separate from its owner under the Code, the Treasury Regulations or any
published administrative guidance of the Internal Revenue Service, or (v) any
other substantially similar pass-through entity for Federal income tax purposes
(each of the entities described in the immediately preceding clauses (i), (ii),
(iii), (iv) and (v), a "Federal Flow Through Entity") and (b) for state and
local jurisdictions in respect of which Permitted Tax Distributions are being
made, is subject to treatment on a basis under applicable state or local income
tax law substantially similar to a Federal Flow Through Entity.
"gaap" means generally accepted accounting principles, as in effect from
time to time, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession, and in the rules and regulations of the
Commission.
90
"GAAP" means gaap as in effect from time to time.
"Gaming Authorities" means the Nevada Gaming Control Board, the Nevada
Gaming Commission, the Mississippi Gaming Commission, the Colorado Gaming
Commission, and any agency, authority, board, bureau, commission, department,
office or instrumentality of any nature whatsoever of the United States or
foreign government, any state, province or any city or other political
subdivision, whether now or hereafter existing, or any officer or official
thereof, including, without limitation, any other agency with authority to
regulate any gaming operation (or proposed gaming operation) owned, managed or
operated by the Company or any of its Subsidiaries.
"Gaming Licenses" means every finding of suitability, registration,
license, franchise or other finding of suitability, registration, approval or
authorization required to own, lease, operate or otherwise conduct or manage
riverboat, dockside or land-based gaming activities in any state or jurisdiction
in which the Company or any of its Subsidiaries conducts business and all
applicable liquor licenses.
"Government Securities" means (i) direct obligations of the United States
of America for the timely payment of which its full faith and credit is pledged
or (ii) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as
custodian with respect to any such Government Security or a specific payment of
principal of or interest on any such Government Security held by such custodian
for the account of the holder of such depository receipt; provided, that (except
as required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Security or the specific
payment of principal of or interest on the Government Security evidenced by such
depository receipt.
"Governmental Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States of America or foreign government, any state, province or any
city or other political subdivision or otherwise and whether now or hereafter in
existence, or any officer or official thereof, and any maritime authority.
"guaranty" or "guarantee," used as a noun, means any guaranty (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness or other Obligation. "guarantee," used as a verb,
has a correlative meaning.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means the Person in whose name a note is registered in the
register of the notes.
"Indebtedness" of any Person means (without duplication) (i) all
liabilities and obligations, contingent or otherwise, of such Person (A) in
respect of borrowed money (regardless of whether the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof), (B)
evidenced by bonds, debentures, registered notes or other similar instruments,
(C) representing the deferred purchase price of property or services (other than
trade payables on customary terms incurred in the ordinary course of business),
(D) created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (E) representing
Capital Lease Obligations, (F) under bankers' acceptance and letter of credit
facilities, (G) to purchase, redeem, retire, defease or otherwise acquire for
value any Disqualified Capital Stock, or (H) in respect of Hedging Obligations;
(ii) all Indebtedness of others that is guaranteed by such Person; and (iii) all
Indebtedness of others that is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property (including, without limitation, accounts and contract
91
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness; provided, that the amount of such
Indebtedness shall (to the extent such Person has not assumed or become liable
for the payment of such Indebtedness) be the lesser of (x) the fair market value
of such property at the time of determination and (y) the amount of such
Indebtedness. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
Notwithstanding the foregoing, the term Indebtedness shall not include
obligations arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument drawn against insufficient funds in the
ordinary course of business; provided, that such obligation is extinguished
within two business days of its incurrence. The principal amount outstanding of
any Indebtedness issued with original issue discount is the accreted value of
such Indebtedness.
"Industrial Revenue Bond Obligations" means obligations of the Company or
any of its Restricted Subsidiaries in connection with industrial revenue bonds
issued by the Mississippi Business Finance Corporation ("MBFC"), all of the
proceeds of which are loaned by the MBFC to the Company or its Restricted
Subsidiaries for the acquisition, construction or development of hotels or other
improvements at the Company's or its Restricted Subsidiaries' Casino located in
Tunica, Mississippi.
"Interest Coverage Ratio" means, for any period, the ratio of (i)
Consolidated Cash Flow of the Company for such period, to (ii) Consolidated
Interest Expense of the Company for such period. In calculating the Interest
Coverage Ratio for any period, pro forma effect shall be given to the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Subsidiaries of any Indebtedness
subsequent to the commencement of the period for which the Interest Coverage
Ratio is being calculated, as if the same had occurred at the beginning of the
applicable period. For purposes of making the computation referred to above,
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including all mergers and consolidations, subsequent to the
commencement of such period shall be calculated on a pro forma basis, assuming
that all such acquisitions, mergers and consolidations had occurred on the first
day of such period. Without limiting the foregoing, the financial information of
the Company with respect to any portion of such period that falls before the
Issue Date shall be adjusted to give pro forma effect to the issuance of the
registered notes and the application of the proceeds therefrom as if they had
occurred at the beginning of such period.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans, guarantees
and other forms of direct and indirect credit support, advances or capital
contributions (excluding (i) payroll commission, travel and similar advances to
officers and employees of such Person made in the ordinary course of business
and (ii) bona fide accounts receivable arising from the sale of goods or
services in the ordinary course of business consistent with past practice),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Investor" means Majestic Investor, LLC, a Delaware limited liability
company.
"Investor Pledge Agreement" means that certain Pledge Agreement executed by
Investor, providing for a pledge of the entire membership interest in the
Company held by it in favor of the Trustee, for the ratable benefit of the
Holders of the notes, as the same may be amended in accordance with the terms
thereof and the indenture.
"Issue Date" means December 6, 2001, the date the unregistered notes were
issued.
"Issuers" means Capital and the Company.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, regardless of whether filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other
92
title retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Liquor Authorities" means the Mississippi Alcoholic Beverage Control
Division of the Mississippi State Tax Commission, and any agency, authority,
board, bureau, commission, department, office or instrumentality of any nature
whatsoever of the United States or foreign government, any state, province or
any city or other political subdivision, whether now or hereafter existing, or
any officer or official thereof, including without limitation, any other agency
with authority to regulate the sale or distribution of alcoholic beverages by
the Company or any of its Subsidiaries.
"Liquor Laws" means the statutes regarding the sale and distribution of
alcoholic beverages enforced by the Liquor Authorities and the rules and
regulations of the Liquor Authorities.
"Majestic Investor" means Majestic Investor, LLC, a Delaware limited
liability company.
"Majestic Star" means The Majestic Star Casino, LLC, an Indiana limited
liability company.
"Management Agreements" means, collectively, (1) that certain Management
Agreement, dated as of September 19, 2001, by and between the Company and BDI,
pursuant to which the Company will pay to BDI fees (the "Management Fees") for
acting as the Manager of the Company, which Management Fees, for any fiscal
quarter, shall not exceed 1% of net revenues (such Management Fees, the
"Revenue-Based Management Fees") plus 5% of Consolidated Cash Flow (such
Management Fees, the "Cash Flow-Based Management Fees") for the immediately
preceding fiscal quarter; provided that the payment of such Management Fees
shall be subordinated to the payment in full of principal, interest, premium and
Liquidated Damages, if any, then due on the registered notes, and (2) that
certain Expense Reimbursement/Sharing Agreement, dated as of October 22, 2001,
by and between the Company and Majestic Star, pursuant to which the Company and
its Restricted Subsidiaries will each reimburse (such reimbursements, "Overhead
Reimbursements") Majestic Star for a specified percentage of the documented
out-of-pocket expenses paid by Majestic Star for the Company's corporate
overhead, including (i) the costs and expenses of executives and certain other
employees, including, but not limited to, salaries, bonuses, benefit payments,
insurance, and supplies, (ii) rent and (iii) other similar costs and expenses.
"Managers" means (i) for so long as the Company is a limited liability
company, the Managers appointed pursuant to the Operating Agreement or (ii)
otherwise, the Board of Directors of the Company.
"Member Agreement" means the Member Agreement, dated as of the Issue Date
by and among the Company, Majestic Investor, Majestic Star and BDI.
"Members" means the members of the Company.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale, or Capital Contribution in
respect, of Qualified Capital Stock upon any exercise, exchange or conversion of
securities (including options, warrants, rights and convertible or exchangeable
debt) of the Company that were issued for cash or Cash Equivalents on or after
the Issue Date, the amount of cash or Cash Equivalents originally received by
the Company upon the issuance of such securities (including options, warrants,
rights and convertible or exchangeable debt) less, in each case, the sum of all
payments, fees, commissions and expenses (including, without limitation, the
fees and expenses of legal counsel and investment banking fees and expenses)
incurred in connection with such sale of Qualified Capital Stock or Capital
Contribution.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP, reduced by the maximum amount of Permitted Tax Distributions for such
period, excluding (to the extent included in calculating such net income) (i)
any gain or loss, together with any related taxes paid or accrued on such gain
or loss, realized in connection with any Asset Sales and dispositions pursuant
to sale-leaseback transactions, and (ii) any extraordinary gain or loss,
together with any related taxes paid or accrued on such gain or loss.
93
"Net Proceeds" means the aggregate proceeds received in the form of cash or
Cash Equivalents in respect of any Asset Sale (other than an Event of Loss)
(including payments in respect of deferred payment obligations and any cash or
Cash Equivalents received upon the sale or disposition of any non-cash
consideration received in any Asset Sale, in each case when received, and the
net proceeds received in the form of cash or Cash Equivalents in respect of any
Event of Loss (including insurance or other payments)), net of
(i) the reasonable and customary direct out-of-pocket costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), other than any such costs
payable to an Affiliate of the Company,
(ii) taxes required to be paid by the Company or any of its
Subsidiaries in connection with such Asset Sale in the taxable year that
such sale is consummated or in the immediately succeeding taxable year or
any Permitted Tax Distributions during the taxable year within which such
Asset Sale is consummated or in the immediately succeeding taxable year
that would not otherwise be permitted to be distributed but for such Asset
Sale,
(iii) amounts required to be applied to the permanent repayment of
Purchase Money Obligations and Capital Lease Obligations in connection with
such Asset Sale, and
(iv) appropriate amounts provided as a reserve by the Company or any
Restricted Subsidiary, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or such
Restricted Subsidiary, as the case may be, after such Asset Sale
(including, without limitation, as applicable, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification arising from such Asset
Sale).
"Nevada Leasehold Interest" means the leasehold interests of Barden Nevada
Gaming, LLC (as successor to Fitzgeralds Las Vegas, Inc.), as tenant, under the
following leases: (i) Lease, dated March 4, 1976, between A.W. Ham, Jr., as
Trustee, and Nevada Building Company, as heretofore signed and amended; and (ii)
Lease Agreement, dated September 1, 1978, between Jewel French Nolen, Julie
LaMoyne Nolen, David Kramer, Betty Bennett, Richard James Tinkler and M.B.
Dalitz, as heretofore signed and amended.
"Obligation" means any principal, premium, interest, penalty, fee,
indemnification, reimbursement, damage and other obligation and liability
payable under the documentation governing any liability.
"Officers' Certificate" means a certificate signed on behalf of the Issuers
by two Officers of each of the Company and Capital, in each case, one of whom
must be the President, Chief Operating and Financial Officer, Treasurer,
Controller or a Senior Vice President.
"Operating Agreement" means the Limited Liability Company Agreement of the
Company, as amended from time to time.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee. Such counsel may be an employee of or counsel to the
Company or any Subsidiary of the Company.
"Permitted Investments" means
(i) Investments in the Company or in any Wholly Owned Subsidiary;
(ii) Investments in Cash Equivalents;
(iii) Investments in a Person, if, as a result of such Investment,
such Person (A) becomes a Wholly Owned Subsidiary, or (B) is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Subsidiary;
(iv) Hedging Obligations;
(v) Investments as a result of consideration received in connection
with an Asset Sale made in compliance with the covenant described under the
caption "-- Limitation on Asset Sales";
(vi) Investments existing on the Issue Date;
94
(vii) Investments paid for solely with Capital Stock (other than
Disqualified Capital Stock) of the Company;
(viii) credit extensions to gaming customers in the ordinary course of
business, consistent with industry practice;
(ix) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company in
satisfaction of judgments; and
(x) loans or advances to Affiliates or to employees of the Company and
its Restricted Subsidiaries in an aggregate amount not to exceed $1.0
million at any one time outstanding pursuant to this clause (x).
"Permitted Liens" means:
(i) Liens arising by reason of any judgment, decree or order of any
court for an amount and for a period not resulting in an Event of Default
with respect thereto, so long as such Lien is being contested in good faith
and is adequately bonded, and any appropriate legal proceedings that may
have been duly initiated for the review of such judgment, decree or order
shall not have been finally adversely terminated or the period within which
such proceedings may be initiated shall not have expired;
(ii) security for the performance of bids, tenders, trade, contracts
(other than contracts for the payment of money) or leases, surety bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business, consistent with industry practice;
(iii) Liens (other than Liens arising under ERISA) for taxes,
assessments or other governmental charges not yet due or that are being
contested in good faith and by appropriate proceedings if adequate reserves
with respect thereto are maintained on the books of the Company in
accordance with gaap;
(iv) Liens of carriers, warehousemen, mechanics, landlords, material
men, repairmen or other like Liens arising by operation of law in the
ordinary course of business consistent with industry practices (other than
Liens arising under ERISA) and Liens on deposits made to obtain the release
of such Liens if (a) the underlying obligations are not overdue for a
period of more than 30 days or (b) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Company in accordance with gaap;
(v) easements, rights of way, zoning and similar restrictions,
covenants, conditions and restrictions and other encumbrances or title
defects incurred in the ordinary course of business, consistent with
industry practices that do not in any case materially detract from the
value of the property subject thereto (as such property is used by the
Company or a Subsidiary) or interfere with the ordinary conduct of the
business of the Company or any of its Subsidiaries; provided, that such
Liens are not incurred in connection with any borrowing of money or any
commitment to loan any money or to extend any credit;
(vi) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation;
(vii) Liens securing Refinancing Indebtedness incurred in compliance
with the indenture to refinance Indebtedness secured by Liens, provided,
(a) such Liens do not extend to any additional property or assets; (b) if
the Liens securing the Indebtedness being refinanced were subordinated to
or pari passu with the Liens securing the registered notes or any
intercompany loan, as applicable, such new Liens are subordinated to or
pari passu with such Liens to the same extent, and any related
subordination or intercreditor agreement is confirmed; and (c) such Liens
are no more adverse to the interests of Holders than the Liens replaced or
extended thereby;
(viii) Liens that secure Acquired Debt; provided, that such Liens do
not extend to or cover any property or assets other than those of the
Person being acquired and were not put in place in anticipation of such
acquisition;
95
(ix) Liens that secure Purchase Money Obligations or Capital Lease
Obligations permitted to be incurred pursuant to clause (e) under the
covenant described above under the caption "Limitation on Incurrence of
Indebtedness"; provided, that such Liens do not extend to or cover any
property or assets other than those being acquired or developed;
(x) those matters shown as exceptions to title on the title policies,
dated as of the Issue Date, and issued by Fidelity National Title Insurance
Company for the benefit of the Trustee;
(xi) Liens securing Obligations under the indenture, the notes or the
Security Documents;
(xii) Liens on assets of the Company and the Subsidiaries, and the
proceeds of any or all the foregoing, securing Indebtedness incurred
pursuant to clause (a) under the caption "-- Limitation on Incurrence of
Indebtedness";
(xiii) with respect to any vessel included in the Collateral, certain
maritime liens, including liens for crew's wages and salvage;
(xiv) leases or subleases granted in the ordinary course of business
not materially interfering with the conduct of the business of the Company
or any of its Restricted Subsidiaries;
(xv) Liens arising from precautionary Uniform Commercial Code
financing statement filings regarding operating leases entered into by the
Company or any of its Subsidiaries in the ordinary course of business; and
(xvi) the rights of the lessors under ground leases, as in effect on
the Issue Date, relating to real property in Las Vegas, Nevada, leased by
the Company or its Restricted Subsidiaries on the Issue Date.
"Permitted Tax Distributions" in respect of the Company and each Subsidiary
that qualifies as a Flow Through Entity shall mean, with respect to any taxable
year, the sum of:
(a) the product of (i) the excess of (A) all items of taxable income
or gain (other than capital gain) of the Company that is allocated (or
otherwise flows through) to Equity Holders (or the Upper Tier Equity
Holders, as the case may be) for such year over (B) all items of taxable
deduction or loss (other than capital loss) of the Company that is
allocated (or otherwise flows through) to Equity Holders (or the Upper Tier
Equity Holders, as the case may be) for such year and (ii) the Applicable
Income Tax Rate, plus
(b) the product of (i) the net capital gain (i.e., net long-term
capital gain over net short-term capital loss), if any, of the Company that
is allocated (or otherwise flows through) to Equity Holders (or the Upper
Tier Equity Holders, as the case may be) for such year and (ii) the
Applicable Capital Gain Tax Rate, plus
(c) the product of (i) the net short-term capital gain (i.e., net
short-term capital gain in excess of net long-term capital loss), if any,
of the Company that is allocated (or otherwise flows through) to Equity
Holders (or the Upper Tier Equity Holders, as the case may be) for such
year and (ii) the Applicable Income Tax Rate, minus
(d) the aggregate Tax Loss Benefit Amount for the Company for such
year;
provided, that in no event shall the Applicable Income Tax Rate or the
Applicable Capital Gain Tax Rate exceed the greater of (1) the highest aggregate
applicable effective marginal rate of Federal, state, and local income to which
a corporation doing business in the State of New York would be subject in the
relevant year of determination (as certified to the Trustee by a nationally
recognized tax accounting firm) plus 5%; and (2) 60%. For purposes of
calculating the amount of the Permitted Tax Distributions, the proportionate
part of the items of taxable income, gain, deduction, or loss (including capital
gain or loss) of any Subsidiary that is a Flow Through Entity shall be included
in determining the taxable income, gain, deduction, or loss (including capital
gain or loss) of the Company.
Estimated tax distributions shall be made within fifteen days following
March 31, May 31, August 31, and December 31 based upon an estimate of the
excess of (x) the tax distributions that would be payable for
96
the period beginning on January 1 of such year and ending on March 31, May 31,
August 31, and December 31 if such period were a taxable year (computed as
provided above) over (y) distributions attributable to all prior periods during
such taxable year; provided that the estimated tax distribution with respect to
the period ending December 31 may be made within the last five days of such
period.
Prior to making any estimated tax distribution, the Company shall require
each Equity Holder and Upper Tier Equity Holder to agree that (a) promptly after
the Company and each Subsidiary file their respective annual tax return, (i)
such Equity Holder and Upper Tier Equity Holder shall be jointly and severally
liable to reimburse the Company to the extent the estimated tax distributions
made to such Equity Holder exceeded the actual Permitted Tax Distributions, as
determined on the basis of such tax returns filed in respect of such taxable
year for that Equity Holder (or Upper Tier Equity Holder, as the case may be)
and (ii) the Company shall make a further payment to such Equity Holder to the
extent such estimated tax distributions were less than the actual Permitted Tax
Distributions, as determined on the basis of such tax returns filed in respect
of such taxable year for that Equity Holder (or Upper Tier Equity Holder, as the
case may be) and (b) if the appropriate Federal or state taxing authority
finally determines that the amount of the items of taxable income, gain,
deduction, or loss (including capital gain or loss) of the Company or any
Subsidiary that is treated as a Flow Through Entity for any taxable year or the
aggregate Tax Loss Benefit Amounts carried forward to such taxable year should
be changed or adjusted (including by reason of a final determination that the
Company or such Subsidiary was not a Flow Through Entity), then (i) such Equity
Holder and Upper Tier Equity Holder shall be jointly and severally liable to
reimburse the Company in an amount (such amount, until reimbursed to the
Company, an "Unreimbursed Tax Distribution Amount") equal to the sum of (A) the
excess of (x) the Permitted Tax Distributions previously made to such Equity
Holder in respect of that taxable year over (y) the Permitted Tax Distributions
with respect to such taxable year, taking into account such change or adjustment
for such Equity Holder, plus (B) interest and penalties imposed on the Company
and its Subsidiaries by a Governmental Authority resulting from a final
determination that the Company or a Subsidiary was not a Flow Through Entity,
and (ii) the Company shall make a further payment to such Equity Holder to the
extent the Permitted Tax Distributions previously made to such Equity Holder in
respect of that taxable year were less than the Permitted Tax Distributions
payable to such Equity Holder with respect to such taxable year taking into
account such change or adjustment.
To the extent that any tax distribution would otherwise be made to any
Equity Holder at a time when an obligation of such Equity Holder to make a
payment to the Company pursuant to the previous paragraph remains outstanding,
the amount of any tax distribution to be made shall be reduced by the amounts
such Equity Holder is obligated to pay the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity.
"Preferred Ship Mortgage" means the preferred ship mortgage on the Tunica
Vessel, dated as of the Issue Date, by and between Barden Mississippi Gaming,
LLC and the Trustee.
"Pre-Opening Expenses" means all costs of start-up activities that are
required to be expensed (and are not capitalized) in accordance with SOP 98-5.
"Purchase Money Obligations" means Indebtedness representing, or incurred
to finance, the cost (i) of acquiring any assets and (ii) of construction or
build-out of facilities (including Purchase Money Obligations of any other
Person at the time such other Person is merged with or into or is otherwise
acquired by the Issuers); provided, that (x) the principal amount of such
Indebtedness does not exceed 80% of such cost, including construction charges,
(y) any Lien securing such Indebtedness does not extend to or cover any other
asset or property other than the asset or property being so acquired,
constructed or built and (z) such Indebtedness is incurred, and any Liens with
respect thereto are granted, within 180 days of the acquisition or commencement
of construction or build-out of such property or asset.
"Qualified Capital Stock" means, with respect to any Person, Capital Stock
of such Person other than Disqualified Capital Stock.
97
"Qualified Equity Offering" means (1) an underwritten registered public
offering of Qualified Capital Stock of the Company for cash, other than pursuant
to Form S-8 (or any successor thereto) under the Securities Act and other than
shares of Qualified Capital Stock of the Company issued pursuant to employee
benefit plans or as compensation to employees, and (2) an unregistered offering
of Qualified Capital Stock of the Company for cash resulting in net proceeds to
the Company in excess of $10.0 million.
"Related Business" means the gaming and hotel businesses conducted by the
Company as of the Issue Date and any and all businesses that in the good faith
judgment of the Managers are materially related businesses.
"Required Regulatory Redemption" means a redemption by the Issuers of any
Holder's notes pursuant to, and in accordance with, any order of any
Governmental Authority with appropriate jurisdiction and authority relating to a
Gaming License, or to the extent necessary in the reasonable, good faith
judgment of the Managers to prevent the loss, failure to obtain or material
impairment or to secure the reinstatement of, any Gaming License, where such
redemption or acquisition is required because the Holder or beneficial owner of
notes is required to be found suitable or to otherwise qualify under any gaming
laws and is not found suitable or so qualified within a reasonable period of
time.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"Return from Unrestricted Subsidiaries" means (a) 50% of the fair market
value of any dividends or distributions received by the Company or a Restricted
Subsidiary from an Unrestricted Subsidiary, to the extent that such dividends or
distributions were not otherwise included in Consolidated Net Income of the
Company, plus (b) to the extent not otherwise included in Consolidated Net
Income of the Company, an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) repayments of the principal of
loans or advances or other transfers of assets to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries or (ii) the sale or liquidation of any
Unrestricted Subsidiaries, plus (c) to the extent that any Unrestricted
Subsidiary is designated to be a Restricted Subsidiary, the fair market value of
the Company's Investment in such Subsidiary on the date of such designation.
"Security Agreement" means that certain Security and Pledge Agreement to
encumber substantially all of the assets of the Company in favor of the Trustee,
for the ratable benefit of the Holders of the notes, as the same may be amended
in accordance with the terms thereof and the indenture.
"Security Documents" means, collectively, the Investor Pledge Agreement,
the Preferred Ship Mortgage, the Security Agreement, the Copyright Security
Agreement, the Trademark Security Agreement, and any other agreements,
instruments, financing statements or other documents that evidence, set forth or
limit the Lien of the Trustee in the Collateral.
"subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity (including a limited liability company) of
which more than 50% of the total voting power of shares of Voting Stock thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other subsidiaries of that Person or a combination thereof
and (ii) any partnership in which such Person or any of its subsidiaries is a
general partner.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means any Restricted Subsidiary that has executed
and delivered in accordance with this indenture an unconditional and irrevocable
Subsidiary Guarantee of the Issuers' obligations under the notes and such
Person's successors and assigns.
"Subsidiary Guarantee" means an unconditional and irrevocable guaranty by a
Subsidiary Guarantor of the Obligations of the Issuers under the notes and the
indenture, as set forth in the indenture, as amended from time to time in
accordance with the terms thereof.
"Tax Loss Benefit Amount" means, with respect to any taxable year, the
amount by which the Permitted Tax Distributions would be reduced were a net
operating loss or net capital loss from a prior taxable year of the
98
Company ending subsequent to the Issue Date carried forward to such taxable
year; provided, that for such purpose the amount of any such net operating loss
or net capital loss shall be utilized only once and in each case shall be
carried forward to the next succeeding taxable year until so utilized. For
purposes of calculating the Tax Loss Benefit Amount, the proportionate part of
the items of taxable income, gain, deduction, or loss (including capital gain or
loss) of any Subsidiary that is a Flow Through Entity for a taxable year of such
Subsidiary ending subsequent to the Issue Date shall be included in determining
the amount of net operating loss or net capital loss of the Company.
"Trademark Security Agreement" means that certain Trademark Security
Agreement, dated as of the Issue Date, by and among the Issuers, the Subsidiary
Guarantors and the Trustee.
"transfer" means, with respect to any asset, any direct or indirect sale,
assignment, transfer, lease, conveyance, or other disposition (including,
without limitation, by way of merger or consolidation).
"Tunica Vessel" means that certain vessel and appurtenances described as:
<Table>
Name: Fitzgeralds Tunica
Official Number: 262757
Type: Barge
</Table>
"Unrestricted Subsidiary" means any Subsidiary that, at or prior to the
time of determination, shall have been designated by the Managers as an
Unrestricted Subsidiary; provided, that such Subsidiary (a) does not hold any
Indebtedness or Capital Stock of, or any Lien on any assets of, the Company or
any Restricted Subsidiary; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries. 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 date. The Managers 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 (i) such Indebtedness is permitted
under the Interest Coverage Ratio test set forth in the covenant described under
the caption "-- Certain Covenants -- Limitation on Incurrence of Indebtedness"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (ii) no Default or Event of
Default would be in existence following such designation. The Managers may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary so long as
no Default or Event of Default is in existence at the time of such designation
or would be in existence following such designation. The Company shall be deemed
to make an Investment in each Subsidiary designated as an Unrestricted
Subsidiary immediately following such designation in an amount equal to the
Investment in such Subsidiary and its subsidiaries immediately prior to such
designation. Any such designation by the Managers shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Managers giving effect to such designation and an Officers' Certificate
certifying that such designation complies with the foregoing conditions and is
permitted by the covenant described above under the caption "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness."
"Upper Tier Equity Holder" means, in the case of any Flow Through Entity
the Equity Holder of which is, in turn, a Flow Through Entity, the person that
is ultimately subject to tax on a net income basis on the items of taxable
income, gain, deduction, and loss of the Company and its Subsidiaries that are
Flow Through Entities.
99
"Voting Stock" means, with respect to any Person, (i) one or more classes
of the Capital Stock of such Person having general voting power to elect at
least a majority of the Board of Directors, managers or trustees of such Person
(regardless of whether at the time Capital Stock of any other class or classes
have or might have voting power by reason of the happening of any contingency)
and (ii) any Capital Stock of such Person convertible or exchangeable without
restriction at the option of the holder thereof into Capital Stock of such
Person described in clause (i) above.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years (rounded to the nearest one-twelfth) obtained
by dividing (i) the then outstanding principal amount of such Indebtedness into
(ii) the total of the product obtained by multiplying (A) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect thereof,
by (B) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" of any Person means a subsidiary of such Person
all the Capital Stock of which (other than directors' qualifying shares) is
owned directly or indirectly by such Person or by a Wholly Owned Subsidiary of
such Person; provided, that with respect to the Company, the term Wholly Owned
Subsidiary shall exclude Unrestricted Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
The notes will be issued in the form of one or more global notes, without
interest coupons. The global 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 as described below.
Except as set forth below, the global notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes."
The transfer of beneficial interests in the global notes will be subject to
the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC 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. We take no responsibility for these
operations and procedures and urge investors to contact the system or their
participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations or "participants" and to
facilitate the clearance and settlement of transactions in those securities
between participants through electronic book-entry changes in accounts of
participants. The participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to "indirect participants" such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by or on behalf of DTC
only through the participants or indirect participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the participants and
indirect participants.
DTC has also advised us that pursuant to procedures established by it,
ownership of those interests in the global notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to participants) or by participants and the indirect
participants (with respect to other owners of beneficial interests in the global
notes).
100
Investors in the global notes may hold their interests therein directly
through DTC, if they are participants in such system or indirectly through
organizations that are participants in such system. All interests in a global
note may be subject to the procedures and requirements of DTC.
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 interest in a global note to such persons may 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 a beneficial interest in a global note to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest. For certain other restrictions on the
transferability of the registered notes, see "-- Exchange of Book-Entry Notes
for Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
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, premium, liquidated damages, if any,
and interest on a global note registered in the name of DTC or its nominee will
be payable by the Trustee to DTC or its nominee in its capacity as the
registered Holder under the indenture. Under the terms of the indenture, we and
the Trustee will treat the persons in whose names the notes, including the
global notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither we nor the Trustee or any of our respective agents 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 interests in the global 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 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 us that its current practices, upon receipt of any payment
in respect of securities such as the 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 principal
amount of beneficial interests in the relevant security such as the global notes
as shown on the records of DTC. Payments by participants and the indirect
participants to the beneficial owners of notes will be governed by standing
instructions and customary practices and will not be the responsibility of DTC,
the Trustee or us. Neither we nor the Trustee will be liable for any delay by
DTC or its participants in identifying the beneficial owners of the notes, and
we and the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the notes for
all purposes.
Interests in the global notes will 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. Transfers between participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
Holder of notes only at the direction of one or more Participants to whose
account DTC interests in the global notes are credited and only in respect of
such portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given direction. However, if there is an
Event of Default under the notes, DTC reserves the right to exchange the global
notes for legended notes in certificated form, and to distribute such notes to
its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources believed to be reliable, but we take no
responsibility for its accuracy.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the global notes among participants in DTC it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the Trustee will have
any
101
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if:
- DTC (x) notifies us that it is unwilling or unable to continue as
depositary for the global note and we fail to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act; or
- the Issuers, at their option, notify the Trustee in writing that we elect
to cause the issuance of the notes in certificated form.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon request but only upon at least 20 days' prior written
notice given to the Trustee by or on behalf of DTC in accordance with customary
procedures. In all cases, certificated notes delivered in exchange for any
global note or beneficial interest 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).
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in a
global note may, upon request to the Trustee, exchange such beneficial interest
for a certificated note. Upon any such issuance, the Trustee is required to
register such certificated note in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). In
addition, if:
(a) we notify the Trustee in writing that DTC (x) is no longer willing
or able to act as a depositary and we are unable to locate a qualified
successor within 90 days; or (y) has ceased to be a clearing agency
registered under the Exchange Act; or
(b) we, at our option, notify the Trustee in writing that we elect to
cause the issuance of registered notes in the form of certificated notes
under the indenture,
then, upon surrender by the global note holder of its global note, registered
notes in such form will be issued to each person that the global note holder and
DTC identify as being the beneficial owner of the related notes.
Neither we nor the Trustee will be liable for any delay by the global note
holder or DTC in identifying the beneficial owners of notes and the Trustee may
conclusively rely on, and will be protected in relying on, instructions from the
global note holder or DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the notes represented by
a global note (including principal, premium, if any, interest and liquidated
damages, if any, thereon) be made by wire transfer of immediately available next
day funds to the accounts specified by the global note holder. With respect to
certificated notes, we will make all payments of principal, premium, if any,
interest and liquidated damages, if any, thereon 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. We expect that secondary trading in the certificated notes will also be
settled in immediately available funds.
MATERIAL AGREEMENTS
MAJESTIC INVESTOR HOLDINGS OPERATING AGREEMENT
Majestic Investor Holdings is a limited liability company organized under
Delaware law. Its sole member is Majestic Investor, LLC, which holds 100% of its
membership interests. Don H. Barden, through BDI, is
102
indirectly the beneficial owner of 100% of The Majestic Star Casino, LLC which
holds 100% of the membership interests in Majestic Investor, LLC.
The operating agreement provides for certain rights and obligations among
Majestic Investor Holdings and its member, including with respect to the
appointment of managers and restrictions on the transfer of membership
interests. Pursuant to the operating agreement, management is vested in the
managers, currently Don H. Barden and Michael E. Kelly. The managers continue to
serve as managers until their resignation, termination at will or death, and
additional or substitute managers may be chosen from time to time by Majestic
Investor. The operating agreement limits the transfer of membership interests.
Any transfer of membership interests and admission of a new member is subject to
the discretionary approval of two of the managers and the holders of a majority
of the membership interests. Additionally, any transfer must comply with all
applicable laws, including federal and state securities law, and is subject to
the approval of the Indiana Gaming Commission, the Nevada Gaming Commission, the
Mississippi Gaming Commission and the Colorado Gaming Commission. In addition,
in connection with our registration as a holding company, the restrictions on
transfer of membership interests received the approval of the Mississippi Gaming
Commission.
CERTAIN AGREEMENTS
Pursuant to an amended and restated management agreement entered into on
December 5, 2001, and effective on December 6, 2001, BDI will receive a
management fee for acting as our manager. The fee for any fiscal quarter will be
equal to 1% of net revenues plus 5% of our Consolidated Cash Flow (as defined in
the indenture governing the notes) for the immediately preceding fiscal quarter
and may not be paid if we are in default under the indenture governing the
notes. We pay the management fee to BDI as a return on the investment capital
contributed to us by BDI for corporate oversight and governance services and as
an inducement for Mr. Barden, the sole stockholder of BDI, to continue using his
visibility in the gaming industry to promote us. The payment of the management
fee is subordinated to the payment in full of principal, interest, and
liquidated damages, if any, then due on the notes. In addition, pursuant to an
expense sharing agreement entered into on October 22, 2001, we will reimburse
Parent for up to sixty percent (60%) of (i) the costs and expenses of executives
and certain other employees, including, but not limited to, salaries, bonuses,
benefit payments, insurance and supplies, (ii) rent and (iii) other similar
costs and expenses paid by Parent. These executives and employees will provide
services to both Parent and to us and our subsidiaries. Currently, due to
restrictions set forth in our indenture, the reimbursement percentage is capped
at fifty percent (50%) up to an aggregate of $1.7 million.
GOVERNMENT REGULATION AND LICENSING
GENERAL
The ownership and operation of our casino gaming facilities are subject to
various state and local regulations in the jurisdictions where they are located.
In Nevada, our gaming operations are subject to the Nevada Gaming Control Act,
and to the licensing and regulatory control of the Nevada Gaming Commission, the
Nevada State Gaming Control Board and various local ordinances and regulations,
including, without limitation, applicable city and county gaming and liquor
licensing authorities. In Mississippi, our gaming operations are subject to the
Mississippi Gaming Control Act, and to the licensing and/or regulatory control
of the Mississippi Gaming Commission, the Mississippi State Tax Commission and
various state and local regulatory agencies, including liquor licensing
authorities. In Colorado, our gaming operations are subject to the Limited
Gaming Act of 1991, which created the Division of Gaming within the Colorado
Department of Revenue and the Colorado Limited Gaming Control Commission to
license, implement, regulate and supervise the conduct of limited gaming. Our
operations are also subject to the Colorado Liquor Code and the state and local
liquor licensing authorities. In addition, Parent does business in the State of
Indiana, we are subject to certain reviews by the Indiana Gaming Commission.
Our directors, officers, managers and key employees are required to hold
individual licenses, which requirements vary from jurisdiction to jurisdiction.
Licenses and permits for gaming operations and of
103
individual licensees are subject to revocation or non-renewal for cause. Under
certain circumstances, holders of our securities are required to secure
independent licenses and permits.
NEVADA GAMING REGULATION
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder (the "Nevada Act") and to the licensing and regulatory control of the
Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board") and various local ordinances and regulations,
including, without limitation, applicable city and county gaming and liquor
licensing authorities (collectively, the "Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
- the establishment and maintenance of responsible accounting practices and
procedures;
- the maintenance of effective controls over the financial practices of
licensees, including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues, providing
reliable record keeping and filing periodic reports with the Nevada
Gaming Authorities;
- the prevention of cheating and fraudulent practices; and
- 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 our gaming operations.
Our subsidiary that conducts gaming operations in Nevada is licensed by the
Nevada Gaming Authorities. The gaming license will require the periodic payment
of fees and taxes and is not transferable. In addition, Majestic Investor
Holdings, LLC has been registered by the Nevada Commission as a "registered
corporation" and found suitable to own the stock of Barden Nevada Gaming, LLC.
BDI, Parent and Majestic Investor, LLC also have been registered with the Nevada
Commission and found suitable to own the stock of their direct wholly owned
subsidiaries. Barden Nevada Gaming, LLC serves as our corporate gaming licensee
under the terms of the Nevada Act. No person may become a stockholder of, or
receive any percentage of profits from, a corporate gaming licensee without
first obtaining licenses and approvals from the Nevada Gaming Authorities.
Majestic Investor Holdings, LLC and Barden Nevada Gaming, LLC 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.
A registered corporation is required to periodically submit detailed
financial operating reports to the Nevada Commission and furnish any other
information which the Nevada Commission may require. The Nevada Gaming
Authorities may investigate any individual who has a material relationship to or
material involvement with us or Barden Nevada Gaming, LLC in order to determine
whether such individual is suitable or should be licensed as a business
associate of a gaming licensee. Officers, directors, managers, members and
certain key employees of Barden Nevada Gaming, LLC 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 BDI, Parent, Majestic Investor, LLC and Majestic Investor Holdings, LLC who
are actively and directly involved in gaming activities of Barden Nevada Gaming,
LLC 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.
104
If the Nevada Gaming Authorities were to find an officer, director,
manager, member or key employee unsuitable for licensing or unsuitable to
continue having a relationship with us or Barden Nevada Gaming, LLC, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require us or Barden Nevada Gaming, LLC 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.
We and Barden Nevada Gaming, LLC are required to periodically submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information which the Nevada Commission may require. Substantially all
material loans, leases, sales of securities and similar financing transactions
by Barden Nevada Gaming, LLC must be reported to or approved by the Nevada
Commission.
If the Nevada Commission determined that the Nevada Act was violated by us
or Barden Nevada Gaming, LLC, the registration or gaming licenses we or it holds
could be limited, conditioned, suspended or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, we, Barden Nevada
Gaming, LLC and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission to
operate Fitzgeralds Las Vegas and, 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 Barden Nevada Gaming, LLC
or the appointment of a supervisor could (and revocation of any gaming license
would) have a material adverse effect on our gaming operations.
Any beneficial holder of a registered corporation's voting securities (or
rights to acquire such securities), regardless of the number of shares owned,
may be required to file an application, be investigated and have its suitability
as a beneficial holder of the registered corporation's voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. If the beneficial holder of voting securities who must be found suitable
is a corporation, partnership, limited liability company or trust, it must
submit detailed business and financial information, including a list of
beneficial owners. 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 Commission for a finding of suitability within 30 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 is not 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 or
managers of the registered corporation,
- any change in the corporate charter, bylaws, similar organizational
documents, 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.
105
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
- voting on all matters voted on by securityholders;
- 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
- 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, limited partnership, limited liability company or
trust, it must submit detailed business and financial information, including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any securityholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the voting securities beyond
such period of time as may be prescribed by the Nevada Commission may be guilty
of a criminal offense. We will be subject to disciplinary action if, after we
receive notice that a person is unsuitable to be a securityholder or to have any
other relationship with us or Barden Nevada Gaming, LLC, we:
- pay that person any dividend, distribution or interest upon our voting
securities;
- allow that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person;
- pay remuneration in any form to that person for services rendered or
otherwise; or
- fail to pursue all lawful efforts to require such unsuitable person to
relinquish its voting securities including, if necessary, the immediate
purchase of said voting securities for cash at fair market value.
Additionally, the City of Las Vegas has the authority to approve all
persons owning or controlling the equity interests of any entity controlling a
gaming licensee located in that city.
The Nevada Commission may, in its discretion, require the holder of any
debt or similar security of a registered corporation to file applications, be
investigated and be found suitable to own the debt security of a registered
corporation if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. If the Nevada Commission determines that a person is unsuitable to own
such security, then pursuant to the Nevada Act, the registered corporation can
be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it:
- pays to the unsuitable person any dividend, interest, or any distribution
whatsoever;
- recognizes any voting right by such unsuitable person in connection with
such securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar transaction.
We and Barden Nevada Gaming, LLC are 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. We will also be required to
render maximum assistance in determining the identity of the beneficial owner of
any of our voting securities. The Nevada Commission has the power to require our
security certificates to bear a legend indicating that the securities are
subject to the Nevada Act. The Nevada Commission has not imposed such a
requirement on us to date.
106
We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes, unless
the Chairman of the Nevada Board issues a ruling that such approval is not
required. The exchange offer of the unregistered notes for the registered notes
will constitute a public offering, as defined in the Nevada Act, and requires
the prior approval of the Nevada Commission upon the recommendation of the
Nevada Board. In April 2002, the Nevada Commission approved the exchange offer.
Such approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.
Changes in control of a registered corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a registered publicly traded 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:
- assure the financial stability of corporate gaming licensees and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- 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 or managers in response to a tender offer made
directly to the registered corporation's securityholders for the purposes of
acquiring control of the registered corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise. Nevada licensees that hold a
manufacturer's license or a distributor's license also pay certain fees and
taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who is or 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 for such Licensee's participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
107
discretion of the Nevada Commission. Thereafter, foreign Licensees are required
to comply with certain reporting requirements imposed by the Nevada Act. Such
Licensees are also subject to disciplinary action by the Nevada Commission if
they:
- knowingly violate any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
- fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
- engage in activities or enter into associations that are harmful to the
State of Nevada or its ability to collect gaming taxes and fees; or
- employ, contract with or associate with a person in the foreign operation
who has been denied a license or finding of suitability in Nevada on the
grounds of unsuitability.
The sale of alcoholic beverages at Fitzgeralds Las Vegas is subject to
licensing, control and regulation by the City of Las Vegas. All licenses are
revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of Fitzgeralds Las Vegas.
MISSISSIPPI GAMING REGULATION
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulations, but primarily the licensing
and/or regulatory control of the Mississippi Gaming Commission (the "Mississippi
Commission") and the Mississippi State Tax Commission. The Mississippi Gaming
Control Act (the "Mississippi Act"), which legalized dockside casino gaming in
Mississippi, is similar to the Nevada Gaming Control Act. The Mississippi
Commission has adopted regulations which are also similar in many respects to
the Nevada gaming regulations.
The laws, regulations and supervisory procedures of the Mississippi
Commission are based upon declarations of public policy which are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
- the establishment and maintenance of responsible accounting practices and
procedures;
- the maintenance of effective controls over the financial practices of
licensees, including the establishment of minimum procedures for internal
fiscal affairs and safeguarding of assets and revenues, providing
reliable record keeping and requiring the filing of periodic reports with
the Mississippi Commission;
- the prevention of cheating and fraudulent practices;
- providing a source of state and local revenues through taxation and
licensing fees; and
- ensuring 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 us and our business,
financial condition and results of operations.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the fourteen counties that either border the Gulf Coast or the
Mississippi River, but only if the voters in such counties have not voted to
prohibit gaming in that county. As of October 18, 2001, dockside gaming was
permitted in nine of the fourteen eligible counties in the State of Mississippi
and gaming operations have 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 counties along the Mississippi River, or in the
waters lying south of the counties along the Mississippi Gulf
108
Coast. Fitzgeralds Tunica was constructed on barges situated in a specially
constructed basin near the Mississippi River. In the past, whether basins such
as the one in which the Fitzgeralds Tunica casino barges are located constituted
"navigable waters" suitable for gaming under Mississippi law was a controversial
issue. The Mississippi Attorney General issued an opinion in July 1993
addressing legal locations for gaming vessels under the Mississippi Act, and on
May 24, 1993, the Mississippi Commission approved the location of the casino
barges on the Fitzgeralds Tunica site as legal under the Attorney General
opinion. Since 1993, the Mississippi Commission has issued or renewed licenses
to Fitzgeralds Tunica on several separate occasions. Fitzgeralds Tunica believes
that it is in compliance with the Mississippi Act and the Mississippi Attorney
General's "navigable waters" opinion. However, no assurance can be given that a
court would ultimately conclude that the Fitzgeralds Tunica barges are located
on navigable waters within the meaning of Mississippi law. If the basin in which
the Fitzgeralds Tunica casino barges are presently located were not deemed
navigable waters within the meaning of Mississippi law, such a decision would
have a material adverse effect on Fitzgeralds Tunica and our business, financial
condition and results of operations.
The Mississippi Act permits unlimited stakes gaming on permanently moored
vessels on a 24-hour basis and does not restrict the percentage of space which
may be utilized for gaming. The Mississippi Act permits substantially all
traditional casino games and gaming devices. Only persons who are 21 years of
age or older may wager on games in Mississippi.
The following statutory and regulatory requirements are applicable to us in
operating Fitzgeralds Tunica. Barden Mississippi Gaming, LLC holds our gaming
license in Mississippi.
We and Majestic Investor, LLC, Parent and BDI have registered as holding
companies under the Mississippi Act. Our operations in Mississippi will be
subject to the licensing and regulatory control of the Mississippi Commission
and various other federal, state and county regulatory agencies. BDI, Parent,
Majestic Investor, LLC and Majestic Investor Holdings, LLC, as registered
holding companies, and Barden Mississippi Gaming, LLC, as a gaming licensee,
will be required to submit detailed financial, operating and other reports to
the Mississippi Commission and furnish any other information which the
Mississippi Commission may require. The Mississippi Commission may condition,
limit or restrict a license or approval to own equity interests in us or Barden
Mississippi Gaming, LLC for any cause deemed reasonable by the Mississippi
Commission. If we are unable to satisfy the registration or licensing
requirements of the Mississippi Act, we and Barden Mississippi Gaming, LLC
cannot own or operate gaming facilities in Mississippi. No assurance can be
given that we will receive approval for the registrations or licenses for which
we have applied or that such licenses, registrations and approvals can be
obtained on terms and conditions that are acceptable to us.
Barden Mississippi Gaming, LLC has received 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. There are
no limitations on the number of gaming licenses which may be issued in
Mississippi. Gaming licenses require the payment of periodic fees and taxes, are
not transferable, are issued for a three-year period and may be continued for
two additional three-year periods prior to renewal. There can be no assurance
that any subsequent application for a license will be approved.
No person may become a securityholder of or receive any percentage of
profits from a gaming licensee subsidiary without first obtaining licenses and
approvals from the Mississippi Commission. While we have received such approvals
from the Mississippi Commission, no assurance can be given that we will continue
to receive such approvals in the future.
Certain management personnel of BDI, Parent, Majestic Investor, LLC and
Majestic Investor Holdings, LLC, and certain management personnel and key
employees of Barden Mississippi Gaming, LLC must be found suitable or approved
by the Mississippi Commission. A finding of suitability is comparable to
licensing and requires submission of detailed personal financial information
followed by a thorough investigation. We believe that we have obtained all
necessary findings of suitability with respect to the companies, although the
Mississippi Commission, in its discretion, may require additional persons to
file applications for findings of suitability or other approvals. In addition,
any person having a material relationship or involvement with us
109
may be required to be found suitable, 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. In addition to its authority to deny an application for a finding of
suitability, a change in any person's corporate position or title must be
reported to the Mississippi Commission and the Mississippi Commission may
disapprove such a change. The Mississippi Commission has the power to require
any registered holding company or licensee to suspend or dismiss officers,
directors, managers, members 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. There can be no assurance
that such persons who have filed or will be required to file applications for
findings of suitability will be found suitable by the Mississippi Commission.
The Mississippi Act and the Mississippi regulations give the Mississippi
Commission the discretion, at any time, to require a finding of suitability with
respect to any person or entity who acquires any security of BDI, Parent,
Majestic Investor, LLC, Majestic Investor Holdings, LLC or Barden Mississippi
Gaming, LLC, regardless of the percentage of ownership. The current practice of
the Mississippi Commission is to require a finding of suitability for any equity
owner acquiring 5% or more of any voting securities of a licensee or a
registered holding company with a licensed subsidiary, provided, however, that
certain qualifying institutional investors may acquire up to 15% of such voting
securities without having to be found suitable. If the owner of voting
securities who is required to be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information, including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any 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 Mississippi
Commission 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 person found unsuitable and who holds, directly or indirectly, any
beneficial ownership of such securities beyond such time as the Mississippi
Commission prescribes, may be guilty of a misdemeanor. We may be subject to
disciplinary action if, after receiving notice that a person is unsuitable to be
an owner or to have any other relationship with BDI, Parent, Majestic Investor,
LLC, Majestic Investor Holdings, LLC or Barden Mississippi Gaming, LLC, the
company involved:
- pays the unsuitable person any dividend or other distribution upon such
person's voting securities;
- recognizes the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person;
- pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific
circumstances; or
- 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 fair market value.
Each of BDI, Parent, Majestic Investor, LLC, Majestic Investor Holdings,
LLC and Barden Mississippi Gaming, LLC is required to maintain in Mississippi a
current ledger with respect to the ownership of its equity securities which must
reflect the record ownership of each outstanding ownership interest in the
company. The ledgers must be available for inspection by the Mississippi
Commission at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Mississippi Commission. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. We and
Barden Mississippi Gaming, LLC must also render maximum assistance in
determining the identity of the beneficial owner of any of our voting
securities.
The Mississippi Act requires that the certificates representing securities
of BDI, Parent, Majestic Investor, LLC, Majestic Investor Holdings, LLC and
Barden Mississippi Gaming, LLC bear a legend indicating that the securities are
subject to the Mississippi Act and the regulations of the Mississippi
Commission. The Mississippi Commission has the power to impose additional
restrictions at any time on the holders of securities of registered holding
companies or gaming licensees.
110
We may be required to disclose to the Mississippi Commission, upon request,
the identities of the holders of our notes or other debt securities. In
addition, under the Mississippi Act the Mississippi Commission may, in its
discretion, require the holders of our notes or other debt securities to file
applications, be investigated and be found suitable to own the debt security if
it has reason to believe that the ownership would be inconsistent with the
declared policies of the State of Mississippi. If the Mississippi Commission
determines that a person is unsuitable to own a note or other debt security,
then we can be sanctioned, including the loss of any approvals, if without the
prior approval of the Mississippi Commission, we:
- pay to the unsuitable person any dividend, interest, or any distribution
whatsoever;
- recognize any voting right by the unsuitable person in connection with
those securities;
- pay the unsuitable person remuneration in any form; or
- make any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar transaction.
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.
Substantially all material loans, leases, sales of securities and similar
financing transactions involving a registered holding company or a gaming
licensee must be reported to or approved by the Mississippi Commission. We have
received from the Mississippi Commission all necessary approvals in connection
with our credit facility. While we have received approvals from the Mississippi
Commission with respect to our credit facility, we were required to file a
post-closing loan report within thirty days of closing and the Mississippi
Commission retains discretion to rescind the credit transaction under certain
conditions. A licensed subsidiary of a registered holding company may not make a
public offering of its securities, but may pledge or mortgage casino facilities.
A registered holding 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
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. We have received such approvals from the
Mississippi Commission subject to the ability of the Mississippi Commission to
issue a stop order.
Under the regulations of the Mississippi Commission, Barden Mississippi
Gaming, LLC may not guarantee a security issued by us or any other affiliated
company pursuant to a public offering, or pledge the assets of Barden
Mississippi Gaming, LLC to secure payment or performance of the obligations
evidenced by the security issued by the affiliated company, without the prior
approval of the Mississippi Commission. A pledge of the equity securities of a
gaming licensee and the foreclosure of such a pledge are ineffective without the
prior approval of the Mississippi Commission. Moreover, restrictions on the
transfer of an equity security issued by a Mississippi gaming licensee or a
registered holding company and agreements not to encumber such securities are
ineffective without the prior approval of the Mississippi Commission. We have
received from the Mississippi Commission the requisite approvals necessary to
consummate the offering of the registered notes.
The regulations provide that a change in control of BDI, Parent, Majestic
Investor, LLC, Majestic Investor Holdings, LLC or Barden Mississippi Gaming, LLC
may not occur without the prior approval of the Mississippi Commission. Entities
seeking to acquire control of one or more of these companies must satisfy the
Mississippi Commission in a variety of stringent standards prior to assuming
control of any such company. 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.
111
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
registered holding companies, 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:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Approvals are, in certain circumstances, required from the Mississippi
Commission before a registered holding company may make exceptional repurchases
of voting securities (i.e., repurchases which treat holders differently) in
excess of the current market price and before a corporate acquisition opposed by
management can be consummated. Mississippi's gaming regulations also require
prior approval by the Mississippi Commission of a plan of recapitalization
proposed by the registered holding company's board of directors or managers in
response to a tender offer made directly to the company's securityholders for
the purpose of acquiring control of the holding company.
None of BDI, Parent, Majestic Investor, LLC, Majestic Investor Holdings,
LLC or Barden Mississippi Gaming, LLC 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 us and our affiliates. We have received a waiver of foreign
gaming approval from the Mississippi Commission for the gaming operations of
Parent in Indiana and for our operations in Colorado and Nevada. We will be
required to obtain the approval or a waiver of such approval from the
Mississippi Commission prior to engaging in any additional future gaming
operations outside of Mississippi. There can be no assurance that any such
approvals will be obtained.
If the Mississippi Commission determined that any of BDI, Parent, Majestic
Investor, LLC, Majestic Investor Holdings, LLC or Barden Mississippi Gaming, LLC
violated a gaming law or regulation, the Mississippi Commission could limit,
condition, suspend or revoke our approvals and the license of Barden Mississippi
Gaming, LLC, subject to compliance with certain statutory and regulatory
procedures. In addition, BDI, Parent, Majestic Investor, LLC, Majestic Investor
Holdings, LLC or Barden Mississippi Gaming, LLC 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 approval or the appointment of a supervisor could (and
revocation of any gaming license or approval would) materially adversely affect
us and our business, financial condition and results of operations.
License fees and taxes, computed in various way depending on the type of
gaming involved, are payable to the State of Mississippi and to Tunica County,
the county in which Fitzgeralds Tunica's operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually. Gaming taxes are based upon:
- a percentage of the gross gaming revenues received by the casino
operation;
- the number of gaming devices operated by the casino; or
- 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 payouts to customers as
winnings) and the current maximum tax rate imposed is 8% of all gaming receipts
in excess of $134,000. The foregoing license fees paid will be allowed as a
credit against Barden Mississippi Gaming, LLC's Mississippi income tax liability
for the year paid. The gross revenue fee imposed by Tunica County equals
approximately 4% of the gaming receipts.
112
The Mississippi Commission adopted a regulation requiring, as a condition
of licensure or license renewal, that an existing gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex and
infrastructure facilities which will amount to at least 25% of the casino cost.
These requirements were met with the opening of the Fitzgeralds Tunica Hotel and
related facilities in 1996. The Mississippi Commission later adopted amendments
to the regulation that increase the infrastructure development requirement from
25% to 100% of the casino cost. However, the regulation amendment increasing the
infrastructure requirement grandfathers existing licensees and applies only to
new casino projects and casinos that are not operating at the time of
acquisition or purchase, and therefore would not apply to Fitzgeralds Tunica.
The sale of alcoholic beverages, including beer and wine, at Fitzgeralds
Tunica is subject to licensing, control and regulation by the Alcoholic Beverage
Control Division (the "ABC") of the Mississippi State Tax Commission. The ABC
requires that all equity owners and managers file personal record forms and
fingerprint forms for their licensing process. In addition, owners of more than
5% of Barden Mississippi Gaming, LLC's equity and Barden Mississippi Gaming,
LLC's officers, members and managers must submit detailed financial information
to ABC for licensing. All such licenses are revocable and are non-transferable.
The Mississippi State Tax Commission has full power to limit, condition, suspend
or revoke any such license, and any such disciplinary action could (and
revocation would) have a material adverse effect on the operations of
Fitzgeralds Tunica and on our gaming operations.
In Mississippi, in three separate instances, representatives of an
anti-gaming group proposed voter initiatives which, if approved, would have
amended the Mississippi Constitution to ban gaming in Mississippi and would have
required all currently legal gaming entities to cease operations within two
years of the ban. All three of the proposed initiatives were ruled illegal by
Mississippi state trial courts because, among other reasons, each of the
proposed initiatives failed to include required information regarding the
anticipated effect of such a ban on government revenues. The proponents of the
most recent initiative appealed the trial court ruling to the Mississippi
Supreme Court, which affirmed the decision of the trial court prohibiting the
proponents from proceeding with the proposed initiative. Any such initiative
must be approved by the Mississippi Secretary of State and signatures of at
least 91,673 registered voters statewide (with a minimum of 18,335 registered
voters from each of the state's five congressional districts) must be gathered
and certified in order for such a proposal to be included on the statewide
ballot for consideration by the voters. The next election for which the
proponents could attempt to place such a proposal on the ballot would be in
November 2003. 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, while we
are unable to predict with certainty whether such an initiative will appear on a
ballot or the likelihood of such an initiative being approved by the voters, if
such an initiative were passed and gaming were prohibited in Mississippi, it
would have a material adverse effect on us and our business, financial condition
and results of operations.
COLORADO GAMING REGULATION
Colorado legalized limited gaming by constitutional amendment approved by
Colorado voters on November 6, 1990. The Colorado legislature thereafter enacted
the Limited Gaming Act of 1991 (the "Colorado Act") to implement the provisions
of the constitutional amendment, and limited gaming commenced in Colorado on
October 1, 1991. The Colorado Act authorizes limited gaming only in certain
designated commercial districts of Central City, Black Hawk and Cripple Creek,
Colorado. Limited gaming consists of poker, blackjack and slot machines, all
with maximum single bets of five dollars. Only persons aged 21 or older may
participate in limited gaming, and limited gaming and the sale of alcoholic
beverages are prohibited between the hours of 2:00 a.m. and 8:00 a.m. Limited
gaming is only allowed on premises licensed for that purpose, and the licensed
premises of any building may not exceed 35% of the square footage of the
building and no more than 50% of any floor of such building. There is no
limitation on the size of any structure or total square footage devoted to
limited gaming.
The following statutory and regulatory requirements are applicable to us in
consummating the acquisition of the Fitzgeralds assets. Barden Colorado Gaming,
LLC holds our Colorado gaming license.
113
On October 18, 2001, the Colorado Limited Gaming Control Commission issued
operators and retailers licenses to Barden Colorado Gaming, LLC. The operators
license was effective as of October 18, 2001. The retailers license, which
permits the actual conduct of gaming by Barden Colorado Gaming, LLC, became
effective upon the happening of certain standard conditions for retail licenses
and gaming commenced under Barden Colorado Gaming, LLC's retail license on
December 7, 2001. These conditions apply to all gaming licenses in the State of
Colorado and are as follows:
- Confirmation that a valid certificate of occupancy has been issued by the
appropriate local authorities for the building in which limited gaming is
to be conducted.
- Confirmation by the local historical preservation commission that the
building in which limited gaming is to be conducted meets the
architectural requirements of the Limited Gaming Act of 1991.
- Certification by the appropriate local official that the building in
which limited gaming is to be conducted meets the standards for fire
safety set forth in the Limited Gaming Act of 1991.
- Certification by the appropriate local official that access to the
building for the handicapped has been approved, as required by the
Limited Gaming Act of 1991.
- Surrender of any retail license previously issued for the premises to be
occupied by the new retail license.
Pursuant to the Colorado Act and the rules and regulations promulgated
thereunder (collectively, the "rules"), the ownership and operation of limited
gaming facilities in Colorado, however acquired, are subject to extensive
regulation. The Colorado Act created the Division of Gaming (the "Colorado
Division") within the Colorado Department of Revenue and the Colorado Limited
Gaming Control Commission (the "Colorado Gaming Commission") to license,
implement, regulate, and supervise the conduct of limited gaming. The Director
of the Colorado Division (the "Colorado Director"), under the general
supervision of the Colorado Gaming Commission, is granted broad powers to ensure
compliance with the Colorado Act and the rules. The Colorado Act now provides
that the provisions which established the Colorado Division are repealed
effective July 1, 2003, unless continued by act of the General Assembly. This is
a "sunset" provision common in assessing the continuing necessity for the
existence of administrative agencies within Colorado. If the repeal takes
effect, Colorado law provides a procedure for winding up the affairs of the
Colorado Division, public hearings, analysis and evaluation, and for determining
claims by or against the Colorado Division. The potential effect of the possible
repeal upon the regulatory structure governing limited gaming is unknown.
The Colorado Act declares public policy on limited stakes gaming to be
that:
- the success of limited stakes gaming is dependent upon public confidence
and trust that licensed limited stakes gaming is conducted honestly and
competitively, the rights of the creditors of licensees are protected and
gaming is free from criminal and corruptive elements;
- public confidence and trust can be maintained only by strict regulation
of all persons, locations, practices, associations and activities related
to the operation of licensed gaming establishments and the manufacture or
distribution of gaming devices and equipment;
- all establishments where limited stakes gaming is conducted and where
gambling devices are operated and all manufacturers, sellers and
distributors of certain gambling devices and equipment must therefore be
licensed, controlled and assisted to protect the public health, safety,
good order and the general welfare of the inhabitants of the state to
foster the stability and success of limited stakes gaming and to preserve
the economy and free competition in Colorado; and
- no applicant for a license or other approval has any right to a license
or to the granting of the approval sought.
The application for a retailers/operators license was filed on behalf of
Barden Colorado Gaming, LLC with the Colorado Division of Gaming on April 20,
2001. That application was required to be submitted on complete and
comprehensive application forms, required fees were paid, and all information
required by the Colorado Limited Gaming Control Commission and the Colorado
Division of Gaming was provided. Prior to
114
the issuance of the license on October 18, 2001, the applicant was required to
satisfy the Colorado Limited Gaming Control Commission that it was suitable for
licensing. The applicant had the burden of proving its qualification and was
responsible for paying the full cost of background investigation. The Colorado
Division of Gaming charged a rate of $57 per hour, plus travel and out-of-pocket
expenses. There was no limit on the cost or time which Colorado was entitled to
expend on the background investigation of the applicant.
The Colorado Gaming Commission may issue: (1) slot machine or distributor;
(2) operator; (3) retail gaming; (4) support; and (5) key employee gaming
licenses. The first three licenses require annual renewal by the Colorado Gaming
Commission. Support and key employee licenses are issued for two-year periods
and are renewable by the Division Director. The Colorado Gaming Commission has
broad discretion to condition, suspend for up to six months, revoke, limit or
restrict a license at any time and also has the authority to impose fines.
A retail gaming license is required for all persons conducting limited
stakes gaming on their premises. In addition, an operator license is required
for all persons who engage in the business of placing and operating slot
machines on the premises of a retailer. However, a retailer is not required to
hold an operator license. No person may have an ownership interest in more than
three retail licenses.
The Colorado Act requires that every officer, director, and stockholder of
private corporations or equivalent office or ownership holders for non-corporate
applicants, and every officer, director or stockholder holding either a 5% or
greater interest or controlling interest of a publicly traded corporation or
owners of an applicant or licensee, shall be a person of good moral character
and submit to a full background investigation conducted by the Colorado Division
of Gaming and the Colorado Gaming Commission. The Colorado Gaming Commission may
require any person having an interest in a license or a licensee to undergo a
full background investigation and pay the cost of investigation in the same
manner as an applicant. Limited disclosure forms are required of those persons
holding any equity interest in a non-publicly traded applicant.
In addition, all persons loaning monies, goods, or real or personal
property to a licensee or applicant, or having any interest in a licensee or
applicant, or entering into any agreement with a licensee or applicant, must
provide any information requested by the Colorado Division or Colorado Gaming
Commission, and in the discretion of the Colorado Division or the Colorado
Gaming Commission, these persons must supply all information relevant to a
determination of any such person's suitability for licensure and must submit to
a full background investigation if ordered by the Colorado Gaming Commission.
Failure to promptly provide all information requested, or to submit to a
suitability or background investigation, may result in the denial of a license
application, suspension or revocation of an existing license, termination of any
lease, note arrangement, or agreement between the applicant or licensee and the
person requested to provide the information, and other sanctions. Investigations
for suitability, background, or any other reason may delay a license application
or the operation under any agreement with a licensee. All agreements, contracts,
leases or arrangements in violation of the Colorado Act or the rules are void
and unenforceable.
Persons found unsuitable by the Colorado Gaming Commission may be required
immediately to terminate any interest in, association or agreement with, or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant may also jeopardize the licensee's license or applicant's license
application. Licenses may be conditioned upon termination of any relationship
with unsuitable persons.
The Colorado Act and the rules require licensees to maintain detailed books
and records which accurately account for all monies and business transactions.
Books and records must be furnished upon demand to the Colorado Gaming
Commission, the Colorado Division and other law enforcement authorities. The
rules also establish extensive playing procedures, standards, requirements and
rules of play for poker, blackjack and slot machines.
Retail gaming licensees must, in addition, adopt comprehensive internal
control procedures governing their limited gaming operations. Such procedures
include the areas of accounting, internal fiscal control, surveillance,
security, cashier operations, key control, reporting procedures, personnel
procedures and fill and drop procedures, among others. Such procedures must be
approved in advance by the Colorado Division.
115
Licensees are prohibited from engaging in fraudulent acts which include, among
other things, misrepresenting the probabilities of pay out, improperly canceling
a bet, conducting limited gaming without a valid license and employing an
unlicensed person in a position which requires a licensed employee. Licensees
must report to the Colorado Division all licenses, and all applications for
licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly traded
entities, no person, including persons who may acquire an interest in a licensee
pursuant to a foreclosure, may sell lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Gaming Commission.
The rules impose certain additional restrictions and reporting and filing
requirements on publicly traded entities holding gaming licenses in Colorado and
on gaming licensees in Colorado owned directly or indirectly, 5% or more, by
publicly traded entities.
A licensee or affiliated company or any controlling person of a license or
affiliated company, which commences a public offering of voting securities, must
notify the Colorado Gaming Commission, with regard to a public offering to be
registered with the SEC, no later than ten business days after the initial
filing of a registration statement with the SEC, or, with regard to any other
type of public offering, no later than ten business days prior to the public use
or distribution of any offering document, if: 1) the licensee, affiliated
company or a controlling person thereof, intending to issue the voting
securities is not a publicly traded corporation; or 2) if the licensee,
affiliated company or controlling person thereof, intending to issue the voting
securities is a publicly traded corporation, and if the proceeds of the
offering, in whole or in part, are intended to be used: a) to pay for
construction of gaming facilities in Colorado to be owned and operated by the
licensee; b) to acquire any direct or indirect interest in gaming facilities in
Colorado; c) to finance the operation by the licensee of gaming facilities in
Colorado; or d) to retire or extend obligations incurred for one or more of the
purposes set forth in subsections a, b, or c above.
Any licensee notifying the Colorado Gaming Commission of a public offering
must provide specific information as set forth in the Colorado Gaming
Regulations. All offering material provided to the SEC must also be provided to
the Colorado Gaming Commission.
Such entities also must include certain provisions in their charter or
other organizational documents restricting the transfer of interests in the
entity except in compliance with the Colorado Act. The Colorado Gaming
Commission may require persons affiliated with, and certain direct or indirect
owners of, such transferees to apply for a finding of suitability. If found
unsuitable, such persons must terminate their relationship with the entity and
such owners must sell their interest back to the issuer or to a suitable person
approved by the Colorado Gaming Commission.
The State of Colorado has enacted an annual tax on the adjusted gross
proceeds ("AGP") from limited gaming. AGP is generally defined as the amounts
wagered minus payments to players. For poker, AGP means those sums wagered on a
hand retained by the licensee as compensation. Currently, the gaming tax on AGP
ranges between 2% and 20%. The gaming tax is paid monthly, with licensees
required to file returns by the 15th of the following month. Effective July 1 of
each year, the Colorado Gaming Commission establishes the gaming tax rates for
the following 12 months. Under the Colorado Constitution, the Colorado Gaming
Commission may increase the gaming tax rate to as much as 40% of AGP. Since July
1, 1999, the Colorado Commission has set a gaming tax rate of 0.25% on adjusted
gross gaming proceeds of up to and including $2 million, 2% over $2 million up
to and including $4 million, 4% over $4 million up to and including $5 million,
11% over $5 million up to and including $10 million, 16% over $10 million up to
and including $15 million, and 20% over $15 million.
The Colorado Commission also may impose device fees. Effective July 1,
1999, the Colorado Commission eliminated annual device fees. Despite the
elimination of the annual device fee, casinos are still required to obtain
device stamps from the Colorado Division of Gaming and must follow device
tracking procedures. The town of Black Hawk imposes an annual device fee on each
slot machine, black jack and poker table in the current amount of $750.00 per
device. Black Hawk also imposes taxes and fees on other aspects of the
116
businesses of gaming licensees, such as parking, liquor license and other
municipal taxes and fees. It is not unreasonable to expect substantial increases
in these fees or the imposition of new taxes and fees.
Violations of the Colorado Act, or any of the rules, is a criminal offense.
Persons violating the Colorado Act or the rules may, in addition to any gaming
license suspension or revocation, or administrative fine be subject to criminal
prosecution resulting in incarceration, fines or both.
The sale of alcoholic beverages in gaming establishments is subject to
strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and non-transferable. State and local
licensing authorities have full power to limit, condition, suspend or revoke any
such licenses. Violation of these state alcoholic beverage laws is a criminal
offense, and violators are subject to criminal prosecution, incarceration and
fines.
INDIANA GAMING REGULATION
Because we are an affiliate of Parent, which conducts riverboat gaming
operations in the State of Indiana pursuant to a riverboat license issued by the
Indiana Gaming Commission, we are required to seek certain approvals under the
Indiana Riverboat Gambling Act. The Indiana Riverboat Gambling Act vests the
Indiana Gaming Commission with the power and duties of administering, regulating
and enforcing the system of riverboat gaming in Indiana. Riverboat licensees are
subject to extensive regulation by the Indiana Gaming Commission, including
restrictions on the incurrence of debt by the license holder or its affiliates.
A riverboat licensee and its affiliates may enter into debt transactions that
total one million dollars or more only with the prior approval of the Indiana
Gaming Commission. Such approval is subject to compliance with request
procedures and a showing that each person with whom the riverboat licensee and
its affiliates enters into a debt transaction would be suitable for licensure
under the Indiana Riverboat Gambling Act. We submitted our request for approval
to the Indiana Gaming Commission on October 12, 2001, and we received such
approval in mid-November 2001.
TREASURY DEPARTMENT REGULATIONS
The Internal Revenue Code and Treasury Regulations require operators of
casinos located in the United States to file information returns for U.S.
citizens, including names and addresses of winners, for keno and slot machine
winnings in excess of prescribed amounts. The Internal Revenue Code and Treasury
Regulations also require operators to withhold taxes on some keno, bingo, and
slot machine winnings of nonresident aliens. We are unable to predict the extent
to which these requirements, if extended, might impede or otherwise adversely
affect operations of, and/or income from, the other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in some of the
domestic jurisdictions in which we operate casinos, or in which we have applied
for licensing to operate a casino, require the reporting of currency
transactions in excess of $10,000 occurring within a gaming day, including
identification of the patron by name and social security number. This reporting
obligation began in May 1985 and may have resulted in the loss of gaming
revenues to jurisdictions outside the United States which are exempt from the
ambit of these regulations.
COMPLIANCE WITH OTHER LAWS AND REGULATIONS
Our operations are also subject to extensive state and local regulations in
addition to the regulations described above, and, on a periodic basis, we must
obtain various other licenses and permits, including those required to sell
alcoholic beverages.
117
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes certain United States federal income tax
considerations relating to the exchange of the unregistered notes for registered
notes and the purchase, ownership, and disposition of the notes. This summary is
based on the following materials, all as of the date of this prospectus:
- the Internal Revenue Code of 1986, as amended (the "Code");
- Treasury Regulations promulgated under the Code;
- current administrative interpretations of the Internal Revenue Service
(the "IRS"); and
- judicial decisions.
Legislation, judicial decisions or administrative changes may be forthcoming
that could affect the accuracy of the statements included in this summary,
possibly on a retroactive basis. There can be no assurance that the IRS will not
challenge one or more of the tax results described herein, and we have not
obtained, nor do we intend to obtain, a ruling from the IRS with respect to the
United States federal tax consequences described below.
This summary assumes that the notes are held as "capital assets"
(generally, property held for investment). For purposes of this summary, U.S.
Holders are beneficial owners of the notes who include the following:
- citizens or residents of the United States, as determined for United
States federal income tax purposes;
- corporations, including entities treated as corporations for United
States federal income tax purposes, organized under the laws of the
United States or any state;
- estates the income of which is subject to United States federal income
taxation regardless of its source; and
- trusts if the administration of the trust is subject to the primary
supervision of a United States court and one or more United States
persons have the authority to control all substantial decisions of the
trust, and certain other trusts that have validly elected to be treated
as United States persons.
A "Non-U.S. Holder" is a beneficial owner of the notes other than a "U.S.
Holder."
This discussion does not purport to address all tax considerations that may
be important to a particular holder in light of the holder's circumstances. For
example, special rules not discussed here may apply to a holder who is:
- a broker-dealer, a dealer in securities or a financial institution;
- an insurance company;
- a tax-exempt organization;
- subject to the alternative minimum tax provisions of the Code;
- holding the notes as part of a hedge, conversion or constructive sale
transaction, straddle or other risk reduction transaction;
- a person with a "functional currency" other than the United States
dollar; or
- a person who has ceased to be a United States citizen or ceased to be
taxed as a resident alien.
If a partnership holds notes, the tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding the notes, you are
urged to consult your own tax advisor regarding the tax consequences of the
ownership and disposition of the notes. Finally, this summary does not describe
any tax considerations arising under the laws of any foreign, state, or local
jurisdiction.
118
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AND THE CONSEQUENCES OF UNITED STATES FEDERAL ESTATE OR GIFT TAX
LAWS, FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES.
TAX CONSEQUENCES OF EXCHANGE OF UNREGISTERED NOTES FOR REGISTERED NOTES
The exchange of unregistered notes for registered notes pursuant to the
exchange offer will not be treated as a taxable exchange because the registered
notes do not differ materially in kind or extent from the unregistered notes.
Accordingly:
- holders will not recognize taxable gain or loss as a result of exchanging
such holder's unregistered notes for registered notes;
- the holding period for a registered note received will include the
holding period of the unregistered note exchanged therefor; and
- the adjusted tax basis of a registered note received will be the same as
the adjusted tax basis of the unregistered note exchanged therefor
immediately before such exchange.
U.S. HOLDERS
INTEREST ON NOTES
The semi-annual payments of interest on the notes will be "qualified stated
interest," and U.S. Holders will be required to recognize as ordinary income any
such interest paid or accrued on the notes, in accordance with their regular
method of accounting for United States federal income tax purposes. We are
taking the position that the liquidated damages paid pursuant to the
registration rights agreement is treated the same as the regularly scheduled
interest payments on the notes. However, the IRS may take a different position,
which could affect the timing of both a U.S. Holder's recognition of income and
our deduction with respect to such liquidated damages.
ORIGINAL ISSUE DISCOUNT
The notes were issued with original issue discount ("OID") for United
States federal income tax purposes, in an amount equal to the excess of a note's
"stated redemption price at maturity" over its "issue price." Generally, the
"stated redemption price at maturity" of a note is the amount payable at
maturity (other than qualified stated interest). The "issue price" is the first
price at which a substantial amount of notes are sold for money (excluding sales
to bond houses, brokers or similar persons or organizations acting as
underwriters, placement agents or wholesalers).
U.S. Holders generally must include OID in gross income for United States
federal income tax purposes on an annual basis under a constant yield accrual
method regardless of their regular method of tax accounting. As a result, U.S.
Holders will include OID in income in advance of the receipt of cash
attributable to such income. However, U.S. Holders of the notes generally will
not be required to include separately in income cash payments received on such
notes, to the extent such payments constitute payments of OID which were
previously accrued and included in income.
The amount of OID includible in income by a U.S. Holder of a note is the
sum of the "daily portions" of OID with respect to the note for each day during
the taxable year or portion thereof in which such U.S. Holder holds such note. A
daily portion is determined by allocating to each day in any "accrual period" a
pro rata portion of the OID that accrued in such period. The "accrual period" of
a note may be of any length and may vary in length over the term of the note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the first or last day of an
accrual period. The amount of OID that accrues with respect to any accrual
period is the product of the note's "adjusted issue price" at the beginning of
such accrual period and its yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of such period) less any qualified stated interest allocable to the
accrual period. The "adjusted issue price" of a note at the start of any
119
accrual period is equal to its issue price, increased by OID previously
includible in income for each prior accrual period and decreased by any payments
made on such note (other than payments of qualified stated interest).
MARKET DISCOUNT
The market discount rules discussed below apply to any note purchased after
original issue at a price less than its "revised issue price." Generally, the
"revised issue price" of a note is equal to the issue price of the note, plus
the aggregate amount of OID includible in the gross income of all prior holders
of such note for all periods prior to such purchase, less the amount of any
payments made on such note other than payments of qualified stated interest.
If a U.S. Holder purchases a note at a market discount, such holder
generally will be required to treat any principal payments on, or any gain on
the disposition of, such note as ordinary income to the extent of the accrued
market discount (not previously included in income) at the time of such payment
or disposition. In general, subject to a de minimis exception, market discount
is the amount by which the note's revised issue price exceeds the holder's tax
basis in the note immediately after the note is acquired. A note is not treated
as purchased at a market discount, however, if the market discount is less than
0.25 percent of the stated redemption price at maturity of the note multiplied
by the number of complete years to maturity from the date when a holder acquired
the note. Market discount on a note will accrue on a straight-line basis, unless
a holder elects to accrue such discount on a constant yield to maturity basis.
This election is irrevocable. A U.S. Holder may also elect to include market
discount in income currently as it accrues. This election, once made, applies to
all market discount obligations acquired on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS. If a U.S. Holder acquires a note at a market discount and
disposes of such note in any non-taxable transaction (other than a
nonrecognition transaction defined in section 1276(c) of the Code), accrued
market discount will be includible as ordinary income to such holder as if such
holder had sold the note at its fair market value. A U.S. Holder may be required
to defer until the maturity of the note or, in certain circumstances, its
earlier disposition, the deduction of all or a portion of the interest expense
attributable to debt incurred or continued to purchase or carry a note with
market discount, unless an election is made to include the market discount in
income on a current basis.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder's initial tax basis in a note exceeds its stated
redemption price at maturity, such holder generally will be considered to have
acquired the note with "amortizable bond premium" and will not have to include
any OID in income with respect to such note. The amount of amortizable bond
premium is computed based on the redemption price on an earlier call date if
such computation results in a smaller amortizable bond premium attributable to
the period of such earlier call date. A U.S. Holder generally may elect to
amortize such premium using the constant yield to maturity method. The amount
amortized in any year generally will be treated as a reduction of a holder's
interest income on the note. If the amortizable bond premium allocable to a year
exceeds the amount of interest allocable to that year, the excess would be
allowed as a deduction for that year but only to the extent that a holder's
prior interest inclusions exceed bond premium deductions on the note. The
election to amortize the premium on a constant yield to maturity method, once
made, generally applies to all bonds held or subsequently acquired by a U.S.
Holder on or after the first day of the first taxable year to which the election
applies. A U.S. Holder may not revoke this election without the consent of the
IRS.
ACQUISITION PREMIUM
If a U.S. Holder purchases a note for an amount that is in excess of its
adjusted issue price but less than or equal to its stated redemption price at
maturity, such U.S. Holder will generally be considered to have purchased the
note with "acquisition premium" in an amount equal to the excess of the holder's
adjusted basis in the note immediately after it is acquired over the adjusted
issue price of the note. The "daily portion" of OID that would otherwise accrue
with respect to a note will be reduced by an amount equal to such daily portion
of OID multiplied by a fraction, the numerator of which is the excess of the
holder's adjusted basis in
120
the note immediately after it is acquired over the adjusted issue price of the
note, and the denominator of which is the remaining OID to be accrued on the
note. Alternatively, a U.S. Holder purchasing a note with acquisition premium
may elect to compute OID accruals by treating the purchase as a purchase at
original issue and apply the mechanics of the constant yield method.
SALE OR OTHER TAXABLE DISPOSITION OF NOTES
A U.S. Holder will generally recognize capital gain or loss on the sale,
redemption, exchange, retirement or other taxable disposition of a note. The
holder's gain or loss will equal the difference between the holder's "adjusted
tax basis" in the note and the proceeds received by the holder, excluding any
proceeds attributable to accrued interest which will be recognized as ordinary
interest income to the extent that the holder has not previously included the
accrued interest in income. The proceeds received by the holder will include the
amount of any cash and the fair market value of any other property received for
the note. The holder's "adjusted tax basis" in the note will generally equal the
amount the holder paid for the note, plus the amount of any OID and market
discount previously included in income by such holder, less any previous
deductions of amortizable bond premium. The gain or loss will be long-term
capital gain or loss if the holder held the note for more than one year. The
deductibility of capital losses may be subject to limitation. The excess of net
long-term capital gains over net short-term capital losses may be taxed at a
lower rate than ordinary income for individuals, estates and trusts.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting and backup withholding may apply to payments of
principal and interest (and the accrual of OID) on a note or the proceeds from
the sale or other disposition of a note with respect to certain noncorporate
U.S. Holders. Such U.S. Holders generally will be subject to backup withholding
unless the U.S. Holder provides to us, or our paying agent, a correct taxpayer
identification number and certain other information, certified under penalties
of perjury, or otherwise establishes an exemption. Any amount withheld under the
backup withholding rules may be credited against the U.S. Holder's United States
federal income tax liability and any excess may be refundable to the U.S. Holder
if the proper information is timely provided to the IRS.
NON-U.S. HOLDERS
INTEREST ON NOTES
Payments of interest (or OID) on the notes to Non-U.S. Holders will
generally qualify as "portfolio interest" and thus will be exempt from the
withholding of United States federal income tax if the Non-U.S. Holder properly
certifies as to its foreign status as described below. The portfolio interest
exception will not apply to payments of interest (or OID) to a Non-U.S. Holder
that:
- owns, directly or indirectly, at least 10% of BDI's voting stock; or
- is a "controlled foreign corporation" that is related to BDI.
If the portfolio interest exception does not apply, then payments of interest
(or OID) to a Non-U.S. Holder will generally be subject to United States federal
income tax withholding at a rate of 30%, unless reduced by an applicable tax
treaty. We are taking the position that the liquidated damages paid pursuant to
the registration rights agreement is treated the same as the regularly scheduled
interest payments on the notes.
The portfolio interest exception and several of the special rules for
Non-U.S. Holders described below generally apply only if the Non-U.S. Holder
appropriately certifies as to its foreign status. A Non-U.S. Holder can
generally meet this certification requirement by providing a properly executed
Form W-8BEN or appropriate substitute form to us or our paying agent. If the
holder holds the note through a financial institution or other agent acting on
the holder's behalf, the holder may be required to provide appropriate
certifications to the agent. The holder's agent will then generally be required
to provide appropriate certifications to us or our paying agent, either directly
or through other intermediaries. Special rules apply to foreign partnerships,
estates and trusts, and in certain circumstances certifications as to foreign
status of
121
partners, trust owners or beneficiaries may have to be provided to us or our
paying agent. In addition, special rules apply to qualified intermediaries that
enter into withholding agreements with the IRS, and such intermediaries
generally are not required to forward any certification forms received from
Non-U.S. Holders.
SALE OR OTHER TAXABLE DISPOSITION OF NOTES
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain realized on the sale, redemption, exchange, retirement or
other taxable disposition of a note. This general rule, however, is subject to
several exceptions. For example, the gain will be subject to United States
federal income tax if
- the gain is effectively connected with the conduct by the Non-U.S. Holder
of a United States trade or business,
- the Non-U.S. Holder is an individual that has been present in the United
States for 183 days or more in the taxable year of disposition and
certain other requirements are met, or
- the Non-U.S. Holder was a citizen or resident of the United States and is
subject to special rules that apply to certain expatriates.
INCOME OR GAIN EFFECTIVELY CONNECTED WITH A UNITED STATES TRADE OR BUSINESS
The preceding discussion of the tax consequences of the purchase, ownership
and disposition of notes by a Non-U.S. Holder generally assumes that the holder
is not engaged in a United States trade or business. If any interest on the
notes or gain from the sale, exchange or other taxable disposition of the notes
is effectively connected with a United States trade or business conducted by the
Non-U.S. Holder, then the income or gain will be subject to United States
federal income tax at regular graduated income tax rates, but will not be
subject to withholding tax if certain certification requirements are satisfied.
If the Non-U.S. Holder is eligible for the benefits of a tax treaty between the
United States and the holder's country of residence, any "effectively connected"
income or gain will generally be subject to United States federal income tax
only if it is also attributable to a permanent establishment maintained by the
holder in the United States. If the Non-U.S. Holder is a corporation, that
portion of its earnings and profits that is effectively connected with its
United States trade or business will generally be subject to a "branch profits
tax" at a 30% rate, although an applicable tax treaty may provide for a lower
rate.
UNITED STATES FEDERAL ESTATE TAX
If a Non-U.S. Holder qualifies for the portfolio interest exemption under
the rules described above when he or she dies, the notes will not be included in
his or her estate for United States federal estate tax purposes, unless the
income on the notes is effectively connected with his or her conduct of a trade
or business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, backup withholding will apply with respect to payments on the
notes made by us or our paying agent unless the Non-U.S. Holder appropriately
certifies as to its foreign status or otherwise establishes an exemption.
Information reporting on IRS Form 1042-S may apply to payments even if the
certification is provided.
Information reporting requirements and backup withholding tax generally
will not apply to any payment of the proceeds of the sale of a note effected
outside the United States by a foreign office of a foreign "broker" (as defined
in applicable Treasury regulations). However, unless the foreign office of a
broker has documentary evidence in its records that the beneficial owner is a
Non-U.S. Holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption, information reporting (but not backup
withholding) will apply to any payment of the proceeds of the sale of a note
effected outside the United States by such a broker if it
122
- is a U.S. person,
- is a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States,
- is a controlled foreign corporation for United States federal income tax
purposes, or
- is a foreign partnership that, at any time during its taxable year, has
50% or more of its income or capital interests owned by U.S. persons or
is engaged in the conduct of a United States trade or business.
Payment of the proceeds of a sale of a note effected by the United States
office of a broker will be subject to information reporting requirements and
backup withholding tax unless the Non-U.S. Holder properly certifies under
penalties of perjury as to its foreign status and certain other conditions are
met or it otherwise establishes an exemption. The Treasury regulations governing
withholding and backup withholding provide certain rules on the reliance
standard, under which a certification may not be relied upon if the person
relying on such certification has actual knowledge (or reason to know) that the
certification is false.
Any amount withheld under the backup withholding rules may be credited
against the Non-U.S. Holder's United States federal income tax liability and any
excess may be refundable if the proper information is provided to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH
PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE
PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF
PURCHASING, HOLDING, AND DISPOSING OF THE NOTES, INCLUDING THE CONSEQUENCES OF
ANY PROPOSED CHANGE IN APPLICABLE LAWS.
PLAN OF DISTRIBUTION
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 the registered notes. Broker-
dealers may use this prospectus, as it may be amended or supplemented from time
to time, in connection with the resale of registered notes received in exchange
for unregistered notes where the broker-dealer acquired the unregistered notes
as a result of market-making activities or other trading activities. To the
extent a broker-dealer participates in the exchange offer and so notifies us, we
have agreed to make this prospectus, as amended or supplemented, available to
the broker-dealer for use in connection with any such resale. We will promptly
send additional copies of this prospectus and any amendment or supplement to any
broker-dealer that requests the documents in the letter of transmittal.
We will not receive any proceeds from any sale of registered notes by
broker-dealers or any other persons. Broker-dealers may sell registered notes
received by them for their own account pursuant to the exchange offer 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
- through a combination of the above methods of resale,
at market prices prevailing at the time of resale, at prices related to the
prevailing market prices or negotiated prices. Broker-dealers may resell
registered notes directly to purchasers or to or through broker or dealers who
may receive compensation in the form of commissions or concessions from any
broker-dealer and/or the purchasers of the registered notes. Any broker-dealer
that resells registered 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 the registered notes may be deemed to be "underwriters" within
the meaning of the Securities Act and any profit on any resale of registered
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
123
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.
We have agreed to pay all expenses incident to the exchange offer, other
than commissions and concessions of any broker-dealer. We also will provide
indemnification against specified liabilities, including liabilities that may
arise under the Securities Act, to broker-dealers that make a market in the
unregistered notes and exchange unregistered notes in the exchange offer for
registered notes.
By its acceptance of the exchange offer, any broker-dealer that receives
registered notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of registered notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which:
- makes any statement in the prospectus untrue in any material respect;
- requires the making of any changes in the prospectus to make the
statements in the prospectus not misleading; or
- may impose upon us disclosure obligations that may have a material effect
on us,
which notice we agree to deliver promptly to the broker-dealer, the
broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
LEGAL MATTERS
The validity of the registered notes offered by this prospectus will be
passed upon for us by Latham & Watkins, Chicago, Illinois, and certain other
matters will be passed on for us by Robinson, Waters & O'Dorisio, P.C., Denver,
Colorado, Schreck Brignone Godfrey, Las Vegas, Nevada, and Watkins Ludlam Winter
& Stennis, P.A., Jackson, Mississippi.
EXPERTS
The consolidated financial statements of Majestic Investor Holdings, LLC as
of December 31, 2001 and for the period from inception (September 14, 2001)
through December 31, 2001 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The combined financial statements for Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company as
of December 6, 2001 and December 31, 2000, and for the period January 1, 2001 to
December 6, 2001 and for the years ended December 31, 2000 and 1999, included in
this prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein (which expresses an
unqualified opinion and includes an explanatory paragraph concerning substantial
doubt about the entity's ability to continue as a going concern, an explanatory
paragraph that states that such combined financial statements do not purport to
reflect or provide for the consequences of the bankruptcy proceedings, and an
explanatory paragraph that states that substantially all of the combined assets
were sold on December 6, 2001), and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
124
MAJESTIC INVESTOR HOLDINGS, LLC
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
<Table>
Consolidated Statement of Operations (Unaudited) for the
Year Ended December 31, 2001.............................. PF-3
Notes to Unaudited Pro Forma Consolidated Financial
Statement................................................. PF-4
</Table>
PF-1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
The following unaudited pro forma consolidated financial statement presents
the pro forma financial results of operations for the year ended December 31,
2001 for Majestic Investor Holdings, LLC and its subsidiaries (the "Company").
This unaudited pro forma financial statement gives effect to the formation of
the Company in September 2001, to the application of the proceeds from the
offering of the unregistered notes and to the acquisition of certain assets and
the assumption of certain liabilities of Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company
using the purchase method of accounting as if such acquisition had occurred on
January 1, 2001. Majestic Investor Capital Corp. is a wholly owned subsidiary of
the Company and has no material operations.
The pro forma adjustments and resulting unaudited pro forma consolidated
financial statement are based upon currently available information and certain
assumptions described in the notes to the unaudited pro forma consolidated
financial statement. The assumptions underlying the calculation of the pro forma
adjustments are considered appropriate under the circumstances. This unaudited
pro forma consolidated financial statement should be read in conjunction with
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street
Limited Liability Company Historical Combined Financial Statements and the Notes
thereto for the period January 1, 2001 to December 6, 2001 and the consolidated
financial statements of Majestic Investor Holdings, LLC for the period from
inception (September 14, 2001) through December 31, 2001, along with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this prospectus.
The unaudited pro forma consolidated financial statement is provided for
informational purposes only in response to requirements of the Securities and
Exchange Commission and do not purport to represent what the Company's results
of operations would actually have been if the transaction had in fact occurred
on such date or to project the Company's results of operations for any future
date or period.
PF-2
PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
MAJESTIC INVESTOR HOLDINGS, LLC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
MAJESTIC INVESTOR
HOLDINGS, LLC
FITZGERALDS HISTORICAL INCEPTION
HISTORICAL (SEPTEMBER 14, 2001)
JANUARY 1, 2001 TO THROUGH DECEMBER 31, PRO FORMA
DECEMBER 6, 2001 2001 TOTAL ADJUSTMENTS PRO FORMA
------------------ ---------------------- ------------ ------------ ------------
OPERATING REVENUES:
Casino....................... $150,670,567 $10,358,799 $161,029,366 $ -- $161,029,366
Food and beverage............ 18,365,243 1,079,456 19,444,699 -- 19,444,699
Rooms........................ 15,042,200 1,189,804 16,232,004 -- 16,232,004
Other........................ 3,545,338 203,858 3,749,196 -- 3,749,196
------------ ----------- ------------ ------------ ------------
Total.................. 187,623,348 12,831,917 200,455,265 -- 200,455,265
Less Promotional
allowances............... (29,964,002) (2,310,848) (32,274,850) -- (32,274,850)
------------ ----------- ------------ ------------ ------------
Net.................... 157,659,346 10,521,069 168,180,415 -- 168,180,415
OPERATING COSTS AND EXPENSES:
Casino....................... 69,757,787 4,111,503 73,869,290 -- 73,869,290
Food and beverage............ 10,625,017 706,947 11,331,964 -- 11,331,964
Rooms........................ 9,818,552 628,910 10,447,462 -- 10,447,462
Other........................ 1,657,265 917,196 2,574,461 -- 2,574,461
Selling, general and
administrative............. 37,852,210 2,495,869 40,348,079 (1,233,158)(1) 39,114,921
Depreciation and
amortization............... -- 920,648 920,648 11,821,288(3) 12,741,936
Write-down of assets......... 13,005,582 -- 13,005,582 (13,005,582)(2) --
Reorganization items......... (10,499,075) -- (10,499,075) 10,499,075(2) --
Pre-opening costs............ -- 1,018,234 1,018,234 1,018,234
------------ ----------- ------------ ------------ ------------
Total.................. 132,217,338 10,799,307 143,016,645 8,081,623 151,098,268
------------ ----------- ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS................... 25,442,008 (278,238) 25,163,770 (8,081,623) 17,082,147
OTHER INCOME (EXPENSE):
Interest income.............. 38,407 218,201 256,608 -- 256,608
Interest expense............. (39,959) (1,210,860) (1,250,819) (17,777,351)(4) (19,028,170)
Other, net................... (81,660) -- (81,660) -- (81,660)
------------ ----------- ------------ ------------ ------------
NET INCOME (LOSS).............. $ 25,358,796 $(1,270,897) $ 24,087,899 $(25,858,974) $ (1,771,075)
============ =========== ============ ============ ============
</Table>
See notes to unaudited pro forma consolidated financial statement.
PF-3
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
BASIS OF PRESENTATION
The unaudited pro forma consolidated financial statement presents the pro
forma results of operations for the year ended December 31, 2001 for Majestic
Investor Holdings, LLC and its subsidiaries (the "Company"). This pro forma
financial statement gives effect to the application of the proceeds from the
offering of the unregistered notes and to the acquisition of certain assets and
the assumption of certain liabilities of Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company
using the purchase method of accounting (the "Acquisition") if such acquisition
had occurred on January 1, 2001. The information under the heading "Majestic
Investor Holdings, LLC" on the unaudited pro forma consolidated statement of
operation for the year ended December 31, 2001 represents the historical
consolidated statement of operations for the period from inception (September
14, 2001) through December 31, 2001 of Majestic Investor Holdings, LLC. The
information under the heading "Fitzgeralds Historical" on the unaudited pro
forma consolidated statement of operations for the year ended December 31, 2001
represents the historical combined statement of operations for the period from
January 1, 2001 to December 6, 2001 for Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc. and 101 Main Street Limited Liability Company. This unaudited
pro forma consolidated financial statement should be read in conjunction with
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street
Limited Liability Company Historical Combined Financial Statements and the Notes
thereto for the period from January 1, 2001 to December 6, 2001 and the Majestic
Investor Holdings, Inc. Historical Consolidated Financial Statements for the
period from inception (September 14, 2001) through December 3, 2001, along with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this prospectus.
PRO FORMA ADJUSTMENT DETAIL
STATEMENT OF OPERATIONS
(1) Certain expenses have been eliminated which represent adjustments to
previously incurred corporate charges to more closely approximate those
expenses expected to be incurred under the new ownership. See the items set
forth under "Corporate" in the table below under the heading "Cost
reductions." Cost reductions for the period January 1, 2001 through December
6, 2001 have been assumed to be 11 months and 6 days of the amounts
presented in the table.
(2) Reorganization items and write-downs on assets held for sale relate to the
Fitzgeralds bankruptcy and have been eliminated from the pro forma statement
of operations since the acquired properties are no longer a part of
bankruptcy proceedings and a valuation has been performed or the acquired
assets as of the purchase date.
(3) Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main
Street Limited Liability Company discontinued recording depreciation and
amortization of their property and equipment subsequent to the filing of the
bankruptcy cases on December 5, 2000. This adjustment provides for
depreciation and amortization for the period January 1, 2001 through
December 6, 2001. Depreciation and amortization is calculated based upon
valuations performed of the fixed assets and intangible assets acquired
assuming the value represented the value of the assets at January 1, 2001.
Depreciation and amortization for the period December 7, 2001 through
December 31, 2001 has been included in the historical Majestic Investor
Holdings, LLC statement of operations.
Amortization of the fees and expenses related to this offering of
$1,104,990 for the period January 1, 2001 through December 6, 2001 have
been included. Amortization of the debt issuance costs for the period
December 7, 2001 through December 31, 2001 have been included in the
historical Majestic Investor Holdings, LLC statement of operations.
PF-4
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
(4) All previous interest expense has been eliminated and replaced by interest
expense relating to the unregistered notes (based on the 11.653% interest
rate and the issuance price of 95%) and interest expense relating to capital
leases which were assumed by the Company. Interest expense related to the
capital leases is $50,316 for the period January 1, 2001 through December
31, 2001. Interest expense related to the unregistered notes is $16,590,897
for the period from January 1, 2001 through December 6, 2001.
Amortization of the debt discount related to this offering is $1,186,454 for
the period January 1, 2001 through December 6, 2001. Interest expense on the
capital leases and unregistered notes for the period December 6, 2001
through December 31, 2001 has been included in the historical Majestic
Investor Holdings, LLC statement of operations. Amortization of the debt
discount for the period December 7, 2001 through December 31, 2001 has been
included in the historical Majestic Investor Holdings, LLC statement of
operations.
Cost reductions -- Certain expected cost reductions in connection with the
Acquisition which we have calculated on an annual basis, are as follows:
<Table>
<Caption>
COMBINED
TUNICA BLACK HAWK LAS VEGAS TOTAL
---------- ---------- ---------- -----------
CORPORATE:
Historical corporate charge....... $1,000,000 $1,000,000 $1,000,000 $ 3,000,000
Revised corporate charge.......... 559,332 559,333 559,333 1,677,998
---------- ---------- ---------- -----------
Total cost reductions............. $ (440,668) $ (440,667) $ (440,667) $(1,322,002)
========== ========== ========== ===========
</Table>
Cost reductions at the property level, which are primarily attributable to
employment terminations and cancellations of certain leases and marketing
agreements, totaling an estimated $2,420,000 annually, have been excluded from
pro forma adjustments as these cost reductions may not fall within the SEC's
Regulation S-X definition of "pro forma adjustments."
RECENT ACCOUNTING PRONOUNCEMENTS
The pro forma statement of operations for the year ended December 31, 2001
reflects the adoption of Statement of Financial Accounting Standards ("SFAS")
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separate from goodwill. Recorded
goodwill and intangibles will be evaluated against this new criteria and may
result in certain intangibles being subsumed into goodwill, or alternatively,
amounts initially recorded as goodwill may be separately identified and
recognized apart from goodwill. SFAS No. 142 requires the use of a
nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value.
The pro forma statement of operations for the year ended December 31, 2001
also reflects the adoption of Emerging Issues Task Force ("EITF") No. 00-14,
"Accounting for Certain Sales Incentives," EITF 00-22, "Accounting for 'Points'
and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers
for Free Products or Services to Be Delivered in the Future," and EITF 00-25,
"Accounting for Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products," which required the cash-back
component of the Company's Slot Club reward program, including promotional
coupons, be classified as a reduction of revenues.
PF-5
MAJESTIC INVESTOR HOLDINGS, LLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<Table>
REPORT OF INDEPENDENT ACCOUNTANTS........................... MF-2
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001.......... MF-3
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD FROM
INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31,
2001...................................................... MF-4
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE
PERIOD FROM INCEPTION (SEPTEMBER 14, 2001) THROUGH
DECEMBER 31, 2001......................................... MF-5
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM
INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31,
2001...................................................... MF-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. MF-7
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS............ MF-21
</Table>
MF-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Majestic Investor Holdings, LLC:
In our opinion, the financial statements listed in the index appearing on
page MF-1 present fairly, in all material respects, the financial position of
Majestic Investor Holdings, LLC and its subsidiaries at December 31, 2001, and
the results of their operations and their cash flows for the period from
inception (September 14, 2001) through December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing on page MF-1 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 5, 2002
MF-2
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001
<Table>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 17,704,815
Accounts receivable, less allowance for doubtful accounts
of $248,042............................................. 1,464,834
Inventories............................................... 957,564
Prepaid expenses.......................................... 1,212,653
Due from Seller........................................... 82,832
Note receivable from related party........................ 700,000
Other..................................................... 15,552
------------
Total current assets.................................... 22,138,250
------------
Property, equipment and barge improvements, net............. 122,427,962
Intangible assets, net...................................... 19,290,753
Goodwill.................................................... 10,602,250
Other Assets:
Deferred financing costs, net of accumulated amortization
of $83,897.............................................. 7,023,706
Restricted cash........................................... 1,000,000
Other assets and deposits................................. 945,618
------------
Total other assets...................................... 8,969,324
------------
Total Assets............................................ $183,428,539
============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 6,656,574
Accounts payable.......................................... 1,946,730
Other accrued liabilities:
Payroll and related..................................... 5,006,114
Interest................................................ 1,208,779
Progressive Jackpots.................................... 2,274,050
Slot club liability..................................... 2,241,876
Other accrued liabilities............................... 5,043,988
------------
Total current liabilities............................... 24,378,111
------------
Due to related parties...................................... 1,177,829
Long-term debt, net of current maturities................... 145,340,304
------------
Total Liabilities....................................... 170,896,244
------------
Commitments and contingencies
Members' Equity:
Members' contributions.................................... 13,803,192
Accumulated deficit....................................... (1,270,897)
------------
Total members' equity................................... 12,532,295
------------
Total liabilities and members' equity................... $183,428,539
============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
MF-3
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
(SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
<Table>
REVENUES:
Casino.................................................... $10,358,799
Rooms..................................................... 1,079,456
Food and beverage......................................... 1,189,804
Other..................................................... 203,858
-----------
12,831,917
Less promotional allowances............................ (2,310,848)
-----------
Net revenues........................................... 10,521,069
-----------
COSTS AND EXPENSES:
Casino.................................................... 4,111,503
Rooms..................................................... 628,910
Food and beverage......................................... 706,947
Other..................................................... 108,732
Gaming taxes.............................................. 808,464
Advertising and promotion................................. 926,226
General and administrative................................ 1,569,643
Depreciation and amortization............................. 920,648
Pre-opening expenses...................................... 1,018,234
-----------
10,799,307
-----------
Loss from operations................................... (278,238)
-----------
OTHER INCOME (EXPENSE):
Interest income........................................... 218,201
Interest expense.......................................... (1,210,860)
-----------
(992,659)
-----------
Net loss............................................... $(1,270,897)
===========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
MF-4
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 14, 2001)
THROUGH DECEMBER 31, 2001
<Table>
<Caption>
TOTAL
CAPITAL ACCUMULATED MEMBERS'
CONTRIBUTIONS DEFICIT EQUITY
------------- ----------- -----------
Contribution from Majestic Investor................... $ 8,803,192 $ -- $ 8,803,192
Members' Contribution................................. 5,000,000 -- 5,000,000
Net loss.............................................. -- (1,270,897) (1,270,897)
----------- ----------- -----------
Balance, December 31, 2001............................ $13,803,192 $(1,270,897) $12,532,295
=========== =========== ===========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
MF-5
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 14, 2001)
THROUGH DECEMBER 31, 2001
<Table>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (1,270,897)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 920,648
Increase in accounts receivable, net...................... (532,843)
Decrease in related party payables........................ (8,665)
Decrease in inventories................................... 20,886
Increase in prepaid expenses.............................. (296,365)
Increase in other assets.................................. (24,503)
Increase in accounts payable.............................. 394,988
Increase in accrued interest.............................. 1,208,779
Increase in accrued and other liabilities................. 2,222,443
-------------
Net cash provided by operating activities............... 2,634,471
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for purchase of Fitzgeralds, net of cash acquired... (143,758,152)
Acquisition of property and equipment....................... (122,696)
-------------
Net cash used in investing activities................... (143,880,848)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of 11.653% Senior Secured Notes...... 145,000,400
Payment of Senior Secured Notes issuance costs.............. (6,815,090)
Member's equity contribution................................ 5,000,000
Contribution from Majestic Investor......................... 8,803,191
Cash advances from related parties.......................... 1,168,273
Issuance of loan to Barden Development, Inc. ............... (700,000)
Line of credit.............................................. 6,500,000
Cash paid to reduce long-term debt.......................... (5,582)
-------------
Net cash provided by financing activities................. 158,951,192
-------------
Net increase in cash and cash equivalents................... 17,704,815
Cash and cash equivalents, beginning of period.............. --
-------------
Cash and cash equivalents, end of period.................... $ 17,704,815
=============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
MF-6
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Majestic Investor Holdings, LLC (the "Company"), is a wholly-owned
subsidiary of Majestic Investor, LLC and an indirect wholly-owned subsidiary of
The Majestic Star Casino, LLC ("Majestic Star"), owner and operator of the
Majestic Star Casino, a riverboat casino located at Buffington Harbor in Gary,
Indiana. The Company is indirectly wholly-owned and controlled by Don H. Barden,
the Company's Chairman, President and Chief Executive Officer.
On November 22, 2000, Majestic Investor, LLC entered into a definitive
purchase and sale agreement, as amended, with Fitzgeralds Gaming Corporation and
certain of its affiliates (the "Seller") to purchase substantially all of the
assets of three of its subsidiaries for $149 million in cash, subject to
adjustment in certain circumstances, plus the assumption of certain liabilities.
Majestic Investor, LLC assigned all of its rights and obligations under the
purchase and sale agreement to the Company following the formation of the
Company. At the date of assignment, Majestic Investor, LLC had approximately
$8.8 million of assets, no liabilities and $8.8 of members' equity. The
assignment and contribution has been reflected in the consolidated financial
statements of Majestic Investor Holdings, LLC as though it occurred as of the
beginning of the period.
The Company is a Delaware limited liability company formed on September 14,
2001 solely for the purpose of acquiring substantially all of the assets of
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street
Limited Liability Company (hereinafter referred to as the Fitzgeralds assets).
The three newly formed subsidiaries that hold the Fitzgeralds assets and provide
gaming and related entertainment to the public include Barden Mississippi
Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming, LLC. Majestic
Investor Capital Corp. ("MICC"), a wholly-owned subsidiary of the Company, was
formed specifically to facilitate the offering of the senior secured notes, the
proceeds of which were used to purchase the Fitzgeralds assets. MICC does not
have any material assets or operations. The Company completed the purchase of
the Fitzgeralds assets on December 6, 2001. The three Fitzgeralds brand casinos
are "restricted subsidiaries" of the Company under the Indenture relating to the
Company's 11.653% Senior Secured Notes.
Except where otherwise noted, the words "we," "us," "our," and similar
terms, as well as the "Company," refer to Majestic Investor Holdings, LLC and
all of its subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents -- The Company considers cash equivalents to
include short-term investments with original maturities of ninety days or less.
Cash equivalents are carried at cost plus accrued interest which approximates
fair value. The Company places its cash primarily in checking and money market
accounts with high credit quality financial institutions which, at times, have
exceeded federally insured limits.
Restricted Cash -- At December 31, 2001, restricted cash represents U.S.
Treasury Notes held in an escrow account for the benefit of certain owners of
land leased to Barden Nevada Gaming, LLC.
Concentration of Credit Risk -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
casino accounts receivable. The Company extends credit to approved casino
customers following background checks and investigations of creditworthiness. An
estimated allowance for doubtful accounts is maintained to reduce the Company's
receivables to their carrying amount, which approximates fair value. Management
believes that as of December 31, 2001, no significant concentrations of credit
risk existed for which an allowance had not already been determined and
recorded.
MF-7
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- Inventories, consisting principally of food, beverage, and
gift shop items are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method.
Other Assets -- The estimated cost of normal operating quantities (base
stock) of china, silverware, glassware, linen, uniforms and utensils has been
recorded as an asset and is not being depreciated. Costs of base stock
replacements are expensed as incurred. Other assets in the accompanying
consolidated balance sheet include $627,473 of base stock inventories at
December 31, 2001.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation expense is computed utilizing the straight-line method over the
estimated useful lives of the depreciable assets. Certain equipment held under
capital leases are classified as property and equipment and amortized using the
straight-line method over the lease terms and the related obligations are
recorded as liabilities. Costs of major improvements are capitalized; costs of
normal repairs and maintenance are charged to expense as incurred. Gains or
losses on dispositions of property and equipment are recognized in the
consolidated statement of operations when incurred.
Deferred Financing Costs -- Deferred financing costs represent agent's
commission, closing costs and professional fees incurred in connection with the
issuance of the 11.653% Senior Secured Notes and the $15.0 million line of
credit. Such costs are being amortized over the six year term of the notes and
over the four year term of the line of credit, respectively using the effective
interest method.
Goodwill -- Goodwill represents the cost of net assets acquired in excess
of their fair value. Goodwill for acquisitions after June 30, 2001 is not
subject to amortization but is subject to impairment testing at least annually.
Intangible Assets -- Intangible assets are amortized over their estimated
useful lives, generally eight to ten years.
Casino Revenue -- Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. Hotel and other revenue
is recognized at the time the related service is performed.
Promotional Allowances -- Revenues include the retail value of hotel rooms,
food and beverage and other services, which were provided to customers without
charge. The corresponding charges have been deducted from revenue in the
accompanying consolidated statement of operations as promotional allowances in
the determination of net revenues. The estimated direct cost of providing
promotional allowances has been included in costs and expenses as follows:
<Table>
<Caption>
FOR THE PERIOD FROM
INCEPTION
(SEPTEMBER 14, 2001)
THROUGH
DECEMBER 31, 2001
--------------------
Hotel rooms................................................. $ 254,918
Food and beverage........................................... 837,469
Other....................................................... 50,543
</Table>
Promotional allowances also include cash-back incentives in our Slot Club
and other gaming programs.
Pre-Opening Costs -- Pre-opening costs are expensed as incurred.
Federal Income Taxes -- The Company is a limited liability corporation
which results in the tax attributes of the Company passing through to its
Members. Accordingly, federal and state income taxes have not been provided for
in the Company's financial statements.
MF-8
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs -- Advertising expenditures are expensed as incurred.
Advertising costs included in advertising and promotion expenses were $199,337
for the period from inception (September 14, 2001) through December 31, 2001.
Long-Lived Assets -- Long-lived assets and certain identifiable intangibles
held and used by the Company are reviewed for impairment when events or changes
in circumstances warrant such a review. The carrying value of a long-lived or
intangible asset is considered impaired when the anticipated undiscounted cash
flow from such asset is less than its carrying value. In that event, an
impairment loss is recognized. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the cost
of disposition.
Slot Club Liability -- The Company has accrued for the liability of points
earned but not redeemed by its Slot Club members, less inactive players and
expired points. The liability is calculated based on an average historical
redemption rate. Expenses incurred from actual cash redemptions and the change
in reserve for slot club redemptions is included in promotional allowances on
the consolidated statement of operations.
Fair Value of Financial Instruments -- The Company believes, based upon
current information, that the carrying value of the Company's cash and cash
equivalents, restricted cash, accounts receivable and accounts payable
approximates fair value. The Company estimates the fair value of its long-term
debt approximates its carrying value based on quoted market prices for the same
or similar issues.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ from those
estimates.
Recently Issued Accounting Pronouncements -- We adopted Emerging Issues
Task Force ("EITF") No. 00-14, "Accounting for Certain Sales Incentives," EITF
00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based
Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered
in the Future," and EITF 00-25, "Accounting for Consideration from a Vendor to a
Retailer in Connection with the Purchase or Promotion of the Vendor's Products,"
which requires the cash-back component of the Company's Slot Club reward
program, including promotional coupons, be classified as a reduction of
revenues.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires all
business combinations to be accounted for using the purchase method of
accounting. SFAS No. 141 is required to be implemented for all acquisitions
initiated after June 30, 2001, and all business combinations accounted for using
the purchase method for which the date of acquisition is July 1, 2001, or later.
We applied SFAS No. 141 for our acquisition of the Fitzgeralds assets.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets
are no longer subject to amortization over their useful lives, rather, they are
subject to assessments for impairment at least annually. Also, under SFAS No.
142, an intangible asset should be recognized if the benefit of the intangible
asset is obtained through contractual or other legal rights or if the intangible
asset can be sold, transferred, licensed, rented or exchanged. Such intangibles
will be amortized over their useful lives. Under SFAS No. 142, our acquisition
of the Fitzgeralds assets was immediately subject to the provisions of SFAS No.
142. We will test these assets for impairment at least annually.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS
MF-9
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 143 will be implemented by us on January 1, 2002. Adoption of SFAS No. 143
will not have a material impact on our consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and amends Accounting Principles Board ("APB") Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effect of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. Adoption of SFAS No. 144 will not have a material impact on
our consolidated financial statements.
3. ACQUISITIONS
On December 6, 2001, we completed the acquisition of substantially all of
the assets and assumed certain liabilities of Fitzgeralds Las Vegas, Inc.
("Fitzgeralds Las Vegas"), Fitzgeralds Mississippi, Inc. ("Fitzgeralds Tunica")
and 101 Main Street Limited Liability Company ("Fitzgeralds Black Hawk") (the
("Fitzgeralds assets") for approximately $152.7 million. We are accounting for
the acquisition under the purchase method. Accordingly, the purchase price is
allocated to the underlying assets acquired and liabilities assumed based upon
their estimated fair values at the date of acquisition. We determined the
estimated fair value of property and equipment and intangible assets based upon
third-party valuations.
The purchase price was determined based upon estimates of future cash flows
and the net worth of the assets acquired. We funded the acquisition through the
issuance of 11.653% Senior Secured Notes (see Note 6). The results of operations
for the twenty-five days ended December 31, 2001, since the acquisition on
December 6, 2001, are included in our consolidated statement of operations. The
following table summarizes the estimated fair value of the assets acquired and
the liabilities assumed at the acquisition date.
<Table>
<Caption>
AT DECEMBER 6, 2001
-------------------
(IN MILLIONS)
Current assets............................................ $ 12.2
Property and equipment.................................... 122.9
Intangible assets......................................... 19.4
Goodwill.................................................. 10.6
Other noncurrent assets................................... 2.0
------
Total assets acquired.................................. 167.1
------
Current liabilities....................................... 14.0
Other noncurrent liabilities.............................. 0.4
------
Total liabilities assumed.............................. 14.4
Net....................................................... $152.7
======
</Table>
Intangible assets primarily include $9.8 million for customer
relationships, $3.7 million for tradename and $5.2 million for gaming licenses.
Intangible assets for customer relationships and tradename are being amortized
over a period of 8-10 years. In accordance with SFAS 142, goodwill, and other
indefinite lived intangible assets such as the Company's gaming license, are not
amortized but instead are subject to impairment tests at least annually.
MF-10
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma consolidated financial information has
been prepared assuming our acquisition occurred on January 1, 2001.
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31, 2001
------------------
(IN THOUSANDS)
Net revenues................................................ $172,042
Income from operations...................................... $ 19,422
Net income.................................................. $ 447
</Table>
These unaudited pro forma results are presented for comparative purposes
only. The pro forma results are not necessarily indicative of what our actual
results would have been had the acquisition been completed as of the beginning
of the year, or of future results.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2001 consists of the following:
<Table>
<Caption>
ESTIMATED SERVICE
LIFE (YEARS)
-----------------
Land................................................... $ 6,403,375
Buildings and improvements............................. 69,287,364 25
Site improvements...................................... 15,870,892 9
Barge and improvements................................. 14,655,000 13
Furniture, fixtures and equipment...................... 16,157,574 4
Construction in progress............................... 696,229
------------
123,070,434
Less accumulated depreciation and amortization......... (642,472)
------------
Property and equipment, net............................ $122,427,962
============
</Table>
Depreciation and amortization of property and equipment was $642,472 for
the period from inception (September 14, 2001) through December 31, 2001.
Substantially all property and equipment are pledged as collateral on long-term
debt. See Note 6.
5. OTHER INTANGIBLE ASSETS
The gross carrying amount and accumulated amortization of the Company's
intangible assets, other than goodwill, as of December 31, 2001 are as follows:
<Table>
<Caption>
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- ------------
(IN THOUSANDS)
Amortized intangible assets:
Customer relationships................................... $ 9,800 $ (84)
Tradename................................................ 3,700 (25)
Riverboat excursion license.............................. 700 --
------- -----
Total.................................................... $14,200 $(109)
======= =====
Unamortized intangible assets:
Gaming license........................................... $ 5,200
-------
Total.................................................... $ 5,200
=======
</Table>
MF-11
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortization expense recorded on the intangible assets for the period
from inception (September 14, 2001) through December 31, 2001 was $0.1 million.
The estimated amortization expense for each of the five succeeding fiscal years
is as follows:
<Table>
<Caption>
FOR THE YEAR ENDING DECEMBER 31,
- --------------------------------
2002........................................................ $1,595
2003........................................................ 1,642
2004........................................................ 1,642
2005........................................................ 1,642
2006........................................................ 1,642
</Table>
6. LONG-TERM DEBT
Long-term debt at December 31, 2001 is as follows:
<Table>
$152,632,000 senior secured notes payable, net of
unamortized discount of $7,546,568; collateralized by a
first priority lien on substantially all of the assets of
the Company, due in semi-annual installments of interest
at 11.653% on May 31 and November 30, with a final payment
of principal and interest due on November 30, 2007........ $145,085,432
$15.0 million four-year credit facility established on
December 6, 2001, expiring on December 5, 2005;
collateralized by substantially all current and future
assets, other than excluded assets; interest rate at the
borrowers choice of LIBOR plus 2% or the base rate which
approximates the prime rate. ............................. 6,500,000
Equipment and software financing payable including related
use taxes; collateralized by gaming equipment; interest
rates from 7.5% to 12.0%; due in aggregate monthly
installments (principal and interest) of approximately
$13,526, with varying maturity dates through September
2005...................................................... 411,446
------------
151,996,878
Less current maturities..................................... (6,656,574)
------------
Long-term debt, net of current maturities................... $145,340,304
============
</Table>
The scheduled maturities of long-term debt are as follows:
<Table>
<Caption>
YEAR ENDING DECEMBER 31, MATURITIES
- ------------------------ ------------
2002...................................................... $ 6,656,574
2003...................................................... 133,066
2004...................................................... 84,346
2005...................................................... 37,460
2006...................................................... --
Thereafter.................................................. 145,085,432
------------
$151,996,878
============
</Table>
SENIOR SECURED NOTES
On December 6, 2001, the Company issued $152.6 million of 11.653% Senior
Secured Notes due 2007. The net proceeds of $145,000,400 from the offering,
together with an equity contribution from our member and one of our managers,
were utilized to purchase substantially all of the assets of Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas and to pay related fees and
expenses.
MF-12
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Senior Secured Notes bear interest at a fixed rate of 11.653% per annum
payable May 31 and November 30 each year, commencing May 31, 2002. Substantially
all of the Company's current and future assets other than certain excluded
assets are pledged as collateral. The notes rank senior in right of payment to
any of the Company's subordinated indebtedness and equally with any of the
Company's senior indebtedness.
On or after November 30, 2005, the Company had the right to redeem notes
from time to time at a price that will decrease over time from 105.827% of the
principal amount in 2005 to 100% of the principal amount in 2006, plus, in each
case, accrued and unpaid interest. Prior to November 30, 2004, the Company may,
at its option, apply part of the net proceeds from certain equity offerings, as
defined, to redeem up to 35% of the principal amount of the notes at 111.653% of
their face amount, plus accrued and unpaid interest.
The Indenture contains covenants, which among other things, restrict the
Company's ability to (i) make certain distributions and payments, (ii) incur
additional indebtedness, (iii) enter into transactions with affiliates, (iv)
sell assets or stock, and (v) merge, consolidate or transfer substantially all
of its assets.
CREDIT FACILITY
On December 6, 2001, the Company established a $15.0 million four-year
credit facility. The Company is permitted to borrow up to $12.0 million under
the credit facility, pending the approval by the Nevada Gaming Authorities of
the pledge by Majestic Investor Holdings, LLC of the membership interests in
Barden Nevada Gaming, LLC in connection with the credit facility. The Company
recently filed an application for the necessary approval by the Nevada Gaming
Authorities for the pledge necessary in connection with the credit facility. The
credit facility is collateralized by substantially all of the Company's current
and future assets, other than the excluded assets. The lien on the collateral
securing the Company's credit facility is senior to the lien on the collateral
securing the senior secured notes. The credit facility also contains financial
covenants and restrictions on, among other things, indebtedness, investments,
distributions and mergers.
INTERCREDITOR AGREEMENT
In connection with the Company entering into its credit facility, the
trustee under the indenture (as collateral agent) entered into an intercreditor
agreement with Foothill Capital Corporation, as the lender under the Company's
credit facility, which, among other things, subordinates the liens securing the
senior secured notes to the liens securing the indebtedness under the Company's
credit facility.
The intercreditor agreement, among other things, limits the trustee's
rights in an event of default under the senior secured notes. Under the
intercreditor agreement, if the senior secured notes become due and payable
prior to the stated maturity or are not paid in full at the stated maturity at a
time during which we have indebtedness outstanding under the Company's credit
facility, the trustee will not have the right to foreclose upon the collateral
unless and until the lenders under the Company's credit facility fail to take
steps to exercise remedies with respect to or in connection with the collateral
within 180 days following notice to such lenders of the occurrence of an event
of default under the indenture. In addition, the intercreditor agreement
prevents the trustee and the holders of the senior secured notes from pursuing
remedies with respect to the collateral in an insolvency proceeding. The
intercreditor agreement also provides that the net proceeds from the sale of
collateral will first be applied to repay indebtedness outstanding under our
credit facility and thereafter to the holders of the senior secured notes.
MF-13
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has operating leases that cover various office and gaming
equipment. Future minimum lease payments for operating leases with initial terms
in excess of one year as of December 31, 2001 are as follows:
<Table>
<Caption>
YEAR ENDING DECEMBER 31,
2002........................................................ $1,374,495
2003........................................................ 1,206,426
2004........................................................ 925,036
2005........................................................ 774,092
2006........................................................ 774,092
Thereafter.................................................. 774,092
----------
$5,828,233
==========
</Table>
Rent expense for the period from inception (September 14, 2001) through
December 31, 2001 was $363,925.
EMPLOYMENT AGREEMENTS
Mr. Don H. Barden serves as the Company's Manager, Chairman, President and
Chief Executive Officer and currently receives annual compensation of $370,000
as an employee, pursuant to a letter agreement dated October 22, 2001 with The
Majestic Star Casino, LLC.
Mr. Michael E. Kelly serves as the Company's Manager, Executive Vice
President, Chief Operating and Financial Officer and Secretary pursuant to a
three-year employment agreement with The Majestic Star Casino, LLC dated October
22, 2001. Under this agreement, Mr. Kelly will receive base compensation of
$400,000 per year and can also earn annual incentive compensation based upon his
performance and Majestic Star's performance. In addition to such compensation,
Mr. Kelly is entitled to term life insurance in an amount equal to $2.5 million
and other customary employee benefits, including participation in The Majestic
Star Casino, LLC's 401(k) plan, together with a $100,000 signing bonus and an
interest free loan in the amount of $200,000 to be repaid in three equal annual
installments. Mr. Kelly is also entitled to additional compensation, upon a
change in control, equal to his base salary and incentive compensation for the
remainder of the term of the agreement, plus 12 months thereafter. Mr. Kelly's
employment agreement contains certain non-competition provisions with a duration
of 12 months following termination of his employment.
The amounts payable pursuant to the agreements with Messrs. Barden and
Kelly are the responsibility of Majestic Star. As indicated in Note 8, the
Company entered into an Expense Reimbursement/Sharing Agreement with Majestic
Star whereby the Company will reimburse Majestic Star for a specified percentage
of expenses paid by Majestic Star for the Company's corporate overhead.
GAMING REGULATIONS
The ownership and operation of our casino gaming facilities are subject to
various state and local regulations in the jurisdictions where they are located.
In Nevada, our gaming operations are subject to the Nevada Gaming Control Act,
and to the licensing and regulatory control of the Nevada Gaming Commission, the
Nevada State Gaming Control Board and various local ordinances and regulations,
including, without limitation, applicable city and county gaming and liquor
licensing authorities. In Mississippi, our gaming operations are subject to the
Mississippi Gaming Control Act, and to the licensing and/or regulatory control
of
MF-14
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Mississippi Gaming Commission, the Mississippi State Tax Commission and
various state and local regulatory agencies, including liquor licensing
authorities. In Colorado, our gaming operations are subject to the Limited
Gaming Act of 1991, which created the Division of Gaming within the Colorado
Department of Revenue and the Colorado Limited Gaming Control Commission to
license, implement, regulate and supervise the conduct of limited gaming. Our
operations are also subject to the Colorado Liquor Code and the state and local
liquor licensing authorities. In addition, as The Majestic Star Casino, LLC does
business in the State of Indiana, the Company is subject to certain reviews by
the Indiana Gaming Commission.
The Company's directors, officers, managers and key employees are required
to hold individual licenses, which requirements vary from jurisdiction to
jurisdiction. Licenses and permits for gaming operations and of individual
licensees are subject to revocation or non-renewal for cause. Under certain
circumstances, holders of our securities are required to secure independent
licenses and permits.
8. RELATED PARTY TRANSACTIONS
In September 2000, Majestic Investor, LLC was capitalized by Majestic Star
with $9.0 million of capital contributions, including interest thereon. Majestic
Investor, LLC subsequently contributed this $9.0 million to the Company in
connection with the assignment of its rights and obligations under the
Fitzgeralds purchase and sale agreement to the Company.
On November 22, 2000, Majestic Investor, LLC entered into a definitive
purchase and sale agreement, as amended, with Fitzgeralds Gaming Corporation and
certain of its affiliates to purchase substantially all of the assets of three
of its subsidiaries for $149 million in cash, subject to adjustment in certain
circumstances, plus the assumption of certain liabilities. Majestic Investor,
LLC assigned all of its rights and obligations under the purchase and sale
agreement to the Company following formation of the Company.
Prior to the consummation of the offering of the 11.653% Senior Secured
Notes, the Company issued a 35.71% membership interest to Barden Development,
Inc. (a company wholly-owned by Mr. Barden and a member of Majestic Star Casino,
LLC) ("BDI") in exchange for the contribution by BDI of a note for $5.0 million.
BDI subsequently contributed the 35.71% membership interest to Majestic
Investor, LLC as additional paid-in-equity. Majestic Investor, LLC currently
owns 100% of the membership interests of the Company. BDI, upon closing of the
offering of the Senior Secured Notes, contributed $5.0 million to the Company in
repayment of the promissory note.
On September 19, 2001, the Company entered into a Management Agreement with
BDI, which was amended and restated on December 5, 2001 effective December 6,
2001, pursuant to which the Company will pay to BDI fees for acting as the
Manager of the Company, which Management Fees, for any fiscal quarter, shall not
exceed 1% of net revenues plus 5% of consolidated cash flow, as defined, for the
immediately preceding fiscal quarter, provided that the payment of such
Management Fees shall be subordinated to the payment in full of principal,
interest, premium and liquidated damages, as defined, if any, then due on the
Senior Secured Notes.
On October 22, 2001, the Company entered into an Expense
Reimbursement/Sharing Agreement with Majestic Star, pursuant to which the
Company and its restricted subsidiaries will each reimburse Majestic Star for a
specified percentage of the documented out-of-pocket expenses paid by Majestic
Star for the Company's corporate overhead, including (i) the costs and expenses
of executives and certain other employees, including, but not limited to,
salaries, bonuses, benefit payments, insurance, and supplies, (ii) rent and
(iii) other similar costs and expenses.
Interest of $185,750 on a $2.0 million note made by Majestic Investor, LLC
to BDI which was later assigned to Majestic Investor Holdings, LLC remains
outstanding at December 31, 2001. BDI paid the principal of the note in
conjunction with the closing of the acquisition on December 6, 2001.
MF-15
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 2001, the Company issued a $700,000 note to BDI. The note bears
interest at a rate of 7% per annum. The principal and accrued but unpaid
interest are due and payable in full on December 12, 2002.
9. SEGMENT INFORMATION
The Company owns and operates three properties as follows: a casino and
hotel located in downtown Las Vegas, Nevada; a casino and hotel located in
Tunica, Mississippi; and a casino located in Black Hawk, Colorado (collectively,
the "Properties"). The Company identifies its business in three segments based
on geographic location. The Properties market in each of their segments
primarily to middle-income guests, emphasizing their Fitzgeralds brand and their
"Fitzgerald Irish Luck" theme. The major products offered in each segment are as
follows: casino, hotel (except for Fitzgeralds Black Hawk) and food and
beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies. There are minimal
inter-segment sales. Corporate costs are allocated to the business segment
through management fees.
A summary of the Properties' operations by business segment for the period
from Inception (September 14, 2001) through December 31, 2001 is presented
below:
<Table>
<Caption>
(IN THOUSANDS)
--------------
Net revenues:
Fitzgeralds Las Vegas..................................... $ 3,081
Fitzgeralds Tunica........................................ 5,368
Fitzgeralds Black Hawk.................................... 2,072
Unallocated and other(1).................................. --
-------
Total.................................................. $10,521
=======
Income (loss) from operations:
Fitzgeralds Las Vegas..................................... $ (393)
Fitzgeralds Tunica........................................ 654
Fitzgeralds Black Hawk.................................... 674
Unallocated and other(1).................................. (1,213)
-------
Total.................................................. $ (278)
=======
Segment depreciation and amortization:
Fitzgeralds Las Vegas..................................... $ 167
Fitzgeralds Tunica........................................ 485
Fitzgeralds Black Hawk.................................... 100
Unallocated and other(1).................................. 169
-------
Total.................................................. $ 921
=======
Expenditures for additions to long-lived assets:
Fitzgeralds Las Vegas..................................... $ --
Fitzgeralds Tunica........................................ 100
Fitzgeralds Black Hawk.................................... 23
-------
Total.................................................. $ 123
-------
</Table>
MF-16
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
AS OF
DECEMBER 31, 2001
-----------------
(IN THOUSANDS)
Segment assets:
Fitzgeralds Las Vegas..................................... $ 45,157
Fitzgeralds Tunica........................................ 91,338
Fitzgeralds Black Hawk.................................... 30,913
Unallocated and other(1).................................. 16,021
---------
Total.................................................. $ 183,429
=========
</Table>
- ---------------
(1) Unallocated and other include certain corporate items and eliminations that
are not allocated to the operating segments.
10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $152.6 million, 11.653% Senior Secured Notes (See Note 6) are
unconditionally and irrevocably guaranteed, jointly and severally, by all of the
restricted subsidiaries of the Company. The guarantees rank senior in right of
payment to all existing and future subordinated indebtedness of these restricted
subsidiaries and equal in right of payment with all existing and future senior
indebtedness of these restricted subsidiaries.
MF-17
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following condensed consolidating information presents condensed
consolidating financial statements as of December 31, 2001 and for the period of
inception (September 14, 2001) through December 31, 2001, of Majestic Investor
Holdings, LLC -- the parent Company, the guarantor subsidiaries (on a combined
basis) and the elimination entries necessary to combine such entities on a
consolidated basis. Majestic Investor Capital Corp. ("MICC"), a wholly-owned
subsidiary of the Company, is a non-guarantor subsidiary. However, MICC does not
have any material assets, obligations or operations. Therefore, no non-guarantor
subsidiary has been presented below.
Condensed consolidating balance sheets as of December 31, 2001.
<Table>
<Caption>
MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
----------------- ------------- -------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...... $ 498,363 $ 17,206,452 $ -- $ 17,704,815
Accounts receivable, net....... 269,501 1,196,044 (711)(a) 1,464,834
Inventories.................... -- 957,564 -- 957,564
Prepaid and other current
assets...................... 707,467 1,303,570 -- 2,011,037
------------ ------------- -------------- ------------
Total current assets........ 1,475,331 20,663,630 (711) 22,138,250
------------ ------------- -------------- ------------
PROPERTY AND EQUIPMENT, NET...... -- 122,427,962 -- 122,427,962
INTANGIBLE ASSETS, NET........... -- 19,290,753 -- 19,290,753
DUE FROM RELATED PARTIES......... 150,855,685 -- (150,855,685)(b) --
OTHER ASSETS..................... 14,545,956 5,025,618 -- 19,571,574
------------ ------------- -------------- ------------
TOTAL............................ $166,876,972 $ 167,407,963 $ (150,856,396) $183,428,539
============ ============= ============== ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt........................ $ 6,500,000 $ 156,574 $ -- $ 6,656,574
Accounts payable, accrued and
other....................... 2,526,703 15,195,545 (711)(a) 17,721,537
------------ ------------- -------------- ------------
Total current liabilities... 9,026,703 15,352,119 (711) 24,378,111
------------ ------------- -------------- ------------
DUE TO RELATED PARTIES........... 1,168,273 150,865,241 (150,855,685)(b) 1,177,829
LONG-TERM DEBT, net of current
maturities..................... 145,085,432 254,872 -- 145,340,304
------------ ------------- -------------- ------------
Total Liabilities........... 155,280,408 166,472,232 (150,856,396) 170,896,244
------------ ------------- -------------- ------------
MEMBERS' EQUITY.................. 11,596,564 935,731 -- 12,532,295
------------ ------------- -------------- ------------
TOTAL............................ $166,876,972 $ 167,407,963 $ (150,856,396) $183,428,539
============ ============= ============== ============
</Table>
- ---------------
(a) To eliminate intercompany accounts receivable and payable.
(b) To eliminate intercompany accounts and investment in subsidiaries.
MF-18
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed consolidating statement of operations for the period from
Inception (September 14, 2001) through December 31, 2001.
<Table>
<Caption>
MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
----------------- ------------ ----------- ------------
OPERATING REVENUES:
Casino................................. $ -- $10,358,799 $ -- $10,358,799
Rooms.................................. -- 1,079,456 -- 1,079,456
Food and beverage...................... -- 1,189,804 -- 1,189,804
Other.................................. -- 203,858 -- 203,858
----------- ----------- ----- -----------
Total............................... -- 12,831,917 -- 12,831,917
Less promotional allowances......... -- (2,310,848) -- (2,310,848)
----------- ----------- ----- -----------
Net revenue......................... -- 10,521,069 -- 10,521,069
----------- ----------- ----- -----------
COSTS AND EXPENSES:
Casino................................. -- 4,111,503 -- 4,111,503
Rooms.................................. -- 628,910 -- 628,910
Food and beverage...................... -- 706,947 -- 706,947
Other.................................. -- 108,732 -- 108,732
Gaming taxes........................... -- 808,464 -- 808,464
Advertising and promotion.............. -- 926,226 -- 926,226
General and administration............. 26,476 1,543,167 -- 1,569,643
Depreciation and amortization.......... 168,930 751,718 -- 920,648
Pre-opening costs...................... 1,018,234 -- -- 1,018,234
----------- ----------- ----- -----------
Total............................... 1,213,640 9,585,667 -- 10,799,307
----------- ----------- ----- -----------
OTHER INCOME (EXPENSE):
Interest income........................ 215,791 2,410 -- 218,201
Interest expense....................... (1,208,779) (2,081) -- (1,210,860)
----------- ----------- ----- -----------
NET INCOME (LOSS)...................... $(2,206,628) $ 935,731 $ -- $(1,270,897)
=========== =========== ===== ===========
</Table>
MF-19
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed consolidating statement of cash flows information for the period
from Inception (September 14, 2001) through December 31, 2001.
<Table>
<Caption>
MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
----------------- ------------ ----------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. $ (14,700,259) $17,334,730 $ -- $ 2,634,471
============= =========== ===== =============
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net
of cash acquired.................. (143,758,152) -- -- (143,758,152)
Acquisition of property and
equipment......................... -- (122,696) -- (122,696)
------------- ----------- ----- -------------
Net cash used in investing
activities........................ (143,758,152) (122,696) -- (143,880,848)
------------- ----------- ----- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 11.653%
Senior Secured Notes.............. 145,000,400 -- -- 145,000,400
Payment of Senior Secured Notes
issuance costs.................... (6,815,090) -- -- (6,815,090)
Member's equity contribution......... 5,000,000 -- -- 5,000,000
Contribution from Majestic
Investor ......................... 8,803,191 -- -- 8,803,191
Cash advances from related parties... 1,168,273 -- -- 1,168,273
Issuance of loan to Barden
Development, Inc. ................ (700,000) -- -- (700,000)
Line of credit, net.................. 6,500,000 -- -- 6,500,000
Cash paid to reduce long-term debt... -- (5,582) -- (5,582)
------------- ----------- ----- -------------
Net cash provided by (used in)
financing activities.............. 158,956,774 (5,582) -- 158,951,192
------------- ----------- ----- -------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... 498,363 17,206,452 -- 17,704,815
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD.................... -- -- -- --
------------- ----------- ----- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD.......................... $ 498,363 $17,206,452 $ -- $ 17,704,815
============= =========== ===== =============
</Table>
MF-20
SCHEDULE II
MAJESTIC INVESTOR HOLDINGS, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
<Table>
<Caption>
ADDITIONS
-----------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
DESCRIPTION BEGINNING OF PERIOD COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------- ------------------- ------------------ -------------- ---------- -------------
Allowance for doubtful
accounts
Period from Inception
(September 14, 2001)
through December 31,
2001....................... $ -- $15,463 $232,579 $ -- $248,042
</Table>
- ---------------
(a) Related to acquisition of Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc. and 101 Main Street Limited Liability Company.
MF-21
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
INDEX TO HISTORICAL COMBINED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
INDEPENDENT AUDITORS' REPORT................................ F-2
COMBINED FINANCIAL STATEMENTS:
Balance Sheets at December 31, 2000 and at December 6,
2001................................................... F-3
Statements of Operations for the Years Ended December 31,
1999 and 2000, and for the Period ended December 6,
2001................................................... F-4
Statements of Stockholder's Deficiency for the Years Ended
December 31, 1999 and 2000, and for the Period ended
December 6, 2001....................................... F-5
Statements of Cash Flows for the Years Ended December 31,
1999 and 2000, and for the Period ended December 6,
2001................................................... F-6
Notes to Combined Financial Statements.................... F-8
SUPPLEMENTAL COMBINING SCHEDULES:
Statement of Operations Information for the Year Ended
December 31, 1999...................................... F-23
Statement of Cash Flows Information for the Year Ended
December 31, 1999...................................... F-24
Balance Sheet Information at December 31, 2000............ F-25
Statement of Operations Information for the Year Ended
December 31, 2000...................................... F-26
Statement of Cash Flows Information for the Year Ended
December 31, 2000...................................... F-27
Balance Sheet Information at December 6, 2001............. F-29
Statement of Operations Information for the Period from
January 1, 2001 through December 6, 2001............... F-30
Statement of Cash Flows Information for the Period from
January 1, 2001 through December 6, 2001............... F-31
</Table>
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fitzgeralds Gaming Corporation:
We have audited the accompanying combined balance sheets of Fitzgeralds Las
Vegas, Inc., Fitzgeralds Mississippi, Inc., and 101 Main Street Limited
Liability Company (collectively, the "Properties") (wholly owned subsidiaries of
Fitzgeralds Gaming Corporation, the "Parent") (Debtors-in-Possession) as of
December 6, 2001 and December 31, 2000, and the related combined statements of
operations, stockholder's deficiency, and cash flows for the period from January
1, 2001 through December 6, 2001 and for the years ended December 31, 2000 and
1999. These financial statements are the responsibility of the Properties'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Properties as of December 6,
2001 and December 31, 2000, and the results of their operations and their cash
flows for the period from January 1, 2001 through December 6, 2001 and for the
years ended December 31, 2000 and 1999 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2, the Properties have filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code. The accompanying combined financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such combined financial statements do not
purport to show (a) as to assets, their realizable value on a liquidation basis
or their availability to satisfy liabilities; (b) as to prepetition liabilities,
the amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Properties; or (d) as to operations,
the effect of any changes that may be made in their business.
The accompanying combined financial statements have been prepared assuming
that the Properties will continue as a going concern. As discussed in Note 1 to
the combined financial statements, the Parent's event of default on its senior
secured registered notes, which are guaranteed by the Properties, along with the
Properties' recurring losses and stockholder's deficiency raise substantial
doubt about the Properties' ability to continue as a going concern. Parent
management's plans concerning these matters are discussed in Note 2. The
combined financial statements do not include adjustments that might result from
the outcome of this uncertainty.
As discussed in Note 1, on December 6, 2001, the Parent sold substantially
all of the assets and related liabilities of the Properties.
Our audits were conducted for the purpose of forming an opinion on the
basic combined financial statements taken as a whole. The supplemental combining
schedules on pages F-23 through F-31 are presented for purposes of additional
analysis of the basic combined financial statements rather than to present the
financial position, results of operations, and cash flows of the individual
properties, and are not a required part of the basic combined financial
statements. These schedules are the responsibility of the Properties'
management. Such schedules have been subjected to the auditing procedures
applied in our audit of the basic combined financial statements and, in our
opinion, are fairly stated in all material respects when considered in relation
to the basic combined financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
April 8, 2002
F-2
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED BALANCE SHEETS
<Table>
<Caption>
AT DECEMBER 31, AT DECEMBER 6,
2000 2001
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,840,011 $ 3,762,566
Accounts receivable, net.................................. -- 225,495
Prepaid expenses:
Gaming taxes............................................ 265,381 817,590
Other................................................... 366,312 780,238
------------ ------------
Total current assets................................ 3,471,704 5,585,889
------------ ------------
OTHER ASSETS:
Net assets held for sale.................................. 143,342,890 --
Restricted cash........................................... 500,000 --
Accounts receivable -- related parties.................... 5,309 16,762,294
Other assets.............................................. -- 25,000
------------ ------------
Total other assets.................................. 143,848,199 16,787,294
------------ ------------
TOTAL....................................................... $147,319,903 $ 22,373,183
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Accounts payable.......................................... $ -- $ 166,073
Due to Majestic........................................... -- 3,800,000
Accrued and other:
Payroll and related..................................... 491,255 919,143
Other................................................... -- 264,732
------------ ------------
Total current liabilities........................... 491,255 5,149,948
NOTES PAYABLE, related party................................ -- 228,825
------------ ------------
Total liabilities not subject to compromise......... 491,255 5,378,773
LIABILITIES SUBJECT TO COMPROMISE........................... 225,873,496 70,680,462
------------ ------------
Total liabilities................................... 226,364,751 76,059,235
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 13)
STOCKHOLDER'S DEFICIENCY
Common stock -- Fitzgeralds Mississippi, Inc., $.01 par
value; 8,000,000 shares authorized; 8,000,000 shares
issued and outstanding.................................. 80,000 80,000
Common stock -- Fitzgeralds Las Vegas, Inc., $.01 par
value; 25,000 shares authorized; 10,000 shares issued
and outstanding......................................... 100 100
Additional paid-in-capital................................ 7,586,667 7,586,667
Accumulated deficit....................................... (86,711,615) (61,352,819)
------------ ------------
Total stockholder's deficiency...................... (79,044,848) (53,686,052)
------------ ------------
TOTAL....................................................... $147,319,903 $ 22,373,183
============ ============
</Table>
See notes to historical combined financial statements.
F-3
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31, FOR THE PERIOD FROM
--------------------------------- JANUARY 1, 2001 TO
1999 2000 DECEMBER 6, 2001
-------------- -------------- -------------------
OPERATING REVENUES:
Casino............................................. $138,928,815 $148,776,855 $150,670,567
Food and beverage.................................. 18,729,064 19,586,213 18,365,243
Rooms.............................................. 16,293,618 16,600,072 15,042,200
Other.............................................. 3,285,207 3,530,032 3,545,338
------------ ------------ ------------
Total....................................... 177,236,704 188,493,172 187,623,348
Less promotional allowances...................... 24,460,048 28,755,624 29,964,002
------------ ------------ ------------
Net......................................... 152,776,656 159,737,548 157,659,346
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Casino............................................. 64,146,974 69,113,279 69,757,787
Food and beverage.................................. 11,793,071 11,508,965 10,625,017
Rooms.............................................. 10,701,241 10,904,351 9,818,552
Other.............................................. 1,877,030 1,717,182 1,657,265
Selling, general and administrative................ 40,808,792 39,370,958 37,852,210
Depreciation and amortization...................... 11,726,085 11,687,964 --
Write-down of assets............................... -- -- 13,005,582
Reorganization items............................... -- 38,967 (10,499,075)
------------ ------------ ------------
Total....................................... 141,053,193 144,341,666 132,217,338
------------ ------------ ------------
INCOME FROM OPERATIONS............................... 11,723,463 15,395,882 25,442,008
OTHER INCOME (EXPENSE):
Interest income.................................... 129,654 167,446 38,407
Interest expense................................... (210,314) (71,382) (39,959)
Interest expense -- related party (contractual
interest of $29,279,747 for the year ended
December 31, 2000 and $28,549,207 for 2001)...... (27,989,851) (26,031,023) --
Other, net......................................... 99,012 4,493 (81,660)
------------ ------------ ------------
NET INCOME (LOSS).................................... $(16,248,036) $(10,534,584) $ 25,358,796
============ ============ ============
</Table>
See notes to historical combined financial statements.
F-4
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
<Table>
<Caption>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
--------- ------- ---------- ------------ -------------
BALANCE, JANUARY 1, 1999............ 8,010,000 $80,100 $7,586,667 $(59,928,995) $(52,262,228)
Net loss............................ -- -- -- (16,248,036) (16,248,036)
--------- ------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1999.......... 8,010,000 80,100 7,586,667 (76,177,031) (68,510,264)
Net loss............................ -- -- -- (10,534,584) (10,534,584)
--------- ------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 2000.......... 8,010,000 80,100 7,586,667 (86,711,615) (79,044,848)
Net income.......................... -- -- -- 25,358,796 25,358,796
--------- ------- ---------- ------------ ------------
BALANCE, DECEMBER 6, 2001........... 8,010,000 $80,100 $7,586,667 $(61,352,819) $(53,686,052)
========= ======= ========== ============ ============
</Table>
See notes to historical combined financial statements.
F-5
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE YEARS
ENDED DECEMBER 31, FOR THE PERIOD
--------------------------- JANUARY 1, 2001
1999 2000 TO DECEMBER 6, 2001
------------ ------------ --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $(16,248,036) $(10,534,584) $ 25,358,796
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 11,726,085 11,687,964 --
Write-down of assets............................. -- -- 13,005,582
Gain on sale of assets to Majestic............... -- -- (11,121,811)
Reorganization items incurred in connection with
Chapter 11 and related legal proceedings....... -- 38,967 622,736
Other............................................ (58,032) 36,487 116,439
Changes in working capital, net of assets sold
and liabilities assumed:
(Increase) decrease in accounts receivable,
net............................................ 136,090 (233,359) (42,071)
(Increase) decrease in inventories............... (135,666) 98,529 66,048
(Increase) decrease in prepaid expenses.......... (401,108) (492,966) 255,985
(Increase) decrease in other assets.............. (130,091) (139,028) 27,115
Increase (decrease) in accounts payable.......... (2,511,838) (1,408,119) 240,806
Increase in due to Majestic...................... -- -- 3,800,000
Increase (decrease) in accrued and other
liabilities.................................... 450,505 (2,124,978) 624,469
Increase (decrease) in amounts due to related
parties, net................................... 15,945,345 15,134,274 (40,404,341)
Increase in liabilities subject to compromise.... -- 106,677 149,835
------------ ------------ ------------
Net cash provided by (used in) operating
activities before reorganization items......... 8,773,254 12,169,864 (7,300,412)
Reorganization items:
Interest received on cash accumulated because of the
bankruptcy proceedings........................... -- -- 171,442
Professional fees paid for services rendered in
connection with the bankruptcy proceedings....... -- -- (38,392)
Other reorganization items incurred in connection
with Chapter 11 and related legal proceedings.... -- (38,967) (755,786)
------------ ------------ ------------
Net cash provided by (used in) operating
activities..................................... 8,773,254 12,130,897 (7,923,148)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets........................ 77,726 8,463 28,250
Acquisition of property and equipment............... (4,345,588) (9,011,942) (1,054,131)
------------ ------------ ------------
Net cash used in investing activities............ (4,267,862) (9,003,479) (1,025,881)
------------ ------------ ------------
(continued)
</Table>
See notes to historical combined financial statements.
F-6
<Table>
<Caption>
FOR THE YEARS
ENDED DECEMBER 31, FOR THE PERIOD
--------------------------- JANUARY 1, 2001
1999 2000 TO DECEMBER 6, 2001
------------ ------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt......................... (2,975,622) (453,560) (240,288)
------------ ------------ ------------
Net cash used in financing activities............... (2,975,622) (453,560) (240,288)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 1,529,770 2,673,858 (9,189,317)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD......... 8,748,255 10,278,025 2,840,011
(INCREASE) DECREASE IN CASH AND CASH EQUIVALENTS
INCLUDED IN NET ASSETS HELD FOR SALE................ -- (10,111,872) 10,111,872
------------ ------------ ------------
CASH AND CASH EQUIVALENTS END OF PERIOD............... $ 10,278,025 $ 2,840,011 $ 3,762,566
============ ============ ============
</Table>
See notes to historical combined financial statements.
F-7
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND FINANCIAL STATEMENT PRESENTATION
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main
Street Limited Liability Company (collectively, the "Properties") are wholly
owned subsidiaries of Fitzgeralds Gaming Corporation (the "Parent")
(Debtors-in-Possession). Until December 6, 2001 the Properties owned and
operated the Fitzgeralds-brand casino-hotels in downtown Las Vegas, Nevada
("Fitzgeralds Las Vegas"), Tunica, Mississippi ("Fitzgeralds Tunica"), and Black
Hawk, Colorado ("Fitzgeralds Black Hawk"). On December 6, 2001, the Parent sold
substantially all of the assets and related liabilities of Fitzgeralds Las
Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to Majestic Investor
Holdings, LLC ("Majestic"). The Properties are marketed primarily to
middle-market customers, emphasizing their Fitzgeralds brand and their
"Fitzgeralds Irish Luck" theme.
As described in Note 13, the Properties are guarantors, and substantially
all of their assets serve as collateral, under various debt agreements that the
Parent has entered into with outside lenders. The Parent generated net income
during 2001 and experienced net losses during 2000 and 1999, is highly
leveraged, and has a stockholders' deficiency at December 6, 2001 and at the end
of 2000.
On May 13, 1999, the Parent's Board of Directors determined that, pending a
restructuring of its indebtedness, it would not be in the best interest of the
Parent to make the regularly scheduled interest payments on its 10 7/8% senior
secured registered notes due 2004 (the "Notes"). Accordingly, the Parent has not
paid the regularly scheduled interest payments of $12.5 million that were due
and payable on June 15, 1999, December 15, 1999 and June 15, 2000. Accordingly,
an event of default under the indenture (the "Indenture"), dated December 30,
1997, governing the Notes occurred on July 15, 1999, and continued until the
Parent and the Properties filed a petition for relief under Chapter 11 of the
Bankruptcy Code (the "Petition"). The Parent's contractual interest on the Notes
was $31,390,852 for the period from January 1, 2001 through December 6, 2001 and
was $33,699,003 for the year ended December 31, 2000. No action has been taken
by either the Indenture trustee or the holders of at least 25 percent of the
Notes, as permitted under the Indenture, to accelerate the Notes and declare the
unpaid principal and interest to be due and payable. Failure to make the
scheduled payment on June 15, 1999 resulted in a 1 percent increase in the
interest rate to 13.25 percent, effective June 16, 1999 until the Parent and the
Properties filed the Petition. In accordance with the Indenture, the Parent
began accruing interest on the unpaid interest at 13.25 percent, effective June
16, 1999 until the Parent and the Properties filed the Petition. See Note 2.
The accompanying financial statements have been prepared on a going concern
basis. Such 2001 financial statements are as of and for the period ended
December 6, 2001, the date of the sale of substantially all of the assets and
related liabilities of the Properties to Majestic. At December 6, 2001,
stockholder's deficiency was $53.7 million. The Parent's inability to meet the
interest payments on the Notes, which are guaranteed by the Properties, along
with the Properties' recurring losses in prior years and stockholder's
deficiency, raise substantial doubt about their ability to continue as a going
concern.
2. PETITION FOR RELIEF UNDER CHAPTER 11
GENERAL
On December 5, 2000, the Parent and the Properties commenced cases under
Chapter 11 of the Bankruptcy Code (collectively, the "Bankruptcy Cases") in the
United States Bankruptcy Court for the Northern District of Nevada (the
"Bankruptcy Court"). The Bankruptcy Cases are jointly administered and
coordinated under Case No. BK-N-00-33467 GWZ. The Bankruptcy Cases were
commenced in accordance
F-8
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
with an Agreement Regarding Pre-Negotiated Restructuring, dated as of December
1, 2000 (the "Restructuring Agreement"), with the holders (the "Consenting
Noteholders") of a majority in interest of the Notes. The Restructuring
Agreement contemplates an expeditious and orderly sale of all of the Parent's
operating assets and properties as going concerns.
Under the terms of the Restructuring Agreement, the Parent is required to
seek buyers for each of its operating businesses. In order to effectuate this
liquidation, the Parent commenced the Bankruptcy Cases and has received approval
from the Bankruptcy Court to sell its operating businesses through negotiated
sales agreements either by way of motion to sell free and clear of liens under
section 363 of the Bankruptcy Code, or under one or more plans of
reorganization.
As part of the restructuring contemplated in the Restructuring Agreement,
the Parent, as debtor-in-possession, sought and obtained Bankruptcy Court
approval to: (i) sell free and clear of liens pursuant to section 363 of the
Bankruptcy Code substantially all of its assets; and (ii) assume and assign
pursuant to section 365 of the Bankruptcy Code contracts used in its operations
in Las Vegas, Nevada, Black Hawk, Colorado and Tunica, Mississippi to an
affiliate of The Majestic Star Casino, LLC, an Indiana limited liability company
("Majestic"), pursuant to a Purchase and Sale Agreement, dated as of November
22, 2000, as amended on December 4, 2000 and November 1, 2001 (the "Purchase
Agreement"). On March 19, 2001, the Bankruptcy Court entered an order approving
the Purchase Agreement with Majestic.
The Restructuring Agreement provides a vehicle for liquidating the assets
of the Parent in the Bankruptcy Court through Chapter 11 of the Bankruptcy Code.
Upon execution of the Restructuring Agreement and before commencement of the
Bankruptcy Cases, the Parent distributed $13.0 million in Excess Cash (as that
term is defined in the Restructuring Agreement) to the trustee under the
Indenture (the "Indenture Trustee") to be applied to unpaid and accrued
Indenture Trustee's fees and expenses incurred and as partial payment of accrued
and unpaid interest and principal as provided in the Indenture. Pursuant to the
Restructuring Agreement and an order entered by the Bankruptcy Court, the Parent
was required to distribute unrestricted cash (which includes cash in net assets
held for sale) in excess of $24.8 million to holders of its Notes within 45 days
after the end of each quarter. In May, August and November 2001, the Parent
distributed $1.8 million, $7.7 million and $7.2 million, respectively, in Excess
Cash to the Indenture Trustee to be applied to accrued and unpaid interest and
principal as provided in the Indenture. On December 6, 2001, approximately
$133.3 million was distributed to the Indenture Trustee from the proceeds of the
December 6, 2001 sale to Majestic. The Parent and the Informal Committee are
currently engaged in discussions to establish a new threshold for cash reserves
subsequent to the December 6, 2001 sale to Majestic. As part of the
Restructuring Agreement, the Consenting Noteholders and the Indenture Trustee
agree to forbear from exercising certain of their rights otherwise allowable
under the Notes and the Indenture.
The parties to the Restructuring Agreement have each concluded that the
fair market value of the Parent's real and personal property given as collateral
for the Notes is less than the total outstanding principal and interest due
under the Notes, and that the fair market value of the real and personal
property not securing the Notes is less than the amount of the unsecured
deficiency claim of the holders of the Notes. As a result, it is not expected
that any distribution will be made to holders of the existing capital stock of
the Parent or the Properties. The Restructuring Agreement requires that as part
of the liquidation process, all of the existing common stock of Fitzgeralds
Tunica and Fitzgeralds Las Vegas is to be canceled and extinguished without
payment therefor.
Under the terms of the Restructuring Agreement, upon the closing of each
sale of the Parent's assets, the net proceeds of the collateral for the Notes,
less certain reserves for management incentives and other liabilities, must be
distributed to the Indenture Trustee for the benefit of and distribution to the
holders of the Notes in accordance with the Indenture. All of the Parent's
assets remaining after such sales, including any registered notes received as
part of the consideration for the sales of the Parent's assets and payment of
F-9
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
remaining liabilities of the Parent, will be transferred to a liquidating trust
created for the benefit of the holders of the Notes and others under the terms
of the Restructuring Agreement.
In light of the regulatory approvals needed to accomplish the liquidations,
and recognizing the need to retain senior management in order to insure
continuity and compliance with all gaming regulations and licensing requirements
in the Parent's operations during the process, the Restructuring Agreement
required implementation of a senior management incentive and retention program.
After obtaining Bankruptcy Court approval in December 2000, this program was
adopted by the Parent in order to retain Philip D. Griffith, Michael E.
McPherson, Max L. Page and Paul H. Manske (the "Senior Management"), each an
officer, director and/or senior executive of the Parent, as key executives and
to compensate them for their continued employment with the Parent during the
process.
Pursuant to the Purchase Agreement, the Parent has agreed to: (i) sell free
and clear of liens pursuant to section 363 of the Bankruptcy Code substantially
all of the Properties' assets; and (ii) assume and assign pursuant to section
365 of the Bankruptcy Code contracts used in its operations at the Properties,
as well as the Parent's interest in the Fremont Street Experience Limited
Liability Company (collectively, the "Assets") to Majestic for $149.0 million in
cash, subject to certain holdbacks and adjustments, plus the assumption of
certain liabilities relating to the Assets.
The transactions contemplated by the Purchase Agreement were consummated on
December 6, 2001. The purchase price for the Assets was $149.0 million, subject
to certain adjustments and holdbacks specified in the Purchase Agreement, which
resulted in net proceeds prior to distributions of approximately $146.9 million.
Of such amount, $7.7 million was retained by the Parent for cash reserves,
approximately $5.9 million was distributed to Senior Management, in
consideration of non-competition and sales incentives pursuant to the
Restructuring Agreement, and approximately $133.3 million was distributed to
holders of the Notes (on account of the $205.0 million aggregate principal
amount of Notes outstanding and approximately $44.8 million in accrued
pre-petition interest). In addition, during 2001 the Parent distributed
approximately $16.8 million to holders of the Notes in accordance with the
provisions of the Restructuring Agreement.
REORGANIZATION ITEMS
For the period from January 1, 2001 through December 6, 2001 and for the
year ended December 31, 2000, the Properties incurred the following expenses
subsequent to the filing of the Bankruptcy Cases:
<Table>
<Caption>
2000 2001
------- ------------
Reorganization items:
Post-petition professional fees........................... $ -- $ 38,392
Pre-petition expenses recorded post-petition.............. 38,967 --
U.S. trustee fees......................................... -- 120,000
Other..................................................... -- 635,786
Gain on sale of assets to Majestic........................ -- (11,121,811)
Interest earned on accumulated cash resulting from the
bankruptcy proceedings................................. -- (171,442)
------- ------------
$38,967 $(10,499,075)
======= ============
</Table>
F-10
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LIABILITIES SUBJECT TO COMPROMISE
At December 6, 2001 and December 31, 2000, liabilities subject to
compromise consisted of the following:
<Table>
<Caption>
2000 2001
------------ -----------
Liabilities subject to compromise:
Due to related parties.................................... $225,774,418 $70,414,353
Unsecured creditors....................................... 99,078 266,109
------------ -----------
$225,873,496 $70,680,462
============ ===========
</Table>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combined Financial Statements -- The combined financial statements of the
Properties include the accounts of Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc. and 101 Main Street Limited Liability Company. All
inter-company balances and transactions have been eliminated.
Cash and Cash Equivalents -- Cash includes cash required for gaming
operations. The Properties consider cash equivalents to include short-term
investments with original maturities of ninety days or less at the date of
purchase.
Inventories -- Inventories consist principally of food and beverage and
operating supplies and are stated at the lower of first-in, first-out cost or
market.
The estimated cost of normal operating quantities (base stock) of china,
silverware, glassware, linen, uniforms and utensils has been recorded as an
asset and is not being depreciated. Costs of base stock replacements are
expensed as incurred.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated service lives of the assets. Leasehold improvements are amortized
over the life of the lease or the life of the asset, whichever is shorter. Costs
of major improvements are capitalized; costs of normal repairs and maintenance
are charged to expenses as incurred. Gains or losses on disposals are
recognized. Certain of the assets of the Properties were classified as held for
sale upon consummation of the Purchase Agreement with Majestic in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. This standard requires that assets to be disposed of shall be reported at
the lower of carrying amount or fair value less costs to sell and shall not be
depreciated or amortized while they are held for disposal. The Properties
discontinued recording depreciation and amortization expense on property and
equipment subsequent to the filing of the Bankruptcy Cases and consummation of
the Purchase Agreement with Majestic based on the requirements of SFAS No. 121.
Restricted Cash -- At December 31, 2000, restricted cash represents U.S.
Treasury Notes of $1,000,000 held in an escrow account for the benefit of
certain land lessors related to Fitzgeralds Las Vegas. In 2000, $500,000 of this
amount was reclassified as net assets held for sale. See Note 6.
Goodwill -- Goodwill represents the cost in excess of fair value of the net
assets acquired in purchase transactions. Goodwill is being amortized using the
straight-line method over 40 years and is recorded net of accumulated
amortization. The Properties discontinued the amortization of their goodwill
included in net assets held for sale subsequent to the filing of the Bankruptcy
Cases on December 5, 2000. Furthermore, the Company wrote down $13.0 million of
the asset as of December 6, 2001 due to the sale of Fitzgeralds Black Hawk to
Majestic.
F-11
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition -- Casino revenue is the net win from gaming
activities, which is the difference between gaming wins and losses. Food and
beverage and room revenues include the aggregate amounts generated by those
departments at the Properties.
Operating revenues include the retail value of rooms, food and beverage
provided to customers without charge; corresponding charges have been deducted
from revenue in the accompanying combined statements of operations as
promotional allowances in the determination of net operating revenues. The
estimated costs of providing the complimentary services are charged to the
casino department and are as follows:
<Table>
<Caption>
1999 2000 2001
----------- ----------- -----------
Hotel......................................... $ 2,441,182 $ 2,528,282 $ 2,925,396
Food and beverage............................. 10,141,593 10,935,259 10,638,710
Other......................................... 280,998 524,426 572,390
----------- ----------- -----------
$12,863,773 $13,987,967 $14,136,496
=========== =========== ===========
</Table>
Advertising Costs -- Advertising expenditures are expensed in the period
the advertising initially takes place. Advertising costs included in selling,
general and administrative expenses were $3,860,890 and $3,649,524 for the years
ended December 31, 1999 and 2000, respectively and $3,157,440 for the period
from January 1, 2001 through December 6, 2001.
Federal Income Taxes -- The Properties account for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards.
101 Main Street Limited Liability Company is a limited liability company
formed under the laws of the state of Colorado, and, as such, is classified as a
partnership for federal income tax purposes. Accordingly, no provision for
federal or state income taxes was recorded because any taxable income or loss is
included in the corporate income tax return of the Parent.
Financial Reporting Period -- The Properties have adopted a "4-4-5" (weeks)
financial reporting period which maintains a December 31 year-end. This method
of reporting results in 13 weeks in each quarterly accounting period. The first
and fourth accounting periods will have a fluctuating number of days resulting
from the maintenance of a December 31 year-end, whereas the second and third
periods will have the same number of days each year.
Fair Value of Financial Instruments -- The Properties believe, based on
current information, that the carrying value of the Properties' cash and cash
equivalents, restricted cash, accounts receivable, advances, and accounts
payable approximates fair value because of the short maturity of those
instruments.
Impairment of Long Lived Assets -- The Properties review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows, undiscounted and
without interest charges, is less than the carrying amount of the asset, an
impairment charge is recognized in the amount by which the carrying value of the
asset exceeds its fair market value. The fair value of assets is determined
using the present value of the estimated future cash flows or the expected
selling price less selling costs for assets expected to be disposed of.
F-12
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Recently Issued Accounting Standards -- On June 30, 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and is effective for the period ended December 6, 2001. Adoption of
this statement did not have a material impact on the Properties' financial
condition or results of operation.
On January 1, 2001, the Properties implemented Emerging Issues Task Force
("EITF") No. 00-14 Accounting for Certain Sales Incentives, EITF No. 00-21,
Accounting for Multiple-Element Revenue Arrangements, EITF No. 00-22, Accounting
for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive
Offers, and Offers for Free Products or Services to Be Delivered in the Future,
and EITF No. 00-25, Accounting for Consideration from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's Products, requiring
cash coupons or rebates to be classified as a reduction of revenue. Prior to
implementation, the Properties had expensed the cash coupons, players club
reward program and other cash back programs as a casino or marketing expense. In
2001, the Properties reclassified their 2000 and 1999 statements of operations
to reflect such expenses as promotional expense thereby reducing net revenue.
This reclassification did not have any effect on the Properties' income from
operations and net income for the current year and previously reported net
losses.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141 ("SFAS 141"), Business Combinations, which requires the purchase method
of accounting for business combinations initiated after June 30, 2001 and
prohibits the use of the pooling-of-interest method. The Properties do not
believe that the adoption of SFAS 141 will have a significant impact on their
financial statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142") Goodwill and Other Intangible Assets, which is effective
January 1, 2002. SFAS 142 requires that goodwill and other intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. The Properties discontinued recording the
amortization of goodwill included in net assets held for sale subsequent to
filing the Bankruptcy Cases. Amortization expense related to goodwill was $0.3
million for 2000. As of December 6, 2001, the Properties wrote-down $13.0
million of goodwill due to the sale of Fitzgeralds Black Hawk to Majestic.
Also, in June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations, which is
effective for financial statements issued for fiscal years beginning after June
15, 2002. This statement establishes accounting standards for recognition and
measurement of a liability for an asset retirement obligation and the associated
asset retirement cost. The Properties are currently evaluating the impact that
this standard will have on its financial condition and results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
is effective for financial statements issued for fiscal years beginning after
December 15, 2001, and the interim periods within those fiscal years. This
statement addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of, and supersedes
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Asset to be Disposed of. The
Properties are currently evaluating the impact that this standard will have on
its financial condition and results of operations.
Bankruptcy Related Accounting -- The Properties have accounted for all
transactions related to the Bankruptcy Cases in accordance with Statement of
Position 90-7 ("SOP 90-7"), Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code, which was issued by the American Institute of
Certified Public Accountants in November 1990. Accordingly, liabilities subject
to compromise under the Bankruptcy Cases have been segregated on the Combined
Balance Sheets and are recorded for the amounts that are expected to be allowed
under the Restructuring Agreement (see Note 2). In addition, the Combined
F-13
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Operations and the Combined Statements of Cash Flows for the year
ended December 31, 2000 and for the period from January 1, 2001 through December
6, 2001 disclose expenses related to the Bankruptcy Cases under "Reorganization
Items." The Properties will continue to present their Combined Statements of
Cash Flows using the indirect method.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities at the date of the financial statements. These estimates also affect
the disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of certain revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications -- Certain amounts in the 1999 and 2000 combined
financial statements have been reclassified to conform to the 2001 method of
presentation.
4. STATEMENTS OF CASH FLOWS INFORMATION
The following supplemental disclosure is provided as part of the Combined
Statements of Cash Flows for the years ended December 31, 1999 and 2000 and for
the period from January 1, 2001 through December 6, 2001:
Cash paid for interest, net of amounts capitalized, during the years ended
December 31, 1999 and 2000 and for the period from January 1, 2001 through
December 6, 2001 was $225,072, $67,600 and $48,824, respectively.
Certain non-cash operating, investing and financing activities were as
follows:
Long-term contracts payable of $368,888 in 1999 and $368,420 in 2000 were
incurred with the acquisition of new equipment. In 2001, no additional new
equipment was acquired through long-term contracts payable.
See Note 2 and Note 6 for a summary of Liabilities Subject to Compromise
and Net Assets Held for Sale.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2000 and
December 6, 2001:
<Table>
<Caption>
ESTIMATED
2000 2001 SERVICE LIFE
------------- ----- ------------
Land used in casino operations...................... $ 10,748,949 $ -- --
Buildings and improvements.......................... 94,646,085 -- 7-40 years
Site improvements................................... 20,930,897 -- 20 years
Barge and improvements.............................. 12,896,235 -- 15 years
Furniture, fixtures and equipment................... 55,288,988 -- 3-12 years
------------- -----
194,511,154 --
Less accumulated depreciation and amortization...... (70,612,350) --
------------- -----
123,898,804 --
Construction in progress............................ 760,878 --
------------- -----
124,659,682 --
Less net assets held for sale....................... (124,659,682) --
------------- -----
Total............................................... $ -- $ --
============= =====
</Table>
F-14
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Substantially all property and equipment is pledged as collateral on the
Parent's long-term debt.
6. NET ASSETS HELD FOR SALE
On December 1, 2000, the Parent entered into the Restructuring Agreement
with the Consenting Noteholders. The Restructuring Agreement contemplates an
expeditious and orderly sale of all of the Parent's operating assets and
properties. The transactions contemplated by the Purchase Agreement were
consummated on December 6, 2001. The purchase price for the Assets was $149.0
million, subject to certain adjustments and holdbacks specified in the Purchase
Agreement, which resulted in net proceeds prior to distributions of
approximately $146.9 million.
The components of the net assets held for sale as of December 31, 2000 are
as follows:
<Table>
<Caption>
FITZGERALDS FITZGERALDS FITZGERALDS
LAS VEGAS TUNICA BLACK HAWK TOTAL
----------- ----------- ----------- ------------
Assets:
Cash and cash equivalents..... $ 3,082,396 $ 5,274,598 $ 1,754,878 $ 10,111,872
Accounts receivable, net of
allowance for doubtful
accounts of $210,586....... 696,054 539,510 55,420 1,290,984
Inventories................... 445,572 445,722 153,204 1,044,498
Prepaid gaming taxes.......... 566,788 -- 48,052 614,840
Other current assets.......... 1,506,705 366,376 109,802 1,982,883
Property and equipment, net... 37,162,537 62,708,013 24,789,132 124,659,682
Goodwill, net of accumulated
amortization of
$1,173,579................. -- -- 13,005,582 13,005,582
Restricted cash............... 500,000 -- -- 500,000
Other non-current assets...... 320,251 461,361 141,363 922,975
Current portion of long term
debt....................... (167,273) (73,015) -- (240,288)
Accounts payable.............. (514,831) (809,013) (227,676) (1,551,520)
Accrued expenses:
Payroll and related........... (1,336,852) (2,349,516) (667,094) (4,353,462)
Progressive jackpots.......... (269,561) (322,665) (387,602) (979,828)
Outstanding chips and
tokens..................... (104,175) (91,247) (39,152) (234,574)
Other......................... (788,550) (1,095,992) (1,152,148) (3,036,690)
Long-term debt.................. (394,064) -- -- (394,064)
----------- ----------- ----------- ------------
$40,704,997 $65,054,132 $37,583,761 $143,342,890
=========== =========== =========== ============
</Table>
F-15
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt outstanding at December 31, 2000 and December 6, 2001 is as
follows:
<Table>
<Caption>
2000 2001
--------- -----
Contracts payable secured by certain equipment due in
maximum aggregate monthly installments of $32,842, with
varying maturity dates through 2005....................... $ 634,352 $ --
--------- -----
Total debt.................................................. 634,352 --
Less net assets held for sale............................... (634,352) --
--------- -----
Long-term debt.............................................. $ -- $ --
========= =====
</Table>
8. COMMITMENTS
Operating Leases -- In connection with the sale of assets to Majestic, the
Properties' commitments under operating leases were assumed by Majestic.
Such operating lease commitments primarily related to equipment, signs,
warehouses and ground leases on which the Properties' buildings and equipment
reside. Rent expense for the years ended December 31, 1999 and 2000 was
$2,183,428 and $1,732,028, respectively and for the period from January 1, 2001
through December 6, 2001 was $1,164,417.
Employment Agreements -- Consistent with industry practice, the Properties
have entered into employment agreements with certain of their executives and
departmental directors. In accordance with the Restructuring Agreement, the
Properties have agreed not to assume these employment agreements as provided in
Section 365 of the Bankruptcy Code.
9. RELATED PARTY TRANSACTIONS
Amounts due to/from the Parent and other wholly owned subsidiaries of the
Parent at December 6, 2001 includes receivables for $16,762,294, registered
notes payable of $70,414,353 and notes payable of $228,825. Amounts due to/from
the Parent and other wholly owned subsidiaries of the Parent at December 31,
2000 include receivables for $5,309 and registered notes payable of
$225,774,418. The registered notes due to Parent have an effective interest rate
of approximately 15.0 percent for 2001 and 2000 and are due December 15, 2004,
the due date of the Notes. Accounts receivable -- related parties of $16,762,294
at December 6, 2001 represents advances made to the Parent by the Properties.
These advances will be used to offset the notes due to the Parent as described
above.
During the period from January 1, 2001 through December 6, 2001 and during
the years ended December 31, 2000 and 1999, the Parent allocated approximately
$1,000,000 to Fitzgeralds Las Vegas, Fitzgeralds Tunica, and Fitzgeralds Black
Hawk for corporate overhead allocations. These costs are accounted for as
general and administrative expenses. These corporate overhead allocations have
been made in order that the Properties absorb a portion of the expenses incurred
by the Parent on their behalf including, but not limited to, internal audit,
risk management, legal and corporate accounting services. The allocation method
used is based on an equal distribution to each of the Fitzgeralds operating
properties. Management believes that the allocation method used is reasonable.
Specific identification of these expenses to each of the properties is not
practicable.
F-16
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. PROFIT SHARING PLAN
The Parent has a contributory profit-sharing plan for eligible employees.
The Parent's contribution to the plan for any year, as determined by the Board
of Directors, is discretionary. Contributions to the plan are allocated among
eligible participants in the proportion of their salaries to the total salaries
of all participants.
The Parent amended the plan to include a 401(k) savings plan whereby
eligible employees may contribute up to 20% of their salary, which is matched by
the Properties at 25 cents per employee dollar contributed, up to a maximum of
6% of their salary. The Properties' matching contributions were $218,912 and
$221,140 for the years ended December 31, 1999 and 2000 and $231,975 for the
period from January 1, 2001 through December 6, 2001.
Each employee age 21 or older completing 1,000 or more hours of service
during the twelve-month period preceding the entry dates, January 1, April 1,
July 1 or October 1, is eligible to participate in the plan.
In addition, the Properties contribute to multi-employer defined
contribution pension plans under various union agreements. Contributions, based
on wages paid to covered employees, were $537,998 and $351,847 for the years
ended December 31, 1999 and 2000 and $342,172 for the period from January 1,
2001 through December 6, 2001.
11. STOCKHOLDER'S DEFICIENCY
The Restructuring Agreement requires that all of the existing common stock
of Fitzgeralds Tunica and Fitzgeralds Las Vegas be canceled and extinguished
without payment therefor. It is not expected that any distribution will be made
to holders of the existing capital stock of the Properties.
As stated above, 101 Main Street Limited Liability Company is a limited
liability company formed under the laws of the state of Colorado. Included in
total stockholder's deficiency on the combined balance sheets is a total
member's equity of $4,663,213 as of December 6, 2001 and total member's
deficiency of $2,331,468 as of December 31, 2000 for 101 Main Street Limited
Liability Company.
12. INCOME TAXES
The Properties are included in Fitzgeralds Gaming Corporation's
consolidated tax return. The information below appears as if the Properties were
filing separate tax returns.
A reconciliation of the income tax benefit with amounts determined by
applying the statutory U.S. Federal income tax rate to combined income (loss)
before taxes is as follows:
<Table>
<Caption>
1999 2000 2001
----------- ----------- -----------
Tax benefit at U.S. statutory rate............ $ 5,524,332 $ 3,687,104 $(8,774,424)
(Increase) decrease in valuation allowance.... (5,489,867) (3,553,559) 8,738,172
Other......................................... (34,465) (133,545) 36,252
----------- ----------- -----------
Total......................................... $ -- $ -- $ --
=========== =========== ===========
</Table>
F-17
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the effect of deferred income tax items and the
impact of "temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws.
The tax items comprising the Properties' net deferred tax asset as of
December 31, 2000 are as follows:
<Table>
<Caption>
CURRENT NONCURRENT TOTAL
--------- ------------ ------------
Deferred tax assets:
Accrued and other liabilities.............. $ 588,486 $ -- $ 588,486
Bad debt reserve........................... 31,285 -- 31,285
FICA credits not utilized.................. -- 400,836 400,836
NOL carryforward........................... -- 25,795,441 25,795,441
Other...................................... -- 66,826 66,826
--------- ------------ ------------
619,771 26,263,103 26,882,874
--------- ------------ ------------
Deferred tax liabilities:
Difference between book and tax basis of
property................................ -- (4,548,554) (4,548,554)
Intangibles................................ -- (710,827) (710,827)
Deferred state taxes....................... -- (5,552,056) (5,552,056)
Prepaid expenses........................... (681,523) -- (681,523)
Differences from flow through entity....... -- (98,482) (98,482)
--------- ------------ ------------
(681,523) (10,909,919) (11,591,442)
--------- ------------ ------------
(61,752) 15,353,184 15,291,432
Less: valuation allowance.................... 61,752 (15,353,184) (15,291,432)
--------- ------------ ------------
Net.......................................... $ -- $ -- $ --
========= ============ ============
</Table>
The tax items comprising the Properties' net deferred tax asset as of
December 6, 2001 are as follows:
<Table>
<Caption>
CURRENT NONCURRENT TOTAL
--------- ----------- -----------
Deferred tax assets:
Accrued and other liabilities................ $ 101,787 $ -- $ 101,781
FICA credits not utilized.................... -- 462,862 462,862
NOL carryforward............................. -- 6,232,200 6,232,200
Other........................................ -- 1,743 1,743
--------- ----------- -----------
101,781 6,696,805 6,798,586
--------- ----------- -----------
Deferred tax liabilities:
Deferred state taxes......................... -- (143,546) (143,546)
Prepaid expenses............................. (245,326) -- (245,326)
(245,326) (143,546) (388,872)
--------- ----------- -----------
(143,545) 6,553,259 6,409,714
Less: valuation allowance...................... 143,545 (6,553,259) (6,409,714)
--------- ----------- -----------
Net............................................ $ -- $ -- $ --
========= =========== ===========
</Table>
F-18
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Due to the uncertainty of the realization of certain tax carry forward
items, a valuation allowance has been established in the amount of $6.4 million
at December 6, 2001. Realization of a significant portion of the assets offset
by the valuation allowance is dependent on the Properties generating sufficient
taxable income prior to expiration of the loss and credit carryforwards.
As of December 6, 2001, the Properties had a combined net operating loss
carryforward of approximately $17.8 million and a tax credit carryforward of $.7
million, which are available to offset future tax through 2020. The availability
of the loss and credit carryforwards may be subject to limitations under
sections 382 and 383 of the Internal Revenue Code in the event of a significant
change of ownership.
13. CONTINGENCIES
Guarantee -- The Properties are guarantors under various credit agreements,
including the Parent's Notes totaling approximately $99.7 million in outstanding
principal amount. In addition, substantially all of the Properties' assets serve
as collateral under such agreements. Subject to certain exceptions, the
guarantee of the Notes is secured by a lien on substantially all assets of the
Properties other than certain excluded assets, as defined. Such excluded assets
include, among other things, (i) cash, deposit accounts and other cash
equivalents; (ii) furniture, fixtures and equipment securing certain
non-recourse indebtedness; and (iii) any agreements, permits, licenses or the
like that cannot be subjected to a lien without the consent of third parties,
which consent is not obtainable by the Parent (including all gaming licenses of
the Parent and its restricted subsidiaries as defined), provided that excluded
assets does not include the proceeds of the assets under clauses (ii) or (iii)
or any other collateral to the extent such proceeds do not constitute excluded
assets under clause (i) above. Assets not transferred upon the close of the sale
with Majestic will continue to serve as collateral after the sale.
LEGAL MATTERS
Central City Litigation -- On or about May 25, 2001, City of Central,
Colorado ("Central City"), and certain businesses claiming to do business in
Central City commenced an action, Civil Action No. 01-D-0964, in the United
States District Court for the District of Colorado against the City of Black
Hawk, Colorado ("Black Hawk"), certain companies alleged to do business in or
about Black Hawk and various individuals.
101 Main Street Limited Liability Company ("101 Main"), a wholly owned
subsidiary of Fitzgeralds Black Hawk, Inc.-II, was named defendant in the
action. The claims against all defendants, including 101 Main, are predicated on
15 U.S.C. section 1 (Restraint of Trade), 15 U.S.C. section 2 (Monopolization),
15 U.S.C. section 2 (Attempted Monopolization), Colorado Revised Statute section
6-4-104 (Restraint of Trade), violation of Colorado Revised Statute section
6-4-105 (Monopolization), Colorado Revised Statute section 6-4-105 (Attempted
Monopolization), 18 U.S.C. section 1962 (Racketeering), Colorado Revised Statute
section 18-17-104 (Colorado Organized Crime Control Act), intentional
interference with prospective economic advantage, civil conspiracy, tortuous
interference with contractual relations and inducing breach of contract. The
plaintiffs in the action are seeking judgment by jury against all defendants for
an amount in excess of $100.0 million. The principal cause of the action
relating to 101 Main is that the defendants, including 101 Main Street Limited
Liability Company, engaged in certain conduct to prevent the construction of a
highway defined as the "Southern Access Road" that would provide access to
travelers directly to Central City from Interstate 70 instead of requiring
passage through Black Hawk.
The complaint was filed after the commencement of the Bankruptcy Cases, and
101 Main has asserted that the action was commenced in violation of the
automatic stay, Section 362(a) of the Bankruptcy Code. On June 21, 2001, the
Parent filed a Notice of Pending Bankruptcy Cases and Existence of the Automatic
Stay.
F-19
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
101 Main then obtained an order to show cause why Plaintiffs and their
attorneys should not be held in contempt. Before the hearing, Plaintiffs amended
the complaint to omit 101 Main as a defendant, and Plaintiffs filed two motions
with the Bankruptcy Court, which sought (i) leave to file a late claim in the
101 Main bankruptcy case and (ii) relief from the automatic stay to add 101 Main
as a party defendant to the amended complaint. The amended complaint sought
damages, in an amount alleged to exceed $300,000,000, against the defendants
for, among other matters, RICO and conspiracy.
At a December 10, 2001 hearing, the Bankruptcy Court found that Plaintiffs
had violated the automatic stay and denied Plaintiffs' motion for leave to file
a late claim with the Bankruptcy Court. Furthermore, at this hearing the
Bankruptcy Court denied Plaintiffs' motion for relief from the automatic stay to
add 101 Main as a party defendant to the amended complaint, although it did
allow Plaintiffs to obtain discovery from 101 Main, its agents and
representatives in conjunction with the prosecution of the amended complaint
against other named defendants. On March 28, 2002, the Bankruptcy Court entered
its orders in this regard, which orders are now final and non-appealable.
Other Legal Matters -- The Properties are a party to various lawsuits
relating to routine matters incidental to its business. Except as noted below,
the Properties do not believe that the outcome of such litigation, individually
or in the aggregate, will have any material adverse effect on its financial
condition.
Reliance -- From April 1, 1998 through September 30, 1999, the Properties'
general liability insurance and worker's compensation insurance carrier was
Reliance Insurance Company ("Reliance"). On May 29, 2001, a Pennsylvania court
placed Reliance under the control of the Pennsylvania Insurance Department for
rehabilitation. Thereafter, on October 3, 2001, the Reliance Insurance Company
was declared insolvent and placed under an order of liquidation by the
Pennsylvania Commonwealth Court at the request of the Pennsylvania Insurance
Department. The Properties have not incurred any material amounts for liability
claims or workers compensation claims that would be subject to reimbursement by
Reliance.
However, the statute of limitation has not expired for filing claims and it
is unclear at this time what the insurance coverage would be from Reliance, if
any, in the event that a future claim is filed that would be large enough to
result in an insurance reimbursement from Reliance, or if there is insurance
coverage for an existing claim that is currently under the threshold level for
reimbursement, but increases in the future to an amount eligible for
reimbursement. The reimbursement threshold per claim is $25,000 and $100,000 for
liability claims and worker compensation claims, respectively. At the present
time, the Properties are unable to determine what effect this action may have on
liability and worker's compensation claims which arose during the coverage
period for which Reliance was the Properties' insurance carrier or whether any
limitations on coverage would have a material adverse effect on the Properties'
financial condition.
Holiday Inn -- Upon notification by Majestic of its intent to not enter
into a new franchise agreement with Holiday Inn Franchising, Inc. ("Inns"), the
Parent filed a motion with the Bankruptcy Court on October 26, 2001 to remove
its pre-petition franchise and other agreements with Inns from the list of
agreements to be assumed and assigned to Majestic. On October 26, 2001, the
Bankruptcy Court granted the motion. Since the transactions contemplated by the
Purchase Agreement were consummated on December 6, 2001, the Parent believes
Inns will assert an unsecured claim in the Bankruptcy Cases based upon the
liquidated damages provision of the franchise agreement (approximately $1.6
million). While the Parent would contest the allowance of such a claim by the
Bankruptcy Court, the Parent cannot predict the Bankruptcy Court's ultimate
resolution of such a claim.
14. SEGMENT INFORMATION
Until December 6, 2001, the Properties owned and operated three Fitzgeralds
casino-hotels: downtown Las Vegas, Nevada; Tunica, Mississippi; and Black Hawk,
Colorado. The Properties identify their business in
F-20
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
three segments based on geographic location. The Properties market in each of
their segments primarily to middle-market customers, emphasizing their
Fitzgeralds brand and their "Fitzgeralds Irish Luck" theme. The major products
offered in each segment are as follows: casino, hotel (except for Fitzgeralds
Black Hawk) and food and beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies. There are minimal
inter-segment sales. The Properties evaluate business segment performance based
on EBITDA (defined below). Corporate costs are allocated to the business segment
through management fees.
Assets are principally cash and cash equivalents, property and equipment
and goodwill related to the acquisition of the remaining 78% membership interest
in 101 Main Street Limited Liability Company. No single customer accounts for
more than 10% of revenue.
A summary of the Properties' operations by business segment for 1999, 2000
and 2001 is presented below:
<Table>
<Caption>
FOR THE
PERIOD JANUARY 1,
YEAR ENDED DECEMBER 31, 2001 THROUGH
----------------------- DECEMBER 6,
1999 2000 2001
---------- ---------- -----------------
(IN THOUSANDS)
Net operating revenues:
Fitzgeralds Las Vegas.......................... $ 50,910 $ 52,139 $ 49,435
Fitzgeralds Tunica............................. 69,582 75,062 76,713
Fitzgeralds Black Hawk......................... 32,284 32,537 31,511
-------- -------- --------
Total....................................... $152,776 $159,738 $157,659
======== ======== ========
Income (loss) from operations:
Fitzgeralds Las Vegas.......................... $ (1,115) $ (7) $(23,618)
Fitzgeralds Tunica............................. 5,321 9,018 42,033
Fitzgeralds Black Hawk(1)...................... 7,517 6,385 7,027
-------- -------- --------
Total....................................... $ 11,723 $ 15,396 $ 25,442
======== ======== ========
Reconciliation of total business segment
operating income to combined net income (loss)
before income tax and extraordinary item:
Total segment operating income................. $ 11,723 $ 15,396 $ 25,442
Interest income................................ 130 167 38
Interest expense............................... (210) (71) (40)
Interest expense -- related party.............. (27,990) (26,031) --
Other, net..................................... 99 4 (81)
-------- -------- --------
Net income (loss) before income tax......... $(16,248) $(10,535) $ 25,359
======== ======== ========
EBITDA(2):
Fitzgeralds Las Vegas(3)....................... $ 2,594 $ 3,692 $(23,618)
Fitzgeralds Tunica............................. 11,553 15,253 42,198
Fitzgeralds Black Hawk......................... 9,303 8,138 7,027
-------- -------- --------
Total....................................... $ 23,450 $ 27,083 $ 25,607
======== ======== ========
</Table>
F-21
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
FOR THE
PERIOD JANUARY 1,
YEAR ENDED DECEMBER 31, 2001 THROUGH
----------------------- DECEMBER 6,
1999 2000 2001
---------- ---------- -----------------
(IN THOUSANDS)
Segment depreciation and amortization:
Fitzgeralds Las Vegas.......................... $ 3,709 $ 3,698 $ --
Fitzgeralds Tunica............................. 6,231 6,235 --
Fitzgeralds Black Hawk......................... 1,786 1,755 --
-------- -------- --------
Total....................................... $ 11,726 $ 11,688 $ --
======== ======== ========
Expenditures for additions to long-lived assets:
Fitzgeralds Las Vegas.......................... $ 1,635 $ 1,619 $ 249
Fitzgeralds Tunica............................. 2,393 6,199 627
Fitzgeralds Black Hawk......................... 687 1,518 178
-------- -------- --------
Total....................................... $ 4,715 $ 9,336 $ 1,054
======== ======== ========
</Table>
<Table>
<Caption>
AS OF AS OF
DECEMBER 31, DECEMBER 6,
2000 2001
------------ -----------
(IN THOUSANDS)
Segment assets:
Fitzgeralds Las Vegas..................................... $ 42,657 $ 1,789
Fitzgeralds Tunica........................................ 65,943 15,547
Fitzgeralds Black Hawk.................................... 38,728 5,024
-------- -------
Total.................................................. 147,328 22,360
Less: inter-company....................................... (8) 13
-------- -------
Total.................................................. $147,320 $22,373
======== =======
</Table>
- ---------------
(1) Includes write-down of assets of $13.0 million in 2001 at Fitzgeralds Black
Hawk.
(2) EBITDA is a supplemental financial measurement used by the Company in the
evaluation of its gaming business and by many gaming industry analysts.
EBITDA is calculated by adding depreciation and amortization expense to
income from operations. At any property, EBITDA is calculated after the
allocation of corporate costs. However, EBITDA should only be read in
conjunction with all of the Properties' financial data summarized above and
its financial statements prepared in accordance with generally accepted
accounting principles ("GAAP") appearing elsewhere herein, and should not be
construed as an alternative either to income from operations (as determined
in accordance with GAAP) as an indication of the Properties' operating
performance or to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. This presentation of EBITDA
may not be comparable to similarly titled measures reported by other
companies.
(3) Fitzgeralds Las Vegas invested $0.8 million, $0.9 million and $0.9 million
in 2001, 2000 and 1999, respectively, in FSE. Such investment was charged
against earnings as a selling, general and administrative expense.
F-22
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE -- STATEMENT OF OPERATIONS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
OPERATING REVENUES:
Casino...................... $38,129,610 $ 65,676,465 $35,122,740 $ -- $138,928,815
Food and beverage........... 8,502,928 7,936,527 2,289,609 -- 18,729,064
Rooms....................... 8,465,897 7,827,721 -- -- 16,293,618
Other....................... 1,808,135 1,195,908 281,164 -- 3,285,207
----------- ------------ ----------- ----- ------------
Total................ 56,906,570 82,636,621 37,693,513 -- 177,236,704
Less promotional
allowances................ 5,996,339 13,054,629 5,409,080 -- 24,460,048
----------- ------------ ----------- ----- ------------
Net.................. 50,910,231 69,581,992 32,284,433 -- 152,776,656
----------- ------------ ----------- ----- ------------
OPERATING COSTS AND EXPENSES:
Casino...................... 19,583,057 31,027,932 13,535,985 -- 64,146,974
Food and beverage........... 7,695,608 2,929,046 1,168,417 -- 11,793,071
Rooms....................... 6,101,345 4,599,896 -- -- 10,701,241
Other....................... 906,070 386,663 584,297 -- 1,877,030
Selling, general and
administrative............ 14,029,853 19,085,794 7,693,145 40,808,792
Depreciation and
amortization.............. 3,709,225 6,231,109 1,785,751 -- 11,726,085
----------- ------------ ----------- ----- ------------
Total................ 52,025,158 64,260,440 24,767,595 -- 141,053,193
----------- ------------ ----------- ----- ------------
INCOME (LOSS) FROM
OPERATIONS.................. (1,114,927) 5,321,552 7,516,838 11,723,463
OTHER INCOME (EXPENSE):
Interest income............. 43,422 67,221 19,011 -- 129,654
Interest expense............ (120,596) (65,291) (24,427) -- (210,314)
Interest expense -- related
party..................... (7,951,662) (12,722,660) (7,315,529) -- (27,989,851)
Other, net.................. 100,606 -- (1,594) -- 99,012
----------- ------------ ----------- ----- ------------
INCOME (LOSS) BEFORE INCOME
TAXES....................... (9,043,157) (7,399,178) 194,299 -- (16,248,036)
INCOME TAX (PROVISION)
BENEFIT..................... -- -- -- -- --
----------- ------------ ----------- ----- ------------
NET INCOME (LOSS)............. $(9,043,157) $ (7,399,178) $ 194,299 $ -- $(16,248,036)
=========== ============ =========== ===== ============
</Table>
F-23
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................... $(9,043,157) $(7,399,178) $ 194,299 $ $(16,248,036)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 3,709,225 6,231,109 1,785,751 -- 11,726,085
Other............................. (59,626) -- 1,594 -- (58,032)
(Increase) decrease in accounts
receivable, net................. 100,735 113,972 (78,617) -- 136,090
Increase in inventories........... (80,012) (23,278) (32,376) -- (135,666)
(Increase) decrease in prepaid
expenses........................ (380,727) (54,012) 33,631 -- (401,108)
(Increase) decrease in other
assets.......................... 41,423 (190,879) 19,365 -- (130,091)
Increase (decrease) in accounts
payable......................... (1,096,585) (1,453,520) 38,267 -- (2,511,838)
Increase (decrease) in accrued and
other liabilities............... (355,418) 1,031,932 (226,009) -- 450,505
Increase (decrease) in amounts due
to related parties, net......... 10,196,712 5,808,510 (59,877) -- 15,945,345
----------- ----------- ---------- ----- ------------
Net cash provided by
operating activities....... 3,032,570 4,064,656 1,676,028 -- 8,773,254
----------- ----------- ---------- ----- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets........ 59,626 -- 18,100 -- 77,726
Acquisition of property and
equipment......................... (1,568,093) (2,090,648) (686,847) -- (4,345,588)
----------- ----------- ---------- ----- ------------
Net cash used in investing
activities................. (1,508,467) (2,090,648) (668,747) -- (4,267,862)
----------- ----------- ---------- ----- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt......... (1,511,339) (891,606) (572,677) -- (2,975,622)
----------- ----------- ---------- ----- ------------
Net cash used in financing
activities................. (1,511,339) (891,606) (572,677) -- (2,975,622)
----------- ----------- ---------- ----- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................... 12,764 1,082,402 434,604 -- 1,529,770
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................. 3,113,838 4,104,073 1,530,344 -- 8,748,255
----------- ----------- ---------- ----- ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR................................ $ 3,126,602 $ 5,186,475 $1,964,948 $ -- $ 10,278,025
=========== =========== ========== ===== ============
</Table>
F-24
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE -- BALANCE SHEET INFORMATION
AT DECEMBER 31, 2000
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.... $ 1,068,324 $ 684,394 $ 1,087,293 $ $ 2,840,011
Prepaid expenses:............ --
Gaming taxes............... 237,196 28,185 -- -- 265,381
Other...................... 133,269 176,266 56,777 -- 366,312
------------ ------------ ----------- -------- ------------
Total current
assets.............. 1,438,789 888,845 1,144,070 -- 3,471,704
------------ ------------ ----------- -------- ------------
OTHER ASSETS:
Net assets held for sale..... 40,704,997 65,054,132 37,583,761 -- 143,342,890
Restricted cash.............. 500,000 -- -- -- 500,000
Long-term accounts
receivable -- related
parties.................... 13,033 -- -- (7,724)(a) 5,309
------------ ------------ ----------- -------- ------------
Total other assets.... 41,218,030 65,054,132 37,583,761 (7,724) 143,848,199
------------ ------------ ----------- -------- ------------
TOTAL.......................... $ 42,656,819 $ 65,942,977 $38,727,831 $ (7,724) $147,319,903
============ ============ =========== ======== ============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
LIABILITIES NOT SUBJECT TO
COMPROMISE
CURRENT LIABILITIES:
Payroll and related.......... $ 118,409 $ 305,652 $ 67,194 $ -- $ 491,255
------------ ------------ ----------- -------- ------------
Total liabilities not
subject to
compromise.......... 118,409 305,652 67,194 -- 491,255
LIABILITIES SUBJECT TO
COMPROMISE................... 88,396,939 96,492,176 40,992,105 (7,724)(b) 225,873,496
------------ ------------ ----------- -------- ------------
Total liabilities..... 88,515,348 96,797,828 41,059,299 (7,724) 226,364,751
------------ ------------ ----------- -------- ------------
STOCKHOLDER'S DEFICIENCY....... (45,858,529) (30,854,851) (2,331,468) -- (79,044,848)
------------ ------------ ----------- -------- ------------
TOTAL.......................... $ 42,656,819 $ 65,942,977 $38,727,831 $ (7,724) $147,319,903
============ ============ =========== ======== ============
</Table>
- ---------------
(a) To eliminate intercompany accounts and notes receivable.
(b) To eliminate intercompany accounts and notes payable.
F-25
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE -- STATEMENT OF OPERATIONS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
OPERATING REVENUES:
Casino................. $38,476,427 $73,506,899 $36,793,529 $ -- $148,776,855
Food and beverage...... 8,541,003 8,658,645 2,386,565 -- 19,586,213
Rooms.................. 8,452,168 8,147,904 -- -- 16,600,072
Other.................. 2,246,343 977,444 306,245 -- 3,530,032
----------- ----------- ----------- ----- ------------
Total.......... 57,715,941 91,290,892 39,486,339 -- 188,493,172
Less promotional
allowances........ 5,576,597 16,229,247 6,949,780 -- 28,755,624
----------- ----------- ----------- ----- ------------
Net............ 52,139,344 75,061,645 32,536,559 -- 159,737,548
----------- ----------- ----------- ----- ------------
OPERATING COSTS AND
EXPENSES:
Casino................. 19,945,222 34,163,968 15,004,089 -- 69,113,279
Food and beverage...... 7,487,388 3,241,141 780,436 -- 11,508,965
Rooms.................. 6,672,465 4,231,886 -- -- 10,904,351
Other.................. 756,129 377,204 583,849 -- 1,717,182
Selling, general and
administrative...... 13,586,618 17,757,582 8,026,758 39,370,958
Depreciation and
amortization........ 3,698,468 6,234,911 1,754,585 -- 11,687,964
Reorganization items... -- 37,015 1,952 -- 38,967
----------- ----------- ----------- ----- ------------
Total.......... 52,146,290 66,043,707 26,151,669 -- 144,341,666
----------- ----------- ----------- ----- ------------
INCOME (LOSS) FROM
OPERATIONS............. (6,946) 9,017,938 6,384,890 15,395,882
OTHER INCOME (EXPENSE):
Interest income........ 49,433 88,699 29,314 -- 167,446
Interest expense....... (52,923) (16,561) (1,898) -- (71,382)
Interest expense --
related party....... (7,386,790) (11,848,387) (6,795,846) (26,031,023)
Other, net............. 48,943 (44,450) -- 4,493
----------- ----------- ----------- ----- ------------
NET LOSS................. $(7,348,283) $(2,802,761) $ (383,540) $ -- $(10,534,584)
=========== =========== =========== ===== ============
</Table>
F-26
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE -- STATEMENT OF CASH FLOWS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss......................... $(7,348,283) $(2,802,761) $ (383,540) $ $(10,534,584)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and
amortization................. 3,698,468 6,234,911 1,754,585 -- 11,687,964
Reorganization items incurred
in connection with Chapter 11
and related legal
proceedings.................. -- 37,015 1,952 -- 38,967
Other.......................... (7,963) 44,450 -- -- 36,487
(Increase) decrease in accounts
receivable, net.............. (295,349) (13,680) 75,670 -- (233,359)
(Increase) decrease in
inventories.................. 146,770 (57,423) 9,182 -- 98,529
(Increase) decrease in prepaid
expenses..................... (365,739) 6,734 (133,961) -- (492,966)
(Increase) decrease in other
assets....................... 17,285 (14,950) (141,363) -- (139,028)
Decrease in accounts payable... (746,909) (429,695) (231,515) -- (1,408,119)
Decrease in accrued and other
liabilities.................. (232,349) (1,864,197) (28,432) -- (2,124,978)
Increase in amounts due to
related parties, net......... 7,599,558 6,067,908 1,466,808 15,134,274
Increase in liabilities subject
to compromise................ 33,677 65,267 7,733 106,677
----------- ----------- ----------- ----- ------------
Net cash provided by operating
activities before
reorganization items......... 2,499,166 7,273,579 2,397,119 -- 12,169,864
Reorganization items incurred
in connection with Chapter 11
and related legal
proceedings.................. -- (37,015) (1,952) -- (38,967)
----------- ----------- ----------- ----- ------------
Net cash provided by
operating activities.... 2,499,166 7,236,564 2,395,167 -- 12,130,897
----------- ----------- ----------- ----- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets..... 7,963 -- 500 -- 8,463
Acquisition of property and
equipment...................... (1,250,139) (6,243,359) (1,518,444) -- (9,011,942)
----------- ----------- ----------- ----- ------------
Net cash used in investing
activities.............. (1,242,176) (6,243,359) (1,517,944) -- (9,003,479)
----------- ----------- ----------- ----- ------------
</Table>
F-27
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term debt...... (232,872) (220,688) -- -- (453,560)
----------- ----------- ----------- ----- ------------
Net cash used in financing
activities.............. (232,872) (220,688) -- -- (453,560)
----------- ----------- ----------- ----- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS...................... 1,024,118 772,517 877,223 -- 2,673,858
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR................ 3,126,602 5,186,475 1,964,948 -- 10,278,025
INCREASE IN CASH AND CASH
EQUIVALENTS INCLUDED IN NET
ASSETS HELD FOR SALE............. (3,082,396) (5,274,598) (1,754,878) -- (10,111,872)
----------- ----------- ----------- ----- ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................. $ 1,068,324 $ 684,394 $ 1,087,293 $ -- $ 2,840,011
=========== =========== =========== ===== ============
</Table>
F-28
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE -- BALANCE SHEET INFORMATION
AT DECEMBER 6, 2001
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...... $ 726,021 $ 2,388,390 $ 648,155 $ $ 3,762,566
Accounts receivable, net....... 3,963 192,532 29,000 225,495
Prepaid expenses:
Gaming taxes................. 783,392 32,360 1,838 817,590
Other........................ 275,749 309,651 194,838 780,238
------------ ----------- ---------- ------- ------------
Total current assets....... 1,789,125 2,922,933 873,831 -- 5,585,889
------------ ----------- ---------- ------- ------------
OTHER ASSETS:
Accounts receivable -- related
parties...................... -- 12,599,516 4,149,702 13,076(a) 16,762,294
Other assets................... -- 25,000 -- 25,000
------------ ----------- ---------- ------- ------------
Total other assets......... -- 12,624,516 4,149,702 13,076 16,787,294
------------ ----------- ---------- ------- ------------
TOTAL............................ $ 1,789,125 $15,547,449 $5,023,533 $13,076 $ 22,373,183
============ =========== ========== ======= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES NOT SUBJECT TO
COMPROMISE
CURRENT LIABILITIES:
Accounts payable............... $ 166,073 $ -- $ -- $ $ 166,073
Due to Majestic................ 2,405,289 1,716,150 (321,439) 3,800,000
Accrued and other:
Payroll and related.......... 204,835 486,628 227,680 919,143
Other........................ 76,034 98,912 89,786 264,732
------------ ----------- ---------- ------- ------------
Total current
liabilities............. 2,852,231 2,301,690 (3,973) -- 5,149,948
------------ ----------- ---------- ------- ------------
NOTE PAYABLE -- RELATED PARTY.... 215,749 -- -- 13,076(a) 228,825
------------ ----------- ---------- ------- ------------
Total liabilities not
subject to compromise... 3,067,980 2,301,690 (3,973) 13,076 5,378,773
LIABILITIES SUBJECT TO
COMPROMISE..................... 68,245,167 2,071,002 364,293 70,680,462
------------ ----------- ---------- ------- ------------
Total liabilities.......... 71,313,147 4,372,692 360,320 13,076 76,059,235
------------ ----------- ---------- ------- ------------
STOCKHOLDER'S DEFICIENCY......... (69,524,022) 11,174,757 4,663,213 -- (53,686,052)
------------ ----------- ---------- ------- ------------
TOTAL............................ $ 1,789,125 $15,547,449 $5,023,533 $13,076 $ 22,373,183
============ =========== ========== ======= ============
</Table>
- ---------------
(a) To eliminate intercompany accounts and notes receivable/payable.
F-29
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE -- STATEMENT OF OPERATIONS
INFORMATION FOR THE PERIOD FROM JANUARY 1, 2001 THROUGH DECEMBER 6, 2001
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
OPERATING REVENUES:
Casino............................ $ 37,401,549 $ 77,462,357 $ 35,806,661 $150,670,567
Food and beverage................. 7,619,373 8,480,323 2,265,547 18,365,243
Rooms............................. 7,421,444 7,620,756 -- 15,042,200
Other............................. 2,150,660 1,114,620 280,058 3,545,338
------------ ------------ ------------ --- ------------
Total......................... 54,593,026 94,678,056 38,352,266 -- 187,623,348
Less promotional allowances......... 5,157,564 17,965,548 6,840,890 29,964,002
------------ ------------ ------------ --- ------------
Net........................... 49,435,462 76,712,508 31,511,376 -- 157,659,346
------------ ------------ ------------ --- ------------
OPERATING COSTS AND EXPENSES:
Casino............................ 19,802,333 35,536,411 14,419,043 69,757,787
Food and beverage................. 6,692,684 3,041,117 891,216 10,625,017
Rooms............................. 6,357,318 3,461,234 -- 9,818,552
Other............................. 582,166 440,179 634,920 1,657,265
Selling, general and
administrative.................. 13,792,262 16,194,550 7,865,398 -- 37,852,210
Depreciation and amortization..... -- -- -- --
Reorganization items.............. 25,826,705 (23,994,013) (12,331,767) (10,499,075)
Write-down of assets.............. 13,005,582 13,005,582
------------ ------------ ------------ --- ------------
Total......................... 73,053,468 34,679,478 24,484,392 -- 132,217,338
------------ ------------ ------------ --- ------------
INCOME (LOSS) FROM OPERATIONS....... (23,618,006) 42,033,030 7,026,984 -- 25,442,008
OTHER INCOME (EXPENSE)
Interest income................... 38,407 -- -- 38,407
Interest expense.................. (34,637) (5,322) -- (39,959)
Other, net........................ (51,258) 1,900 (32,302) -- (81,660)
------------ ------------ ------------ --- ------------
NET INCOME (LOSS)................... $(23,665,494) $ 42,029,608 $ 6,994,682 $-- $ 25,358,796
============ ============ ============ === ============
</Table>
F-30
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE -- STATEMENT OF CASH FLOWS
INFORMATION FOR THE PERIOD FROM JANUARY 1, 2001 THROUGH DECEMBER 6, 2001
<Table>
<Caption>
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $(23,665,494) $ 42,029,608 $ 6,994,682 $-- $ 25,358,796
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Write-down of assets......................... -- -- 13,005,582 13,005,582
(Gain) loss on sale of assets to Majestic.... 25,290,831 (24,079,205) (12,333,437) (11,121,811)
Reorganization items incurred in connection
with Chapter 11 and related legal
proceedings................................ 535,874 85,192 1,670 622,736
Other........................................ 89,632 (1,900) 28,707 -- 116,439
(Increase) decrease in accounts receivable,
net........................................ 36,093 (24,085) (54,079) (42,071)
Decrease in amounts due to related parties,
net........................................ (8,418,141) (22,898,876) (9,087,324) -- (40,404,341)
(Increase) decrease in inventories........... 66,699 28,960 (29,611) 66,048
(Increase) decrease in prepaid expenses...... 424,323 (65,417) (102,921) 255,985
(Increase) decrease in other assets.......... 34,204 (7,089) -- 27,115
Increase (decrease) in accounts payable...... 799,009 (451,016) (107,187) 240,806
Increase (decrease) in due to Majestic....... 2,405,290 1,716,150 (321,440) 3,800,000
Increase (decrease) in liabilities subject to
compromise................................. 16,298 125,805 7,732 149,835
Increase (decrease) in accrued and other
liabilities................................ (87,589) 756,736 (44,678) 624,469
------------ ------------ ------------ --- ------------
Net cash used in operating activities before
reorganizational items..................... (2,472,971) (2,785,137) (2,042,304) (7,300,412)
Reorganization items:
Interest received on cash accumulated because
of the bankruptcy proceedings.............. -- 119,848 51,594 171,442
Professional fees paid for services rendered
in connection with the bankruptcy
proceedings................................ (25,128) -- (13,264) (38,392)
Other reorganization items incurred in
connection with Chapter 11 and related
legal proceedings.......................... (510,746) (205,040) (40,000) (755,786)
------------ ------------ ------------ --- ------------
Net cash used in operating activities........ (3,008,845) (2,870,329) (2,043,974) -- (7,923,148)
------------ ------------ ------------ --- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets................ -- -- 28,250 28,250
Acquisition of property and equipment........ (248,581) (627,258) (178,292) (1,054,131)
------------ ------------ ------------ --- ------------
Net cash used in investing activities........ (248,581) (627,258) (150,042) -- (1,025,881)
------------ ------------ ------------ --- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt.................. (167,273) (73,015) -- (240,288)
------------ ------------ ------------ --- ------------
Net cash used in financing activities........ (167,273) (73,015) -- -- (240,288)
------------ ------------ ------------ --- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS.... (3,424,699) (3,570,602) (2,194,016) (9,189,317)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD..................................... 1,068,324 684,394 1,087,293 2,840,011
INCREASE IN CASH AND CASH EQUIVALENTS
INCLUDED IN NET ASSETS HELD FOR SALE....... 3,082,396 5,274,598 1,754,878 10,111,872
------------ ------------ ------------ --- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..... $ 726,021 $ 2,388,390 $ 648,155 $-- $ 3,762,566
============ ============ ============ === ============
</Table>
F-31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAJESTIC INVESTOR HOLDINGS, LLC
MAJESTIC INVESTOR CAPITAL CORP.
OFFER TO EXCHANGE
11.653% SENIOR SECURED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
11.653% SENIOR SECURED NOTES 2007
-------------------------
PROSPECTUS
-------------------------
, 2002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
MAJESTIC INVESTOR HOLDINGS, LLC
Majestic Investor Holdings, LLC is a limited liability company organized
under the laws of the State of Delaware. We are empowered by Section 18-108 of
the Delaware Limited Liability Company Act (the "Act"), subject to the
procedures and limitations set forth in our limited liability company agreement,
to indemnify and hold harmless any member or manager or other person from and
against any an all claims and demands whatsoever.
Section 10 of our limited liability company agreement provides that we
shall indemnify any manager, and may indemnify any of our employees or agents
and any employees or agents of any manager, who was or is a party, or is
threatened to be made a party to a threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal (other than an action by us or in our right), by
reason that he is or was a manager, employee or agent of us or any manager,
against expenses (including attorneys' fees), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding, but only if he acted in good faith, without
gross negligence, and in a manner that such person reasonably believed to be in
our best interests, and, with respect to a criminal action or proceeding, if he
had no reasonable cause to believe his conduct was unlawful. To the extent that
a manager, employee or agent of us (or of the manager) is successful in
defending an action, suit or proceeding discussed above, or in defending any
claim, issue or other matter in the action, suit or proceeding, he shall be
indemnified against actual and reasonable expenses (including attorneys' fees)
incurred in connection with the action, suit or proceeding and any action, suit
or proceeding brought to enforce the mandatory indemnification described above.
We will make such mandatory indemnification only upon a determination that the
person to be indemnified has met the applicable standard of conduct and upon an
evaluation of the reasonableness of expenses and amount paid in settlement,
which shall be made in good faith by our member. Notwithstanding the foregoing,
we will not provide indemnification to any person for, or in connection with,
(a) the receipt of a financial benefit to which such person is not entitled, (b)
voting for or asserting to a distribution to members in violation of our limited
liability company agreement or the Act, (c) certain proscribed actions set forth
in our limited liability company agreement, or (d) a knowing violation of law.
MAJESTIC INVESTOR CAPITAL CORP.
Majestic Investor Capital Corp. is a corporation organized under the laws
of the State of Delaware. We are empowered by Section 145 of the Delaware
General Corporation Law (the "DGCL"), subject to the procedures and limitations
stated therein, to indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding by reason of the fact that such person is or was a director, officer,
employee or agent of the company, or is or was serving at the request of the
company as a director, officer, employee or agent of another corporation or
other enterprise, against reasonable expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually incurred by him in
connection with such action, suit or proceeding, if such director, officer,
employee or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. We are required by Section 145 to indemnify any person
against reasonable expenses (including attorneys' fees) actually incurred by him
in connection with an action, suit or proceeding in which he is a party because
he is or was a director, officer, employee or agent of the company or is or was
serving at the request of the company as a director, officer, employee or agent
of another corporation or other enterprise, if he has been successful, on the
merits or otherwise, in the defense of the action, suit or proceeding. Section
145 also allows a corporation to purchase and maintain insurance on behalf of
any such person against any liability asserted against him in any such capacity,
or arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of
Section 145.
II-1
In addition, Section 145 provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a person
may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
Article Eight of our charter provides that we shall indemnify and hold
harmless all of our officers and directors and advance expenses reasonably
incurred by such officers and directors in defending any civil, criminal,
administrative or investigative action, suit or proceeding, in accordance with
and to the fullest extent permitted by Section 145 of the DGCL. We maintain
directors and officers insurance covering them for certain liabilities,
including liabilities under the securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
1.1 Purchase Agreement, dated as of November 30, 2001, by and
among Majestic Investor, LLC, Majestic Investor Holdings,
LLC, Majestic Investor Capital Corp., Barden Nevada Gaming,
LLC, Barden Mississippi Gaming, LLC, Barden Colorado Gaming,
LLC and Jefferies & Company, Inc.*
2.1 Purchase and Sale Agreement dated as of November 22, 2000,
by and among Majestic Investor, LLC, Fitzgeralds Las Vegas,
Inc., 101 Main Street Limited Liability Company, Fitzgeralds
Mississippi, Inc., Fitzgeralds Gaming Corporation and
certain affiliates of the foregoing parties.*
2.2 First Amendment to Purchase and Sale Agreement dated as of
December 4, 2000 by and among Majestic Investor, LLC,
Fitzgeralds Las Vegas, Inc., 101 Main Street Limited
Liability Company, Fitzgeralds Mississippi, Inc.,
Fitzgeralds Gaming Corporation and certain affiliates of the
foregoing parties.*
2.3 Second Amendment to Purchase and Sale Agreement dated as of
November 1, 2001, by and among Majestic Investor Holdings,
LLC, Majestic Investor, LLC, Barden Nevada Gaming, LLC,
Barden Mississippi Gaming, LLC, Barden Colorado Gaming, LLC,
Fitzgeralds Las Vegas, Inc., 101 Main Street Limited
Liability Company, Fitzgeralds Mississippi, Inc. and
Fitzgeralds Gaming Corporation.*
3.1 Certificate of Formation of Majestic Investor Holdings,
LLC.*
3.2 Limited Liability Company Agreement of Majestic Investor
Holdings, LLC dated September 25, 2001.*
3.3 Certificate of Incorporation of Majestic Investor Capital
Corp.*
3.4 By-laws of Majestic Investor Capital Corp.*
3.5 Amended and Restated Articles of Organization of Barden
Colorado Gaming, LLC.*
3.6 Operating Agreement of Barden Colorado Gaming, LLC.*
3.7 Certificate of Formation of Barden Mississippi Gaming, LLC.*
3.8 Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed October 17, 2001.*
3.9 Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed September 25, 2001.*
3.10 Amended and Restated Operating Agreement of Barden
Mississippi Gaming, LLC.*
3.11 Articles of Organization of Barden Nevada Gaming, LLC.*
3.12 Certificate of Amendment of the Articles of Organization of
Barden Nevada Gaming, LLC.*
3.13 Operating Agreement of Barden Nevada Gaming, LLC.*
4.1 Indenture, dated as of December 6, 2001, between Majestic
Investor Holdings, LLC and Majestic Investor Capital Corp.,
as issuers, Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC, as subsidiary
guarantors, and The Bank of New York, as Trustee.*
</Table>
II-2
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
4.1.1 Indenture, dated as of December 6, 2001, between Majestic
Investor Holdings, LLC, Majestic Investor Capital Corp., as
issuers, Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC, as guarantors,
and Jefferies & Company, Inc.*
4.2 Registration Rights Agreement dated as of December 6, 2001,
among Majestic Investor Holdings, LLC, Majestic Investor
Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC and Barden Nevada Gaming, LLC, as
guarantors, and Jefferies & Company, Inc.*
4.3 Guarantee, dated as of December 6, 2001 of Barden
Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and
Barden Nevada Gaming, LLC.*
4.4 Pledge and Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC, and The
Bank of New York.*
4.5 Pledge Agreement dated as of December 6, 2001, by and
between Majestic Investor, LLC and The Bank of New York.*
4.6 Trademark Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC and The
Bank of New York.*
4.6.1 Trademark Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevado Gaming, LLC and the
Bank of New York.**
4.7 First Preferred Vessel Mortgage, dated as of December 6,
2001, by and between Barden Mississippi, LLC and The Bank of
New York.*
4.8 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Mississippi Gaming, LLC as Trustor, Jim B. Tohill as
Trustee and The Bank of New York as Beneficiary, dated as of
December 6, 2001.*
4.9 Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by and among Barden Nevada Gaming, LLC
as Trustor, Fidelity National Title Agency of Nevada, Inc.
as Trustee, and The Bank of New York as Beneficiary, dated
as of December 6, 2001.*
4.10 Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by and among Barden Colorado Gaming, LLC
as Trustor, The Public Trustee of the County of Gilpin,
State of Colorado as Trustee, and The Bank of New York as
Beneficiary, dated as of December 6, 2001.*
4.11 Intercreditor Agreement, dated as of December 6, 2001,
between The Bank of New York and Foothill Capital
Corporation.*
4.12 Loan and Security Agreement dated as of December 6, 2001, by
and among Majestic Investor Holdings, LLC, Barden Colorado
Gaming, LLC, Barden Mississippi Gaming, LLC, Barden Nevada
Gaming, LLC and Foothill Capital Corporation.*
4.12.1 Loan and Security Agreement dated as of December 6, 2001, by
Majestic Investor, LLC, Fitzgeralds Las Vegas, Inc., 101
Main Street Limited Liability Company, Fitzgeralds
Mississippi, Inc., Fitzgeralds Gaming Corporation and
certain affiliates of the foregoing parties dated as
November 22, 2000.*
4.13 General Continuing Guaranty dated as of December 6, 2001, by
Majestic Investor Holdings, LLC, Majestic Investor Capital
Corp., Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC, in favor of
Foothill Capital Corporation.*
4.14 Guarantor Security Agreement dated as of December 6, 2001 by
Majestic Investor Holdings, LLC and Majestic Investor
Capital Corp. in favor of Foothill Capital Corporation.*
4.15 First Preferred Vessel Mortgage, dated as of December 6,
2001, by Barden Mississippi Gaming, LLC in favor of Foothill
Capital Corporation.*
4.16 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Mississippi Gaming, LLC as Trustor, Jim B. Tohill as
Trustee and Foothill Capital Corporation as Beneficiary,
dated as of December 6, 2001.*
</Table>
II-3
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
4.17 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Nevada Gaming, LLC as Trustor, Fidelity National
Title Agency of Nevada, Inc. as Trustee, and Foothill
Capital Corporation as Beneficiary, dated as of December 6,
2001.*
4.18 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Colorado Gaming, LLC as Trustor, The Public Trustee
of the County of Gilpin, State of Colorado as Trustee, and
Foothill Capital Corporation as Beneficiary, dated as of
December 6, 2001.*
4.19 Stock Pledge Agreement dated as of December 6, 2001 between
Majestic Investor Holdings, LLC and Foothill Capital
Corporation.*
4.20 Guarantor Trademark Security Agreement dated as of December
6, 2001 between Majestic Investor Holdings, LLC and Foothill
Capital Corporation.*
4.21 Subordination of First Referred Vessel Mortgage Upon
Fitzgeralds Tunica (Official No. 262757).*
4.22 Subordination Agreement dated as of December 6, 2001 by
Barden Mississippi Gaming, LLC and The Bank of New York, in
favor of Foothill Capital Corporation.*
4.22.1 Subordination Agreement dated as of December 6, 2001 by
Barden Mississippi Gaming, LLC and The Bank of New York, in
favor of Foothill Capital Corporation.*
4.23 Subordination Agreement dated as of December 6, 2001 by
Barden Colorado Gaming, LLC and The Bank of New York, in
favor of Foothill Capital Corporation.*
4.23.1 Subordination Agreement dated as of December 6, 2001 by
Barden Colorado Gaming, LLC and The Bank of New York, in
favor of Foothill Capital Corporation.*
4.24 Subordination Agreement dated as of December 6, 2001 by
Barden Nevada Gaming, LLC and The Bank of New York, in favor
of Foothill Capital Corporation.*
4.24.1 Subordination Agreement dated as of December 6, 2001 by
Barden Nevada Gaming, LLC and The Bank of New York, in favor
of Foothill Capital Corporation.*
5.1 Opinion of Latham & Watkins.*
5.2 Opinion of Schreck Brignone Godfrey.*
5.3 Opinion of Watkins Ludlam Winter & Stennis, P.A.*
5.3.1 Opinion of Watkins Ludlam Winter & Stennis, P.A.*
5.4 Opinion of Robinson Waters & O'Dorisio.*
5.4.1 Opinion of Robinson Waters & O'Dorisio.*
10.1 Employment Agreement dated October 22, 2001 between Don H.
Barden and The Majestic Star Casino, LLC.*
10.2 Employment Agreement dated October 22, 2001 between Michael
E. Kelly and The Majestic Star Casino, LLC.*
10.3 Amended and Restated Management Agreement dated as of
December 6, 2001, between Majestic Investor Holdings, LLC
and Barden Development, Inc.*
10.4 Expense Reimbursement Agreement dated as of October 22, 2001
between Majestic Investor Holdings, LLC and The Majestic
Star Casino, LLC.*
10.4.1 Expense Reimbursement Agreement dated as of October 22, 2001
between Majestic Investor Holdings, LLC and The Majestic
Star Casino, LLC.**
10.5 Member Agreement dated as of December 6, 2001 by and among
Majestic Investor, LLC, Majestic Investor Holdings, LLC, The
Majestic Star Casino, LLC and Barden Development, Inc.*
10.6 Assignment of Membership Interest by and between Don H.
Barden and Majestic Investor, LLC dated as of August 18,
2001.*
10.7 Contribution and Assignment Agreement by and between
Majestic Investor, LLC and Majestic Investor Holdings, LLC
dated as of September 27, 2001.*
</Table>
II-4
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
10.8 Lease Agreement dated September 5, 1995 by and between John
A. Kramer, Sr., Trustee, Helen M. Kramer, Elizabeth Thatcher
Brooks and Betty Bennett, Executrix of the estate of John
David Kramer, as Lessor, and Fitzgeralds Las Vegas, Inc., as
Lessee.*
10.8.1 Assignment of Ground Lease, dated December 6, 2001, by and
between Fitzgeralds Las Vegas, Inc., as Assignor, and Barden
Nevada Gaming, LLC, as Assignee.*
10.9 Lease Agreement, dated September 1, 1978, between Jewel F.
Nolen and Julie L. Nolen, David Kramer and Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.*
10.9.1 Amendment to Kramer Ground Lease, dated December 20, 1982,
between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.*
10.9.2 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.*
10.9.2.1 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.*
10.9.3 Second Amendment to the Kramer Ground Lease, dated as of
November 1998, by and between Fitzgeralds Las Vegas, Inc, as
Lessee, and John A. Kramer, as Trustee, and Julie LaMoyne
Nolen, Betty Bennett and Richard James Tinkler, as Lessors.*
10.9.4 Assignment of Ground Lease, dated December 6, 2001, by
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee.*
10.10 Lease Agreement, dated July 21, 1954, between Las Vegas
Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John
Gluskin, as Lessee.*
10.10.1 Amendment to Lease Agreement, dated July 26, 1954, between
Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor,
and H. John Gluskin, as Lessee.*
10.10.2 Assignment, dated July 27, 1954.*
10.10.3 Supplemental Agreement of October 14, 1954, between Las
Vegas Lodge No. 32, Free & Accepted Masons and H. John
Gluskin.*
10.10.4 Assignment, dated February 2, 1955.*
10.10.5 Assignment, dated August 7, 1972.*
10.10.6 Articles of Amendment, dated June 7, 1973, between Las Vegas
Lodge No. 32, Free & Accepted Masons, as Lessor, and
Frederic N. Richman and The Pullman Company, d/b/a Nevada
Building Company.*
10.10.7 Assignment dated September 1, 1973.*
10.10.8 Amendment to Masonic Lodge Ground Lease, dated December 20,
1982.*
10.10.9 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 23, 1987, to the named recipients
and between Las Vegas Lodge No. 32, Free & Accepted Masons,
as Lessor, and H. John Gluskin, as Lessee.*
10.10.9.1 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 23, 1987 to the named recipients
and between Las Vegas Lodge No. 32, Free & Accepted Masons,
as Lessor, and H. John Gluskin, as Lessee.*
10.10.10 Second Amendment to Masonic Ground Lease, dated November 23,
1998, by and between Fitzgeralds Las Vegas, Inc, as Lessee,
and Las Vegas Lodge No. 32, Free and Accepted Masons of Las
Vegas, as Lessor.*
10.10.11 Lease Amendment and Estoppel Certificates, dated December 6,
2001 by and among Las Vegas Lodge No. 32, Free and Accepted
Masons, as Lessor, Fitzgeralds Las Vegas, Inc., as Lessee,
and Barden Nevada Gaming, LLC, as Successor Lessee.*
10.10.12 Assignment of Ground Lease, dated December 6, 2001, by
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee.*
</Table>
II-5
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
10.11 Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee,
under the wills of A.W. Ham and Alta M. Ham, as Lessor, and
Nevada Building Company, as Lessee.*
10.11.1 Amendments to Ham Ground Lease, dated December 20, 1982 and
December 30, 1982, between A.W. Ham, Jr., Trustee, as
Lessor, and M.B. Dalitz, as Lessee.*
10.11.2 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between A.W. Ham, Jr., Trustee, and M.B. Dalitz.*
10.11.3 Second Amendment to Ham Ground Lease, dated November 22,
1998, by and between Fitzgeralds Las Vegas, Inc., as Lessee
and Gary R. Dokter, Jacquelin Trahan-Weber, Georgia Makeever
and Carolyn Pressman, as Lessors.*
10.11.4 Assignment of Ground Lease, dated December 6, 2001, by and
between Fitzgeralds Las Vegas, Inc., as Assignor, and Barden
Nevada Gaming, LLC, as Assignee.*
10.12 Agreement Regarding Ground Leases by and between Barden
Nevada Gaming, LLC and The Bank of New York dated as of
December 6, 2001.*
10.13 Agreement Regarding Ground Leases by and between Barden
Nevada Gaming, LLC and Foothill Capital Corporation, dated
as of December 6, 2001.*
12.1 Computation of Ratio of Earnings to Fixed Charges for
Majestic Investor Holdings, LLC.*
21.1 List of Subsidiaries of Majestic Investor Holdings, LLC.*
23.1 Consent of Latham & Watkins (included as part of its opinion
filed as Exhibit 5.1).*
23.2 Consent of Schreck Brignone Godfrey (included as part of its
opinion filed as Exhibit 5.2).*
23.3 Consent of Watkins Ludlam Winter & Stennis, P.A. (included
as part of its opinion filed as Exhibit 5.3).*
23.3.1 Consent of Watkins Ludlam Winter & Stennis, P.A. (included
as part of its opinion filed as Exhibit 5.3.1).*
23.4 Consent of Robinson Waters & O'Dorisio (included as part of
its opinion filed as Exhibit 5.4).*
23.4.1 Consent of Robinson Waters & O'Dorisio (included as part of
its opinion filed as Exhibit 5.4.1).*
23.5 Consent of PricewaterhouseCoopers LLP.*
23.5.1 Consent of PricewaterhouseCoopers LLP.*
23.5.2 Consent of PricewaterhouseCoopers LLP.**
23.6 Consent of Deloitte & Touche LLP.*
23.6.1 Consent of Deloitte & Touche LLP.*
23.6.2 Consent of Deloitte & Touche LLP.**
24.1 Powers of Attorney (included on the signature page of this
Registration Statement).*
25.1 Statement of Eligibility of Trustee on Form T-1.*
25.1.1 Statement of Eligibility of Trustee on Form T-1.*
25.1.2 Statement of Eligibility of Trustee on Form T-1.**
99.1 Form of Letter of Transmittal for 11.653% Senior Secured
Notes due 2007.*
99.2 Form of Notice of Guaranteed Delivery of 11.653% Senior
Secured Notes due 2007.*
99.3 Form of Letter to DTC Participants.*
99.4 Form of Letter to Beneficial Owners.*
99.5 Guidelines for Certification of Taxpayer Identification
Number on Form W-9.*
99.6 Form of Exchange Agent Agreement.*
</Table>
- ---------------
* Previously filed.
** Filed herewith.
Certain exhibits are being refiled to include information that was
inadvertently omitted from the original filing.
II-6
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(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, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in 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 a 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 the time shall be deemed to
be the initial bona fide offering thereof; and
(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) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, 13, or 19(c) of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-7
(d) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
(e) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' annual reports pursuant to Section 13(a) or 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 the time shall be deemed to be
the initial bona fide offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants has duly caused this Amendment No. 2 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Detroit, State of Michigan, on June 7, 2002.
MAJESTIC INVESTOR HOLDINGS, LLC
By: *
------------------------------------
Don H. Barden
President and Chief Executive
Officer
MAJESTIC INVESTOR CAPITAL CORP.
By: *
------------------------------------
Don H. Barden
President and Chief Executive
Officer
BARDEN COLORADO GAMING, LLC
By: *
------------------------------------
Don H. Barden
President and Chief Executive
Officer
BARDEN MISSISSIPPI GAMING, LLC
By: *
------------------------------------
Don H. Barden
President and Chief Executive
Officer
BARDEN NEVADA GAMING, LLC
By: *
------------------------------------
Don H. Barden
President and Chief Executive
Officer
II-9
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS AND BY MICHAEL E. KELLY AS ATTORNEY-IN-FACT FOR THE SPECIFIED
PERSONS IN THE CAPACITIES INDICATED ON THE 7TH DAY OF JUNE, 2002.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
* President and Chief Executive Officer of Majestic
------------------------------------------------ Investor Holdings, LLC, Barden Colorado Gaming,
Don H. Barden LLC, Barden Mississippi Gaming, LLC and Barden
Nevada Gaming, LLC (Principal Executive Officer)
and President and Chief Executive Officer and
Director of Majestic Investor Capital Corp.
(Principal Executive Officer)
/s/ MICHAEL E. KELLY Executive Vice President, Chief Operating and
------------------------------------------------ Financial Officer and Secretary of Majestic
Michael E. Kelly Investor Holdings, LLC, Barden Colorado Gaming,
LLC, Barden Mississippi Gaming, LLC and Barden
Nevada Gaming, LLC (Principal Financial and
Accounting Officer) and Executive Vice President,
Chief Operating and Financial Officer, Secretary
and Director of Majestic Investor Capital Corp.
(Principal Financial and Accounting Officer)
*By: /s/ MICHAEL E. KELLY
------------------------------------------
</Table>
II-10
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
1.1 Purchase Agreement, dated as of November 30, 2001, by and
among Majestic Investor, LLC, Majestic Investor Holdings,
LLC, Majestic Investor Capital Corp., Barden Nevada Gaming,
LLC, Barden Mississippi Gaming, LLC, Barden Colorado Gaming,
LLC and Jefferies & Company, Inc.*
2.1 Purchase and Sale Agreement dated as of November 22, 2000,
by and among Majestic Investor, LLC, Fitzgeralds Las Vegas,
Inc., 101 Main Street Limited Liability Company, Fitzgeralds
Mississippi, Inc., Fitzgeralds Gaming Corporation and
certain affiliates of the foregoing parties.*
2.2 First Amendment to Purchase and Sale Agreement dated as of
December 4, 2000 by and among Majestic Investor, LLC,
Fitzgeralds Las Vegas, Inc., 101 Main Street Limited
Liability Company, Fitzgeralds Mississippi, Inc.,
Fitzgeralds Gaming Corporation and certain affiliates of the
foregoing parties.*
2.3 Second Amendment to Purchase and Sale Agreement dated as of
November 1, 2001, by and among Majestic Investor Holdings,
LLC, Majestic Investor, LLC, Barden Nevada Gaming, LLC,
Barden Mississippi Gaming, LLC, Barden Colorado Gaming, LLC,
Fitzgeralds Las Vegas, Inc., 101 Main Street Limited
Liability Company, Fitzgeralds Mississippi, Inc. and
Fitzgeralds Gaming Corporation.*
3.1 Certificate of Formation of Majestic Investor Holdings,
LLC.*
3.2 Limited Liability Company Agreement of Majestic Investor
Holdings, LLC dated September 25, 2001.*
3.3 Certificate of Incorporation of Majestic Investor Capital
Corp.*
3.4 By-laws of Majestic Investor Capital Corp.*
3.5 Amended and Restated Articles of Organization of Barden
Colorado Gaming, LLC.*
3.6 Operating Agreement of Barden Colorado Gaming, LLC.*
3.7 Certificate of Formation of Barden Mississippi Gaming, LLC.*
3.8 Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed October 17, 2001.*
3.9 Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed September 25, 2001.*
3.10 Amended and Restated Operating Agreement of Barden
Mississippi Gaming, LLC.*
3.11 Articles of Organization of Barden Nevada Gaming, LLC.*
3.12 Certificate of Amendment of the Articles of Organization of
Barden Nevada Gaming, LLC.*
3.13 Operating Agreement of Barden Nevada Gaming, LLC.*
4.1 Indenture, dated as of December 6, 2001, between Majestic
Investor Holdings, LLC and Majestic Investor Capital Corp.,
as issuers, Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC, as subsidiary
guarantors, and The Bank of New York, as Trustee.*
4.1.1 Indenture, dated as of December 6, 2001, between Majestic
Investor Holdings, LLC, Majestic Investor Capital Corp., as
issuers, Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC, as guarantors,
and Jefferies & Company, Inc.*
4.2 Registration Rights Agreement dated as of December 6, 2001,
among Majestic Investor Holdings, LLC, Majestic Investor
Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC and Barden Nevada Gaming, LLC, as
guarantors, and Jefferies & Company, Inc.*
4.3 Guarantee, dated as of December 6, 2001 of Barden
Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and
Barden Nevada Gaming, LLC.*
4.4 Pledge and Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC, and The
Bank of New York.*
4.5 Pledge Agreement dated as of December 6, 2001, by and
between Majestic Investor, LLC and The Bank of New York.*
</Table>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
4.6 Trademark Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC and The
Bank of New York.*
4.6.1 Trademark Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevado Gaming, LLC and the
Bank of New York.*
4.7 First Preferred Vessel Mortgage, dated as of December 6,
2001, by and between Barden Mississippi, LLC and The Bank of
New York.*
4.8 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Mississippi Gaming, LLC as Trustor, Jim B. Tohill as
Trustee and The Bank of New York as Beneficiary, dated as of
December 6, 2001.*
4.9 Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by and among Barden Nevada Gaming, LLC
as Trustor, Fidelity National Title Agency of Nevada, Inc.
as Trustee, and The Bank of New York as Beneficiary, dated
as of December 6, 2001.*
4.10 Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by and among Barden Colorado Gaming, LLC
as Trustor, The Public Trustee of the County of Gilpin,
State of Colorado as Trustee, and The Bank of New York as
Beneficiary, dated as of December 6, 2001.*
4.11 Intercreditor Agreement, dated as of December 6, 2001,
between The Bank of New York and Foothill Capital
Corporation.*
4.12 Loan and Security Agreement dated as of December 6, 2001, by
and among Majestic Investor Holdings, LLC, Barden Colorado
Gaming, LLC, Barden Mississippi Gaming, LLC, Barden Nevada
Gaming, LLC and Foothill Capital Corporation.*
4.12.1 Loan and Security Agreement dated as of December 6, 2001, by
Majestic Investor, LLC, Fitzgeralds Las Vegas, Inc., 101
Main Street Limited Liability Company, Fitzgeralds
Mississippi, Inc., Fitzgeralds Gaming Corporation and
certain affiliates of the foregoing parties dated as
November 22, 2000.*
4.13 General Continuing Guaranty dated as of December 6, 2001, by
Majestic Investor Holdings, LLC, Majestic Investor Capital
Corp., Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC, in favor of
Foothill Capital Corporation.*
4.14 Guarantor Security Agreement dated as of December 6, 2001 by
Majestic Investor Holdings, LLC and Majestic Investor
Capital Corp. in favor of Foothill Capital Corporation.*
4.15 First Preferred Vessel Mortgage, dated as of December 6,
2001, by Barden Mississippi Gaming, LLC in favor of Foothill
Capital Corporation.*
4.16 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Mississippi Gaming, LLC as Trustor, Jim B. Tohill as
Trustee and Foothill Capital Corporation as Beneficiary,
dated as of December 6, 2001.*
4.17 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Nevada Gaming, LLC as Trustor, Fidelity National
Title Agency of Nevada, Inc. as Trustee, and Foothill
Capital Corporation as Beneficiary, dated as of December 6,
2001.*
4.18 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Colorado Gaming, LLC as Trustor, The Public Trustee
of the County of Gilpin, State of Colorado as Trustee, and
Foothill Capital Corporation as Beneficiary, dated as of
December 6, 2001.*
4.19 Stock Pledge Agreement dated as of December 6, 2001 between
Majestic Investor Holdings, LLC and Foothill Capital
Corporation.*
4.20 Guarantor Trademark Security Agreement dated as of December
6, 2001 between Majestic Investor Holdings, LLC and Foothill
Capital Corporation.*
4.21 Subordination of First Referred Vessel Mortgage Upon
Fitzgeralds Tunica (Official No. 262757).*
4.22 Subordination Agreement dated as of December 6, 2001 by
Barden Mississippi Gaming, LLC and The Bank of New York, in
favor of Foothill Capital Corporation.*
</Table>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
4.22.1 Subordination Agreement dated as of December 6, 2001 by
Barden Mississippi Gaming, LLC and The Bank of New York, in
favor of Foothill Capital Corporation.*
4.23 Subordination Agreement dated as of December 6, 2001 by
Barden Colorado Gaming, LLC and The Bank of New York, in
favor of Foothill Capital Corporation.*
4.23.1 Subordination Agreement dated as of December 6, 2001 by
Barden Colorado Gaming, LLC and The Bank of New York, in
favor of Foothill Capital Corporation.*
4.24 Subordination Agreement dated as of December 6, 2001 by
Barden Nevada Gaming, LLC and The Bank of New York, in favor
of Foothill Capital Corporation.*
4.24.1 Subordination Agreement dated as of December 6, 2001 by
Barden Nevada Gaming, LLC and The Bank of New York, in favor
of Foothill Capital Corporation.*
5.1 Opinion of Latham & Watkins.*
5.2 Opinion of Schreck Brignone Godfrey.*
5.3 Opinion of Watkins Ludlam Winter & Stennis, P.A.*
5.3.1 Opinion of Watkins Ludlam Winter & Stennis, P.A.*
5.4 Opinion of Robinson Waters & O'Dorisio.*
5.4.1 Opinion of Robinson Waters & O'Dorisio.*
10.1 Employment Agreement dated October 22, 2001 between Don H.
Barden and The Majestic Star Casino, LLC.*
10.2 Employment Agreement dated October 22, 2001 between Michael
E. Kelly and The Majestic Star Casino, LLC.*
10.3 Amended and Restated Management Agreement dated as of
December 6, 2001, between Majestic Investor Holdings, LLC
and Barden Development, Inc.*
10.4 Expense Reimbursement Agreement dated as of October 22, 2001
between Majestic Investor Holdings, LLC and The Majestic
Star Casino, LLC.*
10.4.1 Expense Reimbursement Agreement dated as of October 22, 2001
between Majestic Investor Holdings, LLC and The Majestic
Star Casino, LLC.*
10.5 Member Agreement dated as of December 6, 2001 by and among
Majestic Investor, LLC, Majestic Investor Holdings, LLC, The
Majestic Star Casino, LLC and Barden Development, Inc.*
10.6 Assignment of Membership Interest by and between Don H.
Barden and Majestic Investor, LLC dated as of August 18,
2001.*
10.7 Contribution and Assignment Agreement by and between
Majestic Investor, LLC and Majestic Investor Holdings, LLC
dated as of September 27, 2001.*
10.8 Lease Agreement dated September 5, 1995 by and between John
A. Kramer, Sr., Trustee, Helen M. Kramer, Elizabeth Thatcher
Brooks and Betty Bennett, Executrix of the estate of John
David Kramer, as Lessor, and Fitzgeralds Las Vegas, Inc., as
Lessee.*
10.8.1 Assignment of Ground Lease, dated December 6, 2001, by and
between Fitzgeralds Las Vegas, Inc., as Assignor, and Barden
Nevada Gaming, LLC, as Assignee.*
10.9 Lease Agreement, dated September 1, 1978, between Jewel F.
Nolen and Julie L. Nolen, David Kramer and Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.*
10.9.1 Amendment to Kramer Ground Lease, dated December 20, 1982,
between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.*
10.9.2 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.*
10.9.2.1 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.*
10.9.3 Second Amendment to the Kramer Ground Lease, dated as of
November 1998, by and between Fitzgeralds Las Vegas, Inc, as
Lessee, and John A. Kramer, as Trustee, and Julie LaMoyne
Nolen, Betty Bennett and Richard James Tinkler, as Lessors.*
</Table>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
10.9.4 Assignment of Ground Lease, dated December 6, 2001, by
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee.*
10.10 Lease Agreement, dated July 21, 1954, between Las Vegas
Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John
Gluskin, as Lessee.*
10.10.1 Amendment to Lease Agreement, dated July 26, 1954, between
Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor,
and H. John Gluskin, as Lessee.*
10.10.2 Assignment, dated July 27, 1954.*
10.10.3 Supplemental Agreement of October 14, 1954, between Las
Vegas Lodge No. 32, Free & Accepted Masons and H. John
Gluskin.*
10.10.4 Assignment, dated February 2, 1955.*
10.10.5 Assignment, dated August 7, 1972.*
10.10.6 Articles of Amendment, dated June 7, 1973, between Las Vegas
Lodge No. 32, Free & Accepted Masons, as Lessor, and
Frederic N. Richman and The Pullman Company, d/b/a Nevada
Building Company.*
10.10.7 Assignment dated September 1, 1973.*
10.10.8 Amendment to Masonic Lodge Ground Lease, dated December 20,
1982.*
10.10.9 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 23, 1987, to the named recipients
and between Las Vegas Lodge No. 32, Free & Accepted Masons,
as Lessor, and H. John Gluskin, as Lessee.*
10.10.9.1 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 23, 1987, to the named recipients
and between Las Vegas Lodge No. 32, Free & Accepted Masons
of Las Vegas, as Lessor.*
10.10.10 Second Amendment to Masonic Ground Lease, dated November 23,
1998, by and between Fitzgeralds Las Vegas, Inc, as Lessee,
and Las Vegas Lodge No. 32, Free and Accepted Masons of Las
Vegas, as Lessor.*
10.10.11 Lease Amendment and Estoppel Certificates, dated December 6,
2001 by and among Las Vegas Lodge No. 32, Free and Accepted
Masons, as Lessor, Fitzgeralds Las Vegas, Inc., as Lessee,
and Barden Nevada Gaming, LLC, as Successor Lessee.*
10.10.12 Assignment of Ground Lease, dated December 6, 2001, by
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee.*
10.11 Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee,
under the wills of A.W. Ham and Alta M. Ham, as Lessor, and
Nevada Building Company, as Lessee.*
10.11.1 Amendments to Ham Ground Lease, dated December 20, 1982 and
December 30, 1982, between A.W. Ham, Jr., Trustee, as
Lessor, and M.B. Dalitz, as Lessee.*
10.11.2 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between A.W. Ham, Jr., Trustee, and M.B. Dalitz.*
10.11.3 Second Amendment to Ham Ground Lease, dated November 22,
1998, by and between Fitzgeralds Las Vegas, Inc., as Lessee
and Gary R. Dokter, Jacquelin Trahan-Weber, Georgia Makeever
and Carolyn Pressman, as Lessors.*
10.11.4 Assignment of Ground Lease, dated December 6, 2001, by and
between Fitzgeralds Las Vegas, Inc., as Assignor, and Barden
Nevada Gaming, LLC, as Assignee.*
10.12 Agreement Regarding Ground Leases by and between Barden
Nevada Gaming, LLC and The Bank of New York dated as of
December 6, 2001.*
10.13 Agreement Regarding Ground Leases by and between Barden
Nevada Gaming, LLC and Foothill Capital Corporation, dated
as of December 6, 2001.*
12.1 Computation of Ratio of Earnings to Fixed Charges for
Majestic Investor Holdings, LLC.*
21.1 List of Subsidiaries of Majestic Investor Holdings, LLC.*
23.1 Consent of Latham & Watkins (included as part of its opinion
filed as Exhibit 5.1).*
23.2 Consent of Schreck Brignone Godfrey (included as part of its
opinion filed as Exhibit 5.2).*
</Table>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
23.3 Consent of Watkins Ludlam Winter & Stennis, P.A. (included
as part of its opinion filed as Exhibit 5.3).*
23.3.1 Consent of Watkins Ludlam Winter & Stennis, P.A. (included
as part of its opinion filed as Exhibit 5.3.1).*
23.4 Consent of Robinson Waters & O'Dorisio (included as part of
its opinion filed as Exhibit 5.4).*
23.4.1 Consent of Robinson Waters & O'Dorisio (included as part of
its opinion filed as Exhibit 5.4.1).*
23.5 Consent of PricewaterhouseCoopers LLP.*
23.5.1 Consent of PricewaterhouseCoopers LLP.*
23.5.2 Consent of PricewaterhouseCoopers LLP.**
23.6 Consent of Deloitte & Touche LLP.*
23.6.1 Consent of Deloitte & Touche LLP.*
23.6.2 Consent of Deloitte & Touche LLP.**
24.1 Powers of Attorney (included on the signature page of this
Registration Statement).*
25.1 Statement of Eligibility of Trustee on Form T-1.*
25.1.1 Statement of Eligibility of Trustee on Form T-1.*
25.1.2 Statement of Eligibility of Trustee on Form T-1.**
99.1 Form of Letter of Transmittal for 11.653% Senior Secured
Notes due 2007.*
99.2 Form of Notice of Guaranteed Delivery of 11.653% Senior
Secured Notes due 2007.*
99.3 Form of Letter to DTC Participants.*
99.4 Form of Letter to Beneficial Owners.*
99.5 Guidelines for Certification of Taxpayer Identification
Number on Form W-9.*
99.6 Form of Exchange Agent Agreement.*
</Table>
- ---------------
* Previously filed.
** Filed herewith.
Certain exhibits are being refiled to include information that was
inadvertently omitted from the original filing.