AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 2003
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
THE MAJESTIC STAR CASINO, LLC
THE MAJESTIC STAR CASINO CAPITAL CORP.
AND THE SUBSIDIARY GUARANTORS LISTED ON SCHEDULE A HERETO
(Exact names of Registrants as Specified in their Charters)
<Table>
INDIANA 7900 43-1664986
INDIANA 7900 35-2100872
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Numbers) Identification Numbers)
</Table>
301 FREMONT STREET, 12TH FLOOR
LAS VEGAS, NEVADA 89101
(702) 388-2224
(Address, including zip code, and telephone number,
including area code, of Registrants'
principal executive offices)
JON S. BENNETT
VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
THE MAJESTIC STAR CASINO, LLC
THE MAJESTIC STAR CASINO CAPITAL CORP.
301 FREMONT STREET, 12TH FLOOR
LAS VEGAS, NEVADA 89101
(702) 388-2224
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
WITH A COPY TO:
JIN-KYU KOH, ESQ.
DYKEMA GOSSETT PLLC
400 RENAISSANCE CENTER
DETROIT, MICHIGAN 48243
(313) 568-6627
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. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE PRICE FEE(1)(3)
- ---------------------------------------------------------------------------------------------------------------------------------
9 1/2% Senior Secured Notes due 2010......... $260,000,000 100% $260,000,000 $21,034
Guarantees of the 9 1/2% Senior Secured Notes
due 2010(2)................................ -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) The registration fee has been calculated pursuant to Rule 457(a), Rule
457(f)(2) and Rule 457(n) under the Securities Act of 1933, as amended. The
Proposed Maximum Aggregate Offering Price is estimated solely for the
purpose of calculating the registration fee.
(2) The notes are guaranteed by the guarantors named in Schedule A below. No
separate consideration will be paid in respect of the guarantees.
(3) Pursuant to Rule 457(n), no separate fee is payable for the guarantees.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY 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
SEC ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE A
OTHER REGISTRANTS--SUBSIDIARY GUARANTORS
<Table>
<Caption>
PRIMARY
STATE OR OTHER STANDARD IRS
JURISDICTION OF INDUSTRIAL EMPLOYER
INCORPORATION OR CLASSIFICATION IDENTIFICATION
NAME OF REGISTRANT ORGANIZATION CODE NUMBER NUMBER
- ------------------ ---------------- --------------- --------------
Majestic Investor, LLC............................... Delaware 7900 35-2117363
Majestic Investor Holdings, LLC...................... Delaware 7900 36-4468392
Majestic Investor Capital Corp. ..................... Delaware 7900 36-4471622
Barden Colorado Gaming, LLC.......................... Colorado 7900 91-2118674
Barden Mississippi Gaming, LLC....................... Mississippi 7900 62-1868783
</Table>
The address, including zip code, and telephone number, including area code,
of the principal offices of the other registrants listed above is 301 Fremont
Street, 12th Floor, Las Vegas, Nevada 89101 (702) 388-2224.
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 DECEMBER 5, 2003
PROSPECTUS
THE MAJESTIC STAR CASINO, LLC
THE MAJESTIC STAR CASINO CAPITAL CORP.
OFFER TO EXCHANGE
9 1/2% SENIOR SECURED NOTES DUE 2010,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
9 1/2% SENIOR SECURED NOTES DUE 2010
We are offering to exchange all of our outstanding 9 1/2% Senior Secured
Notes due 2010, which we refer to as the unregistered notes, for our registered
9 1/2% Senior Secured Notes due 2010, 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 October 7, 2003. 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
, 2004, unless we extend the offer.
- - You should carefully review the procedures for tendering the unregistered
notes beginning on page 72 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 October 15, 2010.
- - We will pay interest on the notes at a rate of 9.5% per year payable
semi-annually on April 15 and October 15, beginning April 15, 2004.
- - The 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
existing and future senior indebtedness, including our new $80.0 million
senior secured credit facility.
- - Our existing and future restricted subsidiaries will guarantee the notes on a
senior secured basis.
- - As security for the notes, we have pledged our equity interests, our equity
interests in the subsidiary guarantors and substantially all of our and the
subsidiary guarantors' current and future assets. The pledge of our equity
interests and our pledge of equity interests in Majestic Investor, LLC and
Majestic Investor Holdings, LLC will be effective on gaming regulatory
authority approval. Concurrently with the closing of the offering of the
unregistered notes, we entered into a $80.0 million senior secured credit
facility. This credit facility will also be secured by the collateral securing
the notes and the guarantee of our restricted subsidiaries. The lien on the
collateral securing the credit facility will be senior to the lien on the
collateral securing the notes and the subsidiary guarantees. The notes will
have a prior claim on the collateral ahead of our unsecured senior
indebtedness and unsecured trade credit.
- - On or after October 15, 2007, we may redeem all or a portion of the notes at a
redemption price of 104.750% of the principal amount during the twelve month
period beginning October 15, 2007, 102.375% during the twelve month period
beginning October 15, 2008 and 100.00% during the twelve month period
beginning October 15, 2009 and thereafter, plus accrued and unpaid interest.
Prior to October 15, 2006, we may redeem up to 35% of the original aggregate
principal amount of the notes at a redemption price of 109.5% of the principal
amount of the notes, plus accrued and unpaid interest, with the net cash
proceeds of certain equity offerings we may make.
- - 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 14 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 , 2004
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.
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.
------------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Where You Can Find More Information......................... ii
Incorporation of Certain Documents by Reference............. ii
Market Share, Ranking and Other Data........................ iii
Forward-Looking Statements.................................. iii
Prospectus Summary.......................................... 1
Risk Factors................................................ 15
Use of Proceeds............................................. 26
Capitalization.............................................. 27
Unaudited Pro Forma Condensed Consolidated Financial Data... 28
Selected Historical Financial and Operating Data............ 33
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
Quantitative and Qualitative Disclosure About Market Risk... 53
Business.................................................... 54
Properties..................................................
Management.................................................. 62
Summary Compensation Table.................................. 64
Security Ownership of Certain Beneficial Owners and
Management................................................ 66
Certain Relationships and Related Transactions.............. 68
Description of Credit Facility and Intercreditor
Agreement................................................. 69
The Exchange Offer.......................................... 70
Description of Registered Notes............................. 81
Material Agreements......................................... 119
Government Regulation and Licensing......................... 121
United States Federal Income Tax Considerations............. 137
Plan of Distribution........................................ 141
Legal Matters............................................... 142
Experts..................................................... 142
Index of Historical Consolidated 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
The Majestic Star Casino, LLC, 301 Fremont Street, 12th Floor, Las Vegas, Nevada
89101, telephone (702) 388-2224.
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 The Majestic Star Casino, LLC or The
Majestic Star Casino 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.
The Majestic Star Casino, LLC 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 The
Majestic Star Casino, LLC at 301 Fremont Street, 12th Floor, Las Vegas, Nevada
89101, Attention: Jon S. Bennett, telephone (702) 388-2224. 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
MARKET SHARE, RANKING AND OTHER DATA
The market share, ranking and other data contained in this prospectus are
based either on management's own estimates, independent industry publications,
reports by market research firms or other published independent sources, and, in
each case, are believed by management to be reasonable estimates. However,
market share data is subject to change and cannot always be verified with
complete certainty due to limits on the availability and reliability of raw
data, the voluntary nature of the data gathering process and other limitations
and uncertainties inherent in any statistical survey of market shares. In
addition, consumer preferences can and do change. As a result, you should be
aware that market share, ranking and other similar data set forth herein, and
estimates and beliefs based on such data, may not be reliable.
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," "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 CAUSE US TO MODIFY OUR PLANS AND OBJECTIVES, 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;
- 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;
- changes or developments in laws, regulations or taxes in the casino and
gaming industry including increases in new taxes imposed on gaming
revenues, gaming devices or admission taxes;
- increased competition in existing markets or the opening of new gaming
jurisdictions;
- 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, or loss and/or retirement of key employees;
- finding of unsuitability by regulatory authorities with respect to us or
our officers of key employees;
- 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;
iii
- 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 in the
company's markets, changes in general customer confidence or spending,
increased fuel and transportation costs, or travel concerns 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;
- changes in our business strategy, capital improvements or development
plans;
- the ability to fund capital improvements and development needs from
existing operations and from new financing;
- risk of our joint venture partner, Trump Indiana, Inc., not making its
lease payments when due in connection with the parking facility in Gary,
Indiana or failing to fund the joint venture;
- adverse results from significant litigation matters;
- 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 that may be disclosed from time to time in filings we make
with the SEC or otherwise.
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. The Majestic
Star Casino, LLC conducts its operations both directly and through its
subsidiaries. In this prospectus, unless indicated otherwise, "Majestic," "the
Company," "we," "us," and "our" refer to The Majestic Star Casino, LLC, The
Majestic Star Casino Capital Corp., and the subsidiary guarantors and the term
"issuers" refers to The Majestic Star Casino, LLC and The Majestic Star Casino
Capital Corp., collectively. The term "unregistered notes" refers to our
outstanding 9 1/2% Senior Secured Notes due 2010 that we issued on October 7,
2003 and that have not been registered under the Securities Act. The term
"registered notes" refers to the 9 1/2% Senior Secured Notes due 2010 offered
pursuant to this prospectus. The term "notes" refers to the unregistered notes
and the registered notes collectively.
We have applied to the Nevada Gaming Commission and Nevada Gaming Control
Board for approval to spin-off Barden Nevada Gaming, LLC ("Barden Nevada"), the
owner and operator of Fitzgeralds Las Vegas, to Barden Development, Inc.
("BDI"), our parent, and in anticipation of the spin-off, we have designated
Barden Nevada as our unrestricted subsidiary. Barden Nevada is not a guarantor
and none of Barden Nevada's assets serve as collateral for the notes.
Accordingly, unless otherwise noted, this prospectus assumes the consummation of
the spin-off. Slot machines and table counts, unless otherwise stated, are as of
September 30, 2003.
The term "refinancing transactions" refers to the issuance of the
unregistered notes, the purchase and/or redemption of all of the 10 7/8% notes
due 2006 previously issued by The Majestic Star Casino, LLC (the "10 7/8%
notes"), the purchase of approximately 89% of the 11.653% notes due 2007
previously issued by Majestic Investor Holdings, LLC (the "11.653% notes"), the
establishment of a new $80.0 million senior secured credit facility, the
termination of the previous credit facilities of The Majestic Star Casino, LLC
(the "Old Majestic Star credit facility") and Majestic Investor Holdings, LLC
(the "Old Majestic Investor Holdings credit facility"), borrowings of $28.0
million under the new $80.0 million credit facility and the spin-off of Barden
Nevada to BDI.
THE COMPANY
We own and operate three casino properties, located in Gary, Indiana,
Tunica County, Mississippi, and Black Hawk, Colorado. Our properties
collectively contain approximately 3,400 slot machines, 90 table games and 500
hotel rooms (Fitzgeralds Tunica only). Our properties are well established, each
having been in operation for at least seven years, and are well situated within
significant drive-in gaming markets. Within each market, we leverage our strong
brand names, experienced management, value-oriented amenities and emphasis on
slot play to target mid-level gaming customers, who overwhelmingly favor slot
play.
We are 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.
1
OUR PROPERTIES AND THEIR MARKETS
The following table summarizes some key operating data of our properties as
of September 30, 2003:
<Table>
<Caption>
MAJESTIC STAR FITZGERALDS FITZGERALDS BLACK
CASINO TUNICA HAWK
------------- ------------- -----------------
PROPERTY DATA:
Date Opened.......................... June 1996 June 1994 May 1995
Gaming Square Feet................... 43,000 36,000 10,253
Slot Machines........................ 1,468 1,357 594
Table Games.......................... 50 34 6
Hotel Rooms.......................... -- 435 standard --
72 suites
Amenities............................ - Food Court - Buffet - Restaurant
- Restaurant - Steak house - Bar
- Gift Shop - Coffee shop
- Ballroom - 2 bars
- Ballroom
- Gift shop
Parking.............................. 2,000 covered 411 covered 392 covered valet
2,600 surface 1,264 surface
120 valet
</Table>
COMPETITIVE STRENGTHS
Good Locations in Strong Drive-in Markets. Our properties are located in
significant drive-in gaming markets, which we believe have benefited or will
benefit from the shift towards seeking entertainment closer to home as a result
of recent world events.
- Majestic Star Casino. The Majestic Star Casino is located in, and
primarily draws from, the Chicago metropolitan area, but also attracts
drive-in customers from other areas in Illinois, Indiana, and Michigan.
The Chicago metropolitan area is the third most populated metropolitan
area in the United States, with approximately 8.4 million residents.
Approximately 11.9 million and 25.6 million people reside within a 100
and 200-mile radius of the Majestic Star Casino, respectively. The
Majestic Star Casino operates from the Buffington Harbor gaming complex,
which we share with the Trump Casino and own through a joint venture (the
"BHR Joint Venture") with an indirect subsidiary of Trump Hotels and
Casino Resorts, Inc. (our "Joint Venture Partner"). Buffington Harbor has
the highest concentration of gaming positions in the Chicago market,
offering patrons a total of approximately 3,700 gaming positions. We
believe the high concentration of gaming positions and the ability to
park once and play twice (at two casinos) provide a strong competitive
advantage.
- Fitzgeralds Tunica. Fitzgeralds Tunica primarily draws its gaming
patrons from the Memphis, Tennessee area and also attracts drive-in
customers from Northern Mississippi and Little Rock, Arkansas, as well as
regional weekend travelers flying into Memphis. The Tunica market draws
most of its customers from within a 200-mile radius. The population
within this 200-mile radius is approximately 7.4 million. In addition,
there were approximately 24.0 million visitors to the Tunica region in
2002.
- Fitzgeralds Black Hawk. Fitzgeralds Black Hawk is located in the Black
Hawk/Central City market, which includes the City of Black Hawk and
Central City, and attracts drive-in or "day trip" customers from the
population centers of Denver, Boulder and Fort Collins, Colorado as well
as Cheyenne, Wyoming. Each of these population centers is located within
a 100-mile radius of the Black
2
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 3.8 million in 2002.
Strong Gaming Brands. We believe our strong gaming brands help attract and
retain customers.
- Majestic Star and Buffington Harbor. We utilize a comprehensive
integrated marketing campaign to brand the Majestic Star Casino as "the
place to play" in the Chicago metropolitan area for slot customers from
the middle-income segment. Our ads have appeared in all advertising
venues including television, radio, print and outdoor media, allowing us
to enhance our slot leadership positioning among Chicago-area gaming
facilities. We intend to utilize these and other similar broad marketing
techniques to attract middle-income customers, who we are then able to
qualify and target for direct marketing activities.
- Fitzgeralds. 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 our 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. We believe that
this theme creates an exciting and comfortable environment together with
a distinctive brand identity for customers. 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 Fitzgeralds properties.
Strong Ownership and Experienced Management. We 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 developing,
operating, and acquiring properties in the gaming industry. Mr. Barden also has
successfully built, owned, and operated numerous businesses in the cable
television, international trade, and real estate industries and has owned and
operated several radio stations over the past 35 years. Barden Companies, Inc.,
a company wholly owned by Mr. Barden and one of our affiliates, was recently
named "Company of the Year" for 2003 by Black Enterprise magazine. In addition,
we have a proven management team with substantial experience in the gaming
industry and with our properties in their respective markets. Our chief
operating officer and our chief financial officer, together with the three
general managers at each of our properties, have on average approximately 25
years of experience in the gaming industry with various gaming companies
throughout the United States.
OUR OPERATING STRATEGY
Emphasize Slot Play. We emphasize slot machine wagering, which we believe
is the fastest growing, most stable and most profitable segment of the casino
entertainment business. The increasing popularity of slot machines is due, in
part, to the continuing rapid technological innovation that is resulting in the
replacement of older devices with advanced interactive electronic games and bill
acceptors. During 2003, we will convert and/or purchase approximately 400 slot
machines at the Majestic Star Casino that utilize coinless slot technology. We
plan on converting the majority of our remaining slot machines by the end of
2004. These newer games offer greater variety, higher frequency payouts and
longer periods of play for the casino entertainment dollar relative to
traditional reel devices. We continue to enhance and modify our mix of slot
machines to coinless technology to meet the demand of our customers. As a result
of our continued focus on slot play, slot revenues generated approximately 86.2%
of our gaming revenues for the nine months ended September 30, 2003.
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,
3
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 and beverages and, at Fitzgeralds Tunica, lodging operations
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 Majestic and Fitzgeralds Cards as part of a frequent
player recognition program.
We believe that such an 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 our brands and our reputation for
quality and service at an affordable price. This strategy was developed, in
part, based on our experience operating casinos but as with any strategy, its
success can only be measured by actual results.
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:
- Majestic Star Casino. We have been able to expand our gaming operations
at the Majestic Star Casino through a change in the Indiana state law
governing gaming, which enables Indiana's riverboat casinos to operate
dockside. The Indiana Gaming Commission ("IGC") approved the Majestic
Star Casino's flexible boarding plan in August 2002, which allows the
continuous ingress and egress of patrons for the purpose of gambling
while the riverboat is docked. Dockside operations allow our customers
unrestricted access to our gaming facility and eliminate many of the
inconveniences created through restricted boarding. In advance of the
conversion to dockside operations, we, through an affiliate, entered into
a lease for a new 2,000 space covered parking garage adjacent to and with
direct access to Buffington Harbor in May 2002. In conjunction with the
parking garage, we and our Joint Venture Partner, through the BHR Joint
Venture, remodeled the second floor of the gaming complex with a new and
enhanced food court, brightened aesthetics and improved access to the
garage. We believe that the convenience of the new parking structure and
dockside gaming has attracted a significant number of new customers to
Buffington Harbor. As a result, our net revenues increased 4.6% for the
nine months ended September 30, 2003, compared to the nine months ended
September 30, 2002.
In addition to these recent developments, we believe that we will benefit
from several tangible growth opportunities. In July 2003, the IGC began to
allow Indiana casinos to operate 24 hours per day, and we immediately
implemented 24-hour operations at the Majestic Star Casino. These extended
hours will allow us to further leverage our property and the Buffington
Harbor gaming complex. To attract more patrons, we have constructed an
outdoor festival area, which we expect to open in spring 2004, and
recently converted our first floor ticketing area into a 600-person
banquet and entertainment facility. These facilities will be available for
weddings, concerts, fairs, social gatherings, flea markets and other
events designed to increase traffic to our casino.
The Buffington Harbor gaming complex is located on an approximately
100-acre site. We believe that this is only one of two locations in the
Chicago market with the capacity to significantly expand its land-based
facilities. We are also evaluating the potential purchase and development
of land adjacent to the Buffington Harbor gaming complex, which is
currently owned by an affiliate of ours. If acquired, we intend to use
this land for development opportunities, which may include possible joint
venture opportunities with the City of Gary and/or private third parties.
The City of Gary is expected to start construction in spring 2004 on a new
access road to the casino with possible construction of a marina later in
the year. A hotel, conference center and outdoor amphitheater are also
being evaluated which could be constructed with public and private funds.
4
- Fitzgeralds Tunica. We believe that the 180-acre, $26.0 million Tunica
River Front Park that is under development adjacent to our Fitzgeralds
Tunica property will attract new customers to our facility. The park is
expected to 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 on the park began in mid October 2001, and the park
began opening in phases in October 2003 with additional phases opening
through March 2004. 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 Tunica County. As consideration for the conveyance, Tunica County
granted us certain rights, easements and licenses to operate a daily
excursion boat from the marina and visitors center or to lease or license
those rights to a third party. The rights, leases and licenses will
expire 15 years from the date of substantial completion of the marina. 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. The daily excursion riverboat began operating in
October 2003. In an effort to increase customer traffic to the Tunica
area, Tunica County also is expanding its airport into a regional
airport. The first phase was completed in June 2003 and the final phase
is scheduled for completion in the fourth quarter of 2004. 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. We believe that the market has potential for
future growth due to various proposals to improve access to Black Hawk.
The State of Colorado Department of Transportation is currently
conducting an Environmental Impact Study to expand the road leading to
Black Hawk and to construct a tunnel leading to the downtown gaming area
from I-70, the major interstate highway from Denver. In addition, the
Central City Business Improvement District has begun construction on a
new road to Central City, which we believe will enhance access to our
facility. We believe these projects, if completed, would improve access
to our facility and will increase visits to our casino, and thereby
increase our cash flow. To further capitalize on market growth
opportunities, we recently completed a partial demolition project on
property adjacent to and owned by Fitzgeralds Black Hawk. The property is
available for expansion if market conditions warrant and we are currently
evaluating the feasibility of such an expansion.
THE MAJESTIC STAR CASINO CAPITAL CORP.
The Majestic Star Casino Capital Corp. is a wholly owned subsidiary of The
Majestic Star Casino, LLC, and was formed specifically to facilitate the
offering of the notes. It does not have any material assets, obligations or
operations.
5
SUMMARY OF THE TERMS OF EXCHANGE OFFER
Securities To Be Exchanged.... On October 7, 2003, we issued $260.0 million 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 $260.0 million in aggregate
principal amount are outstanding.
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 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
6
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
purchasers on October 7, 2003. The initial
purchasers 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
4, 2004; 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 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, ,
2004, 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 9.5% per year beginning October 7,
2003. This interest will be payable semi-
annually on each April 15 and October 15, with
the first payment on April 15, 2004. Each
exchange note will bear interest from October
7, 2003, the issuance date of the unregistered
notes. The holders of the unregistered notes
that are accepted for exchange will be deemed
to have waived the right to receive payment of
accrued interest on those unregistered notes
from October 7, 2003 to the date of issuance of
the registered notes. Interest on the
unregistered notes accepted for exchange will
cease to accrue upon issuance of the registered
notes.
Consequently, if you exchange your unregistered
notes for registered notes, you will receive
the same interest payment on April 15, 2004,
which is the first interest payment date with
respect to the unregistered notes and the
registered notes, that you would have received
if you had not accepted this exchange offer.
See "Description of Registered Notes."
7
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 not subject to any
condition other than that the exchange offer
not violate applicable law or applicable policy
of the SEC. 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.
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 business 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
, 2004. 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."
8
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 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."
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 70 under the heading "The
Exchange Offer" for more detailed information concerning the exchange offer.
9
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
Registered Notes." For purposes of the description of the registered notes
included in this Prospectus, references to the "Company," "Issuers," "us," "we"
and "our" refer only to The Majestic Star Casino, LLC and The Majestic Star
Casino Capital Corp., collectively, and do not include our subsidiaries or any
other entities.
Issuers....................... The Majestic Star Casino, LLC and its wholly
owned subsidiary, The Majestic Star Casino
Capital Corp.
Registered Notes Offered...... $260.0 million aggregate principal amount of
9 1/2% Senior Secured Notes due 2010.
Maturity Date................. October 15, 2010.
Interest Rate................. We will pay interest on the registered notes at
an annual rate of 9.5%.
Interest Payment Dates........ We will make interest payments on the
registered notes semiannually, on each April 15
and October 15, beginning April 15, 2004.
Collateral.................... The registered notes will be secured by, among
other assets, our equity interests, our equity
interests in the subsidiary guarantors
(effective upon receipt of gaming approval),
and substantially all of our and our subsidiary
guarantors' assets, other than the excluded
assets. The lien on the collateral securing the
senior secured credit facility is senior to the
lien on the collateral securing the notes and
the guarantees.
Guarantees.................... The registered notes will be fully,
unconditionally and jointly and severally
guaranteed on a senior secured basis by each of
our existing and future restricted
subsidiaries. The guarantees will rank senior
in right of payment to all existing and future
subordinated indebtedness of these restricted
subsidiaries and will rank equal in right of
payment to 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. However, because of
the security interests in the collateral, the
senior secured credit facility will have a
prior claim on the collateral ahead of the
notes. The notes will have a prior claim on the
collateral ahead of our unsecured senior
indebtedness and unsecured trade credit.
10
Intercreditor Agreement....... The intercreditor agreement entered into by the
trustee under the indenture (as collateral
agent) and the agent under the senior secured
credit facility contractually subordinates the
liens on the collateral securing the notes and
guarantees to the liens on the collateral
securing the indebtedness under the senior
secured credit facility. The intercreditor
agreement, among other things, will limit the
trustee's rights in an event of default under
the notes. In addition, the intercreditor
agreement will prevent the trustee and the
holders of the notes from pursuing certain
remedies with respect to the collateral in an
insolvency proceeding. The intercreditor
agreement also will provide that the net
proceeds from the sale of collateral will first
be applied to repay indebtedness outstanding
under the senior secured credit facility and
thereafter to the holders of the notes.
Optional Redemption........... Prior to October 15, 2006, we may redeem up to
35% of the original aggregate principal amount
of the notes at a redemption price of 109.5% of
the principal amount of the notes, plus accrued
and unpaid interest, with the net cash proceeds
of certain equity offerings we may make. On or
after October 15, 2007, we may redeem all or a
portion of the notes at the following
redemption prices, plus accrued and unpaid
interest:
<Table>
<Caption>
FOR THE TWELVE MONTH PERIOD COMMENCING OCTOBER 15 PERCENTAGE
------------------------------------------------- ----------
2007............................................ 104.750%
2008............................................ 102.375%
2009 and thereafter............................. 100.000%
</Table>
Regulatory 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 of control, the
holders of the notes will have the right to
require us to repurchase their notes at a price
equal to 101% of the principal amount, plus
accrued and unpaid interest to the date of
repurchase.
Asset Sale Offer.............. If we sell our assets, or those of our
restricted subsidiaries, or experience an event
of loss and we do not use the proceeds for
specified purposes, we may be required to use
the proceeds to offer to repurchase some of the
notes at a price equal to 100% of the principal
amount, plus accrued and unpaid interest to the
date of repurchase.
Basic Indenture Covenants..... We will issue the registered notes under an
indenture with The Bank of New York, as
trustee. The indenture contains covenants
limiting our ability to, among other things:
- incur more debt;
- pay dividends, redeem or purchase our equity
interests or make other distributions;
- redeem our equity interests;
- make certain acquisitions or investments;
11
- create liens in our assets;
- enter into transactions with affiliates;
- merge or consolidate with others;
- transfer or sell assets, including the equity
interests of our subsidiaries or use asset
sale proceeds; and
- extend credit.
These covenants are 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.
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 14, as
well as all other information set forth in this prospectus.
12
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables summarize the pro forma consolidated financial data
set forth in the section "Unaudited Pro Forma Condensed Consolidated Financial
Data," and assumes completion of the refinancing transactions. You should read
this pro forma data in conjunction with the sections of this Prospectus entitled
"Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data,"
"Selected Historical Financial and Operating Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
the historical and pro forma financial statements and the notes thereto included
in this prospectus. The summary pro forma data set forth below are not
necessarily indicative of the results of future operations. The unaudited pro
forma condensed consolidated statements of operations for the year ended
December 31, 2002 and the nine months ended September 30, 2003 reflect
adjustments as if the spin-off of Barden Nevada and the refinancing transactions
had been consummated and were effective as of January 1, 2002. The unaudited pro
forma condensed consolidated balance sheet as of September 30, 2003 gives effect
to the refinancing transactions as if they had occurred on September 30, 2003.
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA
<Table>
<Caption>
PRO FORMA
-----------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
----------------- ------------------ ------------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $248,460 $199,309 200,549
Income from operations............ 38,121 27,468 30,827
Interest expense.................. (27,822) (20,866) (20,742)
Net income........................ 10,283 6,381 9,996
OTHER FINANCIAL DATA:
Depreciation and amortization..... 15,659 11,442 11,755
Capital expenditures.............. 8,915 9,256 7,060
RATIO OF EARNINGS TO FIXED
CHARGES(1)...................... 1.20x 1.16x 1.30x
</Table>
- ---------------
(1) For purposes of calculating this ratio, earnings consist of net income
before equity in earnings (loss) of unconsolidated joint venture plus
amortization of capitalized interest and fixed charges. Fixed charges
consist of interest expense and capitalized interest, amortization of
original issue discount, amortization of deferred financing costs and the
portion of rental expense representative of interest expense.
13
<Table>
<Caption>
PRO FORMA AT
SEPTEMBER 30, 2003
----------------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $19,846
Total assets................................................ 225,223
Total debt(1)............................................... 303,723
Total member's deficit...................................... (99,505)
</Table>
- ---------------
(1) Total debt represents long term debt, including current maturities, net of
original issue discount of $567,000 on the 11.653% notes.
GENERAL
Our executive offices are located at 301 Fremont Street, 12th Floor, Las
Vegas, Nevada 89101, and our telephone number is (702) 388-2224. Our World Wide
Web site address is http://www.majesticstar.com. The information in our website
is not part of this prospectus.
13.1
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, we will have a significant
amount of debt. We currently have outstanding $276.3 million of long-term debt,
$260.0 million of which is represented by the unregistered notes and $16.3
million ($15.7 million, net of original issue discount) of which is represented
by the 11.653% notes issued by Majestic Investor Holdings, LLC in December 2001.
We also have a $80.0 million senior secured credit facility, under which $28.0
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;
- 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;
- increase our vulnerability to adverse economic and industry conditions or
a downturn in our business;
- result in an event of default if we fail to comply with the financial and
other restrictive covenants contained in the indenture or our senior
secured 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 a required regulatory redemption or a change of
control offer;
- limit our ability to fund or obtain additional financing for future
working capital, capital expenditures and other general financial
requirements;
- 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, and/or
prospects as well as our 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 and additional financing. Our total debt is
$303.7 million, net of original discount of $567,000 on the 11.653% notes (on a
pro forma basis giving effect to the refinancing transactions). On a pro forma
basis, at December 31, 2002, our ratio of earnings to fixed charges is 1.20x.
14
Our ability to generate sufficient cash flow to service our debt and to
satisfy our other liquidity needs 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 service our debt and to satisfy our
other liquidity needs, 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 financing, refinancing or
sale of assets might not be available on economically favorable terms, if at
all, and may be difficult because of gaming regulatory restrictions on
ownership. 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 senior secured credit facility. Such an event of default could
result in all of our indebtedness under the notes and the senior secured credit
facility becoming immediately due and payable and could permit the trustee under
the indenture and the lenders under the senior secured credit facility to
foreclose on our assets securing such indebtedness. The notes and the senior
secured credit facility are secured by substantially all of our current and
future assets.
RISKS RELATED TO THE NOTES
YOUR FAILURE TO TENDER YOUR REGISTERED 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 will 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.
We are offering the registered notes to the holders of the unregistered
notes. The unregistered notes were sold on October 7, 2003 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 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. We cannot assure you that
this market will provide liquidity for you if you want to sell your unregistered
notes. 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
registered notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
THE VALUE OF THE COLLATERAL SECURING THE NOTES MAY NOT BE SUFFICIENT TO
SATISFY OUR OBLIGATIONS UNDER THE NOTES. AS A RESULT, YOU MAY NOT RECEIVE FULL
PAYMENT ON THE NOTES FOLLOWING AN EVENT OF DEFAULT.
The proceeds of any sale of collateral following an event of default with
respect to the notes may not be sufficient to satisfy, and may be substantially
less than, amounts due on the notes. No appraisal of the value of the collateral
has been made in connection with the offering of the unregistered or registered
notes. The value of the collateral in the event of liquidation will depend on
market and economic conditions, the availability of buyers and other factors. By
its nature, some or all of the collateral may not have a readily ascertainable
market value or may not be saleable or, if saleable, there may be substantial
delays in its liquidation. To the
15
extent that liens, security interests and other rights granted to other parties
(including the lenders under our senior secured credit facility) encumber assets
owned by us, those parties have or may exercise rights and remedies with respect
to the property subject to their liens that could adversely affect the value of
that collateral and the ability of the trustee under the indenture or the
holders of the notes to realize or foreclose on that collateral. Consequently,
we cannot assure you that liquidating the collateral securing the notes would
produce proceeds in an amount sufficient to pay any amounts due under the notes
after also satisfying the obligations to pay any other senior secured creditors.
Nor can we assure you that the fair market value of the collateral securing the
notes would be sufficient to pay any amounts due under the notes following their
acceleration. If the proceeds of any sale of collateral are not sufficient to
repay all amounts due on the notes, the holders of the notes (to the extent not
repaid from the proceeds of the sale of the collateral) would have only an
unsecured claim against our and the subsidiary guarantors' remaining assets.
YOUR RIGHT TO RECEIVE PROCEEDS FROM THE SALE OF THE COLLATERAL SECURING THE
NOTES IS SUBJECT TO PRIOR CLAIMS (AHEAD OF THE NOTES) OF THE LENDERS UNDER OUR
SENIOR SECURED CREDIT FACILITY AND ANY EQUIPMENT FINANCING OR OTHER PURCHASE
MONEY INDEBTEDNESS TO THE EXTENT OF THE PROCEEDS OF THE COLLATERAL SECURING
THIS OTHER DEBT. YOUR RIGHT TO EXERCISE REMEDIES WITH RESPECT TO THE
COLLATERAL ALSO IS LIMITED.
Our senior secured credit facility is secured by the collateral securing
the notes and the guarantees. The lien on the collateral securing the notes and
the guarantees is contractually subordinated to the lien securing up to the
$80.0 million principal amount of indebtedness, plus related interest, fees,
costs and expenses, that may be incurred under the senior secured credit
facility, pursuant to the intercreditor agreement described below. In addition,
lenders of any equipment financing or other purchase money debt will have a
prior claim on our and the subsidiary guarantors' assets to the extent of the
value of the assets securing that indebtedness, or the amount of such
indebtedness, if lower. 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 senior secured credit facility, our equipment financing and our other
purchase money indebtedness will be entitled to be repaid in full from the
proceeds of the assets securing such indebtedness, before any payment is made to
you from such proceeds. Consequently, it is unlikely that the 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. An event
of default under or acceleration of our other senior secured debt also may
prohibit us and the subsidiary guarantors from paying amounts due under the
notes or the guarantees.
The trustee under the indenture and the agent under our senior secured
credit facility have entered into an intercreditor agreement to govern the
relationships among them and their obligations and rights with respect to the
collateral. 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 relating to us. Furthermore, under the
intercreditor agreement, the trustee's remedies in the event of a default are
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 senior secured
credit facility, the trustee does not have the right to foreclose upon the
collateral unless and until the lenders under the senior secured credit facility
fail to take steps to exercise remedies with respect to or in connection with
the collateral within up to 190 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 notes from
pursuing certain 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 the senior secured credit facility and thereafter to the holders of the
notes.
16
THE PLEDGES AND RESTRICTIONS ON PLEDGES OF SOME OF THE EQUITY INTERESTS
SECURING THE NOTES WILL NOT BE EFFECTIVE UNTIL AFTER THE CONSUMMATION OF THE
SPIN-OFF OF BARDEN NEVADA OR RECEIPT OF THE APPROVAL OF THE NEVADA GAMING
AUTHORITIES FOR THESE PLEDGES.
Effective October 7, 2003, the notes and the guarantees are secured by
substantially all of our and the subsidiary guarantors' current and future
assets and pledges of all of the equity interests in Barden Mississippi Gaming,
LLC ("Barden Mississippi") and Barden Colorado Gaming, LLC ("Barden Colorado").
The notes and guarantees are also secured by the pledges and restrictions on
pledges of our equity interests and the equity interests in Majestic Investor,
LLC and Majestic Investor Holdings, LLC, however, such pledges and restrictions
on pledges will not be effective until after we consummate the spin-off of
Barden Nevada or, if the spin-off is not consummated, we receive the requisite
approval of the Nevada Gaming Commission for these pledges and restrictions on
pledges. In addition, restrictions upon the transfer of these equity interests
and agreements not to encumber equity interests may be ineffective in Nevada
without the prior approval of the Nevada Gaming Commission. We have applied to
the Nevada Gaming Commission for approval of the spin-off and hope to obtain
approval of the spin-off in December, 2003. If the approval of the spin-off is
not obtained, we will apply to the Nevada Gaming Commission for approval of
these pledges and restrictions on pledges. Although we expect to receive the
requisite approval of either the spin-off or these pledges, no assurances can be
given that such approval will be obtained. Failure to consummate the spin-off or
receive approvals for the pledges within 210 days of the offering of the
unregistered notes will constitute an event of default under our security
documents and an event of default under the indenture governing the notes. In
addition, since the pledges will not become effective until after the issuance
of the notes and the guarantees, under federal bankruptcy law, a court may find
that adequate consideration was not given for the pledges or that the granting
of the pledges was an avoidable preferential transfer. Therefore, if we become
subject to the federal bankruptcy laws within 91 days after the effectiveness of
the pledges, such pledges and restrictions on pledges may be voided.
GAMING LAWS, BANKRUPTCY LAWS AND OTHER LAWS AND REGULATIONS MAY DELAY OR
OTHERWISE IMPEDE THE TRUSTEE'S ABILITY TO FORECLOSE ON THE COLLATERAL.
In addition to the intercreditor arrangements described above, the gaming
licensing process, 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 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 granted security
interests is subject to the prior approval of gaming authorities and, subject to
the intercreditor agreement, the lenders under the senior secured credit
facility. The notes and the guarantees are secured by substantially all of our
and the subsidiary guarantors' current and future assets (including pledges of
the equity interests of our restricted subsidiaries holding gaming licenses
which were effective as of October 7, 2003 for the equity interests in Barden
Mississippi and Barden Colorado and will be effective upon receipt of Nevada
gaming approval for the equity interests in The Majestic Star Casino, LLC,
Majestic Investor, LLC and Majestic Investor Holdings, LLC), 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. Further, the Merchant Marine Act of 1936 imposes
additional restrictions and limitations on the ability of non-U.S. citizens to
foreclose on the Majestic Star Casino vessel and 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.
Federal bankruptcy law also could impair the trustee's ability to foreclose
upon the collateral. If we or our restricted subsidiaries become debtors in
cases under the Bankruptcy Code, there can be no assurance:
- whether any payments under the notes would be made;
- whether or when the trustee could foreclose upon or sell the collateral;
17
- whether the term or other conditions of the notes or any rights of the
holders could be altered in a bankruptcy case without the trustee's or
your consent;
- whether the trustee or you would be able to enforce your rights against
the subsidiary guarantors under their guarantees; or
- whether or to what extent holders of the notes would be compensated for
any delay in payment or decline in the collateral's value.
A COURT COULD VOID OUR SUBSIDIARIES' GUARANTEES OF THE NOTES UNDER FRAUDULENT
TRANSFER LAW.
Our restricted subsidiaries have guaranteed the notes, and each guarantor
has granted 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
- 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 notes' issuance. 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 THE SENIOR SECURED CREDIT FACILITY
CONTAIN COVENANTS THAT SIGNIFICANTLY RESTRICT OUR OPERATIONS.
The indenture governing the notes and the senior secured credit facility
contain numerous covenants imposing financial and operating restrictions on our
business. Any other future debt agreements may contain similar covenants. These
restrictions may affect our ability to operate our business, limit our ability
to take advantage of potential business opportunities as they arise and
adversely affect the conduct of our current business. These covenants will place
restrictions on our ability and the ability of our restricted subsidiaries to,
among other things:
- incur more debt;
- pay dividends or make other distributions;
- redeem our equity interests;
- make certain acquisitions or investments;
18
- use assets as security in other transactions or otherwise create liens;
- enter into transactions with affiliates;
- merge or consolidate with others; and
- transfer or sell assets, including the equity interests of our restricted
subsidiaries, or use asset sale proceeds.
The senior secured 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 in the indenture or in our senior secured credit facility could
result in an event of default under the notes and our senior secured credit
facility.
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. A change in control constitutes a default under the
senior secured credit facility. 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 the senior secured credit facility also will
limit our ability to purchase your notes until all debt under the senior secured
credit facility is paid in full. Any of our future debt agreements may contain
similar restrictions. Accordingly, it is possible that restrictions in our
senior secured credit facility or future debt agreements 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 event of default under our senior secured 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. Further important
corporate events, such as takeovers, recapitalizations or similar transactions,
may not constitute a change of control under the indenture governing the notes
and thus not permit the holders of the notes to require us to repurchase or
redeem the notes.
YOUR ABILITY TO TRANSFER THE REGISTERED NOTES MAY BE LIMITED BY THE ABSENCE OF
AN ACTIVE TRADING MARKET AND THERE IS NO ASSURANCE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THE REGISTERED 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.
19
RISKS RELATED TO OUR BUSINESS
WE FACE SIGNIFICANT COMPETITION IN EACH OF THE MARKETS 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 Illinois,
Indiana, 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. In addition, 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 facilities in our markets were
purchased by larger more recognized brand names, or if gaming were legalized in
jurisdictions near our properties where gaming currently is not permitted, we
would face additional competition. For example, Tennessee recently passed
legislation to commence a state-sponsored lottery in 2004.
Competition requires 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 governmental 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 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.
Government regulations require us to, among other things:
- pay gaming fees and taxes in each state where we operate a casino,
including retroactive taxes when and if enacted, such as the retroactive
dockside tax in Indiana;
- 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 the spin-off or any proposed expansion, will be given or that
existing ones will be renewed when they expire. We cannot assure you that the
licenses will be renewed. Any failure to renew or maintain our licenses or
receive new licenses when necessary would have a material adverse effect on us.
20
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.
LEGISLATION OR LOCAL REFERENDA ON GAMING MAY RESTRICT OR ADVERSELY IMPACT OUR
OPERATIONS.
The casino entertainment industry is subject to political and regulatory
uncertainty. 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 were 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
possible in the future that gaming opponents could file a revised initiative
that would address adequately 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. In addition, over the years
the Arkansas voters and the Arkansas legislature have considered various
proposals to approve casino gaming in Arkansas or slot machines at a dog track
in West Memphis and a horse track in Hot Springs. Since our operations in Tunica
attract gaming patrons from Arkansas, our Tunica property in particular could be
negatively impacted by the existence of casino gaming or slot machines at race
tracks in Arkansas. Moreover, the State of Tennessee has approved a statewide
lottery which should commence in early 2004. Further, in Colorado, a statewide
ballot measure was defeated which would have allowed the installation of up to
five hundred video lottery terminals at each of five designated dog and horse
racetracks along Colorado's front range. There can be no assurance that similar
initiatives to those described above will not be proposed in the future.
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.
WE MAY BE UNABLE TO RETAIN MANAGEMENT PERSONNEL AT THE MAJESTIC STAR CASINO OR
THE TWO FITZGERALDS CASINOS.
We retain management personnel and key executives through a combination of
programs and techniques including employment agreements, performance based
compensation, and other types of incentives and benefit packages. We do not
award stock or stock options.
A number of current members of management and key executives are under
employment contracts. Some contracts expire in the fourth quarter of 2003. While
we will make every reasonable effort to maintain those management personnel and
key executives that are viewed as valuable to the operations of our casinos,
there can be no assurance as to our success. Though we will attempt to fill
vacated management and key
21
executive positions determined to be necessary to our operations, there can be
no estimate as to the time frame in filling these positions. Any delays in
filling these positions could have a materially negative impact on our
operations and financial results.
LOSS OF OUR CASINO PROPERTIES FROM SERVICE WOULD ADVERSELY AFFECT OUR
OPERATIONS.
Our gaming facilities might be damaged or interrupted by fire, flood, power
loss, technology failure, break-ins, earthquakes, terrorist attacks, war or
similar events. In addition, the Majestic Star Casino riverboat and our
Fitzgeralds 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). In
addition, our Fitzgeralds Tunica vessel is subject to 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
Majestic Star Casino riverboat or our Fitzgeralds Tunica dockside vessel or our
land-based casino properties from service for any period of time would adversely
affect our business, financial condition and results of operations.
SEASONAL INFLUENCES CAN CAUSE OUR CASINO OPERATIONS TO FLUCTUATE.
The gaming operations of our properties may be seasonal and, depending on
the location and other circumstances, the effects of such seasonality could be
significant. The properties' results are affected by inclement weather in
relevant markets. For example, because of the climate in the Chicago
metropolitan area, the Majestic Star Casino's operations are expected to be
seasonal with stronger results generally expected during the period from May
through September. Fitzgeralds Black Hawk, 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. 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. Accordingly,
our results of operations fluctuate from quarter to quarter and the results for
any fiscal quarter may not be indicative of results for future fiscal quarters.
THE RIGHT OF FITZGERALDS GAMING CORPORATION AND BARDEN NEVADA TO CONTINUE TO
USE THE NAME "FITZGERALDS" MAY NEGATIVELY IMPACT OUR NATIONAL BRAND
RECOGNITION.
Under a license from us, Fitzgeralds Reno, Inc., a subsidiary of
Fitzgeralds Gaming Corporation ("Fitzgeralds Reno"), has the right to use the
name "Fitzgeralds" and certain other marks in connection with the 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. In addition, Fitzgeralds Reno may assign the license to
the first purchaser of the casino in Reno, however any other assignment requires
our prior written consent. 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 and Fitzgeralds Black Hawk. 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 and Fitzgeralds Black
Hawk, which association may negatively impact our nationally recognized brand.
In connection with the proposed spin-off of Barden Nevada, the owner and
operator of Fitzgeralds Las Vegas, we will also enter into a license with Barden
Nevada to allow Barden Nevada the right to use the name "Fitzgeralds" in
connection with its operation of that property.
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
22
such laws could result in the imposition of severe penalties or restrictions on
operations by governmental agencies or courts that could adversely affect
operations.
The Buffington Harbor gaming complex is located on a site where prior
industrial operations and activities may have resulted in contamination of the
environment. As the owner and operator of the Majestic Star Casino and a member
of the BHR Joint Venture, we could be held responsible for the costs of
addressing any contamination. Our liability under applicable environmental laws
may be imposed without regard to whether we knew of, or were responsible for,
the presence of hazardous substances and, in some cases, may not be limited to
the value of the affected property. There can be no assurance that further
development of the facility, or of a new harbor, and the related construction,
will not identify environmental contamination. If this were to occur, the costs
of remediation or the disruption to our business could adversely affect our
operations and may also adversely affect our ability to sell, lease or operate
the property or to borrow against it. We are not, nor is the BHR Joint Venture,
entitled to indemnification from any prior owners or operators of the site with
respect to environmental matters.
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.
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 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
and economic conditions specific to our primary markets; (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.
THE RECENT WAR WITH IRAQ AND ANY FUTURE OCCURRENCES OF TERRORIST OR OTHER
DESTABILIZING EVENTS COULD NEGATIVELY AFFECT OUR REVENUES AND CASH FLOW.
Recent military action, the prospects of extended military action and the
fear of domestic terrorism has resulted in a decline in vacation travel and
tourism. 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.
23
Continued or even worsening negative market conditions related to any future
occurrences of terrorist actions 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 energy or other 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.
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. In addition, we
have entered into a management agreement with BDI, which provides for, among
other things, distributions to be made by us to BDI that are allowable under the
indenture governing the notes and under the senior secured credit facility.
Also, we expect to spin-off to BDI, subject to gaming approval, Barden Nevada,
the owner and operator of Fitzgeralds Las Vegas.
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 your interests as a holder of notes. In addition, neither
Mr. Barden nor any of the entities which he controls, including, after the
spin-off, Barden Nevada, is restricted from pursuing other opportunities which
may compete for business with our operations.
ANY FAILURE BY OUR JOINT VENTURE PARTNER TO FUND OPERATIONS OF THE BHR JOINT
VENTURE OR MAKE LEASE PAYMENTS, OR ANY SIGNIFICANT CONFLICTS BETWEEN OUR JOINT
VENTURE PARTNER AND US COULD ADVERSELY AFFECT OUR BUSINESS.
In 1995, we formed the BHR Joint Venture with an indirect subsidiary of
Trump Hotel and Casino Resorts, Inc. to develop and operate the dockside
pavilion and common areas of the Buffington Harbor gaming complex. Efficient
operation of the BHR Joint Venture to support our casino will depend upon our
continuing ability, as well as that of our Joint Venture Partner, to fund
day-to-day operations and agree on related business matters. In addition, both
we and our Joint Venture Partner are jointly and severally liable to make lease
payments related to the Buffington Harbor parking facility. When our Joint
Venture Partner makes its share of the lease payment, we receive a 50% credit
towards our lease obligations. Any failure by the Joint Venture Partner to fund
operations of the BHR Joint Venture when required or to make the lease payments
related to the Buffington Harbor parking facility (including its obligations
under the BHPA lease), or any significant conflict in this relationship that is
not promptly resolved, would adversely affect the operations of the gaming
complex. A significant disruption in the business of the gaming complex is
likely to adversely affect the operations of the Majestic Star Casino and our
ability to generate revenues.
24
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 proceeds from the offering of the unregistered notes, together
with approximately $28.0 million of borrowings under the new $80.0 million
senior secured credit facility and approximately $2.8 million of cash on hand to
(i) fund the purchase and redemption of all of the 10 7/8% notes, (ii) fund the
purchase of approximately 89% of the 11.653% notes, and (iii) pay fees and
expenses associated with such refinancing transactions.
25
CAPITALIZATION
The following table sets forth at September 30, 2003 our cash and cash
equivalents and capitalization on a historical basis and as adjusted to give pro
forma effect to the refinancing transactions. The following table should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and the financial statements and the notes thereto
included elsewhere in this Prospectus.
<Table>
<Caption>
AT SEPTEMBER 30, 2003
----------------------
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents(1)................................ $ 35,256 $ 19,846
======== ========
Total debt:
Senior secured credit facility(2)........................... $ -- $ 28,000
11.653% notes due 2007, net of original issue discount of
$5,284 (historical) and $567 (pro forma) on $16,290 of
11.653% notes still outstanding........................... 146,483 15,723
10 7/8% notes due 2006, net of original issue discount of
$878 (historical) and $0 (pro forma)...................... 129,122 --
Unregistered notes.......................................... -- 260,000
Other debt(1)............................................... 135 --
-------- --------
Total debt.................................................. 275,740 303,723
Total member's deficit(1)................................... (29,313) (99,505)
-------- --------
Total capitalization........................................ $246,427 $204,218
======== ========
</Table>
- ---------------
(1) Reflects the impact of the spin-off of Barden Nevada, corporate adjustments
and the impact of refinancing our indebtedness, including payment of
redemption premiums and consent payments and write-off of unamortized debt
issue costs. See "Unaudited Pro Forma Condensed Consolidated Balance Sheet."
(2) Concurrently with the closing of the offering of the unregistered notes, we
entered into a new $80.0 million senior secured credit facility, of which
$28.0 million was drawn after closing to finance the redemption of the
10 7/8% notes.
26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data
(the "Pro Forma Financial Data") have been prepared by our management by
adjusting the consolidated financial statements of The Majestic Star Casino, LLC
included elsewhere in this prospectus for the refinancing transactions. The
unaudited pro forma condensed consolidated statements of operations for the year
ended December 31, 2002 and the nine months ended September 30, 2003 reflect
adjustments as if the refinancing transactions had been consummated and were
effective as of January 1, 2002. The unaudited pro forma condensed consolidated
balance sheet as of September 30, 2003 gives effect to the refinancing
transactions as if they had occurred on September 30, 2003.
The Pro Forma Financial Data reflects the purchase of all of the 10 7/8%
notes and approximately 89% of the 11.653% notes, the issuance of $260.0 million
9 1/2% Senior Secured Notes and borrowings of $28.0 million under our new $80.0
million senior secured credit facility.
The financial effects of the refinancing transactions as presented in the
Pro Forma Financial Data are not necessarily indicative of the results of future
operations. The Pro Forma Financial Data should be read in conjunction with the
notes thereto, which are an integral part thereof, the consolidated financial
statements of The Majestic Star Casino, LLC and the notes thereto, the unaudited
pro forma consolidated financial statements of The Majestic Star Casino, LLC and
the notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
ADJUSTMENTS
-------------------------------------------
LAS VEGAS CORPORATE REFINANCING
HISTORICAL SPIN-OFF(1) ADJUSTMENTS(2) (3)(4)(5) PRO FORMA
------------- ------------ -------------- ----------- ------------
Net revenues................ $296,706,183 $(48,812,435) $566,664 $ -- $248,460,412
Operating expenses.......... 263,027,946 (50,789,425) 566,664 (2,465,982) 210,339,203
------------ ------------ -------- ----------- ------------
Operating income............ 33,678,237 1,976,990 -- 2,465,982 38,121,209
Interest expense, net....... (32,243,021) 18,038 -- 4,583,771 (27,641,212)
Other non-operating income
and expenses.............. 119,462 (251) -- (76,800) (196,513)
------------ ------------ -------- ----------- ------------
Income from continuing
operations(2)............. $ 1,315,754 $ 1,994,777 $ -- $ 6,972,954 $ 10,283,485
============ ============ ======== =========== ============
Ratio of earnings to fixed
charges(6)................ 1.11x 1.20x
============ ============
</Table>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
ADJUSTMENTS
-------------------------------------------
LAS VEGAS CORPORATE REFINANCING
HISTORICAL SPIN-OFF(1) ADJUSTMENTS(2) (3)(4)(5) PRO FORMA
------------ ------------ -------------- ----------- ------------
Net revenues................ $234,995,439 $(36,203,995) $517,513 $ -- $199,308,957
Operating expenses.......... 210,865,871 (37,706,819) 517,513 (1,835,850) 171,840,715
------------ ------------ -------- ----------- ------------
Operating income............ 24,129,568 1,502,824 -- 1,835,850 27,468,242
Interest expense, net....... (23,802,365) 14,551 -- 3,001,552 (20,786,262)
Other non-operating income
and expenses.............. (247,431) -- -- (53,198) (300,629)
------------ ------------ -------- ----------- ------------
Income from continuing
operations(7)............. $ 79,772 $ 1,517,375 $ -- $ 4,784,204 $ 6,381,351
============ ============ ======== =========== ============
Ratio of earnings to fixed
charges(6)................ 1.07x 1.16x
============ ============
</Table>
27
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
ADJUSTMENTS
-------------------------------------------
LAS VEGAS CORPORATE REFINANCING
HISTORICAL SPIN-OFF(1) ADJUSTMENTS(2) (3)(4)(5) PRO FORMA
------------ ------------ -------------- ----------- ------------
Net revenues................ $236,505,126 $(36,626,436) $669,998 $ -- $200,548,688
Operating expenses.......... 208,851,979 (37,967,056) 669,998 (1,833,710) 169,721,211
------------ ------------ -------- ----------- ------------
Operating income............ 27,653,147 1,340,620 -- 1,833,710 30,827,477
Interest expense............ (24,221,241) 14,155 -- 3,464,905 (20,742,181)
Other non operating income
and expenses.............. (142,276) -- -- 53,185 (89,091)
------------ ------------ -------- ----------- ------------
Net income.................. $ 3,289,630 $ 1,354,775 $ -- $ 5,351,800 $ 9,996,205
============ ============ ======== =========== ============
Ratio of Earnings to Fixed
Charges................... 1.19x 1.30x
============ ============
</Table>
- ---------------
(1) Represents the elimination of actual historical results of operations for
Fitzgeralds Las Vegas for the period indicated. Upon consummation of the
spin-off, the operations will no longer be reflected in our consolidated
results of operations.
(2) Reflects an increase in revenues for fees to be earned by us for services to
be provided to Fitzgeralds Las Vegas after the spin-off of Barden Nevada.
Also reflects a change in operating expenses consisting of an increase in
expenses to reflect the elimination of corporate allocations to Fitzgeralds
Las Vegas. Such amounts totaled $566,664 in 2002, $517,513 for the nine
months ended September 30, 2003 and $669,898 for the nine months ended
September 30, 2002.
(3) Reflects a net reduction in interest expense for the indicated periods,
comprised of the following:
<Table>
<Caption>
FOR THE FOR THE
FOR THE NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
2002 2003 2002
------------ ------------- -------------
Reduction to reflect elimination of:
Historical interest on 10 7/8% and 11.653%
notes, net of $1,898,274, $1,423,705 and
$1,423,705 of interest on approximately
$16,290,000 of the 11.653% notes due 2007,
for the year ended December 31, 2002 and for
the nine months ended September 30, 2003 and
2002, respectively, which were not
tendered..................................... $(30,507,371) $(22,444,252) (22,907,605)
Increase to reflect impact of:
Assumed interest expense on the unregistered
notes at 9.5%................................ 24,700,000 18,525,000 18,525,000
Assumed interest expense on the senior secured
credit facility with a draw of $28,000,000
(see "Use of Proceeds") at an assumed
interest rate of one-month LIBOR plus 3.25%
(4.37% using the rate in effect at September
30, 2003).................................... 1,223,600 917,700 917,700
------------ ------------ ------------
Net Impact..................................... $ (4,583,771) $ (3,001,552) $ (3,464,905)
============ ============ ============
</Table>
28
(4) Reflects a net reduction in amortization expense for the indicated periods,
comprised of the following:
<Table>
<Caption>
FOR THE FOR THE
FOR THE NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
2002 2003 2002
------------ ------------- -------------
Reduction to reflect elimination of:
Amortization of deferred financing costs on
10 7/8% and 11.653% notes, net of $278,767,
$214,390 and $207,178 of amortization of
deferred financing costs related to
approximately $16,290,000 of the 11.653% notes
due 2007, for the year ended December 31, 2002
and for the nine months ended September 30, 2003
and 2002, respectively, which were not
tendered........................................ $(3,491,085) $(2,604,677) (2,602,537)
Increase to reflect impact of:
Assumed amortization of deferred financing costs
for the unregistered notes over a period of
seven years ($645,104, $483,828 and $483,828 for
the year ended December 31, 2002 and for the
nine months ended September 30, 2003 and 2002,
respectively) and the senior secured credit
facility over a period of four years ($379,999,
$284,999 and $284,999 for the year ended
December 31, 2002 and for the nine months ended
September 30, 2003 and 2002, respectively)...... 1,025,103 768,827 768,827
----------- ----------- -----------
Net Impact........................................ $(2,465,982) $(1,835,850) 1,833,710
=========== =========== ===========
</Table>
(5) Reflects the net impact of the fees paid for undrawn credit availability on
our old credit facilities and our new senior secured credit facility.
<Table>
<Caption>
FOR THE
FOR THE NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
2002 2003 2002
------------ ------------- -------------
Reduction to reflect elimination of:
Historical fees paid for undrawn credit
availability..................................... $183,200 $141,802 $141,815
Increase to reflect impact of:
Assumed fee for undrawn amount on the senior
secured credit facility, assuming an initial draw
of $28,000,000 at an assumed rate of 0.5% for
both the year ended December 31, 2002 and for the
nine months ended September 30, 2003 and 2002.... (260,000) (195,000) (195,000)
-------- -------- --------
Net Impact......................................... $(76,800) $(53,198) $(53,185)
======== ======== ========
</Table>
(6) For purposes of calculating this ratio, earnings consist of net income
before equity in earnings (loss) of unconsolidated joint venture plus
amortization of capitalized interest and fixed charges. Fixed charges
consist of interest expense and capitalized interest, amortization of
original issue discount, amortization of deferred financing costs and the
portion of rental expense representative of interest expense.
(7) The loss on retirement of debt in the amount of approximately $32.3 million
(consisting of premiums paid of $19.3 million and the writeoff of
unamortized debt issue costs and original issue discount) has been excluded
from the computation of pro forma income because such amount is
non-recurring.
29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2003
<Table>
<Caption>
ADJUSTMENTS
--------------------------------------------
LAS VEGAS CORPORATE REFINANCING
HISTORICAL SPIN-OFF(1) ADJUSTMENTS(2) (3)(4)(5)(6) PRO FORMA
------------ ------------ -------------- ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 35,256,308 $ (3,838,139) $ -- $(11,571,912) $ 19,846,257
Restricted cash.................... 500,000 -- -- -- 500,000
Accounts receivable, net........... 2,417,835 (646,748) -- -- 1,771,087
Other current assets............... 4,626,990 (1,294,730) -- -- 3,332,260
------------ ------------ ----------- ------------ ------------
Total current assets........... 42,801,133 (5,779,617) -- (11,571,912) 25,449,604
------------ ------------ ----------- ------------ ------------
Property, equipment and vessel
improvements, net.................. 164,204,351 (27,754,302) -- -- 136,450,049
Other Assets:
Intangible assets, net............. 16,495,496 (1,715,000) (5,200,000) -- 9,580,496
Goodwill........................... 5,922,398 -- -- -- 5,922,398
Deferred financing costs, net...... 7,952,819 -- -- (1,308,391) 6,644,428
Investment in Buffington Harbor
Riverboats, LLC.................. 30,249,856 -- -- -- 30,249,856
Other assets and deposits.......... 13,003,738 (2,077,173) -- -- 10,926,565
------------ ------------ ----------- ------------ ------------
Total other assets............. 73,624,307 (3,792,173) (5,200,000) (1,308,391) 63,323,743
------------ ------------ ----------- ------------ ------------
Total Assets......................... $280,629,791 $(37,326,092) $(5,200,000) $(12,880,303) $225,223,396
============ ============ =========== ============ ============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities...................... $ 34,203,193 $ (4,400,928) $ -- $ (8,796,859) $ 21,005,406
Current maturities of long-term
debt............................. 83,083 (83,083) -- -- --
------------ ------------ ----------- ------------ ------------
Total current liabilities........ 34,286,276 (4,484,011) -- (8,796,859) 21,005,406
------------ ------------ ----------- ------------ ------------
Long Term Liabilities and Debt:
Due to related parties............. -- (36,697,132) 36,697,132 -- --
Amount due under Senior Secured
Notes.......................... -- -- -- 260,000,000 260,000,000
Amount due under Senior Secured
Credit Facility................ -- -- -- 28,000,000 28,000,000
Long-term debt, net of current
maturities....................... 275,656,816 (52,053) -- (259,881,964) 15,722,799
------------ ------------ ----------- ------------ ------------
Total Liabilities.................... 309,943,092 (41,233,196) 36,697,132 19,321,177 324,728,205
Member's (Deficit) Equity............ (29,313,301) 3,907,104 (41,897,132) (32,201,480) (99,504,809)
------------ ------------ ----------- ------------ ------------
Total Liabilities and Member's
(Deficit) Equity................... $280,629,791 $(37,326,092) $(5,200,000) $(12,880,303) $225,223,396
============ ============ =========== ============ ============
</Table>
- ---------------
LAS VEGAS SPIN-OFF:
(1) Reflects the elimination of the actual historical balance sheet for
Fitzgeralds Las Vegas as of September 30, 2003. Upon completion of the
spin-off, the assets and liabilities of Fitzgeralds Las Vegas will no longer
be included in the accounts of The Majestic Star Casino, LLC. See "The
Refinancing--The Spin-off."
CORPORATE ADJUSTMENTS:
(2) Reflects (i) the "pushdown" and then spin-off of the intangible asset value
of the Nevada gaming license associated with Fitzgeralds Las Vegas, which
intangible asset is currently held at Majestic Investor Holdings, LLC and
(ii) the planned forgiveness of intercompany indebtedness owed by
Fitzgeralds Las Vegas to Majestic Investor Holdings, LLC.
30
REFINANCING:
The following schedule and notes (3) through (6) provide additional
information regarding the "Refinancing" adjustments to the Unaudited Pro
Forma Condensed Consolidated Balance Sheet as of September 30, 2003:
<Table>
<Caption>
UNAMORTIZED
TENDER OF EXISTING EXPENSES AND ACCRUED
PROCEEDS FROM SENIOR SECURED ORIGINAL ISSUE INTEREST ON
DEBT NOTES WITH DISCOUNT ON EXISTING NET
FINANCING(3) PREMIUMS(4) EXISTING NOTES(5) NOTES(6) ADJUSTMENTS
------------- ------------------ ----------------- ----------- ------------
Cash and cash
equivalents........ $281,964,277 $(284,739,330) $ -- $(8,796,859) $(11,571,912)
Deferred financing
costs, net......... 6,035,723 -- (7,344,114) -- (1,308,391)
Accounts payable and
accrued
liabilities........ -- -- -- (8,796,859) (8,796,859)
Amount due under
senior secured
notes.............. 260,000,000 -- -- -- 260,000,000
Amount due under the
senior secured
credit facility.... 28,000,000 -- -- -- 28,000,000
Long-term debt, net
of current
maturities......... -- (265,477,000) 5,595,036 -- (259,881,964)
Member's deficit..... -- (19,262,330) (12,939,150) -- (32,201,480)
</Table>
(3) Reflects the issuance of $260,000,000 of unregistered notes and the initial
draw of $28,000,000 under the senior secured credit facility, and the
resulting cash proceeds therefrom, after deducting underwriting discounts,
commissions and estimated offering expenses aggregating $6,035,723.
(4) To reflect the use of proceeds from the offering of unregistered notes to
repurchase (i) all of the outstanding 10 7/8% notes at an aggregate price of
$137,069,400, and (ii) approximately 89% of the outstanding 11.653% notes at
an aggregate price of $147,669,930 (collectively, the "Outstanding Notes").
Also to reflect the impact of the redemption premium paid to repurchase the
Outstanding Notes as a charge to earnings (and therefore an increase in
member's deficit).
(5) To write-off the unamortized portion of (i) deferred financing costs and
(ii) original issue discount associated with the Outstanding Notes as a
charge to earnings (and therefore an increase in member's deficit).
(6) To reflect the payment of accrued interest for the Outstanding Notes as of
September 30, 2003.
31
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following tables present selected historical consolidated financial
data for The Majestic Star Casino, LLC at December 31, 1998, 1999, 2000, 2001
and 2002, and for the years ended December 31, 1998, 1999, 2000, 2001 and 2002,
and for the nine months ended September 30, 2002 and 2003. The historical
consolidated financial data presented below includes historical financial data
for Barden Nevada, the spin-off of which has not yet been consummated. The
selected historical financial data at December 31, 1998, 1999, 2000, 2001 and
2002, and for the years ended December 31, 1998, 1999, 2000, 2001 and 2002,
presented below have been derived from the audited consolidated financial
statements for The Majestic Star Casino, LLC at those dates and for those
periods. The financial statements of The Majestic Star Casino, LLC as of
December 31, 2001 and 2002 and for each of the three years ended December 31,
2002 are included in this prospectus. The selected historical financial data at
September 30, 2003 and for the nine months ended September 30, 2002 and 2003,
presented below, have been derived from the unaudited consolidated financial
statements for The Majestic Star Casino, LLC at such date and for those periods
which are included in this prospectus. All adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the interim
consolidated financial statements, have been included. Results for the nine
months ended September 30, 2003, 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 and Analysis of
Financial Condition and Results of Operations."
<Table>
<Caption>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------- -------------------
1998 1999 2000 2001(2) 2002 2002 2003
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Casino.......................................... $111,481 $117,268 $115,455 $132,553 $293,789 $223,250 $221,442
Rooms........................................... -- -- -- 1,079 15,495 11,837 11,246
Food and Beverage............................... 1,643 1,949 1,565 2,804 21,094 15,367 15,794
Other........................................... 1,476 960 1,431 1,931 5,547 4,340 4,227
-------- -------- -------- -------- -------- -------- --------
Gross Revenues................................ 114,600 120,177 118,451 138,367 335,925 254,794 252,709
-------- -------- -------- -------- -------- -------- --------
Less promotional allowances..................... (337) (3,005) (4,689) (8,082) (39,219) (18,289) (17,714)
-------- -------- -------- -------- -------- -------- --------
Net Revenues.................................... 114,263 117,172 113,762 130,285 296,706 236,505 234,995
Cost and Expenses:
Casino.......................................... 18,853 19,443 23,787 28,213 87,160 77,778 75,826
Rooms........................................... -- -- -- 629 9,014 4,976 4,883
Food and beverage............................... 2,390 2,342 2,403 3,025 13,553 9,093 8,766
Other........................................... -- -- -- 109 1,560 1,171 1,354
Gaming taxes.................................... 32,722 32,900 32,350 34,835 51,572 40,934 44,455
Advertising and promotion....................... 10,156 6,816 8,348 8,522 20,919 14,891 14,893
General and administrative...................... 24,222 24,738 23,192 24,241 51,754 39,329 40,414
Economic Incentive--City of Gary................ 3,456 3,626 3,231 3,667 3,981 2,959 3,107
Depreciation and amortization................... 7,821 8,376 9,113 8,990 21,078 15,791 15,372
Loss on investment in Buffington Harbor
Riverboats, LLC............................... 3,167 2,848 2,059 2,798 2,424 1,806 1,795
Pre-opening expenses............................ -- -- -- 1,018 13 124 --
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses........................ 102,787 101,089 104,483 116,047 263,028 208,852 210,865
-------- -------- -------- -------- -------- -------- --------
Operating income................................ 11,476 16,083 9,279 14,238 33,678 27,653 24,130
Other income (expense):
Interest income................................. 860 1,058 893 400 194 135 83
Interest expense................................ (15,326) (15,496) (14,998) (16,028) (32,437) (24,356) (23,885)
Loss on sale of assets.......................... (958) -- (417) (12) (5) -- (106)
Other non-operating expenses.................... (525) (167) (125) (149) (183) (142) (142)
Loss (gain) on bond redemption(3)............... -- (15,238) (382) -- 69 -- --
-------- -------- -------- -------- -------- -------- --------
Total other income (expense).................... (15,949) (29,843) (15,029) (15,789) 32,362 (24,363) (24,050)
-------- -------- -------- -------- -------- -------- --------
Net (loss) income............................... $ (4,473) $(13,760) $ (5,750) $ (1,551) $ 1,316 $ 3,290 $ 80
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(1)........... (A) (B) (C) 1.07x 1.11x 1.19x 1.07x
</Table>
32
<Table>
<Caption>
AS OF DECEMBER 31, AS OF
---------------------------------------------------- SEPTEMBER 30,
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 17,295 $ 20,145 $ 16,120 $ 25,925 $ 24,548 $ 35,256
Restricted cash............ -- 7,358 2,000 1,000 1,250 1,500
Investment in BHR, net..... 40,749 38,146 43,924 33,899 31,833 30,250
Total assets............... 125,261 133,150 126,597 291,076 275,810 280,630
Current liabilities........ 11,109 21,311 21,795 37,160 25,458 34,286
Long-term debt............. 117,150 128,922 128,233 273,897 274,526 275,657
Total liabilities.......... 128,259 150,233 150,028 311,057 299,984 309,943
Member's deficit........... (2,998) (17,083) (23,431) (19,981) (24,175) (29,313)
</Table>
- ---------------
(1) For purposes of calculating this ratio, earnings consist of net income
before equity in earnings (loss) of unconsolidated joint venture plus
amortization of capitalized interest and fixed charges. Fixed charges
consist of interest expense and capitalized interest, amortization of
original issue discount, amortization of deferred financing costs and the
portion of rental expense representative of interest expense.
(A) For the year ended December 31, 1998, earnings were inadequate to cover
fixed charges by $1,222.
(B) For the year ended December 31, 1999, earnings were inadequate to cover
fixed charges by $10,828.
(C) For the year ended December 31, 2000, earnings were inadequate to cover
fixed charges by $3,607.
(2) The Company completed the acquisition of the Fitzgerald brand casinos on
December 6, 2001. Results of operations reflect the acquisition after such
date. See Note 1 of "Notes to Consolidated Financial Statements -- The
Majestic Star Casino LLC."
(3) The Company adopted a new accounting standard in April 2002 and no longer
presents gains or losses on bond redemptions as an extraordinary item. Prior
period extraordinary losses have been reclassified to conform to this new
presentation. See Note 2 of "Notes to Consolidated Financial
Statements -- The Majestic Star Casino LLC."
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Historical Financial and Operating Data" and the unaudited consolidated
financial statements and the historical financial statements and the notes
thereto appearing elsewhere in this prospectus in connection with the
unregistered notes. 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."
OVERVIEW
The Majestic Star Casino, LLC (the "Company") is a multi-jurisdictional
gaming company that owns and operates one riverboat gaming facility located in
Gary, Indiana and, through its wholly owned subsidiary Majestic Investor
Holdings, LLC ("Majestic Investor Holdings" or "Investor Holdings") owns three
Fitzgeralds-brand casino-hotels located in Tunica County, Mississippi
("Fitzgeralds Tunica"), Black Hawk, Colorado (casino only) ("Fitzgeralds Black
Hawk"), and Las Vegas, Nevada ("Fitzgeralds Las Vegas"). Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas are collectively referred to
herein as the "Fitzgeralds Casinos." The Majestic Star Casino Capital Corp. is a
co-issuer of the notes and a wholly owned subsidiary of The Majestic Star
Casino, LLC, and was formed for the purpose of facilitating the offering of the
notes and has no assets or operations.
We have applied to the Nevada Gaming Commission for approval to spin-off
Barden Nevada, the owner and operator of Fitzgeralds Las Vegas, to BDI, our
parent. The discussion of our historical operating results in this section
includes financial results of Barden Nevada.
The Majestic Star Casino, the Company's riverboat gaming facility located
in Gary, Indiana, has been owned and operated by the Company since 1996. On
September 14, 2001 the Company formed Majestic Investor Holdings and acquired
the Fitzgeralds Casinos on December 6, 2001 (the "Acquisition") and commenced
operations of the Fitzgeralds Casinos on December 7, 2001 ("Inception").
Accordingly the Company has a limited operating history of the Fitzgeralds
Casinos.
Results for the nine months ended September 30, 2003 and September 30,
2002, and for the year ended December 31, 2002 include results of operations for
the Majestic Star Casino, Fitzgeralds Tunica, Fitzgeralds Black Hawk and
Fitzgeralds Las Vegas. As noted above, the Company commenced operations of the
Fitzgeralds Casinos on December 7, 2001. Therefore, the consolidated results of
operations for the year ended December 31, 2001 reflect only 25 days of
operating results for the Fitzgeralds Casinos, as well as a full year of
operations for Majestic Star Casino. The results for the year ended December 31,
2000 include only results of operations for the Majestic Star Casino.
34
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth information derived from our consolidated
financial statements historical operating results for the periods indicated.
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE NINE MONTHS ENDED
----------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 2001 2002 2002 2003
----- ----- ----- ------------- -------------
REVENUES:
Casino............................. 97.5% 95.8% 87.5% 87.7% 87.6%
Rooms.............................. 0.0% 0.8% 4.6% 4.6% 4.5%
Food and beverage.................. 1.3% 2.0% 6.3% 6.0% 6.2%
Other.............................. 1.2% 1.4% 1.6% 1.7% 1.7%
----- ----- ----- ----- -----
Gross Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
Less promotional allowances........ (4.0)% (5.8)% (11.7)% (7.2)% (7.0)%
----- ----- ----- ----- -----
Net Revenues.................. 96.0% 94.2% 88.3% 92.8% 93.0%
COSTS AND EXPENSES:
Casino............................. 20.1% 20.4% 25.9% 30.5% 30.0%
Rooms.............................. 0.0% 0.5% 2.7% 2.0% 1.9%
Food and beverage.................. 2.0% 2.2% 4.0% 3.6% 3.5%
Other.............................. 0.1% 0.1% 0.5% 0.5% 0.5%
Gaming taxes....................... 27.3% 25.2% 15.4% 16.1% 17.6%
Advertising and promotion.......... 7.0% 6.2% 6.2% 5.8% 5.9%
General and administrative......... 19.6% 17.5% 15.4% 15.3% 16.0%
Economic incentive--City of Gary... 2.7% 2.7% 1.2% 1.2% 1.2%
Depreciation and amortization...... 7.7% 6.5% 6.3% 6.2% 6.1%
Loss on investment in Buffington
Harbor Riverboats, LLC.......... 1.7% 2.0% 0.7% 0.7% 0.7%
Pre-opening expenses............... 0.0% 0.7% 0.0% 0.0% 0.0%
Total costs and expenses...... 88.2% 83.9% 78.3% 81.9% 83.4%
----- ----- ----- ----- -----
Operating Income.............. 7.2% 10.3% 10.0% 10.9% 9.6%
----- ----- ----- ----- -----
OTHER INCOME (EXPENSE):
Interest income.................... 0.8% 0.3% 0.1% 0.1% 0.0%
Interest expense................... (12.7)% (11.6)% (9.7)% (9.6)% (9.5)%
Loss on disposal of assets......... (0.4)% 0.0% 0.0% 0.0% 0.0%
Loss (gain) on bond redemption..... 0.3% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- -----
Other non-operating expense........ (0.1)% (0.1)% (0.1)% (0.1)% (0.1)%
----- ----- ----- ----- -----
Total other expense........... (12.7)% (11.4)% (9.7)% (9.6)% (9.6)%
----- ----- ----- ----- -----
Net income (loss).................... (4.9)% (1.1)% 0.3% 1.3% 0.0%
===== ===== ===== ===== =====
</Table>
Results for any one or more periods are not necessarily indicative of
annual results or continuing trends.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2002
Consolidated gross revenues. Consolidated gross revenues were $252,709,000
and consolidated net revenues were $234,995,000 during the nine months ended
September 30, 2003, a decrease of 0.8% and 0.6%, respectively, from consolidated
gross revenues of $254,794,000 and consolidated net revenues of $236,505,000 for
the same period in 2002. The Company's business can be separated into four
operating departments:
35
casino, rooms (Fitzgeralds Tunica and Fitzgeralds Las Vegas only), food and
beverage and other. Consolidated casino revenues represented 87.6% and 87.7% of
consolidated gross revenues for the nine months ended September 30, 2003 and for
the nine months ended September 30, 2002, respectively. Consolidated casino
revenues (of which 86.2% and 87.7% were derived from slot machine revenues for
the nine months ended September 30, 2003 and the nine months ended September 30,
2002, respectively) decreased 0.8% to $221,442,000 for the nine months ended
September 30, 2003 from $223,251,000 for the same period in 2002. At Fitzgeralds
Black Hawk and Fitzgeralds Tunica casino revenues decreased 6.4% and 6.3%,
respectively, primarily due to lower business volumes offset by an increase in
casino revenue at Majestic Star Casino of 4.9% primarily due to dockside gaming
which began in August 2002 and the opening of the 2,000 space parking garage in
May 2002. With respect to Fitzgeralds Black Hawk, the property continues to
focus on a higher margin guest. As a result, the property has cut back on
marketing and promotions to lower margin and unprofitable guests. This decision
has caused revenues to decline from lower margin and unprofitable guests.
Consolidated room revenues. Consolidated room revenues decreased 5.0% to
$11,247,000 during the nine months ended September 30, 2003, from $11,837,000
for the same period in 2002. Room revenues decreased 6.5% at Fitzgeralds Las
Vegas as the average daily rate increase of 0.9% was offset by a decrease in the
average occupancy rate to 82.3% for the nine months ended September 30, 2003
from 88.8% for the same period in 2002. At Fitzgeralds Tunica, room revenues
decreased 3.7% due to a decrease of both the average daily rate, which decreased
1.9% for the nine months ended September 30, 2003 and a decrease in the average
occupancy rate, which fell to 93.3% during the nine months ended September 30,
2003 from 95.1% for the same period in 2002. Fitzgeralds Black Hawk and Majestic
Star Casino do not operate hotels.
Consolidated food and beverage revenues. Consolidated food and beverage
revenues increased 2.8% to $15,794,000 for the nine months ended September 30,
2003 from $15,367,000 for the same period in 2002. The increase in food and
beverage revenues came primarily from Fitzgeralds Las Vegas and Fitzgeralds
Black Hawk and was mostly due to price increases in beverages provided to our
guests. In addition, Fitzgeralds Las Vegas has been able to increase beverage
sales by operating a remote bar on the Fremont Street Experience mall during
event periods. Food and beverage revenue increases at Fitzgeralds Las Vegas
totaled $617,000 or 11.2%, while Fitzgeralds Black Hawk experienced revenue
increases of 4.8% or $71,000. At Majestic Star Casino, food and beverage
revenues decreased 11.4% due to dockside gaming. Dockside gaming allows guests
to freely leave the riverboat to enjoy the restaurants and bars located in the
Buffington Harbor complex. Fitzgeralds Tunica experienced food and beverage
revenue decreases of 1.7% as a result of lower casino volumes at the property.
Consolidated promotional allowances. Consolidated promotional allowances
decreased $575,000 or 3.1% to $17,714,000 during the nine months ended September
30, 2003 from $18,289,000 during the same period in 2002. At Fitzgeralds Tunica,
promotional allowances decreased 6.1% or $663,000, primarily as a result of
lower casino volumes. At Fitzgeralds Las Vegas, promotional allowances decreased
5.5% primarily as a result of high redemption of O'Lucky Bucks prior to the
elimination of the program in the third quarter of 2002. The decreases at
Fitzgeralds Las Vegas and Fitzgeralds Tunica were offset by increases at
Majestic Star Casino of 47.6% or $298,000, which was mainly due to greater
complimentaries associated with higher casino volumes.
Consolidated casino operating expenses. Consolidated casino operating
costs and expenses increased 1.0% to $210,866,000 during the nine months ended
September 30, 2003 from $208,852,000 for the same period in 2002. Casino
expenses were $75,826,000 during the nine months ended September 30, 2003, a
2.5% decrease from $77,778,000 for the same period in 2002. At the Fitzgeralds
properties, casino expenses decreased because of lower casino volumes which
resulted in reduced lease and rental expenses of slot machines, lower payroll
and payroll related expenses and lower cost of complimentaries provided to the
casino departments for food, beverage and rooms. In addition, at Fitzgeralds Las
Vegas, casino expenses decreased due to high redemption of O'Lucky Bucks during
the third quarter of 2002. The decreases in casino expenses at the Fitzgeralds
properties were offset by a $1,873,000 increase in casino expenses at Majestic
Star Casino, which was primarily due to increased casino volumes and greater
expenses related to our cash based marketing programs.
36
Consolidated rooms expenses. Consolidated rooms expenses decreased 1.9% to
$4,883,000 for the nine month period ended September 30, 2003 from $4,976,000
during the same period in 2002. The decline in room expenses is attributable to
our lower hotel occupancies.
Consolidated food and beverage expenses. Consolidated food and beverage
expenses decreased 3.6% to $8,766,000 for the nine month period ended September
30, 2003 from $9,093,000 during the same period in 2002. At Fitzgeralds Black
Hawk, Fitzgeralds Tunica and Majestic Star Casino, food and beverage expenses
decreased $168,000, $136,000 and $115,000, respectively. The reduced costs
resulted from lower payroll and related expenses and lower cost of sales during
the nine month period ended September 30, 2003. At Fitzgeralds Las Vegas, food
and beverage expenses increased $93,000.
Consolidated gaming taxes. Consolidated gaming taxes were $44,455,000
during the nine months ended September 30, 2003, compared to $40,934,000 for the
same period in 2002. The increase is primarily due to the higher tiered tax
structure in Indiana resulting from the implementation of dockside gaming in
August 2002 at Majestic Star Casino. For the nine months ended September 30,
2002, Majestic Star Casino paid gaming taxes under three different tax
structures. The three different tax structures for 2002 resulted in a lower
effective tax rate than that computed for the nine month period ended September
30, 2003. The tiered tax structure for the nine month ended September 30, 2003
resulted in $2,566,000 of additional taxes paid by Majestic Star Casino, which
was offset by decreases in gaming taxes at Fitzgeralds Tunica, Fitzgeralds Black
Hawk and Fitzgeralds Las Vegas due to lower casino revenues. In addition,
Majestic Star Casino took a one-time charge of $2,072,000 in the three-month
period ended June 30, 2003 for "retroactive dockside taxes." Below is a more
detailed discussion on Indiana's modified tax structure and the charge related
to the three-month period ended June 30, 2003.
From January 1, 2002 to June 30, 2002, Indiana gaming taxes were levied on
adjusted gross receipts, as defined by Indiana gaming laws, at the rate of 20%
plus $3 per passenger per the state passenger count. For the period July 1, 2002
through August 4, 2002, gaming taxes were levied on adjusted gross receipts at a
flat rate of 22.5%. Beginning August 5, 2002, in connection with the
commencement of dockside gaming at Majestic Star Casino, Majestic Star Casino
began paying gaming taxes following a graduated tax structure with a starting
rate of 15% and a top rate of 35% for adjusted gross receipts in excess of $150
million. In the nine month period ended September 30, 2002, Majestic Star Casino
calculated and paid gaming tax under three different methods. In the nine month
period ended September 30, 2003, Majestic Star Casino has only accrued gaming
tax expense under the tiered tax structure, which has required Majestic Star
Casino to calculate an estimated effective tax rate. The estimated effective tax
rate is higher in the nine month period ended September 30, 2003 than the
combined actual and effective tax rates for the nine month period ended
September 30, 2002.
In addition to the higher effective tax rate as imposed by the tiered
gaming tax structure, the Indiana legislature clarified the start date of the
tiered gaming tax structure associated with the implementation of dockside
gaming. Previously, the starting date for the computation of cumulative casino
revenues under the tiered tax structure was August 1, 2002 for seven riverboat
casinos that implemented dockside gaming on that date; and August 5, 2002, for
three riverboat casinos, including Majestic Star Casino, that implemented
dockside gaming on that date. The Indiana legislature's clarification requires
riverboat casinos to begin recognizing gaming tax liabilities for cumulative
casino revenues under the tiered tax structure starting on July 1, 2002 if they
implemented dockside gaming at any point in time. In addition, no credit was
provided for taxes previously paid by Majestic Star Casino for the period July
1, 2002 through August 4, 2002. For this period the statutory tax on casino
revenues was 22.5%. As a result of this retroactive dockside tax, the Indiana
Department of Revenue has assessed an additional $2,072,000 of gaming taxes due
from Majestic Star Casino. During the three-months ended June 30, 2003, Majestic
Star Casino took a charge for this assessment. The $2,072,000 assessment is
required to be paid in two equal installments, on July 1, 2003 and July 1, 2004.
All penalties and interest due from Majestic Star Casino on the retroactive
dockside tax assessment are waived as long as Majestic Star Casino pays 50% of
its applicable assessments on July 1, 2003 and July 1, 2004. Majestic Star
Casino paid the $1,036,000 assessment to Indiana Department of Revenue on July
1, 2003.
37
Consolidated advertising and promotional expenses. Consolidated
advertising and promotional expenses for the nine month period ended September
30, 2003 were $14,894,000, compared to $14,890,000 during the same period in
2002. At Fitzgeralds Las Vegas, advertising and promotional expense increased
$788,000 primarily as a result of eliminating the accrual for earned and
unredeemed O'Lucky Bucks in the third quarter of 2002. The increase at
Fitzgeralds Las Vegas was offset by reduced expenses at Fitzgeralds Black Hawk
and lower direct mail and guest development costs at Fitzgeralds Tunica.
Consolidated general and administrative expenses. Consolidated general and
administrative expenses increased $1,085,000 or 2.8% to $40,414,000 for the nine
month period ended September 30, 2003 from $39,329,000 during the same period in
2002. The increased expenses are due partially to increased corporate expenses
of $811,000 and greater parking garage lease expenses of $1,024,000. The higher
corporate expenses result from payroll, payroll related and relocation expenses
associated with building our corporate staff. Majestic Star Casino began
recognizing lease expense associated with the opening of Buffington Harbor's
2,000 space parking garage in May of 2002. Majestic Star Casino has recognized
four additional months of lease expense in the nine month period ended September
30, 2003. In addition, the Company has expensed $179,000 it has contributed to a
campaign that defeated the video lottery terminal initiative at five racetracks
along Colorado's front range on November 4, 2003. Lastly, Majestic Star Casino
has recognized $426,000 less in expenses associated with the operation of
Buffington Harbor Riverboat, LLC during the nine month period ended September
30, 2003. The Majestic Star Casino LLC is a 50% joint venture partner with Trump
Indiana in the operation of the Buffington Harbor facility.
Consolidated depreciation and amortization. Consolidated depreciation and
amortization decreased to $15,373,000 for the nine month period ended September
30, 2003 from $15,791,000 during the same period in 2002. The decrease is
primarily attributable to machinery and equipment being fully depreciated at
Majestic Star Casino.
Consolidated Operating income. Consolidated operating income was
$24,130,000 for the nine month period ended September 30, 2003 compared to
$27,653,000 for the same period in 2002. The $3,523,000, or 12.7%, decrease in
operating income is principally attributed to a combination of 0.6% or
$1,510,000 decrease in net revenues and a $2,014,000 increase in total operating
expenses. Operating income for the nine-month period ended September 30, 2003
includes the retroactive dockside gaming tax charge of $2,072,000, $811,000 of
additional corporate expenses and $1,540,000 for lease expenses related to the
2,000 space parking garage at Majestic Star. In the nine month period ended
September 30, 2002, Majestic Star incurred expenses related to the parking
garage of $516,000.
Consolidated net income. As a result of the foregoing, the Company's net
income was $80,000 for the nine month period ended September 30, 2003 compared
to $3,290,000 for the same period in 2002.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Consolidated gross revenues. Consolidated gross revenues for the year
ended December 31, 2002 amounted to $335,925,000, an increase of $197,558,000 or
142.8% over gross revenues recorded in the year ended December 31, 2001. The
Majestic Star Casino accounted for $136,165,000 or 40.5% of consolidated gross
revenues, an increase of $10,630,000 compared to the year ended December 31,
2001. Fitzgeralds Tunica accounted for $106,954,000, or 31.8% of consolidated
gross revenues, compared to $6,708,000, or 4.8% for the 25 day period ended
December 31, 2001. Fitzgeralds Black Hawk accounted for $38,188,000, or 11.4% of
consolidated gross revenues compared to $2,679,000, or 1.9% for the 25 day
period ended December 31, 2001. Fitzgeralds Las Vegas accounted for $54,618,000,
or 16.3% of consolidated gross revenues compared to $3,445,000, or 2.5% for the
25 day period ended December 31, 2001. The overall increase in consolidated
gross revenue and gross revenue at the Fitzgeralds Casinos is attributable to
the Acquisition. The increase in gross revenue at the Majestic Star Casino is a
result of the new parking structure, which opened in May 2002, that provides
customers with approximately 2,000 covered parking spaces and the commencement
of dockside gaming in August 2002. Dockside gaming eliminates the requirement
for cruising and provides our guests with continual access to the riverboat
gaming facility.
38
The Company's business can be separated into four operating departments:
casino, rooms (Fitzgeralds Tunica and Fitzgeralds Las Vegas only), food and
beverage and other.
Consolidated casino revenues. Consolidated casino revenues for the year
ended December 31, 2002 totaled $293,789,000, of which slot machines accounted
for $255,980,000, or 87.1% and table games accounted for $37,809,000, or 12.9%.
The consolidated average number of slot machines in operation was 4,377 for the
year ended December 31, 2002 compared to 4,358 for the year ended December 31,
2001 of which 2,923 were added upon the Acquisition. The consolidated average
win per slot machine per day was $160 for the year ended December 31, 2002
compared to $156 in 2001. The consolidated average number of table games for the
year ended 2002 was 117 compared to 114 in 2001, of which 64 were added upon the
Acquisition. The consolidated average win per table for the year ended 2002 was
$854 compared to $865 in 2001.
The Majestic Star Casino's casino revenues for the year ended December 31,
2002 totaled $132,600,000, an increase of $10,405,000 or 8.5%, of which slot
machines accounted for $113,119,000, or 85.3% and table games accounted for
$19,481,000 or 14.7%. The 8.5% increase in casino revenues at the Majestic Star
Casino was primarily attributable to a $9,918,000, or 9.6% increase in slot
revenue and as discussed previously, was attributable to the opening of the
parking garage in May 2002 and the commencement of dockside gaming in August
2002.
The Majestic Star Casino accounted for 1,508, or 34.5% of total
consolidated slot machines, for the year ended December 31, 2002, compared to
1,423, or 32.7% of the total consolidated slot machines for the year ended
December 31, 2001. The average win per slot machine per day was $205 for the
year ended December 31, 2002, compared to $199 for the year ended December 31,
2001. There were 53 table games at the Majestic Star Casino or 45.3% of
consolidated total table games for the year ended December 31, 2002 compared to
an average of 50, or 43.9%, of consolidated total table games for the year ended
December 31, 2001. This resulted in an average win per table game per day for
the year ended December 31, 2002, of $1,009, compared to an average of $1,034,
for the year ended December 31, 2001. The increase in table games revenues was
attributable to an increase in the table hold from 15.4% to 15.8% in comparison
to the prior year. Based on all gaming activity, the average daily win per
patron was $62 for the year ended December 31, 2002, compared to an average
daily win per patron of $67 for the year ended December 31, 2001.
Fitzgeralds Tunica's casino revenues for the year ended December 31, 2002,
totaled $88,200,000, or 30.0% of consolidated casino revenues, of which
$79,266,000, or 89.9% were derived from slot machine revenues and $8,934,000, or
10.1%, were derived from table games revenues, compared to casino revenues of
$5,494,000, or 4.1% of consolidated casino revenues, 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.
Fitzgeralds Tunica accounted for 1,371, or 31.3% of total consolidated slot
machines, for the year ended December 31, 2002 compared to 1,388 or 31.8% of the
total consolidated slot machines for the period from Inception through December
31, 2001. The average win per slot machine per day was $158 for the year ended
December 31, 2002, compared to $138 for the period from Inception through
December 31, 2001. There were 34 table games or 29.1% of consolidated total
table games at Fitzgeralds Tunica for the year ended December 31, 2002 compared
to an average of 34 and 29.8% for the period from Inception through December 31,
2001. This resulted in an average win per table game per day for the year ended
December 31, 2002 of $716, compared to an average of $816, for the period from
Inception through December 31, 2001.
Fitzgeralds Black Hawk's casino revenues for the year ended December 31,
2002 totaled $36,028,000, or 12.3% of consolidated casino revenues, of which
$35,306,000, or 98.0% were derived from slot machine revenues and $722,000, or
2.0%, were derived from table games revenues for the year ended December 31,
2002, compared to casino revenues of $2,510,000, or 1.9% of consolidated casino
revenues, of which $2,446,000, or 97.5%, were derived from slot machine revenues
and $64,000, or 2.5%, were derived from table games revenues for the period from
inception through December 31, 2001.
39
Fitzgeralds Black Hawk accounted for 594, or 13.5% of total consolidated
slot machines, for 2002 compared to 596 or 13.7% of the total consolidated slot
machines in the 25 days in 2001. The average win per slot machine per day was
$163 for 2002, compared to $164 for the 25 days in 2001. There were 6 table
games at Fitzgeralds Black Hawk or 5.1% of consolidated total table games in
2002, compared to 6 table games or 5.3% of consolidated total table games in the
25 days of 2001. This resulted in an average win per table game per day for 2002
of $330, compared to an average of $424, for the 25 days in 2001. The maximum
wager at Fitzgeralds Black Hawk is limited to $5.00.
Fitzgeralds Las Vegas's casino revenues for the year ended December 31,
2002 totaled $36,961,000, or 12.6% of consolidated casino revenues, of which
$28,289,000, or 76.5% were derived from slot machine revenues and $8,672,000, or
23.5%, were derived from table games revenues for the year ended December 31,
2002, compared to casino revenues of $2,355,000, or 1.8% of consolidated casino
revenues, of which $1,764,000, or 74.9%, were derived from slot machine revenues
and $591,000, or 25.1%, were derived from table games revenues for the period
from Inception through December 31, 2001.
Fitzgeralds Las Vegas accounted for 905, or 20.7% of total consolidated
slot machines for 2002, and 951 or 21.8% of total consolidated slot machines in
the 25 days in 2001. The average win per slot machine per day was $86 for 2002,
compared to $74 for the 25 days in 2001. There were 24 table games at
Fitzgeralds Las Vegas or 20.5% of consolidated total table games in 2002
compared to 24 table games or 21.0% of consolidated total table games in the 25
days of 2001. This resulted in an average win per table game per day for 2002 of
$989, compared to an average of $985, for the 25 days in 2001.
Consolidated room revenues. Consolidated room revenues totaled $15,495,000
or 4.6% of the consolidated gross revenue for the year ended December 31, 2002
compared to $1,079,000 or 0.8% of the consolidated gross revenue for the period
from Inception to December 31, 2001.
Of this amount, Fitzgeralds Tunica accounted for $8,160,000, or 52.7%, with
507 rooms, and Fitzgeralds Las Vegas accounted for $7,335,000, or 47.3%, with
638 rooms, compared to $544,000, or 50.4%, at Fitzgeralds Tunica and $535,000,
or 49.6% at Fitzgeralds Las Vegas for the period from Inception through December
31, 2001. The increase was attributed to a full year of operations at the
Fitzgeralds properties for the year ended December 31, 2002 compared to 25 days
of operation for December 2001. For 2002, the average daily rate was $48 and the
occupancy rate was 93.4% at Fitzgeralds Tunica and the average daily rate was
$36 and the occupancy rate was 86.5% at Fitzgeralds Las Vegas, compared to $50
and 86.5% at Fitzgeralds Tunica and $42 and 79.8% at Fitzgeralds Las Vegas for
the period from Inception through December 31, 2001. The Majestic Star Casino
and Fitzgeralds Black Hawk do not operate hotels.
Consolidated food and beverage revenue. Consolidated food and beverage
revenue for the year ended December 31, 2002 totaled $21,094,000, or 6.3% of
consolidated gross revenues, compared to $2,804,000, or 2.0% of consolidated
gross revenues for the year ended December 31, 2001.
The Majestic Star Casino accounted for $1,624,000, or 7.7% of consolidated
food and beverage revenue for the year ended December 31, 2002, an increase of
$10,000, or 0.6% compared to the year ended December 31, 2001.
Fitzgeralds Tunica accounted for $9,280,000, or 44.0% of consolidated food
and beverage revenue, compared to $586,000, or 20.9% for the period from
Inception through December 31, 2001. Fitzgeralds Black Hawk accounted for
$1,909,000, or 9.0% of consolidated food and beverage revenue, compared to
$156,000, or 5.6%, for the period from Inception through December 31, 2001.
Fitzgeralds Las Vegas accounted for $8,281,000, or 39.3% of consolidated food
and beverage revenue, compared to $448,000, or 16.0%, for the period from
Inception through December 31, 2001.
Consolidated other revenues. Consolidated other revenues consisted
primarily of commission and retail income and totaled $5,547,000, or 1.6% of
consolidated gross revenues for the year ended December 31, 2002, compared to
$1,931,000, or 1.4% of consolidated gross revenues for the year ended December
31, 2001.
The Majestic Star Casino accounted for $1,942,000, or 35.0% of consolidated
other revenues, compared to $1,727,000, or 89.4% of consolidated other revenues
for the year ended December 31, 2001.
40
Fitzgeralds Tunica accounted for $1,314,000, or 23.7% of consolidated other
revenues, compared to $84,000 or 4.4% of consolidated other revenues from the
period of Inception through December 31, 2001. Fitzgeralds Black Hawk accounted
for $250,000, or 4.5% of consolidated other revenues, compared to $13,000 or
0.7% of consolidated other revenues from the period of Inception to December 31,
2001. Fitzgeralds Las Vegas accounted for $2,041,000, or 36.8% of consolidated
other revenues, compared to $107,000, or 5.5% of consolidated other revenues
from the period from Inception to December 31, 2001.
Consolidated promotional allowances. Consolidated promotional allowances
deducted from the Company's gross revenues for the years ended December 31, 2002
and December 31, 2001, were $39,219,000 or 11.7% of consolidated gross revenues
and $8,082,000 or 5.8% of consolidated gross revenues, respectively.
The Majestic Star Casino accounted for $8,871,000 or 22.6% of consolidated
promotional allowances, an increase of $3,100,000 or 53.7% compared to the year
ended December 31, 2001. The increase is attributable to an increase in cash
back giveaways for the year ended December 31, 2002.
For 2002 Fitzgeralds Tunica accounted for $19,566,000, or 49.9% of
consolidated promotional allowances, Fitzgeralds Black Hawk accounted for
$5,079,000, or 13.0% of consolidated promotional allowances, and Fitzgeralds Las
Vegas accounted for $5,703,000, or 14.5% of consolidated promotional allowances,
compared to $1,340,000, or 16.6%, $606,000, or 7.5%, and $365,000, or 4.5%,
respectively, for the period from Inception through December 31, 2001.
Consolidated casino operating expenses. Consolidated casino operating
expenses for the year ended December 31, 2002, totaled $87,160,000, or 25.9% of
consolidated gross revenues and 29.7% of casino revenues compared to $28,213,000
or 20.4% of consolidated gross revenues and 21.3% of casino revenues,
respectively, for the year ended December 31, 2001.
The Majestic Star Casino accounted for $26,338,000, or 30.2% of
consolidated casino operating expenses for the year ended December 31, 2002
compared to $24,102,000, or 85.4% of consolidated casino operating expenses for
the year ended December 31, 2001. The increase of $2,236,000, or 9.3% in casino
operating expenses is primarily attributed to an increase of $1,070,000 for cash
related coupons and $970,000 in payroll and related benefits. Food and beverage
items provided to the Majestic Star Casino's gaming patrons at facilities
located in, and/or owned by the BHR Joint Venture for the year ended December
31, 2002 and December 31, 2001, totaled $1,013,000 and $876,000, respectively,
and are in casino operating expenses. The BHR Joint Venture and other
third-party operators of food kiosks invoice the Majestic Star Casino monthly
for these charges at cost, which approximates retail value.
For the year ended December 31, 2002, Fitzgeralds Tunica accounted for
$32,287,000, or 37.0% of consolidated casino operating expenses, Fitzgeralds
Black Hawk accounted for $10,505,000, or 12.1% of consolidated casino operating
expenses, and Fitzgeralds Las Vegas accounted for $18,030,000, or 20.7% of
consolidated casino operating expenses, compared to $2,076,000 or 7.4%, $692,000
or 2.5%, and $1,343,000 or 4.7%, respectively, for the period from Inception
through December 31, 2001.
Consolidated rooms expenses. Consolidated rooms expenses for the year
ended December 31, 2002, were $9,014,000, or 2.7% of consolidated gross revenues
compared to $629,000, or 0.5% of consolidated gross revenues for the period of
Inception through December 31, 2001. These expenses were primarily comprised of
salaries, wages and benefits, and operating expenses of the hotels. Fitzgeralds
Tunica accounted for $3,474,000, or 38.5% of consolidated rooms expenses and
Fitzgeralds Las Vegas accounted for $5,540,000, or 61.5% of consolidated room
expense, compared to $188,000, or 29.9% and $441,000, or 70.1%, respectively,
for the period from Inception through December 31, 2001.
Consolidated food and beverage expenses. Consolidated food and beverage
expenses for the twelve months ended December 31, 2002, were $13,553,000, or
4.0% of consolidated gross revenues compared to $3,025,000, or 2.2% of
consolidated gross revenues for the period ending December 31, 2001. Majestic
Star Casino accounted for $2,286,000, or 16.9% of consolidated food and beverage
expenses, Fitzgeralds Tunica accounted for $2,892,000, or 21.3% of consolidated
food and beverage expenses, Fitzgeralds Black Hawk accounted for $1,071,000, or
7.9% of consolidated food and beverage expenses, and Fitzgeralds Las Vegas
accounted for $7,304,000, or 53.9% of consolidated food and beverage expenses
for the year ending
41
December 31, 2002, compared to $2,317,000, or 76.6% for the year ending December
31, 2001 at Majestic Star, and $222,000 or 7.3%, $65,000 or 2.2%, and $421,000
or 13.9% at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las
Vegas, respectively, for the period from Inception through December 31, 2001.
Consolidated gaming taxes. Consolidated gaming taxes totaled $51,572,000,
or 15.4% of consolidated gross revenues for the year ended December 31, 2002,
compared to $34,835,000, or 25.2% of consolidated gross revenues for the year
ended December 31, 2001. For the six months ended June 30, 2002, Indiana gaming
taxes were levied on adjusted gross receipts, as defined by Indiana gaming laws,
at the rate of 20% plus $3 per admission. For the period July 1, 2002 through
August 4, 2002, gaming taxes were levied on adjusted gross receipts, at a flat
rate of 22.5%. Beginning August 5, 2002, in connection with the commencement of
dockside gaming, Majestic Star began to pay taxes under a graduated tax
structure with a starting rate of 15% and a top rate of 35% for adjusted gross
receipts in excess of $150 million.
Majestic Star Casino accounted for $33,621,000, or 65.2% of consolidated
gaming taxes for the year ended December 31, 2002 compared to $34,026,000, or
97.7% of consolidated gaming taxes for the year ended December 31, 2001.
For the year ended December 31, 2002, Fitzgeralds Tunica accounted for
$10,496,000, or 20.4% of consolidated gaming taxes, Fitzgeralds Black Hawk
accounted for $4,554,000, or 8.8% of consolidated gaming taxes and Fitzgeralds
Las Vegas accounted for $2,901,000, or 5.6% of consolidated gaming taxes,
compared to $654,000 or 1.9%, $15,000, or 0.0% and $140,000 or 0.4%,
respectively, for the period from Inception through December 31, 2001.
Consolidated advertising and promotion expenses. Consolidated advertising
and promotion expenses include salaries, wages and benefits of the marketing and
casino service departments, as well as promotions, advertising and special
events. Consolidated advertising and promotion expenses for the year ended
December 31, 2002 totaled $20,919,000, or 6.2% of gross revenues, compared to
$8,522,000, or 6.2% for the year ended December 31, 2001.
The Majestic Star Casino accounted for $7,636,000, or 36.5% of consolidated
advertising and promotion expenses for the year ended December 31, 2002 and
$7,596,000, or 89.1% of consolidated advertising and promotion expenses for the
year ended December 31, 2001.
Fitzgeralds Tunica accounted for $5,818,000, or 27.9% of consolidated
advertising and promotion expenses, Fitzgeralds Black Hawk accounted for
$3,000,000, or 14.3% of consolidated advertising and promotion expenses, and
Fitzgeralds Las Vegas accounted for $4,465,000, or 21.3% of consolidated
advertising and promotion expenses for the year ended December 31, 2002,
compared to $423,000, or 5.0%, $181,000 or 2.1%, and $322,000, or 3.8%,
respectively, for the period from Inception through December 31, 2001.
Consolidated general and administrative expenses. Consolidated general and
administrative expenses for the year ended December 31, 2002 were $51,754,000,
or 15.4% of consolidated gross revenues, compared to $24,241,000, or 17.5% of
consolidated gross revenues for the year ended December 31, 2001.
The Majestic Star Casino accounted for $26,776,000, or 51.7% of
consolidated general and administrative expenses for the year ended December 31,
2002 and $22,671,000, or 93.5% for the year ended December 31, 2001. These
expenses included $5,977,000 for berthing fees paid to the BHR Joint Venture,
$5,975,000 for marine operations including housekeeping, and $3,112,000 for
security and surveillance operations for the year ended December 31, 2002. The
dollar increase of $4,105,000 in these expenses is primarily attributed to an
increase of $1,735,000 in operating expense associated with corporate, a
$964,000 increase associated with the BHPA parking garage lease, $700,000 for
various legal claims and fees, $400,000 due to an increase in property tax and
$400,000 in insurance costs.
For the year ended December 31, 2002, Fitzgeralds Tunica accounted for
$10,429,000, or 20.2% of consolidated general and administrative expenses,
Fitzgeralds Black Hawk accounted for $5,035,000, or 9.7% of consolidated general
and administrative expenses, Fitzgeralds Las Vegas accounted for $9,169,000, or
17.7% of consolidated general and administrative expenses and unallocated
corporate expenses accounted for $345,000, or 0.7% of consolidated general and
administrative expenses compared to $642,000 or 2.7%,
42
$302,000 or 1.2%, $599,000, or 2.5% and $27,000, or 0.1%, respectively, for the
period of Inception through December 31, 2001. During 2002, Majestic Investor
Holdings expensed $196,000 of retention bonuses to various members of management
which bonuses were paid for the fourth quarter of 2002. The retention bonuses
were negotiated prior to the acquisition of the Fitzgeralds properties and were
given to certain members of the predecessor company's management team if they
would stay with the successor company for a period of one year after the
acquisition.
Consolidated depreciation and amortization. Consolidated depreciation and
amortization for the year ended December 31, 2002 was $21,078,000, or 6.3% of
consolidated gross revenues, compared to $8,990,000, or 6.5% of consolidated
gross revenues for the year ended December 31, 2001.
The Majestic Star Casino accounted for $6,617,000, or 31.4% of consolidated
depreciation and amortization for the year ended December 31, 2002, compared to
$8,070,000, or 89.7% for the year ended December 31, 2001. The dollar decrease
totaled $1,453,000, of which $900,000 is depreciation expense and $553,000 is
amortization expense. The decrease is attributable to machinery and equipment
being fully depreciated. The loss relating to the investment in the BHR Joint
Venture (for depreciation and amortization) for the years ended December 31,
2002 and 2001 was $2,424,000 and $2,798,000, respectively.
Fitzgeralds Tunica accounted for $7,373,000, or 35.0% of consolidated
depreciation and amortization, Fitzgeralds Black Hawk accounted for $1,538,000,
or 7.3% of consolidated depreciation and amortization, and Fitzgeralds Las Vegas
accounted for $2,953,000, or 14.0% of consolidated depreciation and amortization
expense, compared to $484,000 or 5.4%, $100,000, or 1.1%, and $167,000 or 1.9%,
respectively, for the period from Inception through December 31, 2001.
Amortization of deferred financing costs for Majestic Investor Holdings
accounted for $2,597,000, or 12.3% of consolidated depreciation and amortization
expense compared to $169,000, or 1.9% for the period from Inception through
December 31, 2001.
Consolidated gain on bond redemption. In 2002, Majestic Investor Holdings
purchased for $759,000 its 11.653% notes with a face value of $865,000, plus
accrued interest. Such notes, net of unamortized original issue discount, were
being carried at a value of $828,000. The result was a $69,000 gain.
Consolidated pre-opening costs. Consolidated pre-opening costs for 2002
and 2001 were $13,000 and $1,018,000, respectively. These expenses were incurred
prior to the Acquisition and represent costs including salaries and wages,
professional fees and other administrative expenses.
Consolidated operating income. The consolidated operating income for the
year ended December 31, 2002 was $33,747,000, or 10.0% of consolidated gross
revenues, compared to an operating income for the year ended December 31, 2001
of $14,238,000, or 10.3% of consolidated gross revenues. The increase was due to
a full year of operations at our Fitzgeralds casinos compared to twenty-five
days of operation of the properties in the prior year period.
Majestic Star Casino accounted for $17,615,000, or 52.3% of consolidated
operating income compared to $14,517,000, or 102.0% of consolidated operating
income for the year ended December 31, 2001. The $3,119,000, or 21.5% increase
is attributed to the increase in Majestic Star Casino's gross revenues offset by
increased expenses as previously discussed.
Fitzgeralds Tunica accounted for $14,281,000, or 42.4% of consolidated
operating income, Fitzgeralds Black Hawk accounted for $6,715,000, or 19.9% of
consolidated operating income, Fitzgeralds Las Vegas accounted a loss of
$1,977,000, or (5.9)% of consolidated operating income, and the unallocated
corporate loss principally for amortization accounted for $2,887,000, or (8.6)%
of consolidated operating income for the year ended December 31, 2002, compared
to $654,000, or 4.6%, $674,000, or 4.7%, a loss of $393,000, or (2.8)% and a
loss for pre-opening expenses of $1,214,000, or (8.5)% respectively, for the
period from Inception through December 31, 2001.
Consolidated net interest expense. The consolidated net interest expense
for the year ended December 31, 2002 was $32,243,000, or 9.6% of consolidated
gross revenues compared to $15,628,000, or 11.3% of consolidated gross revenue
for the same period last year. The significant increase is attributable to
interest expense recognized on the 11.635% notes for all of 2002 versus
twenty-five days in 2001.
43
Net interest expense attributed to the Majestic Star Casino for the year
ended December 31, 2002 was $14,261,000, or 44.2% of consolidated net interest
expense, compared to $14,635,000, or 93.6% consolidated net interest expense for
the same period last year. The $374,000 decrease in net interest expense at
Majestic Star is primarily attributed to a $124,000 decrease in interest income,
offset by lower interest in the line of credit and interest paid in 2001 to the
Indiana Department of Revenue.
Fitzgeralds Tunica had interest income of $28,000, Fitzgeralds Black Hawk
had net interest income of $8,000, Fitzgeralds Las Vegas had net interest
expense of $18,000 and the unallocated corporate interest expense at Majestic
Investor Holdings, primarily associated with the 11.653% notes, was $18,000,000
for the year ended December 31, 2002, compared to a net interest income of
$1,500 and $900, and a net interest expense of $2,100 and $993,000 for the
period from Inception through December 31, 2001.
Other. Other non-operating expenses of $183,000 and $149,000 for the years
ended December 31, 2002 and 2001, respectively, represent fees associated with
the line of credit.
Consolidated net income/loss. As a result of the foregoing, the Company
realized a consolidated net income of $1,316,000, or 0.3% of consolidated gross
revenue for the year ended December 31, 2002, compared to a consolidated net
loss of $1,551,000, or (1.1%) of consolidated gross revenue for the year ended
December 31, 2001. Majestic Star Casino accounted for a net income of $3,221,000
compared to a net loss of $280,000 for the year ended December 31, 2001.
Fitzgeralds Tunica accounted for net income of $14,316,000, Fitzgeralds Black
Hawk accounted for net income of $6,702,000, Fitzgeralds Las Vegas accounted for
a net loss of $1,995,000 and unallocated corporate at Majestic Investor Holdings
accounted for a net loss of $20,928,000 for the year ended December 31, 2002,
compared to net income of $655,000 and $675,000, respectively and a net loss of
$395,000 and $2,206,000 respectively, for the period from Inception through
December 31, 2001.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Consolidated gross revenues. Consolidated gross revenues for the year
ended December 31, 2001 amounted to $138,367,000, an increase of $19,916,000, or
16.8% of consolidated gross revenues for the year ended December 31, 2000. The
Majestic Star Casino, for the year ended December 31, 2001, accounted for
$125,535,000, or 90.7% of consolidated gross revenues, an increase of
$7,084,000, compared to the year ended December 31, 2000. The 6.0% increase in
gross revenues at the Majestic Star Casino was primarily attributable to a
$10,114,000, or 10.9% increase in slot revenue partially offset by a $3,374,000,
or 15.1% decline in table game revenues as a result of an 11.7% decrease in the
table drop and a lower than anticipated table hold.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $6,708,000, or 4.9% of consolidated gross revenues, Fitzgeralds
Black Hawk accounted for $2,679,000, or 1.9% of consolidated gross revenues, and
Fitzgeralds Las Vegas accounted for $3,445,000, or 2.5% of consolidated gross
revenues.
The Company's business can be separated into four operating departments:
casino, rooms (Fitzgeralds Tunica and Fitzgeralds Las Vegas only), food and
beverage and other.
Consolidated casino revenues. Consolidated casino revenues for the year
ended December 31, 2001 totaled $132,553,000, or 95.8% of consolidated gross
revenue, of which slot machines accounted for $112,210,000, or 84.7% and table
games accounted for $20,343,000, or 15.3% compared to $115,455,000 or 97.5% of
consolidated gross revenues of which slot machines accounted for $93,086,000, or
80.6% and table games accounted for $22,369,000, or 19.4%
The Majestic Star Casino's casino revenues for the year ended December 31,
2001 totaled $122,195,000, or 92.2% of consolidated casino revenues, of which
slot machines accounted for $103,200,000, or 84.5% and table games accounted for
$18,995,000, or 15.5%, an increase of $6,739,000, or 5.8% for the same period
last year.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $5,493,000, or 4.1% of consolidated casino revenue, of which
$4,800,000, or 87.4% were derived from slot machine
44
revenues, and $694,000, or 12.6% were derived from table games revenues.
Fitzgeralds Black Hawk accounted for $2,510,000, or 1.9% of consolidated casino
revenue, 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 and Fitzgeralds Las
Vegas accounted for $2,355,000, or 1.8% of consolidated casino revenue, 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.
The consolidated average number of slot machines in operation was 4,358 for
the year ended December 31, 2001, compared to 1,435 for the year ended December
31, 2000, an increase of 2,923 slot machines. The increase in slot machines is
due to the acquisition of the Fitzgeralds properties on December 6, 2001.
For the year ended December 31, 2001, Majestic Star Casino accounted for
1,423, or 32.7% of consolidated slot machines, compared to 1,435 for the year
ended December 31, 2000. The average win per slot machine per day increased to
$199 for the year ended December 31, 2001, from $177 for the year ended December
31, 2000. The increase is partially attributed to an aggressive multi-media
marketing campaign (including direct mail) emphasizing the tag line "Change Your
Luck" combined with a reconfiguration of the casino gaming floor which optimized
the available space to accommodate the casino patrons.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for 1,388, or 31.8% of consolidated slot machines, Fitzgeralds Black
Hawk accounted for 596, or 13.7% of consolidated slot machines, and Fitzgeralds
Las Vegas accounted for 951, or 21.8% of consolidated slot machines. The
consolidated average win per slot machine per day was $138, $164 and $74 at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively.
The consolidated average number of table games in operation was 114 for the
year ended December 31, 2001, compared to 55 for the year ended December 31,
2000. The increase in table games is due to the acquisition of the Fitzgeralds
properties on December 6, 2001. The consolidated average win per table game per
day for the year ended December 31, 2001 was $984, compared to $1,108 for the
year ended December 31, 2000.
The Majestic Star Casino accounted for 50, or 43.9% of consolidated table
games for the year ended December 31, 2001 compared to 55 for the year ended
December 31, 2000. The average win per table game per day during the year ended
December 31, 2001 decreased to $1,034 compared to $1,108 during the year ended
December 31, 2000. The decline in table games revenues was attributable to a
decline of $16,311,000, or 11.7% in table drop and a decrease in the table hold
from 16.0% to 15.4% in comparison to the prior year.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for 34, or 29.8% of consolidated table games, Fitzgeralds Black Hawk
accounted for 6, or 5.3% of consolidated table games, and Fitzgeralds Las Vegas
accounted for 24, or 21.0% of consolidated table games. The average win per
table game per day was $816, $424 and $985 at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas, respectively.
At Majestic Star, the average daily win per state passenger count was $38
and the average daily win per patron was $67 for the year ended December 31,
2001, compared to an average daily win per state passenger count of $37 and an
average daily win per patron of $68 for the year ended December 31, 2000.
Consolidated room revenues. Consolidated room revenues totaled $1,079,000,
or 0.8% of the consolidated gross revenue for the year ended December 31, 2001
and was attributed to the 25 days of operations for the Fitzgeralds properties.
Of this amount, Fitzgeralds Tunica accounted for $544,000, or 50.4% of
consolidated room revenues with 507 rooms. The average daily rate at Fitzgeralds
Tunica was $50 and the occupancy rate was 86.5%. Fitzgeralds Las Vegas accounted
for $535,000, or 49.6% of consolidated room revenues with 638 rooms. The average
daily rate at Fitzgeralds Las Vegas was $42 and the occupancy rate was 79.8%.
The Majestic Star Casino and Fitzgeralds Black Hawk do not operate a hotel.
Consolidated food and beverage revenue. Consolidated food and beverage
revenue for the year ended December 31, 2001 totaled $2,804,000, or 2.0% of
consolidated gross revenues, compared to $1,565,000, or
45
1.3% of gross revenues for the year ended December 31, 2000. The increase in
consolidated food and beverage revenue is due to the acquisition of the
Fitzgeralds properties on December 6, 2001.
The Majestic Star Casino accounted for $1,614,000, or 57.5% of consolidated
food and beverage revenue for the year ended December 31, 2001, an increase of
$49,000, or 3.1% compared to the year ended December 31, 2000.
For the period from Inception to December 31, 2001, Fitzgeralds Tunica
accounted for $586,000, or 20.9% of consolidated food and beverage revenue,
Fitzgeralds Black Hawk accounted for $156,000, or 5.6% of consolidated food and
beverage revenue, and Fitzgeralds Las Vegas accounted for $448,000, or 16.0% of
consolidated food and beverage revenue.
Consolidated other revenues. Consolidated other revenues consisted
primarily of commission and retail income and totaled $1,931,000, or 1.4% of
consolidated gross revenues for the year ended December 31, 2001, compared to
$1,431,000, or 1.2% of gross revenue for the year ended December 31, 2000.
The Majestic Star Casino accounted for $1,727,000, or 89.4% of consolidated
other revenues for the year ended December 31, 2001, compared to $1,431,000, or
100.0% of consolidated other revenues for the year ended December 31, 2000.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $84,000, or 4.4% of consolidated other revenues, Fitzgeralds Black
Hawk accounted for $13,000, or 0.7% of consolidated other revenues, and
Fitzgeralds Las Vegas accounted for $107,000, or 5.5% of consolidated other
revenues.
Consolidated promotional allowances. Consolidated promotional allowances
deducted from the Company's gross revenues for the years ended December 31, 2001
and 2000, were $8,082,000, or 5.8% and $4,689,000, or 4.0% of consolidated gross
revenues, respectively.
The Majestic Star Casino accounted for $5,771,000, or 71.4% of consolidated
promotional allowances for the year ended December 31, 2001, an increase of
$1,081,000, or 23.0% compared to the year ended December 31, 2000.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $1,340,000, or 16.6% of consolidated promotional allowances,
Fitzgeralds Black Hawk accounted for $606,000, or 7.5% of consolidated
promotional allowances, and Fitzgeralds Las Vegas accounted for $365,000, or
4.5% of consolidated promotional allowances.
Consolidated casino operating expenses. Consolidated casino operating
expenses for the year ended December 31, 2001, totaled $28,213,000, or 20.4% of
consolidated gross revenues, compared to $23,787,000, or 20.1% of consolidated
gross revenues for the year ended December 31, 2000. These expenses were
primarily comprised of salaries, wages and benefits, and operating expenses of
the casino.
The Majestic Star Casino accounted for $24,102,000, or 85.4% of
consolidated casino operating expenses, compared to $23,787,000, or 100.0% of
consolidated casino operating expenses for the year ended December 31, 2000. The
dollar increase of $315,000 in casino operating expenses is primarily attributed
to an increase of $120,000 for gaming equipment rental and other various casino
operating expenses. Promotional allowances provided to the Majestic Star
Casino's gaming patrons at facilities located in, and/or owned by the BHR Joint
Venture for the year ended December 31, 2001 and 2000, totaled $876,000 and
$491,000, respectively, and are characterized in the financial statements as an
expense. The BHR Joint Venture and other third-party operators of food kiosks
invoice the Majestic Star Casino monthly for these promotional allowances at
cost, which approximates retail value.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $2,076,000, or 7.4% of consolidated casino operating expenses,
Fitzgeralds Black Hawk accounted for $692,000, or 2.5% of consolidated casino
operating expenses, and Fitzgeralds Las Vegas accounted for $1,343,000, or 4.7%
of consolidated casino operating expenses.
Consolidated gaming taxes. Consolidated gaming taxes are levied on
adjusted gross receipts (as defined in each of the applicable state's gaming
laws). Consolidated gaming taxes totaled $34,835,000, or 25.2% of
46
consolidated gross revenue for the year ended December 31, 2001, compared to
$32,350,000, or 27.3% of consolidated gross revenue for the year ended December
31, 2000.
The Majestic Star Casino accounted for $34,026,000, or 97.7% of
consolidated gaming taxes and $32,350,000 or 100.0% of consolidated gaming taxes
for the years ended December 31, 2001 and 2000, respectively. An additional
$3,667,000 was paid for the year ended December 31, 2001, compared to $3,231,000
for the year ended December 31, 2000, to the City of Gary under an economic
incentive agreement whereby Majestic Star pays 3% of adjusted gross receipts
directly to the City.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $654,000, or 1.9% of consolidated gaming taxes, Fitzgeralds Black
Hawk accounted for $15,000 of consolidated gaming taxes, and Fitzgeralds Las
Vegas accounted for $140,000, or 0.4% of consolidated gaming taxes.
Consolidated advertising and promotion expenses. Consolidated advertising
and promotion expenses include salaries, wages and benefits of the marketing and
casino service departments, as well as promotions, advertising and special
events. Consolidated advertising and promotion expenses for the year ended
December 31, 2001 totaled $8,522,000, or 6.2% of consolidated gross revenues,
compared to $8,348,000, or 7.0% of consolidated gross revenues for the year
ended December 31, 2000.
The Majestic Star Casino accounted for $7,596,000, or 89.1% of consolidated
advertising and promotion expenses for the year ended December 31, 2001 compared
to $8,348,000, or 100.0% of consolidated advertising and promotion expenses for
the year ended December 31, 2000. The $752,000, or 9.0% decrease in advertising
and promotion expenses for the year ended December 31, 2001 was primarily the
result of a decrease in mass marketing expenditures partially offset by an
increase in operating supplies.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $423,000, or 5.0% of consolidated advertising and promotion
expenses, Fitzgeralds Black Hawk accounted for $181,000, or 2.1% of consolidated
advertising and promotion expenses, and Fitzgeralds Las Vegas accounted for
$322,000, or 3.8% of consolidated advertising and promotion expenses.
Consolidated general and administrative expenses. Consolidated general and
administrative expenses for the year ended December 31, 2001 were $24,241,000,
or 17.5% of consolidated gross revenues, compared to $23,192,000, or 19.6% of
consolidated gross revenues for the year ended December 31, 2000.
The Majestic Star Casino accounted for $22,671,000, or 93.5% of
consolidated general and administrative expenses for the year ended December 31,
2001 compared to $22,942,000, or 98.9% of consolidated general and
administrative expenses for the year ended December 31, 2000. These expenses
included $6,317,000 for berthing fees paid to the BHR Joint Venture, $6,151,000
for marine operations including housekeeping, and $2,693,000 for security and
surveillance operations for the year ended December 31, 2001. The dollar
decrease of $271,000 in these expenses is primarily attributed to a reduction of
$651,000 in berthing fees, partially offset by higher professional fees and fees
to the Indiana Gaming Commission.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $642,000, or 2.6% of consolidated general and administrative
expenses, Fitzgeralds Black Hawk accounted for $302,000, or 1.2% of consolidated
general and administrative expenses, Fitzgeralds Las Vegas accounted for
$599,000, or 2.6% of consolidated general and administrative expenses, and
unallocated corporate expenses at Majestic Investor Holdings accounted for
$27,000, or 0.1% of consolidated general and administrative expenses.
Consolidated depreciation and amortization. Consolidated depreciation and
amortization for the year ended December 31, 2001 was $8,990,000, or 6.5% of
consolidated gross revenues, compared to $9,113,000, or 7.7% of consolidated
gross revenues for the year ended December 31, 2000.
The Majestic Star Casino accounted for $8,070,000, or 89.8% of consolidated
depreciation and amortization for the year ended December 31, 2001, compared to
$9,113,000, or 100.0% of consolidated depreciation and amortization for the year
ended December 31, 2000, a decrease of $1,043,000. The decrease is primarily
attributable to machinery and equipment being fully depreciated and deferred
licensing fees being fully amortized. The loss relating to its investment in BHR
(for depreciation and amortization) for the years ended December 31, 2001 and
2000 was $2,798,000 and $2,059,000, respectively.
47
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for $484,000, or 5.4% of consolidated depreciation and amortization,
Fitzgeralds Black Hawk accounted for $100,000 or 1.1% of consolidated
depreciation and amortization, Fitzgeralds Las Vegas accounted for $167,000, or
1.8% of consolidated depreciation and amortization and unallocated amortization
of deferred financing costs for Majestic Investor Holdings and the discount on
the 11.653% notes accounted for $169,000, or 1.9% of consolidated depreciation
and amortization expense.
Consolidated pre-opening costs. Consolidated pre-opening costs of
$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.
Consolidated loss on bond redemption. Expenses on redemption of The
Majestic Star Casino, LLC's 12 3/4% notes for the year ended December 31, 2000
was $382,000.
Consolidated operating income. The consolidated operating income for the
year ended December 31, 2001 was $14,238,000, or 10.3% of consolidated gross
revenues, compared to an operating income for the year ended December 31, 2000
of $8,897,000, or 7.5% of consolidated gross revenues.
The Majestic Star Casino accounted for $14,517,000, or 102.0% of
consolidated operating income for the year ended December 31, 2001, compared to
$9,147,000, or 102.8% of consolidated operating income for the same period last
year. The $5,370,000, or 58.7% increase is attributed to a 6.0% increase in
gross Majestic Star Casino revenues partially offset by increased expenses as
previously discussed.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for operating income of $654,000, or 4.6% of consolidated operating
income, Fitzgeralds Black Hawk accounted for operating income of $674,000, or
4.7% of consolidated operating income, Fitzgeralds Las Vegas accounted for an
operating loss of $393,000, or (2.8)% of consolidated operating income and
unallocated corporate at Majestic Investor Holdings accounted for an operating
loss of $1,214,000, or (8.5)% of consolidated operating income.
Consolidated net interest expense. The consolidated net interest expense
for the year ended December 31, 2001 was $15,628,000, or 11.3% of consolidated
gross revenues compared to $14,105,000, or 11.9% for the same period last year.
The Majestic Star Casino accounted for $14,636,000, or 93.6% of
consolidated net interest expense for the year ended December 31, 2001, compared
to $14,158,000, or 100.0% for the same period last year. The $478,000 increase
in net interest expense is primarily attributed to a $659,000 decrease in
interest income, partially offset by a $181,000 increase in interest expense
associated with the line of credit.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
accounted for interest income of $1,500, Fitzgeralds Black Hawk accounted for
interest income of $900, and Fitzgeralds Las Vegas accounted for interest
expense of $2,100. Net interest expense at Majestic Investor Holdings was
$993,000, which relates to the 11.653% notes.
Consolidated other non-operating expenses. Other non-operating expenses of
$149,000 and $125,000 for the years ended December 31, 2001 and 2000,
respectively, represent fees associated with the lines of credit.
Consolidated income/loss. As a result of the foregoing, the Company's
consolidated loss was $1,551,000 for the year ended December 31, 2001, compared
to a loss of $5,750,000 for the year ended December 31, 2000.
The Majestic Star Casino had a loss of $280,000 for the year ended December
31, 2001, compared to a loss of $5,553,000 for the year ended December 31, 2000.
For the period from Inception through December 31, 2001, Fitzgeralds Tunica
had net income of $655,000, Fitzgeralds Black Hawk had net income of $675,000,
Fitzgeralds Las Vegas had a net loss of $395,000 and unallocated corporate at
Majestic Investor Holdings was a net loss of $2,206,000.
48
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2003, the Company had unrestricted cash and cash
equivalents of $35,256,000, compared to $24,548,000 at December 31, 2002. As of
September 30, 2003 and 2002, the Company has met its capital requirements to
date through net cash from operating activities. The Company's net cash provided
by operating activities was $26,391,000 and $22,191,000 during the nine month
period ended September 30, 2003 and 2002, respectively. Net cash used in
investing activities was $11,771,000 and $4,941,000 during the nine month period
ended September 30, 2003 and 2002, respectively. In the nine month period ended
September 30, 2002, investing activities provided cash of $3,800,000 from a
purchase price adjustment related to the purchase of the Fitzgeralds Properties.
Net cash used in financing activities was $3,912,000 and $10,836,000 during the
nine month period ended September 30, 2003 and 2002, respectively. In the nine
month period ended September 30, 2002, the Company borrowed $2,500,000 and
repaid $9,000,000 from the Old Majestic Investor Holdings credit facility. At
September 30, 2002, the Company did not have any amounts borrowed against the
Old Majestic Star credit facility or the Old Majestic Investor Holdings credit
facility.
At December 31, 2002, the Company had cash and cash equivalents of
$24,548,000 compared to $25,925,000 at December 31, 2001. As of December 31,
2002 the Company met its capital requirements through net cash from operating
activities. As of December 31, 2001, the Company met its capital requirements
through net cash from operating activities, the issuance of $145,000,000 of
11.653% notes and a $5,000,000 equity contribution from our member. For the year
ended December 31, 2002 and 2001, net cash provided by operating activities
totaled $21,305,000 and $12,411,000, respectively. The primary reason for the
increase in cash from operating activities for the year ended December 31, 2002
has to do with a full year of operations of our Fitzgeralds properties. Net cash
used in investing activities was $8,251,000 and $146,273,000 for the year ended
December 31, 2002 and 2001, respectively. For the year ended December 31, 2002,
investing activities included the acquisition of equipment for $10,396,000 and
$3,800,000 of proceeds from a purchase price adjustment related to the
acquisition of the Fitzgeralds properties. For the year ended December 31, 2001
investing activities included the purchase of the Fitzgeralds properties for
$143,758,000 and acquisition of equipment for $5,090,000. Net cash used in
financing activities was $14,431,000 for the year ended December 31, 2002
compared to net cash provided by financing activities of $143,668,000 for the
year ended December 31, 2001. For the year ended December 31, 2002, financing
activities included proceeds from our line of credit of $2,500,000, repayment to
our line of credit of $9,000,000 and distributions to Barden Development, Inc.
of $5,509,000. For the year ended December 31, 2001, financing activities
included $145,000,000 of proceeds from issuance of the 11.653% notes, an equity
contribution from our member of $5,000,000 and the payment of $5,349,000 of
issuance costs related to the 11.653% notes.
On October 7, 2003, the Company issued $260.0 million of 9 1/2% Senior
Secured Notes and concurrently entered into the new $80.0 million senior secured
credit facility. The Old Majestic Star credit facility and the Old Majestic
Investor Holdings credit facility were terminated upon the establishment of the
new $80.0 million senior secured credit facility. The Company also completed its
purchase and redemption of all of the 10 7/8% notes and approximately 89% of the
11.653% notes. 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 11.653% notes and 9 1/2%
Senior Secured Notes, lease payments to BHPA and other permitted indebtedness
for the year 2003. No assurance can be given, however, that such proceeds and
operating cash flow, in light of increased competition, will be sufficient for
such purposes. The purchase of certain Indiana gaming facilities by larger more
recognized brand names could significantly increase competition for the Company.
If necessary and to the extent permitted under the indenture governing the
9 1/2% Senior Secured Notes, the Company will seek additional financing through
borrowings of 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.
49
CONTRACTUAL COMMITMENTS
The following table summarizes our consolidated obligations and commitments
to make future payments under certain contracts, including long-term debt
obligations and operating leases at December 31, 2002.
<Table>
<Caption>
PAYMENTS DUE BY YEAR
CONTRACTUAL OBLIGATIONS -----------------------------------------------------------------------------------------------
AND COMMITMENTS 2003 2004 2005 2006 2007 THEREAFTER TOTAL
- ----------------------- ---------- ---------- ---------- ------------ ------------ ----------- ------------
Long Term Debt.......... $ 134,084 $ 84,984 $ 30,082 $128,879,771 $145,531,448 $ -- $274,660,369
Operating Leases(1)..... 1,922,915 1,550,269 1,500,130 1,477,845 1,477,845 10,929,895 18,858,899
---------- ---------- ---------- ------------ ------------ ----------- ------------
Total................. $2,056,999 $1,635,253 $1,530,212 $130,357,616 $147,009,293 $10,929,895 $293,519,268
========== ========== ========== ============ ============ =========== ============
</Table>
With the purchase and redemption of all of the 10 7/8% notes and
approximately 89% of the 11.653% notes, and the consummation of the spin-off of
Barden Nevada Gaming to BDI, the following table summarizes our consolidated
obligations and commitments to make future payments under certain contracts
including long-term debt and the line of credit as if the refinancing and
spin-off transactions had been completed by December 31, 2002.
<Table>
<Caption>
PAYMENTS DUE BY YEAR
CONTRACTUAL OBLIGATIONS AND ---------------------------------------------------------------------------------------------
COMMITMENTS 2003 2004 2005 2006 2007 THEREAFTER TOTAL
- --------------------------- ---------- ---------- ---------- ---------- ----------- ------------ ------------
Long-Term Debt............ $ -- $ -- $ -- $ -- $16,290,000 $260,000,000 $276,290,000
Line of Credit............ -- -- -- -- 28,000,000 -- 28,000,000
Operating Leases(1)....... 1,922,915 1,550,269 1,500,130 1,477,845 1,477,845 10,929,895 18,858,899
---------- ---------- ---------- ---------- ----------- ------------ ------------
Total..................... $1,922,915 $1,550,269 $1,500,130 $1,477,845 $45,767,845 $270,929,895 $323,148,899
========== ========== ========== ========== =========== ============ ============
</Table>
- ---------------
(1) The Majestic Star Casino, LLC and the Joint Venture Partners have each
entered into parallel operating lease agreements with BHPA. Each of the
lease agreements call for The Majestic Star Casino, LLC and the Joint
Venture Partners to make monthly lease payments equal to 100% of BHPA's debt
service requirement for the following month. However, each party is entitled
to a credit for 50% of such payment if the other party makes its monthly
payment.
BUSINESS SEASONALITY
The gaming operations of the Company's properties may be seasonal and,
depending on the location and other circumstances, the effects of such
seasonality could be significant. The properties' results are affected by
inclement weather in relevant markets. For example, because of the climate in
the Chicago metropolitan area, the Majestic Star Casino's operations are
expected to be seasonal with stronger results generally expected during the
period from May through September. Fitzgeralds Black Hawk, 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 Fitzgeralds Black Hawk facilities. 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. Accordingly, the Company's results of operations are expected
to fluctuate from quarter to quarter and the results for any fiscal quarter may
not be indicative of results for future fiscal quarters.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
requires our 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 revenues is the net win from gaming
activities, which is the difference between gaming wins and losses. Hotel and
other revenue are recognized at the time the related service is performed.
50
Goodwill and Other Intangible Assets -- We have approximately $5.9 million
of goodwill and $16.5 million of other intangibles assets recorded on our
balance sheet at September 30, 2003, related to the acquisition of the
Fitzgeralds properties. We regularly evaluate our acquired businesses for
potential impairment indicators. Additionally, we adopted the provisions of SFAS
No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002, that
require us to perform impairment testing at least annually. Our
50.1
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 September 30, 2003, we have approximately
$164.2 million of net property and equipment recorded on our balance sheet.
Third-party valuations were obtained for property and equipment and intangible
assets acquired in connection with the Fitzgeralds acquisitions. 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.
Casino Club Liability -- The Fitzgeralds casinos offer 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 Fitzgeralds
casinos' redemption history. Changes in the program, increases in membership and
changes in the redemption patterns of the participants can impact this
liability.
Self-Insurance -- The Company maintains accruals for their self-insured
health program, which are classified in other accrued liabilities in the
consolidated balance sheet. Management determines the estimates of these
accruals by periodically evaluating the historical expenses and projected trends
related to these accruals. Actual results may differ from those estimates.
Litigation, Claims and Assessments -- We also utilize estimates for
litigation, claims and assessments. These estimates are based upon our knowledge
and experience about past and current events and also upon reasonable future
events. Actual results may differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board issued statement
145 ("SFAS 145"). SFAS 145 addresses the presentation for gains and losses on
early retirements of debt in the statement of operations. SFAS 145 is effective
for fiscal years beginning after May 15, 2002. The Company adopted SFAS 145 and
as a result, reclassified $69,000 in a gain from the early extinguishment of
debt, which item had previously been reported as an extraordinary item in the
fourth quarter of 2002. In the fourth quarter of 2003, the Company also expects
to recognize a loss on the retirement of debt of $32.0 million on October 7,
2003. The loss on the retirement of debt is comprised of the premium on the
offers to purchase, the write-off of the deferred debt issuance costs and the
original issue discount on the 10 7/8% notes and the 11.653% notes, which
amounts will be reflected in the computation of net income for the year ended
December 31, 2003.
In June 2002, the Financial Accounting Standard Board issued Statement 146
("SFAS 146") "Accounting for Costs Associated with Exit or Disposal Activities."
The provisions of SFAS 146 became effective for exit or disposal activities
commenced subsequent to December 31, 2002. Adoption of SFAS 146 did not have any
material impact on the Company's financial position, results of operations or
cash flows.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Guarantees of Indebtedness of Others."
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees
that it has issued. It also clarifies (for guarantees issued after January 1,
2003) that a guarantor is required to recognize at the inception of a guarantee,
a liability for the fair value of the obligations undertaken in issuing the
guarantee. At September 30, 2003, the Company did not have any guarantees
outside of its consolidated group. Adoption of
51
FIN 45 did not have a material impact on the Company's financial condition,
results of operations or cash flows.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
FIN 46 addresses the requirements for business enterprises to consolidate
related entities in which they are determined to be the primary economic
beneficiary as a result of their variable economic interests. FIN 46 is intended
to provide guidance in judging multiple economic interests in an entity and in
determining the primary beneficiary. FIN 46 outlines disclosure requirements for
Variable Interest Entities ("VIEs") in existence prior to January 31, 2003, and
outlines consolidation requirements for VIEs created after January 31, 2003. The
Company has reviewed its major relationships and its overall economic interests
with other companies consisting of related parties, companies in which it has an
equity position and other suppliers to determine the extent of its variable
economic interest in these parties. Adoption of FIN 46 did not have a material
impact on the Company's financial condition, results of operations or cash
flows.
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149 ("SFAS 149") "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." Provisions of SFAS 149 became
effective for contracts and hedging relationships entered into or modified after
June 30, 2003. Adoption of SFAS 149 did not have any material impact on our
financial position, results of operations or cash flows as the Company has not
entered into or modified any agreements that contain derivative instrument or
involve hedging activities.
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 ("SFAS 150") "Accounting for Certain
Financial Instruments with Characteristic of both Liabilities and Equity." The
Company is considered a non-public entity, as defined by SFAS 150 because its
equity securities are not listed on a public exchange. Accordingly, for the
Company, the provisions of SFAS 150 will become effective during the quarter
ending March 31, 2004. The Company does not anticipate that the adoption of SFAS
150 would have a material impact on our financial position, results of
operations, or cash flows.
52
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not have any financial instruments held for traditional
purposes, such as trading or other speculative purposes, and does not hedge any
of its market risks with derivative instruments.
The Company's primary market risk exposure relates to interest risk
exposure through its borrowings and third-party financing, including the senior
secured credit facility, under which interest accrues on a floating rate basis.
These sources of credit, along with cash flow from operations, are used to
maintain liquidity and fund business operations. The Company typically replaces
borrowings under its third-party vendor financing, as necessary, with shorter
termed variable rate financing generally secured by the assets being acquired.
The nature and amount of the Company's debt may vary as a result of future
business requirements, market conditions and other factors.
The senior secured credit facility has a maximum credit line of $80.0
million. Assuming we have borrowed against the maximum available under the
senior secured credit facility, a one-half percentage point change in the
underlying variable rate would result in a change in related interest expense of
$400,000 on an annual basis. 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.
On a pro forma basis, at September 30, 2003, we had outstanding borrowings
of $28.0 million under our credit facility.
In addition, we have approximately $260.0 million principal amount of notes
outstanding under the indenture governing the notes and $15.7 million principal
amount of the 11.653% notes outstanding. Interest expense on our fixed rate debt
instruments are not affected by a change in the market rates of interest and
therefore, such changes generally do not have an impact on future earnings.
53
BUSINESS
GENERAL
We own and operate three casino properties, located in Gary, Indiana,
Tunica County, Mississippi, and Black Hawk, Colorado. Our properties
collectively contain approximately 3,400 slot machines, 90 table games and 500
hotel rooms (Fitzgeralds Tunica only). Our properties are well established, each
having been in operation for at least seven years, and are well situated within
significant drive-in gaming markets. These markets collectively generated
approximately $4.0 billion in gaming revenue in 2002. Within each market, we
leverage our strong brand names, experienced management, value-oriented
amenities and emphasis on slot play to target mid-level gaming customers, who
overwhelmingly favor slot play.
PROPERTIES
Majestic Star Casino. The Majestic Star Casino is a riverboat casino
located at Buffington Harbor in Gary, Indiana, approximately 23 miles southeast
of downtown Chicago. The casino is a four-story, 360 foot long vessel with a
contemporary design and a stable V-shaped hull that accommodates approximately
3,000 passengers plus crew. The casino includes approximately 43,000 square feet
of gaming space across three expansive decks, which contains approximately 1,468
slot machines and 50 table games. From July 2003 to October 2003, a remodeling
was completed that involved new carpeting for the casino, and a new layout for
the slot machine floor as well as an upgrade to our restroom facilities. The
Majestic Star Casino offers patrons an exciting gaming environment with a bright
and spacious layout, high ceilings, an atrium spanning two decks, colorful
chandeliers and mirrors. Passengers move freely between the various levels of
the casino through escalators, elevators and stair towers. The Majestic Star
Casino also offers its customers on-board food and beverage facilities. In
addition, the Majestic Star Casino offers the only on-board VIP lounge. The
Buffington Harbor gaming complex is a two-level, 102,000 square foot structure
containing a 110-seat restaurant, food court with four outlets including food
kiosks provided by Miller Pizza and Harbor Treats, a gift shop, and banquet and
entertainment facilities. The Buffington Harbor gaming complex is situated on an
approximately 100-acre site, containing a recently constructed 2,000-space
covered parking structure, 2,600 surface parking spaces, and offers valet
parking and convenient bus loading and unloading facilities.
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 adjacent to 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 our customer base has been increased and
diversified by our 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
approximately 1,357 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
the county. Fitzgeralds Tunica was constructed on barges situated in a specially
constructed basin. In June 2000, construction was completed on a 411-space
covered parking garage and an additional 170 spaces of surface parking at a cost
of $5.6 million, bringing the total number of surface spaces to 1,264 and the
total number of covered spaces to 411, plus 120 valet spaces.
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 first floor casino offers approximately 594 slot machines, 6 table
games, a restaurant and a bar. Fitzgeralds Black Hawk also has a 392-space, all
valet parking garage adjacent to the casino. In addition, we recently completed
a partial demolition project on property we own adjacent to Fitzgeralds Black
Hawk. The property is available for
54
expansion if market conditions warrant and we are currently evaluating the
feasibility of such an expansion to better serve the Black Hawk market.
COMPETITIVE STRENGTHS
Our operating strategy is to further attract middle market guests by
continuing to promote our properties as synonymous with a quality casino
experience and personal service at an affordable price. We intend to accomplish
this by continuing to pursue the following principal elements of our strategy:
Good Locations in Strong Drive-in Markets. Our properties are located in
significant drive-in gaming markets, which we believe have benefited or will
benefit from the shift towards seeking entertainment closer to home as a result
of recent world events.
Majestic Star Casino. The Majestic Star Casino is located in, and
primarily draws from, the Chicago metropolitan area, but also attracts drive-in
customers from other areas in Illinois, Indiana, and Michigan. The Chicago
metropolitan area is the third most populated metropolitan area in the United
States, with approximately 8.4 million residents. Approximately 11.9 million and
25.6 million people reside within a 100 and 200-mile radius of the Majestic Star
Casino, respectively. The Majestic Star Casino operates from the Buffington
Harbor gaming complex, which we share with the Trump Casino and own through a
joint venture with our Joint Venture Partner. Buffington Harbor has the highest
concentration of gaming positions in the Chicago market, offering patrons a
total of approximately 3,700 gaming positions. We believe the high concentration
of gaming positions and the ability to park once and play twice (at two casinos)
provide a strong competitive advantage.
Fitzgeralds Tunica. Fitzgeralds Tunica primarily draws its gaming patrons
from the Memphis, Tennessee area and also attracts drive-in customers from
Northern Mississippi and Little Rock, Arkansas, as well as regional weekend
travelers flying into Memphis. The Tunica market draws most of its customers
from within a 200-mile radius. The population within this 200-mile radius is
approximately 7.4 million. In addition, there were approximately 24.0 million
visitors to the Tunica region in 2002.
Fitzgeralds Black Hawk. Fitzgeralds Black Hawk is located in the Black
Hawk/Central City market, which includes the City of Black Hawk and Central
City, and attracts drive-in or "day trip" customers from the population centers
of Denver, Boulder and Fort Collins, Colorado as well as Cheyenne, Wyoming. Each
of these population centers is 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 3.8 million in 2002.
Strong Gaming Brands. We believe our strong gaming brands help attract and
retain customers.
- Majestic Star and Buffington Harbor. We utilize a comprehensive
integrated marketing campaign to brand the Majestic Star Casino as "the
place to play" in the Chicago metropolitan area for slot customers from
the middle-income segment. Our ads have appeared in all advertising
venues including television, radio, print and outdoor media, allowing us
to enhance our slot leadership positioning among Chicago-area gaming
facilities. We intend to utilize these and other similar broad marketing
techniques to attract middle-income customers, who we are then able to
qualify and target for direct marketing activities.
- Fitzgeralds. 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 our 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. We believe that
this theme creates an exciting and comfortable environment together with
a distinctive brand identity for customers. 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 Fitzgeralds properties.
55
Strong Ownership and Experienced Management. We 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 developing,
operating, and acquiring properties in the gaming industry. Mr. Barden also has
successfully built, owned, and operated numerous businesses in the cable
television, international trade, and real estate industries and has owned and
operated several radio stations over the past 35 years. Barden Companies, Inc.,
a company wholly owned by Mr. Barden and one of our affiliates, was recently
named "Company of the Year" for 2003 by Black Enterprise magazine. In addition,
we have a proven management team with substantial experience in the gaming
industry and with our properties in their respective markets. Our chief
operating officer and our chief financial officer, together with the three
general managers at each of our properties, have on average approximately 25
years of experience in the gaming industry with various gaming companies
throughout the United States.
OPERATING STRATEGIES
Emphasize Slot Play. We emphasize slot machine wagering, which we believe
is the fastest growing, most stable and most profitable segment of the casino
entertainment business. The increasing popularity of slot machines is due, in
part, to the continuing rapid technological innovation that is resulting in the
replacement of older devices with advanced interactive electronic games and bill
acceptors. During 2003, we converted and/or purchased approximately 400 slot
machines at the Majestic Star Casino that will utilize coinless slot technology.
We plan on converting the majority of our remaining slot machines in 2004. These
newer games offer greater variety, higher frequency payouts and longer periods
of play for the casino entertainment dollar relative to traditional reel
devices. We continue to enhance and modify our mix of slot machines to meet the
demand of our customers. As a result of our continued focus on slot play, slot
revenues generated approximately 86.2% of our gaming revenues for the nine
months ended September 30, 2003.
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 and beverages and, at Fitzgeralds Tunica, lodging operations
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 Majestic and Fitzgeralds Cards as part of a frequent
player recognition program.
We believe that such an 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 our brands and our reputation for
quality and service at an affordable price.
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:
- Majestic Star Casino. We have been able to expand our gaming operations
at the Majestic Star Casino through a change in the Indiana state law
governing gaming, which enables Indiana's riverboat casinos to operate
dockside. The Indiana Gaming Commission ("IGC") approved the Majestic
Star Casino's flexible boarding plan in August 2002, which allows the
continuous ingress and egress of patrons for the purpose of gambling
while the riverboat is docked. Dockside operations allow our customers
unrestricted access to our gaming facility and eliminate many of the
inconveniences created through restricted boarding. In advance of the
conversion to dockside operations, we, through an affiliate, opened a new
2,000 space covered parking garage adjacent to and with direct access to
56
Buffington Harbor in May 2002. In conjunction with the parking garage, we and
our Joint Venture Partner, through the BHR Joint Venture, remodeled the second
floor of the gaming complex with a new and enhanced food court, brightened
aesthetics and improved access to the garage. We believe that the
convenience of the new parking structure and dockside gaming has attracted
a significant number of new customers to Buffington Harbor. As a result,
our net revenues increased 4.6% for the nine months ended September 30,
2003, compared to the nine months ended September 30, 2002.
In addition to these recent developments, we believe that we will benefit
from several tangible growth opportunities. In July 2003, the IGC began to
allow Indiana casinos to operate 24 hours per day, and we immediately
implemented 24-hour operations at the Majestic Star Casino. These extended
hours will allow us to further leverage our property and the Buffington
Harbor gaming complex. To attract more patrons, we are currently
constructing an outdoor festival area, which we expect to open in spring
2004, and recently converted our first floor ticketing area into a
600-person banquet and entertainment facility. These facilities will be
available for weddings, concerts, fairs, social gatherings, flea markets
and other events designed to increase traffic to our casino.
The Buffington Harbor gaming complex is located on an approximately
100-acre site. We believe that this is only one of two locations in the
Chicago market with the capacity to significantly expand its land-based
facilities. We are also evaluating the potential purchase and development
of land adjacent to the Buffington Harbor gaming complex, which is
currently owned by an affiliate of ours. If acquired, we intend to use the
land for development opportunities, which may include possible joint
venture opportunities with the City of Gary and/or private third parties.
The City of Gary is expected to start construction in spring 2004 on a new
access road to the casino with possible construction of a marina later in
the year. A hotel, conference center and outdoor amphitheater are also
being evaluated which could be constructed with public and private funds.
- Fitzgeralds Tunica. We believe that the 180-acre, $26.0 million Tunica
River Front Park that is under development adjacent to our Fitzgeralds
Tunica property will attract new customers to our facility. The park is
expected to 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 on the park started in mid October 2001, and the
park began opening in phases in October 2003 with additional phases
opening through March 2004. 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 Tunica County. As consideration for the conveyance, Tunica County
granted us certain rights, easements and licenses to operate a daily
excursion boat from the marina and visitors center or to lease or license
those rights to a third party. The rights, leases and licenses will
expire 15 years from the date of substantial completion of the marina. 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. The daily excursion riverboat began operating in
October 2003. In an effort to increase customer traffic to the Tunica
area, Tunica County also is expanding its airport into a regional
airport. The first phase was completed in June 2003 and the final phase
is scheduled for completion in the fourth quarter of 2004. 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. We believe that the market has potential for
future growth due to various proposals to improve access to Black Hawk.
The State of Colorado Department of Transportation is currently
conducting an Environmental Impact Study to expand the road leading to
Black Hawk and to construct a tunnel leading to the downtown gaming area
from I-70, the major interstate highway from Denver. In addition, the
Central City Business Improvement District has begun construction on a
new road to Central City, which we believe will enhance access to our
facility. We believe these projects, if completed, would improve access
to our facility and will increase visits to our casino, and thereby
increase our cash flow. To further capitalize on market growth
opportunities, we recently completed a partial demolition project on
property adjacent to and owned by Fitzgeralds Black Hawk. The property
57
is available for expansion if market conditions warrant and we are
currently evaluating the feasibility of such an expansion.
MARKETING
Direct marketing to our guests is a key component of our customer service.
Each of our properties contains a player tracking system that permits detailed
player tracking at each individual property. The system uses the Majestic and
Fitzgeralds Cards respectively to track individual or combined play at slot
machines, table games, as well as food and beverage and hotel expenditures
(available only at Fitzgeralds Tunica) at each individual property. This 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 currently have an aggregate of over 828,000 active players in our
combined Majestic and Fitzgeralds databases.
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. In addition
to regional competitors, we compete with gaming facilities nationwide, including
land-based casinos in Nevada and Atlantic City, not only for customers but also
for employees and potential future gaming sites. 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 recent and continued expansion of legalized casino 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 casino gaming were
legalized in jurisdictions near our properties where casino gaming currently is
not permitted, we could face additional competition. For example, our casino in
Tunica, Mississippi competes for customers from Memphis, Tennessee and Little
Rock, Arkansas, where casino gaming activity is currently prohibited. Tennessee
recently passed legislation to commence a state-sponsored lottery in 2004. The
legalization of casino gaming in either Tennessee or Arkansas would likely have
an adverse impact on our proposed 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 and no such legislation or voter
initiated measures are pending at this time. 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.
EMPLOYEES AND UNIONS
As of September 30, 2003, we directly employed approximately 2,634 persons.
Approximately 7.7% of our workforce is unionized. As of September 30, 2003,
Majestic Star Casino and BHR Joint Venture employed approximately 1,080 people,
approximately 203 of whom are represented by a union. At Majestic Star Casino
and BHR Joint Venture, 57 employees and 120 employees, respectively, are
represented by Hotel Employees Restaurant Employees International Union, Local
No. 1, AFL-CIO, under a contract which expires in October 2004. Seafarers
Entertainment and Allied Trades Union represents 19 employees of the Majestic
Star Casino under a new contract recently signed. An additional 7 employees of
BHR are represented by the International Union of Operating Engineers, Local No.
399 under a contract which expires in June of 2006. As of September 30, 2003,
Fitzgeralds Tunica and Fitzgeralds Black Hawk employed approximately 1,299 and
325 people, respectively, none of whom are represented by a union. Management
believes that it has good relations with its employees and unions.
58
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
We utilize a comprehensive integrated marketing campaign to brand our
Majestic Star Casino as "the place to play" for slot customers from the middle
income segment. Our ads have appeared in all advertising venues including
television, radio, print and outdoor media, allowing us to enhance our slot
leadership positioning among Chicago-area gaming facilities. We own certain
trademarks that are integral to the business and operation of Majestic Star
Casino's riverboat gaming facility. The most significant of these are "Majestic
Star Casino" (words and design), "Majestic Star," "Club Majestic," "Club
Majestic Premier," "Change Your Luck!" and "We've Got Your Slots." "Majestic
Star Casino" (words and design), "Majestic Star" and "Club Majestic" are
currently registered in the United States Patent and Trademark Office ("PTO")
and applications for registrations of the other above referenced trademarks have
been filed in the PTO. Generally, registrations with the PTO last for ten years
and may be renewed for additional ten-year periods.
Fitzgeralds has developed a national gaming brand by using a consistent
Irish Luck theme throughout the casinos, hotels, restaurants and bars at all of
its properties. We own 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. We also have several non-exclusive
licenses and supply agreements, permitting 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. Following the Fitzgeralds acquisition, and under a license
from us, Fitzgeralds Reno retained the right to use the name "Fitzgeralds" and
certain other marks 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. In addition, Fitzgeralds Reno may assign the license to the first
purchaser of the casino in Reno, however any other assignment requires our prior
written consent. 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. In connection with the proposed spin-off
of Barden Nevada, the owner and operator of Fitzgeralds Las Vegas, we will also
enter into a license with BDI to allow BDI the right to use the name
"Fitzgeralds" in connection with its operation of that property. See "Risk
Factors--Risks Related to Our Business--The right of Fitzgeralds Gaming
Corporation and Barden Nevada to continue to use the name "Fitzgeralds" may
negatively impact our national brand recognition."
LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. Other than those
described below, management considers all such pending proceedings, comprised
primarily of personal injury and equal employment opportunity (EEO) claims, to
be routine litigation incidental to the Company's business. Management believes
that the resolution of these proceedings will not, individually or in the
aggregate, have a material effect on the Company's financial condition, results
of operations or cash flows.
In March 1998, a complaint was filed in the Lake County Superior Court in
East Chicago, Indiana, against the BHR Joint Venture, our Joint Venture Partner,
and the Company. The plaintiff, a former employee of the Company, claims to have
been assaulted in the BHR Joint Venture parking lot in June 1997 and is
requesting compensatory and punitive damages totaling approximately $11.0
million. The suit alleges that the Joint Venture Partner and the Company failed
to provide adequate security to prevent assaults. The Company intends to
vigorously defend against such suit. However, it is too early to determine the
outcome of such suit and the effect, if any, on the Company's financial position
and results of operations.
In March 2000, the Company was issued a notice of audit findings, and in
May 2000, the Company was issued notices of proposed assessment by the Indiana
Department of Revenue for income tax withholding deficiencies for the years
ended December 31, 1996 and 1998. The Indiana Department of Revenue has taken
59
the position that Indiana gross wagering tax must be added back to the Company's
income for the purpose of determining the Indiana adjusted gross income tax on
the Company's non-resident member, and that the Company had the duty to withhold
and remit adjusted gross income tax payable by its non-resident member. The tax
deficiency assessed for 1996 and 1998 totals $553,744, plus accrued interest. In
February 2003, the Company was issued notices of proposed assessment by the
Indiana Department of Revenue for income tax withholding deficiencies for the
years ended December 31, 1999, 2000 and 2001, concerning the same issue. The tax
deficiency assessed for 1999-2001 totals $2,012,397 plus accrued interest. The
Company has filed administrative protests and demands for hearing with the
Department of Revenue to protect its rights with respect to all tax years.
However, it is too early to determine the outcome of these contested tax
assessments.
In November 2000, a complaint was filed in the State of Indiana, Lake
County Court, Civil Division. The plaintiff, a former employee, filed a
complaint under Title VII of the Civil Rights Act of 1964. The suit alleged
violation of the American with Disabilities Act, retaliation and infliction of
emotional distress. In July 2002, a jury award of $553,000 was entered in the
plaintiff's favor, plus attorney's fees and costs. The Company believed that
errors were made during the trial and in the jury award, and appealed the award.
At December 31, 2002, a reserve for $250,000 was established in the event of an
unfavorable outcome to the appeal. On August 6, 2003, the parties agreed to
settle the matter for $265,000.
In December 2002, a complaint was filed in the U.S. District Court for the
Northern District of Mississippi against Barden Mississippi and the former owner
of Fitzgeralds Tunica, alleging violation of Title VII of the Civil Rights Act
of 1964 and violation of 42 U.S.C. sec.1981, as well as certain other state law
claims. The plaintiff is seeking back pay, front pay, compensatory damages and
punitive damages in excess of $3 million. The Company intends to vigorously
defend the lawsuit. However, it is too early to determine the outcome of this
matter and the effect, if any, on the Company's financial position and results
of operations.
In June 2003, a complaint was filed in the U.S. District Court for the
Northern District of Mississippi against several Tunica-area casino owners and
operators, including Barden Mississippi. The plaintiffs claim the defendants
conspired to agree not to enter into any advertising or other agreements with
the plaintiffs, in violation of federal and state antitrust laws, as well as
various other tort and contract claims. The plaintiffs are seeking treble,
compensatory and punitive damages totaling approximately $33.0 million, plus
interest and attorney's fees. The Company intends to vigorously defend against
this lawsuit. However, it is too early to determine the outcome and the effect,
if any, on the Company's financial position and results of operations.
ENVIRONMENTAL MATTERS
The Company is subject to certain federal, state and local environmental,
safety and health laws, regulations and ordinances including 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"). In November 2000,
independent environmental consultants conducted a Phase I on our Fitzgeralds
casino properties and identified no recognized environmental conditions meriting
a Phase II investigation. The Company may incur material liability if
contamination is discovered on any of its properties, either during the course
of future development or in connection with the properties designated for
investigation or remediation, as discussed below.
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.
60
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. 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 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.
61
MANAGEMENT
EXECUTIVE OFFICERS/MANAGERS
Our executive officers and key employees are:
<Table>
<Caption>
NAME AGE POSITION(S)
- ---- --- ---------------------------------------
Don H. Barden.......................... 59 Chairman, President, and Chief
Executive Officer
Michael E. Kelly....................... 41 Executive Vice President, Chief
Operating Officer and Secretary
Jon S. Bennett......................... 43 Vice President and Chief Financial
Officer
Troy L. Keeping........................ 40 Vice President and General Manager, The
Majestic Star Casino
Domenic C. Mezzetta.................... 67 Vice President and General Manager,
Barden Mississippi
Joseph C. Collins...................... 64 Vice President and General Manager,
Barden Colorado
</Table>
Don H. Barden is the Manager, Chairman, President and Chief Executive
Officer of the Company and, since November 1993, Chairman and President of BDI,
with responsibility for key policy-making functions. Since their formations, Mr.
Barden is also President and Chief Executive Officer of Investor and Manager of
Majestic Investor Holdings; Barden Colorado; Barden Mississippi; and Chairman,
President and Chief Executive Officers of Majestic Investor Capital Corp.
("Investor Capital"), Barden Colorado, and Barden Mississippi. Mr. Barden also
has served as a director of Investor Capital since its formation. Additionally,
he is the President and Chief Executive Officer of a group of other companies he
owns and/or operates. Over the past 35 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 is the Manager, Executive Vice President, Chief Operating
Officer and Secretary of the Company since January 1999, with overall
responsibility for the daily operations. Mr. Kelly also served as Chief
Financial Officer from April 1996 to October 2002. From April 1996 through
December 1998, Mr. Kelly was the Vice President and Chief Financial Officer of
the Company with overall responsibility for the Company's financial reporting
and investor relations functions. Mr. Kelly assumed the responsibility for
management of daily operations and related activities of the Company effective
October 1998. From October 1998 through October 2001, Mr. Kelly also served as
General Manager of the Company. Mr. Kelly is a Vice President of BDI since April
1996 and director of Investor Capital since its formation. Since their
formation, Mr. Kelly is also Executive Vice President, Chief Operating Officer
of Investor; Manager of Investor Holdings, and Barden Mississippi; Executive
Vice President, Chief Operating Officer and Secretary of Investor Holdings,
Investor Capital, Barden Colorado, and Barden Mississippi, and Director of
Investor Capital. From 1982 to 1996, Mr. Kelly was employed in various senior
finance and administrative functions by Harrah's Hotel & Casino in New Jersey
and Nevada, by Fitzgeralds Gaming Corporation and by Empress River Casino
Corporation and its affiliates.
Jon S. Bennett is the Vice President and Chief Financial Officer of the
Company since October 2002 with overall responsibility for all aspects of the
Company's financial management, accounting and reporting processes. Mr. Bennett
is also the Vice President and Chief Financial Officer for Investor, Investor
Holdings, The Majestic Star Casino Capital Corp., Investor Capital, Barden
Mississippi and Barden Colorado. Prior to Mr. Bennett's appointment as Vice
President and Chief Financial Officer, Mr. Bennett was Vice President of Finance
and Administration for Barden Mississippi from the acquisition in December 2001
to his promotion in October 2002. Mr. Bennett has held various positions with
Fitzgeralds Gaming Corporation, including Vice President of Finance and
Administration for Fitzgeralds Tunica from April 1997 to December 2001 and
Director of Finance for three Fitzgeralds Gaming Corporation properties located
in Reno, Nevada. Mr. Bennett was also Chief Financial Officer for Peppermill
Casinos, Inc. from May 1995 to April 1997.
62
Troy L. Keeping is the Vice President and General Manager of the Majestic
Star Casino since July 2003, with overall responsibility for the daily
operations. From April 2003 through July 2003, Mr. Keeping was the Vice
President and Assistant General Manager of the Majestic Star Casino. Prior to
joining the Company, Mr. Keeping was the Corporate Director of Internal Audit
for Horseshoe Gaming Holding Corporation since 2001. From 1986 to 2001, Mr.
Keeping was employed in a variety of positions, including Vice President and
General Manager for the Las Vegas Lady Luck and Senior Director of Finance for
Isle of Capri in Black Hawk, Colorado.
Domenic C. Mezzetta is the Vice President and General Manager of Barden
Mississippi and has been since the acquisition of Fitzgeralds Tunica in December
2001. Prior to the acquisition, Mr. Mezzetta served as the Vice President and
General Manager of Fitzgeralds Mississippi, Inc. d/b/a Fitzgeralds Casino Hotel
of Fitzgeralds Gaming Corporation since May of 1998. Mr. Mezzetta opened the
Hollywood Casino in Tunica in 1994 as the Vice President and General Manager.
Before his move to Mississippi in 1993, he was the Vice President and Assistant
General Manager of the Stardust Casino in Las Vegas, Nevada and has held various
positions in the gaming industry since 1971.
Joseph C. Collins is the Vice President and General Manager of Barden
Colorado and has been in this position since the acquisition of Fitzgeralds
Black Hawk in December 2001, with overall responsibility for the property's
daily operations. Prior to the acquisition, Mr. Collins served as Vice President
and General Manager of Fitzgeralds Black Hawk, Inc d/b/a Fitzgeralds Casino
Hotel of Fitzgeralds Gaming Corporation since September 1994. Mr. Collins has
held various positions with Fitzgeralds Gaming Corporation and the Riviera Hotel
and Casino in Las Vegas since 1962.
63
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation earned for services
performed for The Majestic Star Casino, LLC, Majestic Investor, LLC and,
following its formation in September 2001, Majestic Investor Holdings, LLC and
its subsidiaries, during the years shown below by our Chief Executive Officer
and our four most highly compensated other executive officers and key employees.
All compensation is paid by The Majestic Star Casino, LLC.
<Table>
<Caption>
ANNUAL COMPENSATION(1)
------------------------- ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION
- ----------------- ---- -------- ------- ------------
Don H. Barden(2)............................. 2002 $370,000 $ -- $124,533
Chairman, President and 2001 332,788 -- 1,271
Chief Executive Officer 2000 331,250 -- 920
Michael E. Kelly(3).......................... 2002 $423,077 $50,000 $ 72,370
Executive Vice President, 2001 296,635 175,000 24,901
Chief Operating Officer and Secretary 2000 280,000 100,000 18,589
Jon S. Bennett(4)............................ 2002 $212,716 $43,000 $ 3,433
Vice President and 2001 -- -- --
Chief Financial Officer 2000 -- -- --
Domenic C. Mezzetta(5)....................... 2002 $225,000 $50,000 $ 13,882
Vice President and General Manager, 2001 6,166 -- --
Barden Mississippi 2000 -- -- --
Joseph C. Collins(6)......................... 2002 $160,000 $18,000 $ 9,007
Vice President and General Manager, 2001 4,384 -- 25
Barden Colorado 2000 -- -- --
</Table>
- ---------------
(1) All compensation for Messrs. Barden, Kelly and Bennett is paid by the
Company, but a portion of such compensation was reimbursed by Majestic
Investor Holdings, LLC through an expense sharing agreement. The incremental
cost to the Company of providing perquisites and other personal benefits did
not exceed, as to any of our executive officers, 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) The amounts in "All Other Compensation" for Mr. Barden represent life
insurance premiums paid by the Company on behalf of Mr. Barden.
(3) Mr. Kelly's salary in 2002 includes $23,077 for unused vacation for 2001.
The amounts in "All Other Compensation" for Mr. Kelly in 2002 includes a
401(k) match of $12,900, reimbursement of $5,000 for non-deductible medical
plan expenditures, $38,511 for relocation expenses, $12,635 for automobile
allowance, and $3,324 of life insurance premiums paid by the Company on Mr.
Kelly's behalf. The amounts in "All Other Compensation" for Mr. Kelly in
2001 includes a 401(k) match of $17,530, reimbursement of $4,647 for
non-deductible medical plan expenditures, and $2,724 of life insurance
premiums paid by the Company on Mr. Kelly's behalf. The amounts in "All
Other Compensation" for Mr. Kelly in 2000 includes a 401(k) match of
$11,520, reimbursement of $5,045 for non-deductible medical plan
expenditures, and $2,024 of life insurance premiums paid by the Company on
Mr. Kelly's behalf.
(4) The amounts in "All Other Compensation" for Mr. Bennett in 2002 includes a
401(k) match of $3,433.
(5) The amounts in "All Other Compensation" for Mr. Mezzetta in 2002 includes a
401(k) match of $4,322, reimbursement of $7,513 for non-deductible medical
plan expenditures, $762 in excess term life insurance, and $1,285 of
disability insurance coverage.
64
(6) The amounts in "All Other Compensation" for Mr. Collins in 2002 includes a
401(k) match of $1,701, $396 in excess term life insurance, and $6,910
automobile allowance. The amounts in "All Other Compensation" for Mr.
Collins in 2001 represents a $25 automobile allowance.
EMPLOYMENT AGREEMENTS
Mr. Barden serves as our Chairman, President and Chief Executive Officer
and currently receives annual compensation of $425,000 as an employee, pursuant
to a letter agreement dated October 22, 2001 with the Company.
Mr. Kelly serves as our Executive Vice President, Chief Operating Officer
and Secretary pursuant to a three-year employment agreement with the Company
dated October 22, 2001. Under such employment agreement, Mr. Kelly will receive
base compensation of $400,000 per year and can also earn annual incentive
compensation based upon his performance and the consolidated Company'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 Company'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.
Mr. Bennett serves as our Vice President and Chief Financial Officer
pursuant to a two-year employment agreement with the Company dated October 21,
2002. Under this agreement, Mr. Bennett will receive base compensation of
$250,000, subject to annual reviews, and can also earn bonuses subject to the
discretion of the President and Chief Executive Officer and Executive Vice
President and Chief Operating Officer. In addition to such compensation, Mr.
Bennett is entitled to term life insurance in an amount equal to $1.0 million
and other customary employee benefits, including participation in the Company's
401(k) plan and reimbursement of relocation expenses. Mr. Bennett is also
entitled to additional compensation upon a change in control, equal to the
remaining amount due under his employment agreement plus six months of his
annual salary following the expiration of his current employment agreement. Mr.
Bennett's employment agreement contains certain non-competition provisions with
a duration of 12 months if Mr. Bennett should voluntarily terminate his
employment within 18 months of the commencement date of his employment
agreement.
Mr. Keeping serves as the Majestic Star Casino's Vice President and General
Manager pursuant to a two-year employment agreement with the Company dated March
24, 2003. Under this agreement, Mr. Keeping will receive base compensation of
$200,000, subject to annual reviews, and can also earn bonuses subject to the
discretion of the President and Chief Executive Officer. In addition to such
compensation, Mr. Keeping is entitled to term life insurance in an amount equal
to three times his base compensation and other customary employee benefits,
including participation in the Company's 401(k) plan and an automobile allowance
of $500 per month. Mr. Keeping is also entitled to additional compensation upon
a change in control equal to the remaining amount due under his employment
agreement plus 12 months of his annual salary following the expiration of his
current employment agreement. Mr. Keeping's employment agreement contains
certain non-competition provisions with a duration of 12 months following
termination of his employment.
Mr. Mezzetta serves as Fitzgeralds Tunica's Vice President and General
Manager pursuant to a two-year employment agreement with the Company effective
December 7, 2001. The Company and Mr. Mezzetta entered into an addendum to the
employment agreement in August 2003 which extends the period of employment
through December 6, 2004. Under the agreement, Mr. Mezzetta will receive base
compensation of $225,000, subject to annual reviews, and can also earn bonuses
subject to the discretion of the President and Chief Executive Officer. In
addition to such compensation, Mr. Mezzetta is entitled to term life insurance
in an amount equal to three times his base compensation and other customary
employee benefits, including participation in the Company's 401(k) plan and an
automobile allowance of $500 per month. Mr. Mezzetta is also entitled to
additional compensation upon a change in control equal to the remaining amount
due under his
65
employment agreement plus six months of his annual salary following the
expiration of his current employment agreement. Mr. Mezzetta's employment
agreement contains certain non-competition provisions with a duration of six
months following termination of his employment.
Mr. Collins serves as Fitzgeralds Black Hawk's Vice President and General
Manager pursuant to a two-year employment agreement with the Company effective
December 7, 2001. The Company and Mr. Collins entered into an addendum to the
employment agreement in August 2003 which extends the period of employment
through December 6, 2005. Under the agreement, Mr. Collins will receive base
compensation of $170,000, subject to annual reviews, and can also earn bonuses
subject to the discretion of the President and Chief Executive Officer. In
addition to such compensation, Mr. Collins is entitled to term life insurance in
an amount equal to three times his base compensation and other customary
employee benefits, including participation in the Company's 401(k) plan and an
automobile allowance of $500 per month. Mr. Collins is also entitled to
additional compensation upon a change in control equal to the remaining amount
due under his employment agreement plus six months of his annual salary
following the expiration of his current employment agreement. Mr. Collins's
employment agreement contains certain non-competition provisions with a duration
of six months following termination of his employment.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 The
Majestic Star Casino, LLC and The Majestic Star Casino Capital Corp., and its
direct and indirect subsidiaries, as of the date hereof.
<Table>
<Caption>
THE
THE MAJESTIC MAJESTIC MAJESTIC BARDEN BARDEN
MAJESTIC STAR CASINO MAJESTIC INVESTOR INVESTOR MISSISSIPPI COLORADO
NAME AND ADDRESS OF STAR CASINO, CAPITAL INVESTOR, HOLDINGS, CAPITAL GAMING, GAMING,
BENEFICIAL OWNER LLC CORP. LLC LLC CORP. LLC LLC
- ------------------- ------------ ----------- --------- --------- -------- ----------- --------
Don H. Barden.............. 100%(1) 100%(2) 100%(3) 100%(4) 100%(5) 100%(6) 100%(7)
163 Madison Avenue
Suite 2000
Detroit, MI 48226
</Table>
- ---------------
(1) Includes the membership interests in The Majestic Star Casino, LLC, all of
which are beneficially owned directly by BDI. Mr. Barden is the beneficial
owner of 100% of BDI.
(2) Includes the common stock of The Majestic Star Casino Capital Corp., all of
which is beneficially owned directly by The Majestic Star Casino, LLC, which
is beneficially owned directly by BDI. Mr. Barden is the beneficial owner of
100% of BDI.
(3) Includes the membership interests of Majestic Investor, LLC, all of which
are beneficially owned directly by The Majestic Star Casino, LLC, which is
beneficially owned directly by BDI. Mr. Barden is the beneficial owner of
100% of BDI.
(4) Includes the membership interests of Majestic Investor Holdings, LLC, all of
which are beneficially owned directly by Majestic Investor, LLC, which is
beneficially owned directly by The Majestic Star Casino, LLC, which is
beneficially owned directly by BDI. Mr. Barden is the beneficial owner of
100% of BDI.
(5) Includes the common stock of Majestic Investor Capital Corp., all of which
is beneficially owned directly by Majestic Investor Holdings, LLC, which is
beneficially owned directly by Majestic Investor, LLC, which is beneficially
owned directly by The Majestic Star Casino, LLC, which is beneficially owned
directly by BDI. Mr. Barden is the beneficial owner of 100% of BDI.
(6) Includes the membership interests of Barden Mississippi Gaming, LLC, all of
which are beneficially owned directly by Majestic Investor Holdings, LLC,
which is beneficially owned directly by Majestic
66
Investor, LLC, which is beneficially owned directly by The Majestic Star
Casino, LLC, which is beneficially owned directly by BDI. Mr. Barden is the
beneficial owner of 100% of BDI.
(7) Includes the membership interests of Barden Colorado Gaming, LLC, all of
which are beneficially owned directly by Majestic Investor Holdings, LLC,
which is beneficially owned directly by Majestic Investor, LLC, which is
beneficially owned directly by The Majestic Star Casino, LLC, which is
beneficially owned directly by BDI. Mr. Barden is the beneficial owner of
100% of BDI.
67
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO RELATED PARTIES
In December 2001, Majestic Star made a $300,000 employee loan to Mr.
Barden. This loan bore interest at a rate of 7% per annum and was due and
payable in full in December 2002. In March 2003, $215,911 was paid on the note.
The balance of $84,089 of principal and $29,194 in interest was paid in April
2003.
In January 2002, Majestic Star made a $200,000 employee loan to Mr. Kelly.
This loan bears no interest and is due and payable in full in January 2005. In
March 2003, Mr. Kelly paid $67,000 in accordance with the loan agreement. As of
September 30, 2003, the outstanding balance was $133,000.
TRANSACTIONS BY OR WITH AFFILIATES
In March 2003, Majestic Star purchased for $1,017,000, net of prorated
taxes plus closing costs, approximately 50 acres of land and a building adjacent
to the Buffington Harbor gaming complex from an affiliated company. The purchase
price was based on an independent third-party appraisal.
During the nine months ended September 30, 2003, Majestic Star made
distributions totaling $1,016,000 to BDI pursuant to the Majestic Star Manager
Agreement related to the fourth quarter of 2002 and the first two quarters of
2003. See "Material Agreements--Manager Agreements."
During the nine months ended September 30, 2003, Majestic Investor Holdings
made distributions totaling $2,594,000 to BDI pursuant to the Investor Holdings
Manager Agreement related to the fourth quarter of 2002 and the first two
quarters of 2003. See "Material Agreements--Manager Agreements."
In April 2003, Majestic Star, in accordance with the indenture relating to
the 10 7/8% notes, made a $710,000 distribution to its sole member for income
taxes. The calculation for the distribution was based on Majestic Star's net
income during the three-month period ended March 31, 2003.
In April 2003, Majestic Investor Holdings, in accordance with the indenture
relating to the 11.653% notes, made a $338,000 distribution to its sole
beneficial owner for income taxes. The calculation for the distribution was
based on Majestic Investor Holdings' net income during the three-month period
ended March 31, 2003.
In December 2001, Majestic Investor Holdings issued a $700,000 note to BDI.
The note bore interest at a rate of 7% per annum and was paid in full, with
accrued interest, in March 2003.
68
DESCRIPTION OF CREDIT FACILITY AND INTERCREDITOR AGREEMENT
SENIOR SECURED CREDIT FACILITY
Concurrently with the closing of the offering of the unregistered notes, we
entered into a new $80.0 million senior secured credit facility with Wells Fargo
Foothill, Inc., as the Arranger and Administrative Agent. The senior secured
credit facility is secured by substantially all of our and our restricted
subsidiaries' current and future assets, other than certain excluded assets. The
lien on the collateral securing the senior secured credit facility is senior to
the lien on the collateral securing the notes and the guarantees. The senior
secured credit facility contains customary conditions to borrowing and contains
representations and warranties customary in other gaming-related financings. The
senior secured credit facility contains certain financial covenants and
restrictions on, among other things, indebtedness, investments, distributions
and mergers. Our restricted subsidiaries guarantee our obligations under the
senior secured credit facility on a secured basis. As security, we have also
pledged our equity interests and the equity interests of the subsidiary
guarantors.
The establishment of the senior secured credit facility was subject to the
approval of the gaming authorities in Indiana and Mississippi which has been
obtained. In addition, pursuant to the Nevada Act, the pledge of equity
securities of a "registered corporation" or a corporate licensee is void without
the prior approval of the Nevada Commission, and restrictions upon the transfer
of an equity security issued by a registered corporation or a corporate licensee
and agreements not to encumber such securities are ineffective without the prior
approval of the Nevada Commission. The Company is a "registered corporation"
with the Nevada Commission. As a result, the pledge by BDI of the equity
securities of, and the restrictions upon the transfer of the equity securities
of, the Company in connection with the senior secured credit facility will not
be effective until either the spin-off of Barden Nevada has occurred and the
registration of the Company with the Nevada Commission has been terminated, or
the pledge and transfer restrictions have been approved by the Nevada
Commission.
INTERCREDITOR AGREEMENT
In connection with our entering into the senior secured credit facility,
the trustee under the indenture (as collateral agent) and Wells Fargo Foothill,
Inc. the agent under the senior secured credit facility entered into an
intercreditor agreement which, among other things, contractually subordinates
the liens on the collateral securing the notes and the guarantees to the liens
on the collateral securing the indebtedness under the senior secured credit
facility. See "Description of Registered Notes--Intercreditor Agreement."
The intercreditor agreement, among other things, limits the trustee's
rights in an event of a default under the notes. 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 senior secured credit facility, the trustee
will not have the right to foreclose upon the collateral unless and until the
lenders under the senior secured credit facility fail to take steps to exercise
remedies with respect to or in connection with the collateral within up to 190
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 certain 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 the senior secured credit facility and
thereafter to the holders of the notes.
69
THE EXCHANGE OFFER
PURPOSE AND EFFECT
We sold the unregistered notes to the initial purchasers in a private
offering on October 7, 2003. The initial purchasers resold the unregistered
notes to qualified institutional buyers under Rule 144A under the Securities
Act. As of the date of this Prospectus, $260.0 million 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
reasonable best efforts to:
- cause the registration statement with respect to the exchange offer to
become effective under the Securities Act by April 4, 2004; 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; Liquidated Damages."
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
70
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 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 , 2004.
- 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 $260.0
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 we have 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
71
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 , 2004, 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
, 2004, unless we, in our sole discretion, extend the exchange offer.
We may extend the exchange offer at any time and from time to 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
72
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 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
73
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 , 2004, 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, 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.
74
- 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.
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.
75
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.
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.
76
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 October 7, 2003. 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 October 7, 2003. 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.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the terms of the registration rights agreement, we agreed to
use our reasonable 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 December 5, 2003;
- use our reasonable best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act on or before
April 4, 2004;
- 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;
- use our reasonable best efforts to keep the exchange offer registration
statement effective until consummation of the exchange offer pursuant to
its terms;
- commence and use our reasonable best efforts to consummate the exchange
offer not later than 30 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 prior to the date we
issued the unregistered notes;
77
- for any reason, the exchange offer is not consummated within 210 days
after we issued the unregistered notes;
- 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 60 days following delivery of the notice triggering our
obligation to file such shelf registration statement. We will use our reasonable
best efforts to cause the shelf registration statement to be declared effective
as promptly as practicable after the filing thereof and no later than 90 days
after the date such shelf registration statement was filed..
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 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 exchange offer registration statement or the shelf registration
statement is declared effective by the SEC, but thereafter, shall either
be withdrawn by us or shall become subject to an effective stop order
suspending the effectiveness of such registration statement, and we fail
to file and have declared effective within 30 days an additional
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
78
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.
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 Hand Delivery, Overnight Courier,
Registered or Certified Mail: The Bank of New York
Corporate Trust Operations
Reorganization Unit
101 Barclay Street--7 East
New York, NY 10286
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,
79
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.
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 unregistered and
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.
80
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 The Majestic Star Casino, LLC and
The Majestic Star Casino Capital Corp., and not to their subsidiaries.
GENERAL
We will issue the registered notes under an existing indenture dated as of
October 7, 2003, 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 certain of 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.
The notes and the Subsidiary Guarantees (as defined below) will be secured
by collateral described below. Borrowings under the Credit Facility also will be
secured by the Collateral. The Lien on the Collateral securing the Notes and the
Subsidiary Guarantees will be contractually subordinated, pursuant to the
Intercreditor Agreement, to the Lien on the Collateral securing up to $80.0
million of borrowings under the Credit Facility.
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. Barden Nevada has been designated as an Unrestricted Subsidiary
and is not a guarantor of the Notes. Further, under the circumstances described
below under "Certain Definitions--Unrestricted Subsidiary," 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 nor will their assets be included in the
collateral.
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
81
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 October 15, 2010. Interest on the Notes will be payable semi-
annually on April 15 and October 15 of each year, commencing on April 15, 2004,
to Holders of record on the immediately preceding April 1 and October 1,
respectively. The Notes will bear interest at 9.5% 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 October 15, 2007. 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 October 15 of
the years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2007........................................................ 104.750%
2008........................................................ 102.375%
2009 and thereafter......................................... 100.000%
</Table>
Notwithstanding the foregoing, at any time or from time to time prior to
October 15, 2006, we may redeem, at our option, up to 35% of the aggregate
principal amount of the Notes then outstanding at a redemption price of 109.5%
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
82
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 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, on a senior secured basis by all present and
future Restricted Subsidiaries. The Indenture provides that so long as any Notes
remain outstanding, any future Restricted Subsidiary shall enter into and remain
subject to 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 in the Prospectus regarding the unregistered
notes, then such Subsidiary Guarantor shall be released and discharged from all
of its 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.
SECURITY
Pursuant to certain mortgages, security agreements and related 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. However, to the extent that certain assets
securing obligations under the Credit Facility consist of assets that are not
perfected by filing a UCC financing statement, and that require that we cause
the Collateral Agent to obtain "control" (as defined in the Uniform Commercial
Code) or possession of such assets (and we are unable to cause the Collateral
Agent to obtain such control or possession), such assets may not constitute part
of the collateral securing the Notes (the "Collateral"). Subject to applicable
Gaming Laws and Gaming Authority approvals as described below, the Collateral
includes, among other things, our Capital Stock, 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 and our and the Restricted Subsidiaries' rights to
the service mark "Majestic Star Casino" and "Fitzgeralds" and other related
trademarks. The Trustee's security interest in the Collateral is subordinated to
a lien securing up to $80.0 million of Indebtedness outstanding under our Credit
Facility.
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 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
83
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, Nevada and Indiana,
pledges of membership interests in licensed and registered companies are
ineffective unless approved by the relevant Gaming Authorities. The pledges of
our Capital Stock and the Capital Stock of Majestic Investor, LLC and Majestic
Investor Holdings, LLC will not be effective, and therefore such Capital Stock
will not constitute Collateral, until such time as we consummate the spin-off of
Barden Nevada or, if the spin-off is not consummated, we receive the requisite
approval of the Nevada Gaming Commission for these pledges. We have applied to
the Nevada Gaming Commission for approval of the spin-off. If the approval of
the spin-off is not obtained, we will apply to the Nevada Gaming Commission for
approval of these pledges. We have agreed to either consummate the spin-off, or
obtain all necessary approvals for the grant of such security interest from the
Nevada Gaming Commission within 210 days of the closing of the offering of the
unregistered notes, and that failure to do so will constitute an Event of
Default under the Indenture. Although we expect to receive the requisite
approval of either the spin-off or these pledges a few months after the
consummation of the offering of the unregistered notes, no assurances can be
given that such approval will be obtained. 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 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 predict how long payments
under the 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
84
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 Majestic Star Casino Vessel and 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 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 Facility the Trustee and
Wells Fargo Foothill, Inc., as agent under the Credit Facility entered into an
intercreditor agreement (the "Intercreditor Agreement"). The Intercreditor
Agreement provides that the Liens on the Collateral securing the Notes and the
Guarantees will be subordinated to the Liens securing up to $80.0 million of
principal amount of Indebtedness outstanding under the Credit Facility, 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 the Credit Facility, the Collateral
Agent will not have the right to foreclose upon the Collateral that secures the
obligations under the Indenture unless and until the lenders under the Credit
Facility fail to take steps to exercise remedies with respect to or in
connection with the Collateral within up to 190 days following notice to such
lenders of the occurrence of an Event of Default under the Indenture. The
Intercreditor Agreement will limit the Collateral Agent and the Holders from
pursuing certain remedies with respect to the Collateral in an insolvency
proceeding that occurs during such standstill period. In addition, the
Intercreditor Agreement will provide that if the lenders under the Credit
Facility have commenced exercising such remedies with respect to any Collateral
prior to the end of such standstill period, the Collateral Agent will not have
the right to foreclose on such Collateral until the lenders are no longer
pursuing such remedies. The Intercreditor Agreement provides that the net
proceeds from the sale of Collateral will first be applied to repay Indebtedness
outstanding under the Credit Facility 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 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 Notes delivered for purchase, and a statement that the
Holder is withdrawing his election to have such Notes purchased.
85
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, or that we will be
permitted under the Credit Facility 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);
(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
86
payment to the 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 (ii), (vi) (viii) (to the extent such
payments do not reduce Consolidated Net Income), (ix), (x), (xi), (xii)
and, to the extent the Company is given credit for such Net Cash Proceeds
pursuant to clause (2) of this paragraph, (iii) of the next following
paragraph and excluding Restricted Payments permitted by clauses (i), (iv),
(v) and (vii) 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,
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), plus
(4) the aggregate Return from Unrestricted Subsidiaries after the
Issue Date and on or prior to the time of such Restricted Payment
(excluding any returns of or from Permitted Investments made pursuant to
clause (xiii) of the definition of "Permitted Investments").
The foregoing provisions will not prohibit the following Restricted
Payments:
(i) so long as clause (a) above is satisfied, the sale, distribution
or liquidation of a Subsidiary that as of the Issue Date has been
designated as an Unrestricted Subsidiary;
(ii) 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;
(iii) 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);
87
(iv) 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;
(v) 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
(h) under the covenant "--Limitation on Incurrence of Indebtedness;"
(vi) cash capital contributions, loans or advances to the BHR Joint
Venture that are used by the BHR Joint Venture to make capital expenditures
in the ordinary course of business; provided, that concurrently with such
contribution, loan or advance all other members of the BHR Joint Venture
make cash capital contributions, loans or advances, as the case may be, on
a pro rata basis, based on each member's ownership interest in the BHR
Joint Venture;
(vii) so long as clause (a) above is satisfied, (x) the acquisition of
the GNC Land or (y) the acquisition of all of the membership interests of
AMB Parking and, in the case of each of clauses (x) and (y) the payment of
the purchase price therefor, provided that in the case of each of clauses
(x) and (y) such transaction complies with the covenant "--Limitation on
Transactions with Affiliates;"
(viii) 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 customary industry 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);
(ix) so long as clause (a) above is satisfied, Cash Flow-Based
Management Distributions payable under the Management Agreement, 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;
(x) so long as clause (a) above is satisfied, Revenue-Based Management
Distributions payable under the Management Agreement, 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;
(xi) 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
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
88
(xii) 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 (or, in the case of a Restricted Payment
made pursuant to subsection (iv) of the immediately preceding paragraph, a
summary of such calculations as reasonably determined or estimated in good faith
by the Company). 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 (iii), (v), (viii),
(ix) or (x) 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 (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, $80.0 million; less the
aggregate amount of repayments of such indebtedness contemplated by clause
(iii) under the caption "--Limitation on Asset Sales" (the "Maximum Credit
Facility Amount");
(b) FF&E Financing in an aggregate principal amount not to exceed, at
any time, $10.0 million;
(c) 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;
(d) 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;
(e) 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 (e)), including the Notes and the
Security Documents, to the extent they constitute Indebtedness outstanding
on the Issue Date;
(f) Indebtedness incurred by the Company in an aggregate principal
amount not to exceed, at any time outstanding pursuant to this clause (f),
$10.0 million;
(g) any Subsidiary Guarantee of the Notes or the Indebtedness
permitted by clause (f) above;
(h) 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 (e) above or this clause (h) (the "Refinancing Indebtedness");
provided, that (i) the principal amount of such Refinancing Indebtedness
does not exceed the principal amount of Indebtedness so Refinanced
(including any required premiums and out-of-pocket expenses reasonably
incurred in connection therewith),
89
(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 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.
Restrictions on BHR Joint Venture. The Company will not permit the BHR
Joint Venture to, directly or indirectly:
(a) incur any Indebtedness or issue any Disqualified Capital Stock;
provided that the BHR Joint Venture may incur:
(i) Indebtedness if immediately after giving effect to such
incurrence 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;"
(ii) Indebtedness if immediately after giving effect to the
incurrence of such Indebtedness, the aggregate principal amount of BHR
Attributed Debt does not exceed the Maximum Credit Facility Amount less
the aggregate principal amount of Indebtedness then outstanding under
clause (a) under the caption "--Limitation on Incurrence of
Indebtedness;" and
(iii) Indebtedness incurred to Refinance any Indebtedness incurred
pursuant to clause (i) above or Indebtedness of the BHR Joint Venture
outstanding on the Issue Date;
(b) create, incur, assume or suffer to exist any Lien on any asset of
the BHR Joint Venture, or on any income or profits therefrom, or assign or
convey any right to receive income therefrom, except Permitted Liens;
(c) declare or pay any dividend or make any distribution on account of
any Equity Interests of the BHR Joint Venture, unless such distributions
are made on a pro rata basis to all members of the BHR Joint Venture, based
on each member's ownership interest therein;
(d) purchase, redeem or otherwise acquire or retire for value any
Equity Interest of the BHR Joint Venture (other than any such Equity
Interest owned by the Company or any Restricted Subsidiary); or
(e) transfer, other than in the ordinary course of business, any
assets of the BHR Joint Venture, unless:
(i) the BHR Joint Venture receives consideration at the time of
such transfer not less than the fair market value of the assets subject
to such transfer;
(ii) at least 75% of the consideration for such transfer is in the
form of cash or Cash Equivalents or liabilities of the BHR Joint Venture
that are assumed by the transferee of such assets (provided, that
following such transfer there is no further recourse to the BHR Joint
Venture with respect to such liabilities); and
(iii) within 270 days of such transfer, the net proceeds thereof
are (A) invested in assets related to the business of the BHR Joint
Venture, (B) applied to permanently repay Indebtedness of the BHR Joint
Venture, or (C) distributed to the members of the BHR Joint Venture in
accordance with paragraph (c) above.
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
90
by their terms subordinated to the 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) 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 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 because such Excess
Proceeds exceed $5,000,000, 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 (or 30-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.
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.
91
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, including the
Intercreditor Agreement;
(2) the Indenture, the Security Documents and the 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 Substantially All Assets. The Indenture
provides that we may not consolidate or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of our
properties or assets (determined on a consolidated basis for the Company and its
Restricted Subsidiaries)
(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 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 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
92
(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 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 $2,000,000;
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 Managers that are disinterested in
such transaction (or, if none of the Managers is disinterested in such
transaction, a representative appointed by the Managers to make such
determination, which representative, in the reasonable good faith judgment
of a majority of the Managers, is disinterested in the transaction and is
qualified to make such determination) determine that such transactions are
conducted in good faith and on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction at such time by the Company or
such Restricted Subsidiary on an arm's-length basis from a Person that is
not an Affiliate of the Company or such Restricted Subsidiary and (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
(vii) of the second paragraph of the covenant described above under the
caption "--Limitation on Restricted Payments")
93
permitted by the provisions of the Indenture described above under
"--Limitation on Restricted Payments;"
(b) payments pursuant to the Berthing Agreement;
(c) the Management Agreement and the Expense Reimbursement 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 Distributions and the receipt of the Expense Reimbursements,
respectively, thereunder;
(d) the non-exclusive licensing of any service mark or other
trademarks of the Company or any Restricted Subsidiary to an Affiliate or
Affiliates of the Company or such Restricted Subsidiary;
(e) transactions between or among the Company and any Wholly Owned
Subsidiary of the Company; and
(f) the acquisition of the GNC Land, provided, that (i) the Company
shall have delivered to the Trustee an Officers' Certificate certifying
compliance with item (iii) below, (ii) the Company shall have delivered to
the Trustee a copy of a written appraisal or valuation report by a
nationally recognized investment banking firm or independent appraisal
firm, which appraisal or report sets forth the Appraised Value of the GNC
Land as of a date no earlier than 90 days prior to the date of the
acquisition of the GNC Land by the Company or its Restricted Subsidiaries,
and (iii) the value of the aggregate consideration to be paid or given by
the Company and its Restricted Subsidiaries for the GNC Land shall not
exceed 80% of such Appraised Value and the other terms of the transaction
shall be on terms 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 the relevant
Restricted Subsidiary on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Restricted Subsidiary.
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 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 provided, however, that 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
94
with the covenant described above under the caption "--Limitation on Asset
Sales," then such Subsidiary Guarantor will be released and discharged from all
of its Obligations under its Subsidiary Guarantee of the Notes and 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 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 Purchasers.
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 or the BHR
Joint Venture 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 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 will provide 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," "--Certain
Covenants--Limitation on Asset Sales," or "--Certain Covenants--Merger,
Consolidation or Sale of Substantially All 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, agreement
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
95
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;
(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; and
(x) certain events of bankruptcy or insolvency with respect to the
Issuers or any of the Subsidiary Guarantors.
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 Guarantor, as such, will
have any liability for any of our obligations or the obligations of any
Subsidiary Guarantor under the Notes, the Indenture, the Registration Rights
Agreement 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.
96
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;
- our obligations concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of
an office or agency for payment and money for security payments held in
trust;
- 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 and Remedies" will no
longer constitute an Event of Default with respect to the Notes.
IN ORDER TO EXERCISE EITHER LEGAL DEFEASANCE OR COVENANT DEFEASANCE,
(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 Restricted Subsidiaries is a party or by which we or any of the
Restricted Subsidiaries is bound;
97
(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.
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 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 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
98
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;
- 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 will provide 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.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means Indebtedness of a Person existing at the time such
Person is merged with or into the Company or a Restricted Subsidiary or becomes
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, 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.
99
"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.
"AMB Parking" means AMB Parking, LLC, a Delaware limited liability company.
"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.
"Appraised Value" means, with respect to a particular asset, the value of
such asset as of a particular date of determination, as set forth in a written
appraisal or valuation report by a nationally recognized investment banking firm
or independent appraisal firm.
"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 "--Certain Covenants--Merger, Consolidation or Sale of
Substantially All 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 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.
"Berthing Agreement" means the Majestic Berthing Agreement, dated as of
April 23, 1996, as amended, by and between the Company and the BHR Joint
Venture.
"BHR Attributed Debt" means the product of (i) the aggregate principal
amount of all outstanding Indebtedness incurred pursuant to clause (a)(ii) under
the caption "--Certain Covenants--Restrictions on BHR Joint Venture" times (ii)
the Company's percentage interest in the BHR Joint Venture; provided that any
such Indebtedness shall cease to be BHR Attributed Debt, as of the first date
after the date such
100
Indebtedness is so incurred on which the Company can incur at least $1.00 of
additional Indebtedness under the Interest Coverage Ratio Test set forth in the
covenant described under the caption "--Certain Covenants--Limitation or
Incurrence of Indebtedness."
"BHR Joint Venture" means Buffington Harbor Riverboats, LLC, a Delaware
limited liability company, in which the Company currently owns a 50% membership
interest, and any other Flow Through Entity owned solely by the members of the
BHR Joint Venture.
"BHR Operating Agreement" means the First Amended and Restated Operating
Agreement of the BHR Joint Venture, made as of October 31, 1995, as amended, by
and between Trump Indiana, Inc., a Delaware corporation, and the Company.
"Capital" means The Majestic Star Casino Capital Corp., an Indiana
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,
101
(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,
(v) the first day on which the Company fails to own 100% of the issued
and outstanding Equity Interests of Capital, or
(vi) the first day on which (A) the Company fails to own at least 45%
of the issued and outstanding Equity Interests of the BHR Joint Venture
(provided that a Change of Control shall not be deemed to occur pursuant to
this clause (A) if the Company and the Restricted Subsidiaries sell all,
but not less than all, of the issued and outstanding Equity Interests of
the BHR Joint Venture owned by them concurrently with or promptly after a
Permitted Vessel Relocation and the sale of such issued and outstanding
Equity Interests complied with, and the Net Cash Proceeds therefrom were
applied in compliance with, the covenant "Limitation on Asset Sales" and
the other applicable provisions of the Indenture), (B) any Person owns a
greater percentage interest than the Company in the BHR Joint Venture or
(C) any Excluded Person directly or indirectly owns any interest in the BHR
Joint Venture other than the interest owned by the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means The Majestic Star Casino, LLC, an Indiana 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,
(b) plus, 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, and
(c) adjusted to exclude (only to the extent included in calculating
such income (loss) from operations of such Person for such period, and
without duplication) losses from retirement of Indebtedness incurred during
the Issuers' fiscal quarter ended December 31, 2003 and nonrecurring items
(including, without limitation, restructuring costs) that would be
permitted to be excluded in accordance with Item 10 of Regulation S-K under
the Securities Act if the Consolidated Coverage Ratio were included in a
filing with the SEC;
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 (loss) 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
102
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 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 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 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 shall be included.
"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.
"Credit Facility" means (a) the credit facility, to be dated as of the
Issue Date, between the Company and Wells Fargo Foothill, Inc., as agent (any
related 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 $80.0 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 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.
103
"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 (b) 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 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 membership interest in Barden Nevada, so long as it is an
Unrestricted Subsidiary; 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) Don
H. Barden or his spouse or an entity controlled by either of them, (iv) the
estate of Don H. Barden, (v) any descendant of Don H. Barden or the spouse of
any such descendant, (vi) the estate of any such descendant or the spouse of any
such descendant, (vii) 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 and (viii) any charitable organization or trust established by Don H.
Barden.
"Expense Reimbursement Agreement" means that certain Expense Reimbursement
Agreement, to be dated the Issue Date, by and between the Company and Barden
Nevada Gaming, LLC pursuant to which Barden Nevada Gaming, LLC reimburses the
Company for certain expenses (the "Expense Reimbursements"), which Expense
Reimbursement, for any fiscal year, is the greater of $500,000 and the actual
out-of-pocket expenses incurred by the Company for that fiscal year.
"FF&E" means furniture, fixture and equipment acquired by the Company or a
Restricted Subsidiary in the ordinary course of business.
"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.
104
"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 SEC.
"GAAP" means gaap as in effect from time to time.
"Gaming Authorities" means the Indiana Gaming Commission, the Mississippi
Gaming Commission, the Colorado Limited Gaming Control Commission, the Colorado
Division of Gaming, 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 Law" means the provisions of any gaming laws or regulations of any
state or jurisdiction to which the Company or any of its Subsidiaries is, or may
at any time after the date of the Indenture, be subject.
"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.
"GNC Land" means the approximately 150 acres of land located adjacent to
the Buffington Harbor gaming complex.
"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.
105
"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, 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
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 County, 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: (a) pro forma effect shall be given to the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Restricted 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; (b) 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, including giving effect to reductions
in costs for such period that are directly attributable to the elimination of
duplicative functions and expenses (regardless of whether such cost savings
could then be reflected in pro formafinancial statements under GAAP, Regulation
S-X promulgated by the SEC or any other regulation or policy of the SEC) as a
result of such acquisition, merger or consolidation, provided that
106
(x) such cost savings were identified and quantified in an Officers' Certificate
delivered to the Trustee at the time of the consummation of such acquisition,
merger or consolidation and such Officers' Certificate states that such officers
believe in good faith that actions will be commenced or initiated within 90 days
of the consummation of such acquisition, merger or consolidation to effect such
cost savings and sets forth the specific steps to be taken within the 90 days
after such acquisition, merger or consolidation to accomplish such cost savings,
and (y) with respect to each acquisition, merger or consolidation completed
prior to the 90th day preceding such date of determination, actions were
commenced or initiated by the Company or any of its Restricted Subsidiaries
within 90 days of such acquisition, merger or consolidation to effect the cost
savings identified in such Officers' Certificate (regardless, however, of
whether the corresponding cost savings have been achieved); and (c) the
financial information of the Company with respect to any portion of such period
that falls before the Issue Date shall be adjusted to give pro forma effect to
the issuance of the Notes and the application of the proceeds therefrom as if
they had occurred at the beginning of such period.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans, guarantees
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.
"Issue Date" means the date the 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 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 State Tax Commission, the State
of Mississippi Alcoholic Beverage Control Division of the Mississippi State Tax
Commission, the State of Colorado, City of Black Hawk, the State Licensing
Authority of the State of Colorado Liquor Enforcement Division, the State of
Indiana Alcohol and Tobacco Commission, the Department of the Treasury Bureau of
Alcohol, Tobacco and Firearms 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 Investor Holdings" means Majestic Investor Holdings, LLC, a
Delaware limited liability Company.
"Majestic Star Casino Vessel" means the Majestic Star riverboat casino
currently operated by the Company.
"Management Agreement" means that certain Management Agreement, to be dated
the Issue Date, by and between the Company and BDI pursuant to which the Company
may pay to BDI distributions (the
107
"Management Distributions") for acting as the Manager of the Company, which
Management Distributions, for any fiscal quarter, shall not exceed 1% of net
revenues (such Management Distributions, the "Revenue-Based Management
Distributions") plus 5% of Consolidated Cash Flow (such Management
Distributions, the "Cash Flow-Based Management Distributions") for the
immediately preceding fiscal quarter; provided that the payment of such
Management Distributions shall be subordinated to the payment in full of
principal, interest, premium and Liquidated Damages, if any, then due on the
Notes.
"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.
"Maximum Credit Facility Amount" has the meaning set forth in clause (a)
under the caption "--Certain Covenants--Limitation on Incurrence of
Indebtedness."
"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.
"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).
108
"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 Officer, Chief 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 "--Certain Covenants--Limitation on Asset Sales;"
(vi) Investments existing on the Issue Date;
(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;
(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);
(xi) Investments in a joint venture between the Company or any of its
Restricted Subsidiaries and the municipality of Black Hawk, Colorado, in an
amount not to exceed $2.5 million;
(xii) contribution by the Company or any of its Restricted
Subsidiaries of Undeveloped Land to a joint venture between the Company or
any of its Restricted Subsidiaries, on the one hand, and the municipality
of Gary, Indiana, on the other hand, for the purposes of developing on such
Undeveloped Land non-gaming facilities; and
(xiii) Investments in Unrestricted Subsidiaries or Affiliates,
provided,that the aggregate amount of all such Investments outstanding at
any time after the Issue Date pursuant to this clause (xiii) shall not in
the aggregate exceed $5.0 million (measured by the value attributed to the
Investment at the time outstanding).
"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
109
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,
materialmen, 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) Liens arising by virtue of any contractual, statutory, or common
law provision relating to bankers' liens, rights of set-off, or similar
rights and remedies regarding deposit accounts or other funds maintained
with a creditor depository institution;
(vi) 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;
(vii) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation;
(viii) 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 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;
(ix) 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;
(x) Liens that secure FF&E Financing permitted to be incurred pursuant
to clause (b) under the covenant described above under the caption
"--Certain Covenants--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;
(xi) 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;
(xii) Liens securing Obligations under the Indenture, the Notes or the
Security Documents;
(xiii) Liens on assets of the Company and the Subsidiaries, and the
proceeds of any or all the foregoing, securing Indebtedness under the
Credit Facility incurred pursuant to clause (a) under the caption
"--Certain Covenants--Limitation on Incurrence of Indebtedness;"
110
(xiv) Liens securing additional Indebtedness incurred under the Credit
Facility securing a gaming establishment owned by the Company or a
Restricted Subsidiary and containing at least 1,000 gaming devices, in an
amount not to exceed $10.0 million;
(xv) with respect to any vessel included in the Collateral, certain
maritime liens, including liens for crew's wages and salvage;
(xvi) 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;
(xvii) Liens evidenced by 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
(xviii) Liens on the GNC Land securing Indebtedness incurred pursuant
to the covenant "--Certain Covenants--Limitation on Incurrence of
Indebtedness" so long as the aggregate amount of the Indebtedness secured
by such Liens shall not exceed at any one time outstanding exceed 50% of
the value of the aggregate consideration paid or given by the Company and
its Restricted Subsidiaries for the GNC Land.
"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 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.
111
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.
"Permitted Vessel Relocation" means the relocation of the Majestic Star
Casino Vessel from its current location at the docking facilities owned by the
BHR Joint Venture to new docking facilities on the GNC Land; provided that each
of the following conditions precedent shall have been satisfied: (x) the Company
or any of its Restricted Subsidiaries shall have acquired the GNC Land, (y) the
Company shall have constructed or acquired new docking facilities thereon, which
new docking facilities have substantially similar amenities as or better
amenities than those of the docking facilities owned by the BHR Joint Venture
immediately prior to such relocation, and (z) the Company shall have entered
into a berthing agreement with the owner or owners of such facilities (if such
owner or owners are other than the Company or its Restricted Subsidiaries) on
terms no less favorable to the Company or such Restricted Subsidiary than those
set forth in the Berthing Agreement as in effect immediately prior to such
relocation.
"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 Mortgages" means (i) the preferred ship mortgage on the
Tunica Vessel, dated as of the Issue Date, by and between Barden Mississippi
Gaming, LLC and the Trustee, and (ii) the preferred ship mortgage on The
Majestic Star Casino Vessel, dated as of the Issue Date, by and between the
Company 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
112
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.
"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 (other than the sale, distribution or liquidation of
an Unrestricted Subsidiary that as of the Issue Date had been designated as an
Unrestricted Subsidiary); 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 Issuers and the Subsidiary
Guarantors, including the Company's interest in the Berthing Agreement, 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 BDI Pledge Agreement, the
Preferred Ship Mortgages, the 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.
113
"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 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, as amended or supplemented from time to time.
"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>
"Undeveloped Land" means any unimproved land owned by the Company or any of
its Restricted Subsidiaries; provided that for the avoidance of doubt, for
purposes of determining the amount of any Permitted Investment pursuant to
clause (xii) of the definition thereof, (a) the amount of such contribution
attributable to the amount or value of any Investments in, or capital
expenditures or other payments with respect to, or development of or improvement
on, such Undeveloped Land after the Issue Date (other than minor improvements
and other than payments for reasonable costs incurred in connection with such
contribution, which costs would customarily be incurred by a seller of
unimproved land, including, without limitation, for title charges, environmental
studies, surveys and legal fees) shall not constitute a Permitted Investment,
and (b) any Investments in, or capital expenditures or other payments with
respect to, such joint venture after the Issue Date shall not constitute a
Permitted Investment.
"Unrestricted Subsidiary" means (1) Barden Nevada Gaming, LLC, a Nevada
limited liability company, and (2) any other 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
114
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.
"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 PROCEDURES, DELIVERY, FORM, TRANSFER AND EXCHANGE
The Notes will be issued in the form of one or more registered global notes
without interest coupons (collectively, the "Global Notes"). Upon issuance, the
Global Notes will be deposited 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 for credit to the accounts of DTC's Participants (as defined
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 in certain limited circumstances. Beneficial interests in the Global
Notes may not be exchanged for Certificated Notes except in certain limited
circumstances. See "--Exchange of Interests in Global 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 to direct or indirect
participants, which may change from time to time.
115
Initially, the Trustee will act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders,
and the Company or any of the Subsidiaries may act as Paying Agent or Registrar.
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
CERTAIN BOOK-ENTRY PROCEDURES
The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. These operations and procedures are
solely within their control and are subject to change by them from time to time.
We take no responsibility for these operations and procedures and urge you to
contact DTC or its Participants directly to discuss these matters.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities for its
participating organizations (collectively, the "Direct Participants") and
facilitates the clearance and settlement of transactions in those securities
between Direct Participants through electronic book-entry changes in accounts of
Direct Participants. The Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other Persons that
clear through or maintain a direct or indirect custodial relationship with a
Direct Participant (collectively, the "Indirect Participants" and, together with
the Direct Participants, the "Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants.
DTC has advised us that, pursuant to DTC's procedures, DTC will maintain
records of the ownership interests of each Direct Participant in each Global
Note and the transfer of ownership interests by and between Direct Participants.
DTC will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, Indirect Participants and
other owners of beneficial interests in the Global Notes.
You may hold your interests in Global Notes directly through DTC if you are
a Direct Participant in DTC or indirectly through organizations that are Direct
Participants in DTC. All ownership interests in any Global Notes will be subject
to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form of securities that they
own. This may limit or curtail your ability to transfer your beneficial interest
in a Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
your ability to pledge your beneficial interest in a Global Note to Persons that
are not Direct Participants in DTC, or to otherwise take action 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
Notes see "--Exchange of Interests in Global Notes for Certificated Notes."
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE,
DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND
HOLDER OF THE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES UNDER THE
INDENTURE AND THE NOTES. Except in the limited circumstances described under
"--Exchange of Interests in Global Notes for Certificated Notes," you will not
be entitled to have any portion of a Global Note registered in your name, will
not be entitled to receive physical delivery of Notes in certificated form and
will not be considered the registered owners or holder of a Global Note (or any
Note represented thereby) under the Indenture or the Notes for any purpose.
Under the terms of the Indenture, we, the Subsidiary Guarantors and the
Trustee will treat the persons in whose names the Notes are registered
(including Notes represented by Global Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of
116
the principal of and premium, if any, and interest (and Liquidated Damages, if
any) on Global Notes registered in the name of DTC or its nominee will be
payable by the Trustee to DTC or its nominee as the registered holder under the
Indenture. Consequently, none of us, the Trustee or any agent of us or the
Trustee has or will have any responsibility or liability for (i) any aspect of
DTC's records or any 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
records relating to the beneficial ownership interests in any Global Note or
(ii) any other matter relating to the actions and practices of DTC or any of its
Participants.
DTC has advised us that its current payment practice (for payments of
principal, premium, interest, Liquidated Damages and the like) with respect to
securities such as the Notes is to credit the accounts of the relevant Direct
Participants with such payment on the payment date in amounts proportionate to
such Direct Participant's respective ownership interest in the Global Notes as
shown on DTC's records. Payments by Direct Participants and Indirect
Participants to the beneficial owners of the Notes will be governed by standing
instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee, us or the Subsidiary Guarantors. None of the
Company, the Subsidiary Guarantors or the Trustee will be liable for any delay
by DTC or its Direct Participants or Indirect 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, therefore, transfers between Direct Participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in immediately
available funds. Transfers between Indirect Participants who hold an interest
through a Direct Participant will be effected in accordance with the procedures
of such Direct Participant.
DTC has advised us that it will take any action permitted to be taken by a
Holder of Notes (including the presentation of Notes for exchange as described
above) only at the direction of one or more Direct Participants to whose account
interests in the Global Notes are credited and only in respect of such portion
of the aggregate principal amount of the Notes to which such Direct Participant
or Direct Participants has or have given direction. However, if there is an
Event of Default under the Notes, DTC reserves the right to exchange Global
Notes (without the direction of one or more of its Direct Participants) for
legended Notes in certificated form, and to distribute such certificated forms
of Notes to its Direct Participants. See "--Exchange of Interests in Global
Notes for Certificated Notes."
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Direct Participants, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of us, the Subsidiary
Guarantors, or the Trustee shall have any responsibility for the performance by
DTC or any of its Participants, of their respective obligations under the rules
and procedures governing any of their operations.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
EXCHANGE OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
You may not exchange your beneficial interest in a Global Note for a
definitive Note in registered, certificated form without interest coupons ("a
Certificated Note") except as set forth below.
An entire Global Note may be exchanged for Certificated Notes if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the Global Notes, or (b) has ceased to be a clearing agency
registered under the Exchange Act, and in either case we fail to appoint a
successor depositary within 90 days of such notice; or
(2) we, at our option, notify the Trustee in writing that we are
electing to issue Certificated Notes.
117
In any such case, we will notify the Trustee in writing that, upon
surrender by the Participants of their interests in such Global Note,
Certificated Notes will be issued to each person that such Participants and DTC
identify as being the beneficial owner of the related Notes.
In addition, beneficial interests in Global Notes held by any Participant
may be exchanged for Certificated Notes upon request by such Direct Participant
(for itself or on behalf of an Indirect Participant) to DTC or to the Trustee in
accordance with customary DTC procedures. Certificated Notes delivered in
exchange for any beneficial interest in any Global Note will be registered in
the names, and issued in any approved denominations, requested by DTC on behalf
of such Participants (in accordance with DTC's customary procedures).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Notice to Investors," unless we determine
otherwise in compliance with applicable law. Any such exchange of beneficial
interests in Global Notes for Certificated Notes will be effected through the
DWAC system and an appropriate adjustment will be made to the records of the
registrar to reflect a decrease in the principal amount of the Global Note.
None of us, the Subsidiary Guarantors or the Trustee will be liable for any
delay by the holder of any Global Note or DTC in identifying the beneficial
owners of Notes, and we and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note 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) be made by wire transfer of immediately available same-day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, we will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available same-day 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.
118
MATERIAL AGREEMENTS
BARDEN NEVADA EXPENSE SHARING AGREEMENT
Concurrently with the consummation of the offering of the unregistered
notes, and whether or not the proposed spin-off is consummated, we entered into
an expense sharing agreement with Barden Nevada. The expense sharing agreement
provides for a fee from Barden Nevada to us in the amount of the greater of (i)
$500,000 per year or (ii) the actual amount of certain specified expenses
incurred by us in connection with providing management services.
MANAGER AGREEMENTS
Concurrently with the consummation of the offering of the unregistered
notes, we entered into a new Manager Agreement with BDI. Distributions to BDI
under the new Manager Agreement are limited by the terms of the indenture
governing the notes and by the terms of the senior secured credit facility. The
distributions for each fiscal quarter may not exceed 1% of net revenue and 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 the Company is
in default under the indenture or under the senior secured credit facility or if
the Company does not meet certain financial ratios as provided in the indenture.
Pursuant to the Manager Agreement, Mr. Barden serves as chief executive officer,
with general oversight of operational and personnel issues. Mr. Kelly, as chief
operating officer supervises property general managers, corporate, corporate
management information systems, human resources, risk management and marketing
personnel. Mr. Kelly has ten direct reports and reports directly to Mr. Barden.
The vice president and general counsel, vice president of internal audit, and
vice president and chief financial officer also report to Mr. Barden. We make
distributions 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 distributions are subordinated to the payment
in full of principal, interest, and liquidated damages, if any, then due on the
notes and to obligations under the senior secured credit facility.
In June 1999, Majestic Star entered into a LLC Manager Agreement with BDI
to provide for, among other things, BDI to act as our manager (the "Majestic
Star Manager Agreement"). Distributions to BDI under the Majestic Star Manager
Agreement were limited under the terms of the indenture that governed the
10 7/8% notes. The distributions for each fiscal quarter could not exceed 5% of
Majestic Star's consolidated cash flow (as defined in the indenture for the
10 7/8% notes) for the immediately preceding fiscal quarter and could not be
paid if Majestic Star was in default under the indenture relating to the 10 7/8%
notes or if Majestic Star did not meet certain financial ratios as provided in
such indenture.
During the nine months ended September 30, 2003, Majestic Star Casino made
distributions totaling $1,016,000 to BDI in accordance with the Majestic Star
Manager Agreement, related to the fourth quarter of 2002 and the six months
ended June 30, 2003.
In December 2001, Majestic Investor Holdings entered into a LLC Manager
Agreement with BDI to provide for, among other things, BDI to act as our manager
(the "Majestic Investor Holdings Manager Agreement"). Distributions to BDI under
the Majestic Investor Holdings Manager Agreement were limited under the terms of
the indenture governing the 11.653% notes. The distributions for each fiscal
quarter could not exceed 1% of net revenues plus 5% of Investor Holdings'
consolidated cash flow (as defined in the indenture for the 11.653% notes) for
the immediately preceding fiscal quarter and could not be paid if Majestic
Investor Holdings was in default under the indenture relating to the 11.653%
notes or if Majestic Investor Holdings did not meet certain financial ratios as
provided in such indenture.
During the nine months ended September 30, 2003, Majestic Investor Holdings
made distributions totaling $2,594,000 to BDI in accordance with the Majestic
Investor Holdings Manager Agreement related to the fourth quarter of 2002 and
the six months ended June 30, 2003.
119
NAMING RIGHTS AGREEMENT
Gary New Century, LLC ("GNC"), a company wholly owned by Mr. Barden,
intends to develop an outdoor amphitheater on property it owns adjacent to the
Company's riverboat gaming facility. The Company entered into a Naming Rights
Agreement with GNC effective in October 2001. Pursuant to the Naming Rights
Agreement, GNC agreed to use the name "The Majestic Star Amphitheater" as the
name of the amphitheater and the Company paid GNC $1.5 million during 2001 for
such rights. The initial term of the Naming Rights Agreement is three years
commencing on the opening of the amphitheater.
120
GOVERNMENT REGULATION AND LICENSING
GENERAL
The ownership and operation of our gaming facilities are subject to various
state and local laws and regulations in the jurisdictions where they are
located. In Indiana, our gaming operations are subject to the provisions of the
Indiana laws and regulations. In Mississippi, our gaming operations are subject
to the Mississippi Gaming Control Act, to the licensing and/or regulatory
control of the Mississippi Gaming Commission and to 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
Nevada, unless and until we have completed the spin-off of Barden Nevada to BDI,
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.
The following is a summary of the provisions of the laws and regulations
applicable to the Company's gaming operations and other laws and regulations
applicable to the Company as a registered holding company in Mississippi and,
until the spin-off of Barden Nevada is completed, Nevada. The summary does not
purport to be a full description thereof and is qualified in its entirety by
reference to such laws and regulations.
INDIANA GAMING REGULATION
The ownership and operation of The Majestic Star Casino is subject to
regulation by the State of Indiana.
In 1993, the State of Indiana passed the Riverboat Gambling Act that
created the Indiana Gaming Commission (the "IGC"). The IGC is given extensive
powers and duties for the purposes of administering, regulating and enforcing
riverboat gaming in Indiana and was authorized to award up to eleven gaming
licenses to operate riverboat casinos in the State of Indiana, including five to
counties contiguous to Lake Michigan in northern Indiana, five to counties
contiguous to the Ohio River in southern Indiana and one to a county contiguous
to Patoka Lake in southern Indiana. Pursuant to legislation passed in May 2003,
the Indiana General Assembly eliminated the gaming license permitted for a
riverboat to be docked in a county contiguous to Patoka Lake; and instead
authorized the IGC to enter into a contract pursuant to which an Operating Agent
may operate a riverboat in Orange County on behalf of the IGC. In November 2003
Orange County Voters passed a referendum approving gambling in Orange County.
The IGC has commenced the initial steps necessary to issue an Operating Agent
Contract which will be valid for a period of up to twenty years. The Operating
Agent must pay a non-refundable initial fee of $1.0 million to the Indiana
Gaming Commission.
Referenda required by the Riverboat Gambling Act to authorize the five
licenses to be issued for counties contiguous to Lake Michigan have been
conducted and gaming has been authorized for the cities of Hammond, East
Chicago, and Gary in Lake County, Indiana, and for Michigan City in LaPorte
County, Indiana to the east of Lake County.
The IGC has jurisdiction and supervision over all riverboat gaming
operations in Indiana and all persons on riverboats where gaming operations are
conducted. These powers and duties include authority to (i) investigate all
applicants for riverboat gaming licenses, (ii) select licensees from competing
applicants, (iii) establish fees for licensees and (iv) prescribe all forms used
by applicants. The IGC is authorized to adopt rules for administering the gaming
statute and the conditions under which riverboat gaming in Indiana may be
conducted. The IGC may suspend or revoke the license of a licensee or impose
civil penalties, in some cases without notice or hearing, for any act in
violation of the Riverboat Gambling Act or for any other fraudulent act.
121
The Riverboat Gambling Act requires an extensive disclosure of records and
other information concerning an applicant, including disclosure of all
directors, officers and persons holding a five percent or more direct or
indirect beneficial interest in an applicant. In determining whether to grant or
renew an owner's license to an applicant, the IGC considers a number of factors,
including (i) the character, reputation, experience and financial integrity of
the applicant, (ii) the facilities or proposed facilities for the conduct of
riverboat gaming, (iii) the prospective revenue to be collected by the state
from the conduct of riverboat gaming, (iv) the good faith affirmative action
plan to recruit, train and upgrade minorities in all employment classifications,
(v) the financial ability of the applicant to purchase and maintain adequate
liability and casualty insurance, (vi) whether the applicant has adequate
capitalization to provide and maintain the riverboat for the duration of the
license and (vii) the extent to which the applicant meets or exceeds other
standards adopted by the IGC. The IGC may also give favorable consideration to
applicants for economically depressed areas and applicants who provide for
significant development of a large geographic area. A gaming license is a
revocable privilege and is not a property right.
An owner's initial license expires five years after the effective date of
the license (unless earlier terminated or revoked) and may be renewed for
one-year periods by the IGC upon satisfaction of certain statutory and
regulatory requirements. While the IGC reserves the right to investigate
Riverboat Licensees at any time it deems necessary, after the expiration of the
initial license, each Riverboat Licensee must undergo a complete reinvestigation
every three years. On June 3, 1996, the Majestic Star Casino obtained its
initial gaming license from the IGC. After a re-investigation in 2001, its
license was renewed. Applications for the required annual license renewals for
2002 and 2003 were submitted and approved. In June 2004, the Majestic Star will
undergo its requisite three year re-investigation.
A Riverboat Owner's License and Operating Contract entitle the licensee or
the Operating Agent to operate one riverboat. In May 2003, the Riverboat
Gambling Act was amended to allow a person to hold up to one hundred percent of
up to two individual Riverboat Owner's Licenses. A transfer fee of $2.0 million
is imposed on a Riverboat Licensee who purchases or otherwise acquires a
controlling interest in a second Indiana Riverboat Owner's License. If a
Riverboat Licensee or the Operating Agent is a publicly-traded corporation, its
Articles of Incorporation must contain language concerning transfer of
ownership, suitability determinations and possible divestiture of ownership.
The IGC is authorized to conduct investigations into gambling games, the
maintenance of equipment, and violations of the Riverboat Gambling Act as it
deems necessary. Riverboat Licensees and Operating Agents may be subject to
fines, suspension or revocation of its license or Operating Contract for any
conduct that violates the Act, rules promulgated thereunder or that constitutes
a fraudulent act.
Additionally, the IGC is authorized to license suppliers and certain
occupations related to riverboat gaming. Gaming equipment and supplies
customarily used in conducting riverboat gaming may be purchased or leased only
from licensed suppliers. By rule promulgated by the Indiana Gaming Commission,
Riverboat Licensees who employ non-licensed individuals in positions requiring
licensure or who purchase supplies from a non-licensed entity may be subject to
a disciplinary action.
A Riverboat Licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration that is not
commercially reasonable or that does not reflect the fair market value of goods
and services rendered or received. All contracts are subject to disapproval by
the IGC and contracts should reflect the potential for disapproval. The Act
places special emphasis on minority and women business enterprise participation
in the riverboat industry. Riverboat Licensees and Operating Agents must
establish goals of expending ten percent of the total dollars spent on the
majority of goods and services with minority business enterprises and five
percent with women business enterprises. Each riverboat owner licensee is
required to submit annually to the IGC a report that included the total dollar
value of contracts awarded for goods and services and the percentage awarded to
minority and women's business enterprises. The IGC may suspend, limit or revoke
an owner's gaming license or impose a fine for failure to comply with these
statutory requirements. For the calendar year ended December 31, 2002, the
Company has submitted unaudited reports to the IGC that it believes meets these
statutory requirements.
122
Under IGC regulations, minimum and maximum wagers on games are left to the
discretion of the licensee. Wagering is required to be conducted with tokens,
chips or electronic cards instead of cash or coins.
A change in the Indiana state law governing gaming took effect on July 1,
2002, which enabled Indiana's riverboat casinos to operate dockside. The IGC
approved Majestic Star Casino's flexible boarding plan that allows the
continuous ingress and egress of patrons for the purpose of gambling while the
riverboat is docked. The plan went into effect on August 5, 2002 and imposes a
graduated wagering tax based upon adjusted gross receipts. The graduated
wagering tax has a starting rate of 15% with a top rate of 35% for adjusted
gross receipts in excess of $150 million. By statute enacted in 2003, riverboats
had to commence utilization of the graduated tax rate on July 1, 2002, even
though dockside operations did not commence until August 4, 2002. The statute
further allowed Indiana riverboats to pay the difference in the tax liability in
two installments, one due in 2003 and the second in 2004. Prior to July 1, 2002,
Indiana gaming taxes were levied on adjusted gross receipts, as defined by
Indiana gaming laws, at the rate of 20%. In addition to the wagering tax, an
admissions tax of $3 per turnstile count is assessed. Prior to August 5, 2002,
Indiana imposed an admissions tax of $3 per patron turnstile count at every
boarding time plus the count of the patrons that stayed over on the vessel from
a previous boarding time period. Pursuant to legislation enacted in 2003 the
riverboats may now operate 24 hours per day.
In May 2003, the Indiana General Assembly adopted legislation that makes
the act of providing a complimentary hotel room a retail transaction subject to
state gross retail tax of six percent. Riverboats licensed by the Indiana Gaming
Commission are assessed as real property for property tax purposes and, thus,
are taxed at rates determined by local taxing authorities. All Indiana state
excise taxes, use taxes and gross retail taxes apply to sales made on a
riverboat.
As a condition of continued licensure, Majestic Star must maintain a bond
in the amount of $1 million to meet general legal and financial obligations to
the local community and the State. The Riverboat Licensee and the Operating
Agent must carry insurance in types and amounts as required by the Indiana
Gaming Commission.
The IGC has promulgated a rule that prohibits distributions, excluding
distributions for the payment of taxes, by a Riverboat Licensee to its partners,
shareholders, itself or any affiliated entity if the distribution would impair
the financial viability of the riverboat gaming operation. The Indiana Gaming
Commission has also promulgated a rule mandating Riverboat Licensees to maintain
a cash reserve to protect patrons against defaults in gaming debts. The cash
reserve is to be equal to a Riverboat Licensee's average payout for a three-day
period based on the riverboat's performance the prior calendar quarter. The cash
reserve can consist of cash on hand, cash maintained in Indiana bank accounts
and cash equivalents not otherwise committed or obligated.
The Company and its affiliates are subject to restrictions on the
incurrence of debt. 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 IGC. 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 Act.
Unless waived, approval of debt transactions requires consideration by the IGC
at two business meetings. The IGC, by resolution, has authorized the Executive
Director, subject to subsequent confirmation by the IGC, to approve debt
transactions after a review of the documents and consultation with the Chair and
Certified Public Accountant Member of the IGC.
The Act prohibits contributions to a candidate for a state, legislative or
local office or to a candidate's committee or to a regular party committee by:
- a person who owns at least one percent of a Riverboat Licensee or
Operating Agent;
- a person who is an officer of a Riverboat Licensee or Operating Agent;
- a person who is an officer of a person that owns at least one percent of
a Riverboat Licensee or Operating Agent; or
- a person who is a political action committee of a Riverboat Licensee or
Operating Agent.
123
The prohibition against political contributions extends for three years
following a change in the circumstances that resulted in the prohibition.
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").
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 that 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 for
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. We believe that our compliance with the licensing
procedures and regulatory requirements of the Mississippi Commission will not
affect the marketability of our securities. 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 in each of the
fourteen counties that border the Gulf Coast or the Mississippi River, but only
if the voters in the applicable county have not voted to prohibit gaming in that
county. In recent years, certain anti-gaming groups proposed for adoption
through the initiative and referendum process certain amendments to the
Mississippi Constitution which would prohibit gaming in the state. The proposals
were declared illegal by Mississippi courts on constitutional and procedural
grounds. The latest ruling was appealed to the Mississippi Supreme Court, which
affirmed the decision of the lower court. If another such proposal were to be
offered and if a sufficient number of signatures were to be gathered to place a
legal initiative on the ballot, it is possible for the voters of Mississippi to
consider such a proposal in November of 2004. While we are unable to predict
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 significant adverse
effect on us and our business, financial condition and results of operations.
As of July 1, 2003, dockside gaming was permissible in nine of the fourteen
eligible counties in the State of Mississippi and gaming operations had
commenced in seven counties. Under Mississippi law, gaming vessels must be
located on the Mississippi River or on navigable waters in eligible counties
along the Mississippi River, or in the waters lying south of the counties along
the Mississippi Gulf Coast. Our Fitzgeralds Tunica casino is located 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
124
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 opinion of the Mississippi Attorney General. Since 1993, the
Mississippi Commission has issued or renewed licenses to Fitzgeralds Tunica on
several separate occasions. We believe that Fitzgeralds Tunica 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 our Fitzgeralds Tunica barges are located on navigable
waters within the meaning of Mississippi law. If the basin in which our
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 us 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 the state of Mississippi.
We and any subsidiary of ours that operates a casino in Mississippi (a
"Gaming Subsidiary") are subject to the licensing and regulatory control of the
Mississippi Commission. Each of the Company, Majestic Investor, LLC
("Investor"), Majestic Investor Holdings and BDI have registered under the
Mississippi Act as either a publicly traded corporation (a "Registered
Corporation") or a holding company of Barden Mississippi Gaming, LLC ("Barden
Mississippi"), the owner and operator of Fitzgeralds Tunica, a licensee of the
Mississippi Commission. BDI, the Company, Investor and Majestic Investor
Holdings, as registered holding companies or publicly traded corporations, and
Barden Mississippi, as a gaming licensee, are required to submit detailed
financial, operating and other reports to the Mississippi Commission and furnish
any other information which the Mississippi Commission may require. If we are
unable to continue to satisfy the registration requirements of the Mississippi
Act, we, any of our related registered holding companies or publicly traded
corporations and Barden Mississippi cannot own or operate gaming facilities in
Mississippi. No person may become a stockholder of or receive any percentage of
profits from a licensed subsidiary of a registered holding company or publicly
traded corporation without first obtaining licenses and approvals from the
Mississippi Commission. While we have received such approvals in connection with
the licensing of Barden Mississippi, no assurance can be given that we will
continue to receive such approvals in the future.
Barden Mississippi must maintain its gaming license from the Mississippi
Commission in order to continue 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) and must be renewed periodically thereafter.
Barden Mississippi's current gaming license expires in December of 2004. There
can be no assurance that any subsequent application for a license will be
approved.
Certain management personnel of BDI, the Company, Investor and Majestic
Investor Holdings, and certain management personnel and key employees of Barden
Mississippi must be found suitable or approved by the Mississippi Commission. We
believe that we have obtained, applied for or are in the process of applying for
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. In addition, any person having a
material relationship or involvement with us 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. Changes in
certain licensed positions must be reported to the Mississippi Commission. In
addition to its authority to deny an application for a finding of suitability,
the Mississippi Commission has jurisdiction to disapprove a change in any
person's corporate position or title and such changes must be reported to the
Mississippi Commission. The Mississippi Commission has the power to require us,
BDI, Investor, Majestic Investor Holdings and Barden Mississippi 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
125
who have filed or will be required to file applications for findings of
suitability will be found suitable by the Mississippi Commission. Determinations
of suitability or questions pertaining to licensing are not subject to judicial
review in Mississippi.
At any time, the Mississippi Commission has the power to investigate and
require the finding of suitability of any person who becomes the record or
beneficial owner of any security of BDI, the Company, Investor, Investor
Holdings or Barden Mississippi, regardless of the percentage of ownership. The
Mississippi Act requires any person who acquires more than five percent of any
class of voting securities of a Registered Corporation, as reported to the
Securities and Exchange Commission, to report the acquisition to the Mississippi
Commission, and such person may be required to be found suitable. Also, any
person who becomes a beneficial owner of more than ten percent of any class of
voting securities of a Registered Corporation must apply for a finding of
suitability by the Mississippi Commission and must pay the costs and fees that
the Mississippi Commission incurs in conducting the investigation. If a
stockholder who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information including a list of
beneficial owners.
The Mississippi Commission generally has exercised its discretion to
require a finding of suitability of any beneficial owner of more than five
percent of any class of voting securities of a Registered Corporation, a holding
company or a Gaming Subsidiary. However, under certain circumstances, an
"institutional investor," as defined in the Mississippi Commission's
regulations, which acquires more than ten percent, but not more than fifteen
percent, of the voting securities of a Registered Corporation may apply to the
Mississippi Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes only.
An institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Registered Corporation, any change in
the corporate charter, bylaws, management, policies or operations, or any of its
gaming affiliates, or any other action which the Mississippi Commission finds to
be inconsistent with holding the voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes include:
- voting on all matters voted on by stockholders;
- 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 our management, policies or operations; and
- such other activities as the Mississippi Commission may determine to be
consistent with such investment intent.
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, the Company, Investor,
Majestic Investor Holdings or Barden Mississippi, 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 a fair market value.
126
We may be required to disclose to the Mississippi Commission, upon request,
the identities of the holders of any of our debt or other securities. In
addition, under the Mississippi Act, the Mississippi Commission may in its
discretion require the holder of any debt security of a Registered Corporation
or a registered holding company to file an application, 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.
Although the Mississippi Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Commission retains the discretion to do so for any
reason, including but not limited to, a default, or where the holder of the debt
instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Commission in connection with the investigation.
If the Mississippi Commission determines that a person is unsuitable to own
a debt security, then the Registered Corporation can be sanctioned, including
the loss of its approvals, if without the prior approval of the Mississippi
Commission, it:
- pays to the unsuitable person any dividend, interest, or any distribution
whatsoever;
- recognizes any voting right by the unsuitable person in connection with
those 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.
Each of BDI, the Company, Investor, Majestic Investor Holdings and Barden
Mississippi is required to maintain in Mississippi a current ledger with respect
to the ownership of its equity securities. 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 must also render maximum assistance in
determining the identity of the beneficial owner of any of the voting securities
of us or our affiliates.
The Mississippi Act requires that the certificates representing securities
of a Registered Corporation, including the Company, 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 on the holders of our securities at any time.
Substantially all material loans, leases, sales of securities and similar
financing transactions by a Registered Corporation or a Gaming Subsidiary must
be reported to or approved by the Mississippi Commission. We have applied for
and received from the Mississippi Commission the necessary approvals in
connection with the offering of these notes and the refinancing of existing debt
contemplated currently by the Company; however, a post-closing loan report must
be filed within thirty days of closing and the Mississippi Commission retains
discretion to rescind the transaction under certain conditions. A Gaming
Subsidiary may not make a public offering of its securities, but may pledge or
mortgage casino facilities. A Registered Corporation 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 those purposes. Such approval,
if given, does not constitute a recommendation or approval of the investment
merits of the securities subject to the offering and remains subject to the
ability of the Mississippi Commission to issue a stop order with respect to any
such securities if the staff determines it would be necessary to do so.
Under the regulations of the Mississippi Commission, Barden Mississippi 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 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
127
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.
Changes in control of BDI, the Company, Investor, Majestic Investor
Holdings or Barden Mississippi, whether through merger, consolidation,
acquisition of assets, management or consulting agreements or any act or conduct
by a person by which he or she obtains control, 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.
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 Corporations, 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 Corporation may make exceptional repurchases of
voting securities (such as 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 Corporation's board of directors in response to a
tender offer made directly to the Registered Corporation's stockholders for the
purpose of acquiring control of the Registered Corporation.
None of BDI, the Company, Investor, Investor Holdings or Barden Mississippi
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 our gaming operations in Indiana, 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 we, BDI, Investor, Majestic
Investor Holdings or Barden Mississippi violated a gaming law or regulation, the
Mississippi Commission could limit, condition, suspend or revoke the approvals
of any such company and the license of Barden Mississippi, subject to compliance
with certain statutory and regulatory procedures. In addition, we, BDI,
Investor, Majestic Investor Holdings, Barden Mississippi 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 are computed in various ways depending on the type
of gaming involved and are payable to the State of Mississippi and to the
counties and cities in which a Gaming Subsidiary's operations
128
are conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either weekly, 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 eight percent of all
gaming receipts in excess of $134,000 per month. The foregoing license fees paid
by Barden Mississippi are allowed as a credit against Barden Mississippi's
Mississippi income tax liability for the year paid. The gross revenue fee
imposed by Tunica County equals approximately four percent of the gaming
receipts.
The Mississippi Commission's regulations require, 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 twenty-five percent 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 would increase the infrastructure
development requirement from twenty-five to one hundred percent for new casinos
(or upon the acquisition of a closed casino), but would grandfather existing
licensees 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 both the local
jurisdiction and the Alcoholic Beverage Control Division (the "ABC") of the
Mississippi State Tax Commission. Fitzgeralds Tunica is in an area designated as
a special resort area, which allows Fitzgeralds Tunica to serve alcoholic
beverages on a 24-hour basis. The ABC requires that all equity owners and
certain managers file personal record forms and fingerprint forms for their
licensing process. In addition, owners of more than 5% of Barden Mississippi's
equity and Barden Mississippi's officers, members and certain 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 or to place
such a licensee on probation with or without conditions. Any such disciplinary
action could (and revocation would) have a material adverse effect on us and
Barden Mississippi's operations at Fitzgeralds Tunica.
COLORADO GAMING REGULATION
Colorado legalized limited gaming by constitutional amendment approved by
Colorado voters on November 6, 1990. The Colorado legislature thereafter enacted
the Limited Gaming Act of 1991 (the "Colorado Act") to implement the provisions
of the constitutional amendment, and limited gaming commenced in Colorado on
October 1, 1991. The Colorado Act authorizes limited gaming only in certain
designated commercial districts of Central City, 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.
Pursuant to the Colorado Act and the rules and regulations promulgated
thereunder (collectively, the "Colorado Gaming Regulations"), 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
129
general supervision of the Colorado Gaming Commission, is granted broad powers
to ensure compliance with the Colorado Act and the rules.
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 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 license renewal process requires
that the Colorado Division re-certifies to the Colorado Gaming Commission that
the licensee continues to operate in compliance with all statutes, rules and
regulations governing the conduct of casino gaming in Colorado and continues to
be of good moral character and fitness. 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.
On October 18, 2001, the Colorado Gaming Commission issued operators and
retailers licenses to Barden Colorado Gaming, LLC ("Barden Colorado"), the owner
and operator of Fitzgeralds Black Hawk. The operators license was effective as
of October 18, 2001. The retailers license became effective upon assumption of
control of Fitzgeralds Black Hawk by Barden Colorado on December 7, 2001. The
operators and retail gaming licenses were renewed by the Colorado Gaming
Commission in October 2002 and again on October 16, 2003 for a period of one
year.
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
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
130
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. 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
131
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 0.25% 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 Constitution of the State of Colorado, 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
tax rates were reaffirmed by the Colorado Gaming Commission on June 19, 2003.
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
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.
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").
We have filed applications with the Nevada Commission for approval of the
spin-off of Barden Nevada to BDI and for termination of the registrations of the
Company, Investor, and Majestic Investor Holdings with the Nevada Board. If and
when such approval is given and such terminations are granted, the Nevada
regulatory requirements described herein will no longer be applicable to the
Company and its subsidiaries.
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;
132
- 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.
The Company and Barden Nevada are required to be licensed by the Nevada
Gaming Authorities. The gaming licenses require the periodic payment of fees and
taxes and are not transferable. In addition, the Company has been registered by
the Nevada Commission as a "registered corporation" and found suitable to own
the stock of Barden Nevada. BDI, Investor and Majestic Investor Holdings also
have been registered with the Nevada Commission and found suitable to own the
stock of their direct wholly owned subsidiaries. Barden Nevada serves as the
Company's 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. The Company and Barden Nevada 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 the Company or Barden Nevada 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 must file applications with the Nevada
Gaming Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. Officers, directors and key employees of the Company
who are actively and directly involved in gaming activities of Barden Nevada may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any
cause which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director,
manager, member or key employee unsuitable for licensing or unsuitable to
continue having a relationship with the Company or Barden Nevada, the companies
involved would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company or Barden Nevada 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.
If the Nevada Commission determined that the Nevada Act was violated by the
Company or Barden Nevada, the registration or gaming licenses that the Company
or Barden Nevada holds could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Company, Barden Nevada 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 or the appointment of a supervisor could (and revocation of any gaming
license would) have a material adverse effect on the Company's gaming
operations.
The Company and Barden Nevada are required to periodically submit detailed
financial and operating reports to the Nevada Commission and furnish any other
information which the Nevada Commission may
133
require. Substantially all material loans, leases, sales of securities and
similar financing transactions by the Company and Barden Nevada must be reported
to or approved by the Nevada Commission. In addition, all "registered
corporations" would also be required to report to or receive approval by the
Nevada Commission for such similar financing transactions if such transactions
involve pledges of or restrictions or liens on such corporation's equity
securities.
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. Under certain circumstances, an
institutional investor that has obtained such a waiver may hold up to 19% of a
registered corporation's voting securities for a limited period of time and
maintain the waiver. 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.
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. The Company will be subject to disciplinary action if,
after it receives notice that a
134
person is unsuitable to be a securityholder or to have any other relationship
with the Company or Barden Nevada, it:
- pays that person any dividend, distribution or interest upon its voting
securities;
- allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person;
- pays remuneration in any form to that person for services rendered or
otherwise; or
- fails 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.
The Company and Barden Nevada 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. The Company is 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 the Company's security certificates to bear a legend indicating
that the securities are subject to the Nevada Act. To date, the Nevada
Commission has not imposed this requirement on the Company.
The Company 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.
If the spin-off has not occurred by the time of the exchange offer, either an
approval of the exchange offer by the Nevada Commission or a ruling by the
Chairman of the Nevada Board will be necessary before the exchange offer can be
consummated. In addition, the pledge of the equity securities of a registered
corporation or a corporate licensee is void without the prior approval of the
Nevada Commission, and restrictions upon the transfer of an equity security
issued by a registered corporation or a corporate licensee and agreements not to
encumber such securities (collectively, "Stock Restrictions") are ineffective
without the prior approval of the Nevada Commission. The pledges of the equity
securities of, and the Stock Restrictions contained in the indenture with
respect to the Company, Investor and Majestic Investor Holdings will not be
effective until either the spin-off has occurred and the registrations of the
Company, Investor and Majestic Investor Holdings have been terminated, or the
pledges and Stock Restrictions have been approved by the Nevada Commission.
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
135
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.
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.
Pursuant to new legislation signed into law by the Governor of Nevada in
July 2003, the license fees on the number of gaming devices operated was
increased effective immediately, the tax on gross revenues was increased
effective in August 2003, and the range of events covered by the casino
entertainment tax was expanded effective September 2003.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons, 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 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.
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 and table game winnings in which the
payout is a certain amount greater than the wager. 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
136
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 ("FinCEN")
of the Treasury Department and the gaming regulatory authorities in some of the
domestic jurisdictions in which we operate casinos, 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. On September 26, 2002 FinCEN implemented
the suspicious activity reporting rule. This new reporting obligation requires
casinos to report suspicious monetary transactions when the casino knows,
suspects, or has reason to suspect that the transaction involves funds derived
from illegal activity or is otherwise intended to facilitate illegal activity.
The new reporting obligations were effective in March 2003.
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.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes material 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."
137
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.
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.
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
138
"adjusted tax basis" in the note will generally equal the amount the holder paid
for the note, plus the amount of any original issue discount 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 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 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 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; or
- is a bank receiving interest describe in section 881(c)(3)(A) of the
Internal Revenue Code; or
- is receiving such interest payments as income effectively connected with
the conduct by the Non-U.S. Holder of a trade or business within the
United States.
If the portfolio interest exception does not apply, then payments of
interest 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.
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 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,
139
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
- 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
140
- 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 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.
141
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 Dykema Gossett, PLLC, Detroit, Michigan, and certain other
matters will be passed on for us by Ice Miller, Indianapolis, Indiana, Robinson,
Waters & O'Dorisio, P.C., Denver, Colorado, and Watkins Ludlam Winter & Stennis,
P.A., Jackson, Mississippi.
EXPERTS
The consolidated financial statements for The Majestic Star Casino, LLC as
of December 31, 2002 and 2001 and for each of the three years in the period
ended December 31, 2002 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 consolidated financial statements for Majestic Investor Holdings, LLC
as of December 31, 2002 and 2001 and for the year ended December 31, 2002 and
for the period from September 14, 2001 (inception) 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 of Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company
(collectively, the "Properties") as of December 6, 2001 and December 31, 2000
and for the period from January 1, 2001 through December 6, 2001 and the year
ended December 31, 2000 and the related financial statement schedule, 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 Properties' 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 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.
The financial statements of Buffington Harbor Riverboats, LLC as of
December 31, 2002 and for the year then ended included in this Registration
Statement and related Prospectus have been audited by Ernst &
142
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing. The financial
statements of Buffington Harbor Riverboats, LLC as of December 31, 2001 and for
each of the two years in the period ended December 31, 2001 included in the
Registration Statement and related Prospectus have been audited by Arthur
Andersen LLP, independent certified public accountants, as indicated in their
report, which is included herein. Arthur Andersen, which has ceased operations,
has not consented to the inclusion of their report in this prospectus, and we
have dispensed with the requirement to file their consent in reliance upon Rule
437a of the Securities Act. Under most circumstances a registrant must obtain
and file the consent of its accountants contemporaneously with the filing of any
registration statement that includes audited financial statements. By granting
such a consent, accounting firms become exposed to liability under Section 11(a)
of the Securities Act for any untrue statements of material fact in, or
omissions of material facts from, such registration statement. Investors who
bring a successful claim under Section 11(a) of the Securities Act are entitled
to recessionary damages. As a result of the criminal conviction against Arthur
Andersen in connection with Enron Corporation, and the volume of civil lawsuits
filed against it, Arthur Andersen may not have the ability to withstand
liability for prior audits.
143
THE MAJESTIC STAR CASINO, LLC
INDEX OF HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
-----
THE MAJESTIC STAR CASINO, LLC
Consolidated Balance Sheets as of September 30, 2003 and
December 31, 2002 (Unaudited)............................. F-3
Consolidated Statements of Operations for the three and nine
months ended September 30, 2003 and September 30, 2002
(Unaudited)............................................... F-4
Consolidated Statements of Changes in Member's Deficit for
the nine months ended September 30, 2003 (Unaudited) and
the year ended December 31, 2002.......................... F-5
Consolidated Statement of Cash Flows for the nine months
ended September 30, 2003 and September 30, 2002
(Unaudited)............................................... F-6
Notes to Consolidated Financial Statements (Unaudited)...... F-7
Report of Independent Accountants........................... F-37
Consolidated Balance Sheets as of December 31, 2002 and
2001...................................................... F-38
Consolidated Statements of Operations for the years ended
December 31, 2002, 2001 and 2000.......................... F-39
Consolidated Statements of Changes in Member's Deficit for
the years ended December 31, 2002, 2001 and 2000.......... F-40
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000.......................... F-41
Notes to Consolidated Financial Statements.................. F-42
Schedule II--Valuation and Qualifying Accounts.............. F-70
INDEX TO HISTORICAL COMBINED FINANCIAL STATEMENTS OF
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION) (WHOLLY OWNED SUBSIDIARIES OF
FITZGERALDS GAMING CORPORATION)(1)
Independent Auditors' Report................................ F-71
Combined Balance Sheets as of December 31, 2000 and December
6, 2001................................................... F-73
Combined Statements of Operations for the year ended
December 31, 2000 and for the period ended December 6,
2001...................................................... F-74
Combined Statements of Stockholder's Deficiency for the year
ended December 31, 2000 and for the period ended December
6, 2001................................................... F-75
Combined Statements of Cash Flows for the year ended
December 31, 2000 and for the period ended December 6,
2001...................................................... F-76
Notes to Combined Financial Statements...................... F-77
Supplemental Combining Schedules:
Combining Balance Sheet Information at December 31, 2000.... F-94
Combining Statement of Operations Information for the Year
Ended December 31, 2000................................... F-95
Combining Statement of Cash Flows Information for the Year
Ended December 31, 2000................................... F-96
Combining Balance Sheet Information at December 6, 2001..... F-97
Combining Statement of Operations Information for the Period
from January 1, 2001 through December 6, 2001............. F-98
Combining Statement of Cash Flows Information for the Period
from January 1, 2001 through December 6, 2001............. F-99
Schedule II--Valuation and Qualifying Accounts.............. F-100
</Table>
F-1
<Table>
<Caption>
PAGE
-----
MAJESTIC INVESTOR HOLDINGS, LLC(2)
Consolidated Balance Sheets as of September 30, 2003
(Unaudited) and December 31, 2002......................... F-101
Consolidated Statements of Operations for the three and nine
months ended September 30, 2003 and September 30, 2002
(Unaudited)............................................... F-102
Consolidated Statement of Cash Flows for the nine months
ended September 30, 2003 and September 30, 2002
(Unaudited)............................................... F-103
Notes to Consolidated Financial Statements (Unaudited)...... F-104
Report of Independent Accountants........................... F-120
Consolidated Balance Sheets as of December 31, 2002 and
December 31, 2001......................................... F-121
Consolidated Statements of Operations for the year ended
December 31, 2002 and for the period from (inception)
September 14, 2001 through December 31, 2001.............. F-122
Consolidated Statements of Changes in Members' Equity for
the year ended December 31, 2002 and for the Period from
(inception) September 14, 2001 through December 31,
2001...................................................... F-123
Consolidated Statements of Cash Flows for the year ended
December 31, 2002 and for the period from (inception)
September 14, 2001 through December 31, 2001.............. F-124
Notes to the Consolidated Financial Statements.............. F-125
Schedule II--Valuation and Qualifying Accounts.............. F-140
BUFFINGTON HARBOR RIVERBOATS, LLC(3)
Report of Independent Auditors.............................. F-141
Balance Sheet at December 31, 2002 and 2001................. F-143
Statement of Operations for the years ended December 31,
2002, 2001, and 2000...................................... F-144
Statement of Members' Capital for the years ended December
31, 2002, 2001, and 2000.................................. F-145
Statement of Cash Flows for the years ended December 31,
2002, 2001, and 2000...................................... F-146
Notes to Financial Statements............................... F-147
</Table>
- ---------------
(1) The Registrant completed the acquisition of the assets of three subsidiaries
of Fitzgeralds Gaming Corporation on December 6, 2001. In order to comply
with Rule 3-02 of Regulation S-X, the historical predecessor financial
statements for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc.
and 101 Main Street Limited Liability Company are included in this
Prospectus.
(2) The financial statements of Majestic Investor Holdings, LLC are included in
this prospectus in order to comply with Rule 3-16 of Regulation S-X.
(3) The financial statements of Buffington Harbor Riverboats, LLC are included
in this prospectus in order to comply with Rule 3-09 of Regulation S-X.
F-2
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 35,256,308 $ 24,547,881
Restricted cash........................................... 500,000 250,000
Accounts receivable, less allowance for doubtful accounts
of $275,715 and $372,689 as of September 30, 2003 and
December 31, 2002, respectively........................ 2,417,835 2,474,726
Inventories............................................... 1,014,069 982,486
Prepaid expenses.......................................... 3,428,876 2,881,931
Note receivable due from affiliate........................ 133,000 1,200,000
Due from Buffington Harbor Riverboats, L.L.C. ............ 10,210 217,925
Other..................................................... 40,835 39,133
------------ ------------
Total current assets................................... 42,801,133 32,594,082
------------ ------------
Property, equipment and improvements, net................... 164,204,351 164,809,158
Intangible assets, net...................................... 16,495,496 17,691,746
Goodwill.................................................... 5,922,398 5,922,398
Other assets:
Deferred financing costs, net of accumulated amortization
of $5,680,912 and $4,375,528 as of September 30, 2003
and December 31, 2002, respectively.................... 7,952,819 9,372,067
Investment in Buffington Harbor Riverboats, L.L.C. ....... 30,249,856 31,833,311
Restricted cash........................................... 1,000,000 1,000,000
Other assets.............................................. 12,003,738 12,587,112
------------ ------------
Total other assets..................................... 51,206,413 54,792,490
------------ ------------
Total Assets........................................... $280,629,791 $275,809,874
============ ============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt...................... $ 83,083 $ 134,084
Accounts payable.......................................... 4,235,507 4,048,298
Payroll and related....................................... 6,826,748 7,656,515
Accrued interest.......................................... 9,429,617 1,473,785
Progressive jackpots...................................... 3,016,425 3,189,626
Slot club liability....................................... 863,428 738,559
Other accrued liabilities................................. 9,831,468 8,217,284
------------ ------------
Total current liabilities.............................. 34,286,276 25,458,151
Long-term debt, net of current maturities................... 275,656,816 274,526,285
------------ ------------
Total Liabilities...................................... 309,943,092 299,984,436
Member's Deficit............................................ (29,313,301) (24,174,562)
------------ ------------
Total Liabilities and Member's Deficit................. $280,629,791 $275,809,874
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
REVENUES
Casino............................... $73,533,644 $77,690,257 $221,441,790 $223,250,546
Rooms................................ 3,862,888 3,809,375 11,246,586 11,836,761
Food and beverage.................... 5,442,416 5,085,627 15,793,688 15,366,719
Other................................ 1,393,937 1,528,812 4,227,362 4,339,996
----------- ----------- ------------ ------------
Gross revenues.................... 84,232,885 88,114,071 252,709,426 254,794,022
Less promotional allowances....... 5,912,920 6,004,134 17,713,987 18,288,896
----------- ----------- ------------ ------------
Net revenues...................... 78,319,965 82,109,937 234,995,439 236,505,126
COSTS AND EXPENSES
Casino............................... 25,720,885 27,342,336 75,825,525 77,777,767
Rooms................................ 1,695,808 1,717,113 4,882,991 4,975,786
Food and beverage.................... 2,900,274 3,045,376 8,766,212 9,092,646
Other................................ 533,985 396,134 1,354,042 1,171,389
Gaming taxes......................... 14,251,966 13,908,520 44,455,113 40,933,960
Advertising and promotion............ 5,146,714 5,016,181 14,893,547 14,890,180
General and administrative........... 14,568,782 14,063,447 40,414,282 39,328,827
Economic Incentive -- City of Gary... 1,035,573 1,072,350 3,106,984 2,959,492
Depreciation and amortization........ 5,202,561 5,555,344 15,372,567 15,791,284
Loss on investment in Buffington
Harbor Riverboats, L.L.C. ........ 594,718 600,301 1,794,608 1,806,379
Pre-opening expenses................. -- -- -- 124,269
----------- ----------- ------------ ------------
Total costs and expenses.......... 71,651,266 72,717,102 210,865,871 208,851,979
----------- ----------- ------------ ------------
Operating income.................. 6,668,699 9,392,835 24,129,568 27,653,147
----------- ----------- ------------ ------------
OTHER INCOME (EXPENSE)
Interest income...................... 18,758 57,212 82,995 135,182
Interest expense..................... (7,961,386) (8,071,962) (23,885,360) (24,356,423)
Loss on sale of assets............... (4,671) (9,889) (105,629) (461)
Other expense........................ (47,348) (49,524) (141,802) (141,815)
----------- ----------- ------------ ------------
Total other expense............... (7,994,647) (8,074,163) (24,049,796) (24,363,517)
----------- ----------- ------------ ------------
Net income (loss)................. (1,325,948) 1,318,672 79,772 3,289,630
=========== =========== ============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S DEFICIT
<Table>
<Caption>
MEMBER'S DEFICIT
----------------
BALANCE, DECEMBER 31, 2001.................................. $(19,981,487)
Net income.................................................. 1,315,754
Distribution to Barden Development, Inc. ................... (5,508,829)
------------
BALANCE, DECEMBER 31, 2002.................................. (24,174,562)
Net income (unaudited)...................................... 79,772
Distribution to Barden Development, Inc. (unaudited)........ (4,658,705)
Appreciated value of land purchased from a related party
(unaudited)............................................... (559,806)
------------
BALANCE, SEPTEMBER 30, 2003 (UNAUDITED)..................... $(29,313,301)
============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<Table>
<Caption>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 79,772 $ 3,289,630
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 11,357,249 11,491,390
Amortization.............................................. 4,015,318 4,299,894
Loss on investment in Buffington Harbor Riverboats,
L.L.C................................................... 1,794,608 1,806,379
Loss on sale of assets.................................... 105,629 461
Changes in operating assets and liabilities:
Decrease in accounts receivable........................... 56,891 200,668
(Increase) decrease in inventories........................ (31,583) 137,208
Increase in prepaid expenses.............................. (339,230) (1,241,104)
Decrease in other assets.................................. 473,180 869,913
Increase (decrease) in accounts payable................... 187,209 (536,664)
Decrease in accrued payroll and related expenses.......... (829,767) (872,124)
Increase in accrued interest.............................. 7,955,832 1,171,011
Increase in other accrued liabilities..................... 1,565,844 1,573,976
------------ ------------
Net cash provided by operating activities............... 26,390,952 22,190,638
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition related costs................................. -- (986,158)
Increase in restricted cash............................... (250,000) --
Proceeds from seller for purchase price adjustment........ -- 3,800,000
Acquisition of property and equipment..................... (10,914,305) (8,194,614)
Appreciated value of land purchased from a related
party................................................... (559,806) --
Decrease in prepaid leases and deposits................... 108,500 428,005
Investment in Buffington Harbor Riverboats, L.L.C......... (211,138) (40,455)
Proceeds from sale of equipment........................... 56,219 52,717
------------ ------------
Net cash used in investing activities................... (11,770,530) (4,940,505)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance cost for the 11.653% senior secured notes........ -- (1,410,945)
Issuance cost for the 9 1/2% senior secured notes......... (206,276) --
Proceeds from line of credit.............................. -- 2,500,000
Repayment of line of credit............................... -- (9,000,000)
Proceeds from notes receivable affiliates................. 1,067,000 --
Repayment of long-term debt............................... (114,014) (104,808)
Distribution to Barden Development, Inc................... (4,658,705) (2,820,358)
------------ ------------
Net cash used in financing activities................... (3,911,995) (10,836,111)
------------ ------------
Net increase in cash and cash equivalents................... 10,708,427 6,414,022
Cash and cash equivalents, beginning of period.............. 24,547,881 25,925,291
------------ ------------
Cash and cash equivalents, end of period.................... $ 35,256,308 $ 32,339,313
============ ============
INTEREST PAID:
Equipment Debt............................................ $ 12,154 $ 38,510
Senior Secured Notes Fixed Interest 10 7/8%............... 7,068,750 14,137,500
Senior Secured Notes Fixed Interest 11.653%............... 8,842,704 8,707,126
Lines of credit........................................... 662 301,649
------------ ------------
$ 15,924,270 $ 23,184,785
============ ============
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Elimination of slot based progressive..................... $ -- $ 400,000
Elimination of slot club.................................. -- 1,300,000
------------ ------------
$ -- $ 1,700,000
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ORGANIZATION
The Majestic Star Casino, LLC and its direct and indirect subsidiaries is a
multi-jurisdictional gaming company that directly owns and operates one
riverboat gaming facility located in Gary, Indiana (the "Majestic Star Casino")
and through its wholly owned subsidiary, Majestic Investor Holdings, LLC
("Majestic Investor Holdings" or "Investor Holdings") owns three
Fitzgeralds-brand casino-hotels located in Tunica County, Mississippi
("Fitzgeralds Tunica"), Black Hawk, Colorado (casino only) ("Fitzgeralds Black
Hawk"), and Las Vegas, Nevada ("Fitzgeralds Las Vegas").
The Majestic Star Casino Capital Corp., a wholly owned subsidiary of the
The Majestic Star Casino, LLC, was originally formed for the purpose of
facilitating The Majestic Star Casino, LLC's $130 million 10 7/8% Senior Secured
Notes due 2006 (the "10 7/8% Senior Secured Notes") and Majestic Investor
Capital Corp., a wholly-owned subsidiary of Majestic Investor Holdings, was
formed specifically to facilitate the offering of the Majestic Investor
Holding's $152.6 million 11.653% Senior Secured Notes due 2007 (the "11.653%
Senior Secured Notes"). Both The Majestic Star Casino Capital Corp. and Majestic
Investor Capital Corp. do not have any assets or operations. All of the 10 7/8%
Senior Secured Notes and $135.5 million of the 11.653% Senior Secured Notes have
been redeemed or retired. Please see our discussion below and in Note 7 to the
Notes to Consolidated Financial Statements (Unaudited) for more information
about the issuance of the 9 1/2% Senior Secured Notes and the establishment of
the $80.0 million Credit Facility.
Except where otherwise noted, the words "we," "us," "our" and similar
terms, as well as the "Company" refer to The Majestic Star Casino, LLC and all
of its direct and indirect subsidiaries.
On August 26, 2003, The Majestic Star Casino, LLC and Majestic Investor
Holdings, commenced cash tender offers and consent solicitations for Majestic
Star's 10 7/8% Senior Secured Notes and Majestic Investor Holdings' 11.653%
Senior Secured Notes, respectively, in connection with a refinancing transaction
of such notes. On October 7, 2003, The Majestic Star Casino, LLC and its
restricted subsidiary, The Majestic Star Casino Capital Corp., issued $260.0
million of 9 1/2% Senior Secured Notes due 2010 (the "9 1/2% Senior Secured
Notes") and entered into a new $80.0 million credit facility (the "$80 million
Credit Facility") with Wells Fargo Foothill, Inc. The proceeds from the issuance
of the 9 1/2% Senior Secured Notes and approximately $28.0 million of the $80
million Credit Facility were used to retire all of the 10 7/8% Senior Secured
Notes and substantially all of the 11.653% Senior Secured Notes. As part of the
refinancing, the operating subsidiaries of Fitzgeralds Tunica and Fitzgeralds
Black Hawk are guarantors under both the 9 1/2% Senior Secured Notes and the $80
million Credit Facility; however, the operating subsidiary of Fitzgeralds Las
Vegas is now an unrestricted subsidiary of The Majestic Star Casino, LLC. It is
anticipated that Fitzgeralds Las Vegas will be spun out to Barden Development,
Inc. ("BDI") promptly after Majestic Investor Holdings, the direct owner of
Fitzgeralds Las Vegas, and BDI receive approval from the Nevada Gaming Control
Board and the Nevada Gaming Commission. Approval is anticipated to occur in
December 2003. Please see Note 7 to the Notes to Consolidated Financial
Statements (Unaudited) for more information about the issuance of the 9 1/2%
Senior Secured Notes and the establishment of the $80.0 million Credit Facility.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited. All
inter-company transactions and balances have been eliminated. Investments in
affiliates in which the Company has the ability to exercise significant
influence, but not control, are accounted for by the equity method. These
financial statements have been prepared in accordance with accounting principals
generally accepted in the United States of America, or "GAAP" and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted. The preparation
of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the
F-7
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 2. BASIS OF PRESENTATION--(CONTINUED)
reported amounts of revenues and expenses during the reporting period.
Significant estimates incorporated into our consolidated financial statements
include the estimated useful lives of depreciable and amortizable assets, the
estimated allowance for doubtful accounts receivable, estimated cash flow in
assessing the recoverability of long lived assets, estimated liabilities for our
self insured medical plan, slot club point programs and litigation, claims and
assessments. Actual results could differ from those estimates.
Our consolidated financial statements include the results of the operating
subsidiary of Fitzgeralds Las Vegas. See Note 11 to the Notes to Consolidated
Financial Statements (Unaudited) for consolidating information. It is
anticipated that Fitzgeralds Las Vegas will be spun out to BDI promptly after
Majestic Investor Holdings, the direct owner of the operating subsidiary of
Fitzgeralds Las Vegas, and BDI receive approval from the Nevada Gaming Control
Board and the Nevada Gaming Commission to effect such transaction. Such
regulatory approval is not within the Company's control.
In the opinion of management, all adjustments (which include normal
recurring adjustments) considered necessary for a fair presentation of the
results for the interim periods have been made. The results for the three and
nine months ended September 30, 2003 are not necessarily indicative of results
to be expected for the full fiscal year. The financial statements should be read
in conjunction with the financial statements and notes thereto included in The
Majestic Star Casino, LLC's and Majestic Investor Holdings' Annual Reports on
Form 10-K for the year ended December 31, 2002.
The consolidated financial statements and footnotes for the prior year
reflect certain reclassifications to conform to the current year presentation.
Included in such reclassifications is an increase in net revenues (and a
corresponding increase in operating expenses) of approximately $14.0 million for
the nine month period ended September 30, 2002, to classify the cost of certain
promotional expenses consistently with the 2003 presentation. Such
reclassifications have no effect on previously reported net income.
NOTE 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board issued statement
145 ("SFAS 145"). SFAS 145 addresses the presentation for gains and losses on
early retirements of debt in the statement of operations. SFAS 145 is effective
for fiscal years beginning after May 15, 2002. The Company adopted SFAS 145 and
as a result, reclassified $69,000 in a gain from the early extinguishment of
debt, which item had previously been reported as an extraordinary item in the
fourth quarter of 2002. In the fourth quarter of 2003, the Company also expects
to recognize a loss on the retirement of debt of $32.0 million on October 7,
2003. The loss on the retirement of debt is comprised of the premium on the
offers to purchase, the write-off of the deferred debt issuance costs and the
original issue discount on the 10 7/8% Senior Secured Notes and the 11.653%
Senior Secured Notes, which amounts will be reflected in the computation of net
income for the year ended December 31, 2003.
In June 2002, the Financial Accounting Standard Board issued Statement 146
("SFAS 146") "Accounting for Costs Associated with Exit or Disposal Activities."
The provisions of SFAS 146 became effective for exit or disposal activities
commenced subsequent to December 31, 2002. Adoption of SFAS 146 did not have any
material impact on the Company's financial position, results of operations or
cash flows.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Guarantees of Indebtedness of Others."
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees
that it has issued. It also clarifies (for guarantees issued after January 1,
2003) that a guarantor is required to recognize at the inception of a guarantee,
a liability for the fair value of the obligations undertaken in issuing the
guarantee. At September 30, 2003, the Company did not have any guarantees
outside of its consolidated group. Adoption of FIN 45 did not have a material
impact on the Company's financial condition, results of operations or cash
flows.
F-8
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--(CONTINUED)
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
FIN 46 addresses the requirements for business enterprises to consolidate
related entities in which they are determined to be the primary economic
beneficiary as a result of their variable economic interests. FIN 46 is intended
to provide guidance in judging multiple economic interests in an entity and in
determining the primary beneficiary. FIN 46 outlines disclosure requirements for
Variable Interest Entities ("VIEs") in existence prior to January 31, 2003, and
outlines consolidation requirements for VIEs created after January 31, 2003. The
Company has reviewed its major relationships and its overall economic interests
with other companies consisting of related parties, companies in which it has an
equity position and other suppliers to determine the extent of its variable
economic interest in these parties. Adoption of FIN 46 did not have a material
impact on the Company's financial condition, results of operations or cash
flows.
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149 ("SFAS 149") "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." Provisions of SFAS 149 became
effective for contracts and hedging relationships entered into or modified after
June 30, 2003. Adoption of SFAS 149 did not have any material impact on our
financial position, results of operations or cash flows as the Company has not
entered into or modified any agreements that contain derivative instrument or
involve hedging activities.
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 ("SFAS 150") "Accounting for Certain
Financial Instruments with Characteristic of both Liabilities and Equity." The
Company is considered a non-public entity, as defined by SFAS 150 because its
equity securities are not listed on a public exchange. Accordingly, for the
Company, the provisions of SFAS 150 will become effective during the quarter
ending March 31, 2004. The Company does not anticipate the adoption of SFAS 150
would have a material impact on our financial position, results of operations or
cash flows.
NOTE 4. RESTRICTED CASH
As of September 30, 2003 and December 31, 2002, restricted cash of $1.0
million represents U.S. Treasury Notes held in an escrow account for the benefit
of certain owners of land leased to Fitzgeralds Las Vegas. As of December 31,
2002, restricted cash of $250,000 represents a letter of credit for self-insured
workers compensation at Fitzgeralds Tunica and Fitzgeralds Black Hawk. As of
September 30, 2003 the restricted cash balance relating to the self-insured
workers compensation increased to $500,000. The increase occurred during the
first quarter of 2003, when Fitzgeralds Las Vegas was added to the self-insured
workers compensation program.
NOTE 5. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C. ("BHR")
In October 1995, The Majestic Star Casino, LLC and Trump Indiana, Inc.
("Trump") entered into the First Amended and Restated Operating Agreement of BHR
for the purpose of acquiring and developing certain facilities for the gaming
operations in Gary ("BHR Property"). BHR is responsible for the management,
development and operation of the BHR Property. The Majestic Star Casino, LLC and
Trump have each entered into a berthing agreement with BHR to use BHR Property
for their respective gaming operations and have committed to pay cash operating
losses of BHR as additional berthing fees. The Majestic Star Casino, LLC and
Trump share equally in the operating expenses relating to the BHR Property,
except for costs associated with food and beverage, and valet operations, which
are allocated on a percentage of use by the casino customers of the Majestic
Star Casino and Trump.
F-9
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 5. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C.
("BHR")--(CONTINUED)
Majestic Star Casino paid $1.5 million and $4.1 million, in berthing fees
for the three and nine months ended September 30, 2003, respectively, compared
to $1.4 million and $4.4 million for the three and nine months ended September
30, 2002, respectively. Such amounts are recorded in general and administrative
expense in the consolidated statements of operations. In addition, Majestic Star
Casino paid $160,000 and $524,000, for costs associated with food and beverage
for the three and nine months ended September 30, 2003, respectively, compared
to $303,000 and $757,000, for costs associated with food and beverage for the
three and nine month ended September 30, 2002, respectively. Such amounts are
recorded in casino expenses in Majestic Star Casino's statements of operations.
After Majestic Star Casino and Trump reimburse BHR for all cash operational
losses, the remaining net loss of BHR results from depreciation expense
associated with the BHR property. Majestic Star Casino reclassified its
allocated portion of BHR's net loss into loss on investment in Buffington Harbor
Riverboats, LLC. Previously, such amounts were recorded within depreciation
expense in Majestic Star Casino's statements of operations. The allocated net
loss recorded for the three and nine months ended September 30, 2003 is $595,000
and $1,795,000, respectively, compared to $600,000 and $1,806,000, respectively,
for the three and nine months ended September 30, 2002.
The following represents selected financial information of BHR:
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
BALANCE SHEET
Cash....................................................... $ 41,940 $ 50,505
Current assets............................................. 319,413 441,535
Property, plant and equipment, net......................... 62,321,451 65,616,042
Other assets............................................... 102,786 108,414
Total assets............................................... 62,743,650 66,165,991
Current liabilities........................................ 2,243,970 2,499,369
Total liabilities.......................................... 2,243,970 2,499,369
Member's equity The Majestic Star Casino, LLC.............. 30,249,856 31,833,311
Total member's equity...................................... 60,499,680 63,666,622
</Table>
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
2003 2002 2003 2002
------------ ------------ ----------- -----------
STATEMENTS OF INCOME
Gross revenue........................ 3,560,390 3,950,506 10,276,367 11,873,207
Operating loss....................... (1,190,873) (1,172,958) (3,585,832) (3,576,074)
Net loss............................. (1,189,436) (1,200,601) (3,589,216) (3,612,758)
</Table>
NOTE 6. INTANGIBLE ASSETS
Intangible assets primarily include $9.8 million for customer
relationships, $3.7 million for trade name and $5.2 million for a gaming
license. Intangible assets for customer relationships and trade names are being
amortized over a period of 8-10 years. The gaming license is not amortized but
instead is subject to impairment testing at least annually.
F-10
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 6. INTANGIBLE ASSETS--(CONTINUED)
The gross carrying amount and accumulated amortization of the intangible
assets, other than goodwill, as of September 30, 2003, are as follows:
<Table>
<Caption>
GROSS CARRYING ACCUMULATED NET AMOUNT
AMOUNT AMORTIZATION SEPTEMBER 30, 2003
-------------- ------------ ------------------
(IN THOUSANDS)
Amortized intangible assets:
Customer relationship.................... $ 9,800 $(2,359) $ 7,441
Tradename................................ 3,700 (546) 3,154
Riverboat excursion license.............. 700 -- 700
------- ------- -------
14,200 (2,905) 11,295
Unamortized intangible assets:
Gaming license........................... 5,200 -- 5,200
------- ------- -------
Total intangible assets.................... $19,400 $(2,905) $16,495
======= ======= =======
</Table>
The amortization expense recorded on the intangible assets for both the
three and nine months ended September 30, 2003 and 2002 were $0.4 million and
$1.2 million, respectively.
NOTE 7. LONG-TERM DEBT
Refinancing of Debt
On August 26, 2003, The Majestic Star Casino, LLC commenced a cash tender
offer and consent solicitation at a price of 105.438% for its 10 7/8% Senior
Secured Notes. The solicitation of consents sought approval for amendments to
the Indenture governing the 10 7/8% Senior Secured Notes (the "Majestic
Indenture") in order to (i) eliminate substantially all restrictive covenants
and (ii) to release the liens on the collateral that secured the 10 7/8% Senior
Secured Notes. Upon expiration of the consent solicitation on September 25,
2003, $74,639,000 or 57.4% of the aggregate outstanding principal amount of the
10 7/8% Senior Secured Notes had been tendered. The Majestic Star Casino, LLC
funded the payment of the tendered 10 7/8% Senior Secured Notes, along with
accrued and unpaid interest, from the proceeds of the issuance of the 9 1/2%
Senior Secured Notes, which closed on October 7, 2003. Also, on October 7, 2003,
The Majestic Star Casino, LLC called the remaining $55,361,000 outstanding
principal amount of the 10 7/8% Senior Secured Notes which were redeemed on
November 6, 2003 at a price of 105.438%, plus accrued and unpaid interest.
Also, on August 26, 2003, Majestic Investor Holdings commenced a cash
tender offer and consent solicitation at a price of 109.0% for its 11.653%
Senior Secured Notes. The solicitation of consents sought approval for
amendments to the Indenture governing the 11.653% Senior Secured Notes (the
"Majestic Investor Holdings Indenture") in order to (i) eliminate substantially
all restrictive covenants, (ii) to terminate the guarantees of the restricted
subsidiaries of Majestic Investor Holdings and (iii) to release the liens on the
collateral that secured the 11.653% Senior Secured Notes. Upon expiration of the
consent solicitation on September 25, 2003, $135,477,000 or 89.3% of the
aggregate outstanding principal amount of the 11.653% Senior Secured Notes had
been tendered. The Company funded the payment of the tendered 11.653% Senior
Secured Notes, along with accrued and unpaid interest, from the proceeds of the
issuance of the 9 1/2% Senior Secured Notes, which closed on October 7, 2003.
After the expiration of the offer and consent solicitation related to the
11.653% Senior Secured Notes, Majestic Investor Holdings has $16.3 million in
11.653% Senior Secured Notes still outstanding.
Upon the closing of the 9 1/2% Senior Secured Notes, the Company used
$153.2 million to retire 89.3% of its 11.653% Senior Secured Notes, along with
accrued and unpaid interest, $80.9 million to redeem 57.4% of
F-11
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 7. LONG-TERM DEBT--(CONTINUED)
its 10 7/8% Senior Secured Notes, along with accrued and unpaid interest. $4.2
million was used for expenses related to the 9 1/2% Senior Secured Notes
offering as well as expenses related to the establishment of a new $80 million
Credit Facility. $21.7 million from the 9 1/2% Senior Secured Notes plus $28.0
million from the $80 million Credit Facility, along with the Company's cash were
used to redeem the remaining 10 7/8% Senior Secured Notes on November 6, 2003.
The Company recognized a loss on the retirement of debt of $32.0 million on
October 7, 2003. The loss on the retirement is comprised of premiums on the
offers to purchase, the write-off of deferred issuance costs and the write-off
of original issuance discount on the 10 7/8% Senior Secured Notes and 11.653%
Senior Secured Notes, which amounts will be reflected in the computation of net
income for the fourth quarter and for the year ended December 31, 2003.
The 9 1/2% Senior Secured Notes bear interest at a fixed annual rate of
9.5% payable on April 15 and October 15 of each year, commencing April 15, 2004.
The 9 1/2% Senior Secured Notes will mature on October 15, 2010. The 9 1/2%
Senior Secured Notes are secured by a pledge of substantially all of the
Company's current and future assets, other than the assets of Fitzgeralds Las
Vegas (which has become an unrestricted subsidiary of The Majestic Star Casino,
LLC). It is anticipated that Fitzgeralds Las Vegas will be spun out to BDI
promptly after Majestic Investor Holdings, the direct owner of the operating
subsidiary of Fitzgeralds Las Vegas, and BDI receive approval from the Nevada
Gaming Commission and the Nevada Gaming Control Board to effect such
transaction. Approval is anticipated to occur in December 2003.
Upon a Change of Control as defined in the Indenture governing the 9 1/2%
Senior Secured Notes (the "9 1/2% Indenture"), the Company will be required to
offer to repurchase all of the outstanding 9 1/2% Senior Secured Notes at a cash
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, to the date of repurchase.
The 9 1/2% Indenture contains covenants which, among other things,
restricts the Company's ability to (i) make certain payments to, or investments
in, third parties; (ii) incur additional indebtedness or liens on any assets;
(iii) enter into transactions with affiliates; and (iv) sell any restricted
subsidiaries' assets.
Concurrently with the closing of the 9 1/2% Senior Secured Notes, the
Company established the $80 million Credit Facility with Wells Fargo Foothill,
Inc., and terminated the two existing credit facilities with Wells Fargo
Foothill, Inc. Subject to certain exceptions, the $80 million Credit Facility is
secured by a first priority lien on substantially all of the assets of the
Company except the assets of Fitzgeralds Las Vegas. Borrowings under the $80
million Credit Facility bear interest at the Company's choice of LIBOR plus a
range of 3.00% to 3.50% or Wells Fargo Foothill, Inc.'s base rate plus a range
of 0.25% to 0.75%. The range is based on the Company's EBITDA (as defined in the
loan and security agreement) and losses that occur from the early retirement of
debt during the three-month period ended December 31, 2003. The Wells Fargo
Foothill, Inc. base rate approximates the prime rate. Full payment of any
outstanding balance under the $80 million Credit Facility is due upon
termination of the agreement in October 2007. The credit agreement includes
covenants, which among other things, (i) require the Company to maintain, as
defined in the covenants, minimum EBITDA and Interest Coverage Ratios, which
increase periodically, (ii) restrict the Company's ability to incur, assume, or
guarantee any indebtedness, and (iii) restrict the Company's ability to transfer
or sell assets, including the equity interest of the restricted subsidiaries.
Intercreditor Agreements
In connection with the Company entering into the $80 million Credit
Facility, the trustee under the 9 1/2% Indenture (as collateral agent) entered
into an intercreditor agreement with Wells Fargo Foothill, Inc., the agent under
the $80 million Credit Facility. The intercreditor agreement provides for the
contractual subordination of the liens on the collateral securing the 9 1/2%
Senior Secured Notes (and the related guarantees) to the liens on the collateral
securing the indebtedness under the $80 million Credit Facility.
F-12
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 7. LONG-TERM DEBT--(CONTINUED)
The intercreditor agreement, among other things, limits the trustee's
rights in an event of default under the 9 1/2% Senior Secured Notes. Under the
intercreditor agreement, if the 9 1/2% 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 there is indebtedness outstanding under the $80
million Credit Facility, the trustee will not have the right to foreclose upon
the collateral unless and until the lenders under the $80 million Credit
Facility fail to take steps to exercise remedies with respect to or in
connection with the collateral within up to 190 days following notice to such
lenders of the occurrence of an event of default under the 9 1/2% Indenture. In
addition, the intercreditor agreement prevents the trustee and the holders of
the 9 1/2% Senior Secured Notes from pursuing certain remedies with respect to
the collateral in an insolvency proceeding. The intercreditor agreement also
provides that the net proceeds from the sale of the collateral will first be
applied to repay indebtedness outstanding under the $80 million Credit Facility
and thereafter to the holders of the 9 1/2% Senior Secured Notes.
Old Majestic Star and Majestic Investor Holdings Notes
At September 30, 2003, The Majestic Star Casino, LLC, had debt outstanding
of $129.1 million, net of unamortized discount of $878,000, compared to debt of
$128.9 million, net of unamortized discount of $1.1 million at December 31,
2002. The 10 7/8% Senior Secured Notes bore interest at a fixed rate of 10 7/8%
per annum payable January 1 and July 1 each year. Also, at September 30, 2003,
Majestic Investor Holdings, had debt outstanding of $146.5 million, net of
unamortized discount of $5.3 million compared to debt of $145.5 million, net of
unamortized discount of $6.3 million at December 31, 2002. The 11.653% Senior
Secured Notes bear interest at a fixed rate of 11.653% per annum payable May 31
and November 30 each year. Fitzgeralds Las Vegas had debt of $135,000 for a
capital lease. For the nine month period ended September 30, 2003 and September
30, 2002, the Company had interest expense of $23.9 million and $24.4 million,
respectively.
In 2002, Majestic Investor Holdings was required to pay liquidated damages
related to the unregistered 11.653% Senior Secured Notes. Majestic Investor
Holdings entered into a registration rights agreement that required Majestic
Investor Holdings to file a registration statement with the Securities and
Exchange Commission to exchange its unregistered 11.653% Senior Secured Notes
with registered 11.653% Senior Secured Notes and that required such registration
statement to be declared effective prior to a specified date. There were delays
in filing the registration statement and such registration statement was not
declared effective by such specified date, which caused Majestic Investor
Holdings to pay liquidated damages of $176,000 during 2002. The registration
statement for the 11.653% Senior Secured Notes was declared effective on August
8, 2002.
During the fourth quarter 2002, Majestic Investor Holdings purchased for
$759,000, plus accrued interest, its 11.653% Senior Secured Notes with a face
value of $865,000. The notes, net of unamortized original issue discount, were
being carried at a value of $828,000; the resulting gain was $69,000.
Old Credit Facilities
At September 30, 2003, The Majestic Star Casino, LLC had a $20.0 million
credit facility (the "Majestic Credit Facility") and Majestic Investor Holdings
had a $15.0 million credit facility (the "Majestic Investor Holdings Credit
Facility"). These credit facilities were replaced with the $80 million Credit
Facility. There were no borrowings on the Majestic Credit Facility or the
Majestic Investor Holdings Credit Facility as of September 30, 2003 and December
31, 2002.
F-13
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, comprised primarily of personal injury
and equal employment opportunity (EEO) claims, to be routine litigation
incidental to the Company's business. Management believes that the resolution of
these proceedings will not individually or in the aggregate, have a material
effect on the Company's financial condition, results of operations or cash
flows.
On May 11 and 12, 2000, the Company was issued notices of proposed
assessment by the Indiana Department of Revenue for income tax withholding
deficiencies for the years ended December 31, 1996 and 1998. The Indiana
Department of Revenue has taken the position that Indiana gross wagering tax
must be added back to the Company's income for the purpose of determining the
Indiana adjusted gross income tax on the Company's non-resident member, and that
the Company had the duty to withhold and remit adjusted gross income tax payable
by its non-resident member. The tax deficiency assessed for 1996 and 1998 totals
$553,744, plus accrued interest. On February 10, 2003, the Company was issued
notices of proposed assessment by the Indiana Department of Revenue for income
tax withholding deficiencies for the years ended December 31, 1999, 2000 and
2001, concerning the same issue. The tax deficiency assessed for 1999-2001
totals $2,012,397 plus accrued interest. The Company has filed administrative
protests and demands for hearing with the Department of Revenue to protect its
rights with respect to all tax years. However, it is too early to determine the
outcome of these contested tax assessments.
Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana are
subject to strict state regulation under the Riverboat Gambling Act ("the Act")
and the administrative rules promulgated thereunder. The Indiana Gaming
Commission ("IGC") is empowered to administer, regulate and enforce the system
of riverboat gaming established under the Act and has jurisdiction and
supervision over all riverboat gaming operations in Indiana, as well as all
persons on riverboats where gaming operations are conducted. The IGC is
empowered to regulate a wide variety of gaming and non-gaming related
activities, including the licensing of supplies to, and employees at, riverboat
gaming operations and to approve the form of entity qualifiers and intermediary
and holding companies. The IGC has broad rulemaking power, and it is impossible
to predict what effect, if any, the amendment of existing rules or the
finalization of proposed rules might have on the Company's operations.
A change in the Indiana state law governing gaming took effect on July 1,
2002. The new law enables Indiana's riverboat casinos to operate dockside. The
IGC approved Majestic Star's flexible boarding plan that allows the continuous
ingress and egress of patrons for the purpose of gambling while the riverboat is
docked. The plan went into effect on August 5, 2002 and imposes a graduated
wagering tax based upon adjusted gross receipts. As discussed below in
"Retroactive Dockside Tax," the graduated wagering tax has a starting rate of
15% with a top rate of 35% for adjusted gross receipts in excess of $150
million. For the period July 1 through August 4, 2002, the wagering tax was
raised by statute to 22.5% of adjusted gross receipts, but, as discussed below
in "Retroactive Dockside Tax," has been recently modified. Prior to July 1,
2002, Indiana gaming taxes were levied on adjusted gross receipts, as defined by
Indiana gaming laws, at the rate of 20%. In addition to the wagering tax, an
admissions tax of $3 per turnstile count is assessed. Prior to August 5, 2002,
Indiana imposed an admissions tax of $3 per patron turnstile count at every
boarding time plus the count of the patrons that stayed over on the vessel from
a previous boarding time period.
Effective July 1, 2003, a licensed riverboat owner who implements flexible
scheduling can conduct gambling operations for up to 24 hours per day upon
receiving IGC approval. Under prior IGC rules, riverboat casinos were required
to close for three hours daily. The Majestic Star Casino's plan for 24-Hour
Dockside
F-14
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Gaming was submitted to the IGC and approved. The Majestic Star Casino began
operating on 24-hour basis on July 11, 2003.
In June 2003, the Indiana legislature clarified the start date of the
graduated wagering tax structure associated with the implementation of dockside
gaming. Previously, the start date for the computation of cumulative adjusted
gross receipts from gaming revenues ("AGR") under the graduated tax structure
was August 1, 2002 for seven riverboat casinos that implemented dockside gaming
with flexible scheduling on that date; and August 5, 2002, for three riverboat
casinos that implemented dockside gaming with flexible scheduling on that date.
The Indiana legislature's recent clarification requires riverboat casinos to
begin recognizing gaming tax liabilities for cumulative AGR under the graduated
tax structure starting on July 1, 2002 if they implemented dockside gaming at
any point in time. In addition, the State of Indiana's position is that no
credit be provided for taxes previously paid for the period July 1, 2002 through
July 31, 2002 for seven riverboat casinos and July 1, 2002 through August 4,
2002 for three riverboat casinos. For these periods, the statutory tax on AGR
was 22.5%. As a result of the "Retroactive Dockside Tax," the Indiana Department
of Revenue has assessed an additional $2,072,000 of gaming taxes due from the
Majestic Star Casino. The Majestic Star Casino has taken a charge in the three
month period ended June 30, 2003 for this assessment. The $2,072,000 assessment
is required to be paid in two equal installments on July 1, 2003 and July 1,
2004. All penalties and interest due from Majestic Star Casino on the
"Retroactive Dockside Tax" assessments are waived as long as Majestic Star
Casino pays 50% of their applicable assessments on July 1, 2003 and July 1,
2004. The Majestic Star Casino paid 50% of the $2,072,000 assessment to Indiana
Department of Revenue on July 1, 2003.
The ownership and operation of our casino gaming facilities in Nevada,
Mississippi and Colorado are also 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.
Pursuant to new legislation signed into law by the Governor of Nevada on July
23, 2003, the license fees on the number of gaming devices operated has been
increased effective immediately, increased taxes on gross revenues became
effective on August 1, 2003, and the expanded range of events covered by the
casino entertainment tax became effective September 1, 2003. Fitzgeralds Las
Vegas also become subject to a payroll tax based on wages paid to its employees
effective October 1, 2003. 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 which is empowered 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, in Colorado a statewide ballot measure which would have
allowed the installation of up to five hundred video lottery terminals at each
of five designated dog and horse racetracks along Colorado's front range was
rejected by the voters in Colorado on November 4, 2003.
The Company's directors, officers, managers and key employees are required
to hold individual licenses. These requirements vary from jurisdiction to
jurisdiction. Licenses and permits for gaming operations and for 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.
F-15
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Other Contingencies
In September of 2000, AMB Parking, LLC, (a limited liability company
indirectly owned by Don. H. Barden, Chairman and CEO of The Majestic Star
Casino, LLC) and Trump Indiana, Inc. (the "Joint Venture Partner") entered into
an Operating Agreement to form Buffington Harbor Parking Associates, LLC
("BHPA"). The limited liability company was formed for the purpose of acquiring
land, and constructing and operating a 2,000 space-parking garage which is
leased to Majestic Star and the Joint Venture Partner. The Majestic Star Casino
and the Joint Venture Partner have each entered into parallel operating lease
agreements with BHPA, each having a term until December 31, 2018. The rent
payable under both leases is intended to service the additional debt incurred by
BHPA. Majestic Star Casino is recognizing $9,462,815 of advances made at the
inception of the lease as prepaid lease expense. Majestic Star Casino, LLC is
amortizing its prepaid lease over the term of the operating lease agreement. The
lease agreement calls for the Majestic Star Casino, LLC and the Joint Venture
Partner to make monthly lease payments equal to 100% of BHPA's debt service
requirement for the following month, although each party is entitled to a credit
for 50% of such payment if the other party makes its monthly payment.
Majestic Investor Holdings received assessments of additional amounts due
related to insurance premiums paid for the period December 6, 2001 through
December 6, 2002. The premiums, totaling $160,000, related to an audit by the
insurance carrier of Majestic Investor Holdings' workers compensation and
general liability plans. Majestic Investor Holdings has settled with the
insurance carrier for $90,000 and has recorded the liability.
On August 28, 2003, Majestic Star Casino and the Seafarers Entertainment &
Allied Trades Union signed a collective bargaining agreement that will expire in
four years and calls for annual salary adjustments of approximately 3.5% over
the course of the agreement.
NOTE 9. SEGMENT INFORMATION
The Majestic Star Casino, LLC either directly or indirectly through a
wholly subsidiary owns and operates four properties as follows: a riverboat
casino located in Gary, Indiana; 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 four segments based on geographic
location. The Properties, in each of their segments, market primarily to
middle-income guests. The major products offered in each segment are as follows:
casino, hotel rooms (except in Gary, Indiana and Black Hawk, Colorado) and food
and beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies previously described
in Note 1 to the audited financial statements included in The Majestic Star
Casino, LLC's and Majestic Investor Holdings' respective Annual Reports on Form
10-K for the year ended December 31, 2002. There are minimal inter-segment
sales. Corporate costs are allocated to the business segments through management
fees from Majestic Star Casino (with respect to the casino in Gary) and from
Majestic Investor Holdings (with respect to the Fitzgeralds properties). These
fees are reflected in "General and Administrative" expenses.
F-16
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 9. SEGMENT INFORMATION--(CONTINUED)
A summary of the Properties' operations by business segment as of and for
the three and nine months ended September 30, 2003 and 2002 is presented below:
<Table>
<Caption>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2003 2002 2003 2002
-------- -------- --------- --------
(IN THOUSANDS)
Net revenues:
Majestic Star Casino.............................. $35,135 $36,534 $ 105,362 $100,686
Fitzgeralds Tunica................................ 22,497 24,273 68,150 72,194
Fitzgeralds Black Hawk............................ 8,829 9,724 25,279 26,998
Fitzgeralds Las Vegas............................. 11,859 11,579 36,204 36,627
------- ------- --------- --------
Total........................................ $78,320 $82,110 $ 234,995 $236,505
======= ======= ========= ========
Operating income (loss):
Majestic Star Casino.............................. $ 4,176 $ 4,850 $ 12,851 $ 14,210
Fitzgeralds Tunica................................ 2,610 3,867 10,049 11,806
Fitzgeralds Black Hawk............................ 2,165 2,264 4,956 5,052
Fitzgeralds Las Vegas............................. (1,413) (922) (1,503) (1,341)
Unallocated and other(1).......................... (869) (666) (2,223) (2,074)
------- ------- --------- --------
Total........................................ $ 6,669 $ 9,393 $ 24,130 $ 27,653
======= ======= ========= ========
Segment depreciation and amortization:
Majestic Star Casino.............................. $ 1,389 $ 1,729 $ 4,197 $ 5,086
Fitzgeralds Tunica................................ 1,989 1,866 5,823 5,481
Fitzgeralds Black Hawk............................ 438 364 1,261 1,091
Fitzgeralds Las Vegas............................. 721 938 2,095 2,203
Unallocated and other(1).......................... 666 658 1,997 1,930
------- ------- --------- --------
Total........................................ $ 5,203 $ 5,555 $ 15,373 $ 15,791
======= ======= ========= ========
Expenditure for additions to long-lived assets:
Majestic Star Casino.............................. $ 2,650 $ 772 $ 4,986 $ 4,276
Fitzgeralds Tunica................................ 953 324 2,749 1,820
Fitzgeralds Black Hawk............................ 749 524 1,521 963
Fitzgeralds Las Vegas............................. 738 335 1,658 1,136
------- ------- --------- --------
Total........................................ $ 5,090 $ 1,955 $ 10,914 $ 8,195
======= ======= ========= ========
Segment assets:
Majestic Star Casino.............................. $ 119,691
Fitzgeralds Tunica................................ 83,712
Fitzgeralds Black Hawk............................ 30,629
Fitzgeralds Las Vegas............................. 37,326
Unallocated and other(1).......................... 122,226
---------
Total........................................ 393,584
Less: Intercompany................................ (112,954)
---------
Total........................................ $ 280,630
=========
</Table>
- ---------------
(1) Unallocated and other include corporate items and eliminations that are not
allocated to the operating segments.
F-17
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. RELATED PARTY TRANSACTIONS
On March 13, 2003, Majestic Star Casino purchased for $1,017,000, net of
prorated taxes plus closing costs, a building and approximately 50 acres of
land, adjacent to the Buffington Harbor gaming complex from an affiliated
company. The amounts were recorded in the Company's property and equipment
accounts at $406,000 for the land and $111,000 for the building, which was the
carrying value recorded on the affiliate's balance sheet. The remaining
consideration paid in excess of the seller's basis in the amount of $560,000 was
recorded as an adjustment to member's equity. The purchase price was based on an
independent third-party appraisal.
During the nine months ended September 30, 2003, Majestic Star Casino made
distributions totaling $1,016,000, to BDI, under a LLC Manager Agreement related
to the fourth quarter of 2002 and the six months ended June 30, 2003.
During the nine months ended September 30, 2003, Majestic Investor Holdings
made distributions totaling $2,594,000, to BDI, under a LLC Manager Agreement
related to the fourth quarter of 2002 and the six months ended June 30, 2003.
In December 2001, Majestic Star Casino made a $300,000 employee loan to Mr.
Barden. This loan bore interest at a rate of 7% per annum and was due and
payable in full on December 12, 2002. On March 17, 2003, $216,000 was paid on
the note. The balance of $84,000 in principal and $29,000 in interest was paid
on April 23, 2003.
On January 31, 2002, Majestic Star Casino made a $200,000 employee loan to
Mr. Kelly. On March 17, 2003, Mr. Kelly paid $67,000 in accordance with the loan
agreement. This loan bears no interest and is due and payable in full on January
31, 2005.
In December 2001, Majestic Investor Holdings issued a $700,000 note to BDI.
The note bore interest at a rate of 7% annum. The principal and accrued but
unpaid interest was due and payable in full on December 12, 2002. The principal
and accrued interest was paid on March 17, 2003.
In April 2003, Majestic Star Casino, as authorized by the Majestic
Indenture, made a distribution of $710,000 to BDI for income taxes. The
calculation for the distribution was based on the Majestic Star Casino's net
income during the three-month period ended March 31, 2003.
In April 2003, Majestic Investor Holdings, as authorized by the Majestic
Investor Holdings Indenture, made a distribution of $338,000 to BDI for income
taxes. The calculation for the distribution was based on Majestic Investor
Holdings' net income during the three-month period ended March 31, 2003.
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The proceeds from the issuance of the 9 1/2% Senior Secured Notes and
approximately $28.0 million of the $80 million Credit Facility were used to
retire all of the 10 7/8% Senior Secured Notes and substantially all of the
11.653% Senior Secured Notes. Under the Indenture for the 9 1/2% Senior Secured
Notes and the Loan and Security Agreement for the $80 million Credit Facility,
Fitzgeralds Tunica and Fitzgeralds Black Hawk remain as guarantors; however,
Fitzgeralds Las Vegas is now an unrestricted subsidiary of the Company and a
non-guarantor under the 9 1/2% Senior Secured Notes and $80.0 million Credit
Facility. It is anticipated that Fitzgeralds Las Vegas will be spun out to BDI
promptly after Majestic Investor Holdings, the direct owner of the operating
subsidiary of Fitzgeralds Las Vegas, and BDI receive approval from the Nevada
Gaming Control Board and the Nevada Gaming Commission. Approval is anticipated
to occur in December 2003. See Note 12 for Supplemental Guarantor Financial
Information (Unaudited) related to the 9 1/2% Senior Secured Notes.
F-18
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
The 10 7/8% Senior Secured Notes were secured by substantially all of the
assets of the Majestic Star Casino, but not the assets of Majestic Investor
Holdings and its wholly-owned subsidiaries which include the three Fitzgeralds'
casino properties.
The 11.653% Senior Secured Notes were unconditionally and irrevocably
guaranteed, jointly and severally, by all of the restricted subsidiaries of
Majestic Investor Holdings. The guarantees ranked 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. As explained in Note 7 to the
Notes to Consolidated Financial Statements (Unaudited), these guarantees were
terminated after September 30, 2003, in connection with a consent solicitation.
The following condensed consolidating information presents condensed
consolidating balance sheets as of September 30, 2003 and December 31, 2002 and
condensed consolidating statements of operations for the three and nine months
ended September 30, 2003 and 2002, and condensed consolidating statements of
cash flows for the nine months ended September 30, 2003 and 2002, for The
Majestic Star Casino, LLC, The Majestic Star Casino Capital Corp. and the
guarantor subsidiaries and eliminating entries necessary to consolidate such
entities.
F-19
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2003
<Table>
<Caption>
MAJESTIC
THE MAJESTIC THE MAJESTIC INVESTOR MAJESTIC
STAR CASINO, STAR CASINO HOLDINGS, INVESTOR CAPITAL GUARANTOR
LLC CAPITAL CORP. LLC CORP. SUBSIDIARIES
------------ ------------- ------------ ---------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 15,404,525 $ -- $ 7,107,027 $ -- $ 12,744,756
Restricted cash.................... -- -- 500,000 -- --
Accounts receivable, net........... 1,129,231 -- 1,208 -- 1,287,396
Inventories........................ 71,470 -- -- -- 942,599
Prepaid expenses and other current
assets........................... 1,841,768 -- 59,325 -- 1,578,828
Receivable from related party...... 261,462 -- 248,286 -- 4,321
Notes receivable from related
party............................ 133,000 -- -- -- --
------------ ------------- ------------ ------------- ------------
Total current assets........... 18,841,456 -- 7,915,846 -- 16,557,900
------------ ------------- ------------ ------------- ------------
Property, equipment and improvements,
net................................ 48,982,593 -- -- -- 115,221,758
Intangible assets, net............... -- -- 5,200,000 -- 11,295,496
Goodwill............................. -- -- -- -- 5,922,398
Investment in Buffington Harbor
Riverboats, LLC.................... 30,249,856 -- -- -- --
Other assets:
Deferred financing costs, net...... 2,281,770 -- 5,671,049 -- --
Restricted cash.................... -- -- -- -- 1,000,000
Due from related parties........... -- -- 103,439,586 -- --
Other assets....................... 10,334,588 -- -- -- 1,669,150
Investment in subsidiaries......... 3,178,822 -- 33,474,451 -- --
------------ ------------- ------------ ------------- ------------
Total Assets................... $113,869,085 $ -- $155,700,932 $ -- $151,666,702
============ ============= ============ ============= ============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term
debt............................. $ -- $ -- $ -- $ -- $ 83,083
Accounts payable................... 2,454,269 -- -- -- 1,781,238
Other accrued liabilities:
Payroll and related.............. 2,104,769 -- -- -- 4,721,979
Interest......................... 3,534,481 -- 5,895,136 -- --
Progressive jackpot.............. 663,718 -- -- -- 2,352,707
Slot club liabilities............ -- -- -- -- 863,428
Other accrued liabilities........ 5,303,020 -- 144,340 -- 4,898,177
------------ ------------- ------------ ------------- ------------
Total current liabilities...... 14,060,257 -- 6,039,476 -- 14,700,612
------------ ------------- ------------ ------------- ------------
Due from related parties............. -- -- -- -- 103,439,586
Long-term debt, net of current
maturities......................... 129,122,129 129,122,129 146,482,634 146,482,634 52,053
------------ ------------- ------------ ------------- ------------
Total Liabilities.............. 143,182,386 129,122,129 152,522,110 146,482,634 118,192,251
Member's Equity (Deficit).......... (29,313,301) (129,122,129) 3,178,822 (146,482,634) 33,474,451
------------ ------------- ------------ ------------- ------------
Total Liabilities and Member's
Equity (Deficit)............. $113,869,085 $ -- $155,700,932 $ -- $151,666,702
============ ============= ============ ============= ============
<Caption>
ELIMINATING TOTAL
ENTRIES CONSOLIDATED
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents.......... $ -- $ 35,256,308
Restricted cash.................... -- 500,000
Accounts receivable, net........... -- 2,417,835
Inventories........................ -- 1,014,069
Prepaid expenses and other current
assets........................... -- 3,479,921
Receivable from related party...... (514,069)(a) --
Notes receivable from related
party............................ -- 133,000
------------- ------------
Total current assets........... (514,069) 42,801,133
------------- ------------
Property, equipment and improvements,
net................................ -- 164,204,351
Intangible assets, net............... -- 16,495,496
Goodwill............................. -- 5,922,398
Investment in Buffington Harbor
Riverboats, LLC.................... -- 30,249,856
Other assets:
Deferred financing costs, net...... -- 7,952,819
Restricted cash.................... -- 1,000,000
Due from related parties........... (103,439,586)(a) --
Other assets....................... -- 12,003,738
Investment in subsidiaries......... (36,653,273)(b) --
------------- ------------
Total Assets................... $(140,606,928) $280,629,791
============= ============
LIABILITIES AND MEMBER'S EQUITY (DEFI
Current Liabilities:
Current maturities of long-term
debt............................. $ -- $ 83,083
Accounts payable................... -- 4,235,507
Other accrued liabilities:
Payroll and related.............. -- 6,826,748
Interest......................... -- 9,429,617
Progressive jackpot.............. -- 3,016,425
Slot club liabilities............ -- 863,428
Other accrued liabilities........ (514,069)(a) 9,831,468
------------- ------------
Total current liabilities...... (514,069) 34,286,276
------------- ------------
Due from related parties............. (103,439,586)(a) --
Long-term debt, net of current
maturities......................... (275,604,763)(c) 275,656,816
------------- ------------
Total Liabilities.............. (379,558,418)(a) 309,943,092
Member's Equity (Deficit).......... 238,951,490(b)(c) (29,313,301)
------------- ------------
Total Liabilities and Member's
Equity (Deficit)............. $(140,606,928) $280,629,791
============= ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 7 Long-Term Debt, The Majestic Star Casino
Capital Corp. is a co-obligor of certain of the Company's indebtedness and
Majestic Investor Capital Corp. is a co-obligor of the indebtedness of
Majestic Investor Holdings, LLC. Accordingly, such indebtedness has been
presented as an obligation of both the issuer and the co-obligor in the
above balance sheet.
F-20
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
<Table>
<Caption>
MAJESTIC
THE MAJESTIC THE MAJESTIC INVESTOR MAJESTIC
STAR CASINO, STAR CASINO HOLDINGS, INVESTOR CAPITAL GUARANTOR
LLC CAPITAL CORP. LLC CORP. SUBSIDIARIES
------------ ------------- ------------ ---------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents........... $ 8,564,057 $ -- $ 1,007,660 $ -- $ 14,976,164
Restricted cash..................... -- -- 250,000 -- --
Accounts receivable, net............ 1,233,543 -- 52,695 -- 1,188,488
Inventories......................... 53,360 -- -- -- 929,126
Prepaid expenses and other current
assets............................ 1,455,121 -- 125,620 -- 1,558,248
Receivable from related party....... 323,359 -- 4,748,371 -- 17,430
Note receivable from related
party............................. 500,000 -- 700,000 -- --
------------ ------------- ------------ ------------- ------------
Total current assets............ 12,129,440 -- 6,884,346 -- 18,669,456
------------ ------------- ------------ ------------- ------------
Property, equipment and improvements,
net................................. 47,511,652 -- -- -- 117,297,506
Intangible assets, net................ -- -- 5,200,000 -- 12,491,746
Goodwill.............................. -- -- -- -- 5,922,398
Investment in Buffington Harbor
Riverboats, LLC..................... 31,833,311 -- -- -- --
Other assets:
Deferred financing costs, net....... 2,657,165 -- 6,714,902 -- --
Restricted cash..................... -- -- -- -- 1,000,000
Due from related parties............ -- -- 116,816,043 -- --
Other assets........................ 10,962,753 -- -- -- 1,624,359
Investment in subsidiaries.......... 8,082,405 -- 19,959,009 -- --
------------ ------------- ------------ ------------- ------------
Total Assets.................... $113,176,726 $ -- $155,574,300 $ -- $157,005,465
============ ============= ============ ============= ============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term
debt.............................. $ -- $ -- $ -- $ -- $ 134,084
Accounts payable.................... 1,911,929 -- -- -- 2,136,369
Other accrued liabilities:
Payroll and related............... 1,707,240 -- -- -- 5,949,275
Interest.......................... -- -- 1,473,785 -- --
Progressive jackpot............... 713,083 -- -- -- 2,476,543
Slot club liabilities............. -- -- -- -- 738,559
Other accrued liabilities......... 4,139,265 -- 486,662 -- 3,914,716
------------ ------------- ------------ ------------- ------------
Total current liabilities....... 8,471,517 -- 1,960,447 -- 15,349,546
------------ ------------- ------------ ------------- ------------
Due to related parties................ -- -- -- -- 121,581,844
Long-term debt, net of current
maturities.......................... 128,879,771 128,879,771 145,531,448 145,531,448 115,066
------------ ------------- ------------ ------------- ------------
Total Liabilities............... 137,351,288 128,879,771 147,491,895 145,531,448 137,046,456
Member's Equity (Deficit)........... (24,174,562) (128,879,771) 8,082,405 (145,531,448) 19,959,009
------------ ------------- ------------ ------------- ------------
Total Liabilities and Member's
Equity (Deficit).............. $113,176,726 $ -- $155,574,300 $ -- $157,005,465
============ ============= ============ ============= ============
<Caption>
ELIMINATING TOTAL
ENTRIES CONSOLIDATED
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents........... $ -- $ 24,547,881
Restricted cash..................... -- 250,000
Accounts receivable, net............ -- 2,474,726
Inventories......................... -- 982,486
Prepaid expenses and other current
assets............................ -- 3,138,989
Receivable from related party....... (5,089,160)(a) --
Note receivable from related
party............................. -- 1,200,000
------------- ------------
Total current assets............ (5,089,160) 32,594,082
------------- ------------
Property, equipment and improvements,
net................................. -- 164,809,158
Intangible assets, net................ -- 17,691,746
Goodwill.............................. -- 5,922,398
Investment in Buffington Harbor
Riverboats, LLC..................... -- 31,833,311
Other assets:
Deferred financing costs, net....... -- 9,372,067
Restricted cash..................... -- 1,000,000
Due from related parties............ (116,816,043)(a) --
Other assets........................ 12,587,112
Investment in subsidiaries.......... (28,041,414)(b) --
------------- ------------
Total Assets.................... $(149,946,617) $275,809,874
============= ============
LIABILITIES AND MEMBER'S EQUITY (DEFIC
Current Liabilities:
Current maturities of long-term
debt.............................. $ -- $ 134,084
Accounts payable.................... -- 4,048,298
Other accrued liabilities:
Payroll and related............... -- 7,656,515
Interest.......................... -- 1,473,785
Progressive jackpot............... -- 3,189,626
Slot club liabilities............. -- 738,559
Other accrued liabilities......... (323,359)(a) 8,217,284
------------- ------------
Total current liabilities....... (323,359) 25,458,151
------------- ------------
Due to related parties................ (121,581,844)(a) --
Long-term debt, net of current
maturities.......................... (274,411,219)(c) 274,526,285
------------- ------------
Total Liabilities............... (396,316,422)(a) 299,984,436
Member's Equity (Deficit)........... 246,369,805(b)(c) (24,174,562)
------------- ------------
Total Liabilities and Member's
Equity (Deficit).............. $(149,946,617) $275,809,874
============= ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 7 Long-Term Debt, The Majestic Star Casino
Capital Corp. is a co-obligors of certain of the Company's indebtedness and
Majestic Investor Capital Corp. is a co-obligor of the indebtedness of
Majestic Investor Holdings, LLC. Accordingly, such indebtedness has been
presented as an obligation of both the issuer and the co-obligor in the
above balance sheet.
F-21
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
THE
THE MAJESTIC MAJESTIC MAJESTIC
MAJESTIC STAR CASINO INVESTOR INVESTOR
STAR CASINO, CAPITAL HOLDINGS, CAPITAL GUARANTOR ELIMINATING TOTAL
LLC CORP. LLC CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ----------- ----------- ----------- ------------ ----------- ------------
REVENUES:
Casino................... $34,533,303 $ -- $ -- $ -- $39,000,341 $ -- $73,533,644
Rooms.................... -- -- -- -- 3,862,888 -- 3,862,888
Food and beverage........ 362,514 -- -- -- 5,079,902 -- 5,442,416
Other.................... 523,958 -- -- -- 869,979 -- 1,393,937
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross revenues......... 35,419,775 -- -- -- 48,813,110 -- 84,232,885
Less promotional
allowances........... 284,693 -- -- -- 5,628,227 -- 5,912,920
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net revenues........... 35,135,082 -- -- -- 43,184,883 -- 78,319,965
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Casino................... 9,215,369 -- -- -- 16,505,516 -- 25,720,885
Rooms.................... -- -- -- -- 1,695,808 -- 1,695,808
Food and beverage........ 392,561 -- -- -- 2,507,713 -- 2,900,274
Other.................... -- -- -- -- 533,985 -- 533,985
Gaming taxes............. 9,623,655 -- -- -- 4,628,311 -- 14,251,966
Advertising and
promotion.............. 1,835,473 -- -- -- 3,311,241 -- 5,146,714
General and
administrative......... 6,873,678 -- 202,516 -- 7,492,588 -- 14,568,782
Economic incentive--
City of Gary........... 1,035,573 -- -- -- -- -- 1,035,573
Depreciation and
amortization........... 1,388,381 -- 665,819 -- 3,148,361 -- 5,202,561
Loss on investment in
Buffington Harbor
Riverboats, L.L.C. .... 594,718 -- -- -- -- -- 594,718
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and
expenses............. 30,959,408 -- 868,335 -- 39,823,523 -- 71,651,266
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income
(loss)............... 4,175,674 -- (868,335) -- 3,361,360 -- 6,668,699
----------- ----------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income.......... 12,715 -- 3,645 -- 2,398 -- 18,758
Interest expense......... (3,534,893) (4,421,376) (5,117) (7,961,386)
Loss on sale of assets... -- -- -- -- (4,671) -- (4,671)
Other non-operating
expense................ (37,766) -- (9,582) -- -- -- (47,348)
Equity in net income
(loss) of
subsidiaries......... (1,941,678) -- 3,353,970 -- -- (1,412,292)(a) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other (expense)
income............... (5,501,622) (1,073,343) (7,390) (1,412,292) (7,994,647)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)...... $(1,325,948) $ -- $(1,941,678) $ -- $ 3,353,970 $(1,412,292) $(1,325,948)
=========== =========== =========== =========== =========== =========== ===========
</Table>
- ---------------
(a) To eliminate equity in net income (loss) of subsidiaries.
F-22
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
THE MAJESTIC MAJESTIC MAJESTIC
THE MAJESTIC STAR CASINO INVESTOR INVESTOR
STAR CASINO, CAPITAL HOLDINGS, CAPITAL GUARANTOR ELIMINATING TOTAL
LLC CORP. LLC CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------ ----------- ----------- ------------ ----------- ------------
REVENUES:
Casino.................. $35,847,438 $ -- $ -- $ -- $41,842,819 $ -- $77,690,257
Rooms................... -- -- -- -- 3,809,375 -- 3,809,375
Food and beverage....... 404,204 -- -- -- 4,681,423 -- 5,085,627
Other................... 501,110 -- -- -- 1,027,702 -- 1,528,812
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross revenues........ 36,752,752 -- -- -- 51,361,319 -- 88,114,071
Less promotional
allowances.......... 219,143 -- -- -- 5,784,991 -- 6,004,134
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net revenues.......... 36,533,609 -- -- -- 45,576,328 -- 82,109,937
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Casino.................. 9,842,101 -- -- -- 17,500,235 -- 27,342,336
Rooms................... -- -- -- -- 1,717,113 -- 1,717,113
Food and beverage....... 440,966 -- -- -- 2,604,410 -- 3,045,376
Other................... -- -- -- -- 396,134 -- 396,134
Gaming taxes............ 8,927,379 -- -- -- 4,981,141 -- 13,908,520
Advertising and
promotion............. 2,189,136 -- -- -- 2,827,045 -- 5,016,181
General and
administrative........ 6,882,000 -- 8,175 -- 7,173,272 -- 14,063,447
Economic Incentive--
City of Gary.......... 1,072,350 -- -- -- -- -- 1,072,350
Depreciation and
amortization.......... 1,730,004 -- 657,668 -- 3,167,672 -- 5,555,344
Loss on investment in
Buffington Harbor
Riverboats, L.L.C. ... 600,301 -- -- -- -- -- 600,301
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 31,684,237 -- 665,843 -- 40,367,022 -- 72,717,102
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income
(loss).............. 4,849,372 -- (665,843) -- 5,209,306 -- 9,392,835
----------- ----------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 23,992 -- 19,190 -- 14,030 -- 57,212
Interest expense........ (3,608,999) (4,454,389) (8,574) (8,071,962)
Loss on sale of
assets................ -- -- -- -- (9,889) -- (9,889)
Other non-operating
expenses.............. (38,593) -- (10,931) -- -- -- (49,524)
Equity in net income
(loss) of
subsidiaries........ 92,900 -- 5,204,873 -- -- (5,297,773)(a) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other expense... (3,530,700) 758,743 (4,433) (5,297,773) (8,074,163)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 1,318,672 $ $ 92,900 $ $ 5,204,873 $(5,297,773) $ 1,318,672
=========== =========== =========== =========== =========== =========== ===========
</Table>
- ---------------
(a) To eliminate equity in net income of subsidiaries
F-23
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
THE MAJESTIC MAJESTIC MAJESTIC
THE MAJESTIC STAR CASINO INVESTOR INVESTOR
STAR CASINO, CAPITAL HOLDINGS, CAPITAL GUARANTOR ELIMINATING
LLC CORP. LLC CORP. SUBSIDIARIES ENTRIES
------------ ------------ ------------ ------------ ------------ ------------
REVENUES:
Casino........................ $103,464,268 $ -- $ -- $ -- $117,977,522 $ --
Rooms......................... -- -- -- -- 11,246,586 --
Food and beverage............. 1,097,999 -- -- -- 14,695,689 --
Other......................... 1,723,907 -- -- -- 2,503,455 --
------------ ------------ ------------ ------------ ------------ ------------
Gross revenues.............. 106,286,174 -- -- -- 146,423,252 --
Less promotional
allowances................ 924,219 -- -- -- 16,789,768 --
------------ ------------ ------------ ------------ ------------ ------------
Net revenues................ 105,361,955 -- -- -- 129,633,484 --
------------ ------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Casino........................ 27,149,303 -- -- -- 48,676,222 --
Rooms......................... -- -- -- -- 4,882,991 --
Food and beverage............. 1,196,149 -- -- -- 7,570,063 --
Other......................... -- -- -- -- 1,354,042 --
Gaming taxes.................. 30,792,182 -- -- -- 13,662,931 --
Advertising and promotion..... 5,038,353 -- -- -- 9,855,194 --
General and administrative.... 19,237,130 -- 225,203 -- 20,951,949 --
Economic incentive--
City of Gary................ 3,106,984 -- -- -- -- --
Depreciation and
amortization................ 4,196,373 -- 1,997,376 -- 9,178,818 --
Loss on investment in
Buffington Harbor
Riverboats, L.L.C........... 1,794,608 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total costs and expenses.... 92,511,082 -- 2,222,579 -- 116,132,210 --
------------ ------------ ------------ ------------ ------------ ------------
Operating income (loss)..... 12,850,873 -- (2,222,579) -- 13,501,274 --
------------ ------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income............... 42,807 -- 28,916 -- 11,272 --
Interest expense.............. (10,603,782) (13,264,175) (17,403)
(Loss) gain on sale of
assets...................... (125,919) -- -- -- 20,290 --
Other non-operating expense... (113,320) -- (28,482) -- -- --
Equity in net income (loss)
of subsidiaries........... (1,970,887) -- 13,515,433 -- -- (11,544,546)(a)
------------ ------------ ------------ ------------ ------------ ------------
Total other income
(expense)................. (12,771,101) 251,692 14,159 (11,544,546)
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss)........... $ 79,772 $ $ (1,970,887) $ $ 13,515,433 $(11,544,546)
============ ============ ============ ============ ============ ============
<Caption>
TOTAL
CONSOLIDATED
------------
REVENUES:
Casino........................ $221,441,790
Rooms......................... 11,246,586
Food and beverage............. 15,793,688
Other......................... 4,227,362
------------
Gross revenues.............. 252,709,426
Less promotional
allowances................ 17,713,987
------------
Net revenues................ 234,995,439
------------
COSTS AND EXPENSES:
Casino........................ 75,825,525
Rooms......................... 4,882,991
Food and beverage............. 8,766,212
Other......................... 1,354,042
Gaming taxes.................. 44,455,113
Advertising and promotion..... 14,893,547
General and administrative.... 40,414,282
Economic incentive--
City of Gary................ 3,106,984
Depreciation and
amortization................ 15,372,567
Loss on investment in
Buffington Harbor
Riverboats, L.L.C........... 1,794,608
------------
Total costs and expenses.... 210,865,871
------------
Operating income (loss)..... 24,129,568
------------
OTHER INCOME (EXPENSE):
Interest income............... 82,995
Interest expense.............. (23,885,360)
(Loss) gain on sale of
assets...................... (105,629)
Other non-operating expense... (141,802)
Equity in net income (loss)
of subsidiaries........... --
------------
Total other income
(expense)................. (24,049,796)
------------
Net income (loss)........... $ 79,772
============
</Table>
- ---------------
(a) To eliminate equity in net income (loss) of subsidiaries.
F-24
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
MAJESTIC
THE MAJESTIC THE MAJESTIC INVESTOR MAJESTIC
STAR CASINO, STAR CASINO HOLDINGS, INVESTOR GUARANTOR ELIMINATING
LLC CAPITAL CORP. LLC CAPITAL CORP. SUBSIDIARIES ENTRIES
------------ ------------- ------------ ------------- ------------ ------------
REVENUES:
Casino.......................... $ 98,626,635 $ -- $ -- $ -- $124,623,911 $ --
Rooms........................... -- -- -- -- 11,836,761 --
Food and beverage............... 1,239,364 -- -- -- 14,127,355 --
Other........................... 1,446,292 -- -- -- 2,893,704 --
------------ ------ ------------ ------ ------------ ------------
Gross revenues................ 101,312,291 -- -- -- 153,481,731 --
Less promotional allowances... 626,152 -- -- -- 17,662,744 --
------------ ------ ------------ ------ ------------ ------------
Net revenues.................. 100,686,139 -- -- -- 135,818,987 --
------------ ------ ------------ ------ ------------ ------------
COSTS AND EXPENSES:
Casino.......................... 25,275,831 -- -- -- 52,501,936 --
Rooms........................... -- -- -- -- 4,975,786 --
Food and beverage............... 1,311,440 -- -- -- 7,781,206 --
Other........................... -- -- -- -- 1,171,389 --
Gaming taxes.................... 26,153,991 -- -- -- 14,779,969 --
Advertising and promotion....... 5,112,461 -- -- -- 9,777,719 --
General and administrative...... 18,770,847 -- 19,878 -- 20,538,102 --
Economic Incentive--City of
Gary.......................... 2,959,492 -- -- -- -- --
Depreciation and amortization... 5,085,779 -- 1,930,193 -- 8,775,312 --
Loss on investment in Buffington
Harbor Riverboats, L.L.C. .... 1,806,379 -- -- -- -- --
Pre-opening expenses............ -- -- 124,269 -- -- --
------------ ------ ------------ ------ ------------ ------------
Total costs and expenses...... 86,476,220 -- 2,074,340 -- 120,301,419 --
------------ ------ ------------ ------ ------------ ------------
Operating income (loss)....... 14,209,919 -- (2,074,340) -- 15,517,568 --
------------ ------ ------------ ------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income................. 40,158 -- 53,988 -- 41,036 --
Interest expense................ (10,784,602) -- (13,546,708) -- (25,113) --
Gain/(loss) on sale of assets... 8,850 -- -- -- (9,311) --
Other non-operating expenses.... (103,509) -- (38,306) -- -- --
Equity in net income (loss) of
subsidiaries.................. (81,186) -- 15,524,180 -- -- (15,442,994)(a)
------------ ------ ------------ ------ ------------ ------------
Total other income
(expense)................... (10,920,289) -- 1,993,154 -- 6,612 (15,442,994)
------------ ------ ------------ ------ ------------ ------------
Net income (loss)............. $ 3,289,630 $ -- $ (81,186) $ -- $ 15,524,180 $(15,442,994)
============ ====== ============ ====== ============ ============
<Caption>
CONSOLIDATED
TOTAL
------------
REVENUES:
Casino.......................... $223,250,546
Rooms........................... 11,836,761
Food and beverage............... 15,366,719
Other........................... 4,339,996
------------
Gross revenues................ 254,794,022
Less promotional allowances... 18,288,896
------------
Net revenues.................. 236,505,126
------------
COSTS AND EXPENSES:
Casino.......................... 77,777,767
Rooms........................... 4,975,786
Food and beverage............... 9,092,646
Other........................... 1,171,389
Gaming taxes.................... 40,933,960
Advertising and promotion....... 14,890,180
General and administrative...... 39,328,827
Economic Incentive--City of
Gary.......................... 2,959,492
Depreciation and amortization... 15,791,284
Loss on investment in Buffington
Harbor Riverboats, L.L.C. .... 1,806,379
Pre-opening expenses............ 124,269
------------
Total costs and expenses...... 208,851,979
------------
Operating income (loss)....... 27,653,147
------------
OTHER INCOME (EXPENSE):
Interest income................. 135,182
Interest expense................ (24,356,423)
Gain/(loss) on sale of assets... (461)
Other non-operating expenses.... (141,815)
Equity in net income (loss) of
subsidiaries.................. --
------------
Total other income
(expense)................... (24,363,517)
------------
Net income (loss)............. $ 3,289,630
============
</Table>
- ---------------
(a) To eliminate equity in net income (loss) of subsidiaries
F-25
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
MAJESTIC
THE MAJESTIC THE MAJESTIC INVESTOR MAJESTIC
STAR CASINO, STAR CASINO HOLDINGS, INVESTOR GUARANTOR ELIMINATING
LLC CAPITAL CORP. LLC CAPITAL CORP. SUBSIDIARIES ENTRIES
------------ ------------- ----------- ------------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:............. $14,037,416 $ -- $(9,415,600) $ -- $ 21,769,136 $ --
----------- ------ ----------- ------ ------------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in restricted cash....... -- -- (250,000) -- -- --
Acquisition of property and
equipment....................... (4,986,306) -- -- -- (5,927,999) --
Appreciated value of purchase of
land from a related party....... (559,806) -- -- -- -- --
Decrease in prepaid leases and
deposits........................ 108,500 -- -- -- -- --
Investment in Buffington Harbor
Riverboats, L.L.C. ............. (211,138) -- -- -- -- --
Proceeds from sale of equipment... 14,750 -- -- -- 41,469 --
----------- ------ ----------- ------ ------------ ------
Net cash used in investing
activities.................... (5,634,000) -- (250,000) -- (5,886,530) --
----------- ------ ----------- ------ ------------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance cost for the 9 1/2%
senior secured notes............ (203,939) -- (2,337) -- -- --
Proceeds from notes receivables
affiliates...................... 367,000 -- 18,700,000 -- (18,000,000) --
Repayment of long term debt....... -- -- -- -- (114,014) --
Distribution to Barden
Development, Inc. .............. (1,726,009) -- (2,932,696) -- -- --
----------- ------ ----------- ------ ------------ ------
Net cash provided by (used in)
financing activities.......... (1,562,948) -- 15,764,967 -- (18,114,014) --
----------- ------ ----------- ------ ------------ ------
Net increase (decrease) in cash and
cash equivalents.................. 6,840,468 -- 6,099,367 -- (2,231,408) --
Cash and cash equivalents, beginning
of period......................... 8,564,057 -- 1,007,660 -- 14,976,164 --
----------- ------ ----------- ------ ------------ ------
Cash and cash equivalents, end of
period............................ $15,404,525 $ -- $ 7,107,027 $ -- $ 12,744,756 $ --
=========== ====== =========== ====== ============ ======
<Caption>
CONSOLIDATED
TOTAL
------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:............. $ 26,390,952
------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in restricted cash....... (250,000)
Acquisition of property and
equipment....................... (10,914,305)
Appreciated value of purchase of
land from a related party....... (559,806)
Decrease in prepaid leases and
deposits........................ 108,500
Investment in Buffington Harbor
Riverboats, L.L.C. ............. (211,138)
Proceeds from sale of equipment... 56,219
------------
Net cash used in investing
activities.................... (11,770,530)
------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance cost for the 9 1/2%
senior secured notes............ (206,276)
Proceeds from notes receivables
affiliates...................... 1,067,000
Repayment of long term debt....... (114,014)
Distribution to Barden
Development, Inc. .............. (4,658,705)
------------
Net cash provided by (used in)
financing activities.......... (3,911,995)
------------
Net increase (decrease) in cash and
cash equivalents.................. 10,708,427
Cash and cash equivalents, beginning
of period......................... 24,547,881
------------
Cash and cash equivalents, end of
period............................ $ 35,256,308
============
</Table>
F-26
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
MAJESTIC
THE MAJESTIC THE MAJESTIC INVESTOR MAJESTIC
STAR CASINO, STAR CASINO HOLDINGS, INVESTOR GUARANTOR ELIMINATING
LLC CAPITAL CORP. LLC CAPITAL CORP. SUBSIDIARIES ENTRIES
------------ ------------- ------------ ------------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:.............. $ 7,308,679 $ -- $(10,568,902) $ -- $22,405,364 $ 3,045,497(a)
----------- ------ ------------ ------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition related costs.......... -- -- (986,158) -- -- --
Proceeds from seller for purchase
price adjustment................. -- -- 3,800,000 -- -- --
Acquisition of property and
equipment........................ (4,276,313) -- -- -- (3,918,301) --
Decrease in prepaid leases and
deposits......................... 428,005 -- -- -- -- --
Investment in Buffington Harbor
Riverboats, L.L.C. .............. (40,455) -- -- -- -- --
Proceeds from sale of equipment.... 8,850 -- -- -- 43,867 --
----------- ------ ------------ ------ ----------- -----------
Net cash provided by (used in)
investing activities........... (3,879,913) -- 2,813,842 -- (3,874,434) --
----------- ------ ------------ ------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance cost for the 11.653%
senior secured notes............. -- -- (1,410,945) -- -- --
Proceeds from line of credit....... -- -- 2,500,000 -- -- --
Repayment of line of credit........ -- -- (9,000,000) -- -- --
Proceeds from notes receivables
affiliates....................... -- -- 23,320,991 -- (20,275,494) (3,045,497)(a)
Repayment of long term debt........ -- -- -- -- (104,808) --
Distribution to Barden Development,
Inc.............................. (976,152) -- (1,844,206) -- -- --
----------- ------ ------------ ------ ----------- -----------
Net cash provided by (used in)
financing activities........... (976,152) -- 13,565,840 -- (20,380,302) (3,045,497)
----------- ------ ------------ ------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents................... 2,452,614 -- 5,810,780 -- (1,849,372) --
Cash and cash equivalents, beginning
of period.......................... 8,220,476 -- 498,363 -- 17,206,452 --
----------- ------ ------------ ------ ----------- -----------
Cash and cash equivalents, end of
period............................. $10,673,090 $ -- $ 6,309,143 $ -- $15,357,080 $ --
=========== ====== ============ ====== =========== ===========
<Caption>
CONSOLIDATED
TOTAL
------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:.............. $ 22,190,638
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition related costs.......... (986,158)
Proceeds from seller for purchase
price adjustment................. 3,800,000
Acquisition of property and
equipment........................ (8,194,614)
Decrease in prepaid leases and
deposits......................... 428,005
Investment in Buffington Harbor
Riverboats, L.L.C. .............. (40,455)
Proceeds from sale of equipment.... 52,717
------------
Net cash provided by (used in)
investing activities........... (4,940,505)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance cost for the 11.653%
senior secured notes............. (1,410,945)
Proceeds from line of credit....... 2,500,000
Repayment of line of credit........ (9,000,000)
Proceeds from notes receivables
affiliates....................... --
Repayment of long term debt........ (104,808)
Distribution to Barden Development,
Inc.............................. (2,820,358)
------------
Net cash provided by (used in)
financing activities........... (10,836,111)
------------
Net increase (decrease) in cash and
cash equivalents................... 6,414,022
Cash and cash equivalents, beginning
of period.......................... 25,925,291
------------
Cash and cash equivalents, end of
period............................. $ 32,339,313
============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
F-27
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES
The following condensed consolidating information presents condensed
consolidating balance sheets as of September 30, 2003 and December 31, 2002 and
condensed consolidating statements of operations for the three and nine months
ended September 30, 2003 and 2002, and condensed consolidating statements of
cash flows for the nine months ended September 30, 2003 and 2002, for The
Majestic Star Casino, LLC, the guarantor subsidiaries and its non-guarantor
subsidiary and eliminating entries necessary to consolidate such entities as
they relate to the 9 1/2% Senior Secured Notes as described in Note 11 to Notes
to Consolidated Financial Statements.
F-28
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2003
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ------------ ------------
ASSETS
Current Assets:
Cash and cash
equivalents.............. $ 15,404,525 $ -- $ 16,013,644 $ 3,838,139 $ -- $ 35,256,308
Restricted cash............ -- -- 500,000 -- -- 500,000
Accounts receivable, less
allowance for doubtful
accounts of $275,715..... 1,129,231 -- 641,856 646,748 -- 2,417,835
Inventories................ 71,470 -- 638,300 304,299 -- 1,014,069
Prepaid expenses........... 1,831,558 -- 610,348 986,970 -- 3,428,876
Receivables from related
party.................... 261,462 -- -- 3,461 (264,923)(a) --
Note receivable due from
affiliate................ 133,000 -- -- -- -- 133,000
Due from Buffington Harbor
Riverboats, LLC.......... 10,210 -- -- -- -- 10,210
Other...................... -- -- 40,835 -- -- 40,835
------------ ------------- ------------ ----------- ------------ ------------
Total current assets... 18,841,456 -- 18,444,983 5,779,617 (264,923) 42,801,133
------------ ------------- ------------ ----------- ------------ ------------
Property, equipment and
improvements, net.......... 48,982,593 -- 87,467,456 27,754,302 -- 164,204,351
Intangible assets, net...... -- -- 14,780,496 1,715,000 -- 16,495,496
Goodwill.................... -- -- 5,922,398 -- -- 5,922,398
Other assets:
Deferred financing costs,
net of accumulated
amortization of
$5,680,912............... 2,281,770 -- 5,671,049 -- -- 7,952,819
Investment in Buffington
Harbor Riverboats, LLC... 30,249,856 -- -- -- -- 30,249,856
Investment in Majestic
Investor Holdings, LLC... 3,178,822 -- -- -- (3,178,822)(b) --
Long term accounts
receivable -- related
parties.................. -- -- 36,697,132 -- (36,697,132)(a) --
Restricted cash............ -- -- -- 1,000,000 -- 1,000,000
Other assets............... 10,334,588 -- 591,977 1,077,173 -- 12,003,738
------------ ------------- ------------ ----------- ------------ ------------
Total other assets..... 46,045,036 -- 42,960,158 2,077,173 (39,875,954) 51,206,413
------------ ------------- ------------ ----------- ------------ ------------
Total Assets........... $113,869,085 $ -- $169,575,491 $37,326,092 $(40,140,877) $280,629,791
============ ============= ============ =========== ============ ============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of
long-term debt........... $ -- $ -- $ -- $ 83,083 $ -- $ 83,083
Accounts payable........... 2,454,269 -- 1,228,159 553,079 -- 4,235,507
Payable to related party... -- -- 246,867 18,056 (264,923)(a) --
Other accrued liabilities:
Payroll and related...... 2,104,769 -- 2,846,516 1,875,463 -- 6,826,748
Accrued interest......... 3,534,481 -- 5,895,136 -- -- 9,429,617
Progressive jackpots..... 663,718 -- 2,076,723 275,984 -- 3,016,425
Slot club liability...... -- -- 478,198 385,230 -- 863,428
Other accrued
liabilities............ 5,303,020 -- 3,235,332 1,293,116 -- 9,831,468
------------ ------------- ------------ ----------- ------------ ------------
Total current
liabilities.......... 14,060,257 -- 16,006,931 4,484,011 (264,923) 34,286,276
------------ ------------- ------------ ----------- ------------ ------------
Due to related parties...... -- -- -- 36,697,132 (36,697,132)(a) --
Long-term debt, net of
current maturities......... 129,122,129 129,122,129 146,482,634 52,053 (129,122,129)(a)(c) 275,656,816
------------ ------------- ------------ ----------- ------------ ------------
Total Liabilities...... 143,182,386 129,122,129 162,489,565 41,233,196 (166,084,184) 309,943,092
------------ ------------- ------------ ----------- ------------ ------------
Total member's
(deficit) equity..... (29,313,301) (129,122,129) 7,085,926 (3,907,104) 125,943,307(b)(c) (29,313,301)
------------ ------------- ------------ ----------- ------------ ------------
Total Liabilities and
Member's Deficit..... $113,869,085 $ -- $169,575,491 $37,326,092 $(40,140,877) $280,629,791
============ ============= ============ =========== ============ ============
</Table>
- ---------------
(a) To eliminate intercompany receivable and payable.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 7 Long-Term Debt, The Majestic Star Casino
Capital Corp. is a co-obligor of the 9 1/2% Senior Secured Notes issued by
the Company. Accordingly, such indebtedness has been presented as an
obligation of both the Issuer and the co-obligor in the above balance sheet.
F-29
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ------------- ------------
ASSETS
Current Assets:
Cash and cash
equivalents............. $ 8,564,057 $ -- $ 11,588,218 $ 4,395,606 $ -- $ 24,547,881
Restricted cash........... -- -- 250,000 -- -- 250,000
Accounts receivable, less
allowance for doubtful
accounts of $372,689.... 1,233,543 -- 648,404 592,779 -- 2,474,726
Inventories............... 53,360 -- 610,097 319,029 -- 982,486
Prepaid expenses.......... 1,237,196 -- 668,291 976,444 -- 2,881,931
Receivables from related
party................... 323,359 -- -- 1,760 (325,119)(a) --
Note receivable from
affiliate............... 500,000 -- 700,000 -- -- 1,200,000
Due from Buffington Harbor
Riverboats, LLC......... 217,925 -- -- -- -- 217,925
Other..................... -- -- 39,133 -- -- 39,133
------------ ------------- ------------ ----------- ------------- ------------
Total current assets.... 12,129,440 -- 14,504,143 6,285,618 (325,119) 32,594,082
------------ ------------- ------------ ----------- ------------- ------------
Property, equipment and
improvements, net......... 47,511,652 -- 89,302,527 27,994,979 -- 164,809,158
Intangible assets, net..... -- -- 15,774,246 1,917,500 -- 17,691,746
Goodwill................... -- -- 5,922,398 -- -- 5,922,398
Other assets:
Deferred financing costs,
net of accumulated
amortization of
$4,375,528.............. 2,657,165 -- 6,714,902 -- -- 9,372,067
Investment in Buffington
Harbor Riverboats,
LLC..................... 31,833,311 -- -- -- -- 31,833,311
Investment in Majestic
Investor Holdings,
LLC..................... 8,082,405 -- -- -- (8,082,405)(b) --
Long term accounts
receivable -- related
parties................. -- -- 36,173,404 -- (36,173,404)(a) --
Restricted cash........... -- -- -- 1,000,000 -- 1,000,000
Other assets.............. 10,962,753 -- 591,979 1,032,380 -- 12,587,112
------------ ------------- ------------ ----------- ------------- ------------
Total other assets.... 53,535,634 -- 43,480,285 2,032,380 (44,255,809) 54,792,490
------------ ------------- ------------ ----------- ------------- ------------
Total Assets.......... $113,176,726 $ -- $168,983,599 $38,230,477 $ (44,580,928) $275,809,874
============ ============= ============ =========== ============= ============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of
long-term debt.......... $ -- $ -- $ -- $ 134,084 $ -- 134,084
Accounts payable.......... 1,911,929 -- 1,031,604 1,104,765 -- 4,048,298
Other accrued liabilities:
Payroll and related..... 1,707,240 3,914,357 2,034,918 -- 7,656,515
Interest................ -- -- 1,473,785 -- -- 1,473,785
Progressive jackpots.... 713,083 -- 2,236,782 239,761 -- 3,189,626
Slot club liability..... -- -- 611,785 126,774 -- 738,559
Other accrued
liabilities........... 4,139,265 -- 3,711,696 691,442 (325,119)(a) 8,217,284
------------ ------------- ------------ ----------- ------------- ------------
Total current
liabilities......... 8,471,517 -- 12,980,009 4,331,744 (325,119) 25,458,151
------------ ------------- ------------ ----------- ------------- ------------
Due to related parties..... -- -- -- 36,173,404 (36,173,404)(a) --
Long-term debt, net of
current maturities........ 128,879,771 128,879,771 145,531,448 115,066 (128,879,771)(a) 274,526,285
------------ ------------- ------------ ----------- ------------- ------------
Total Liabilities..... 137,351,288 128,879,771 158,511,457 40,620,214 (165,378,294) 299,984,436
------------ ------------- ------------ ----------- ------------- ------------
Total member's
(deficit) equity.... (24,174,562) (128,879,771) 10,472,142 (2,389,737) 120,797,366(b)(c) (24,174,562)
------------ ------------- ------------ ----------- ------------- ------------
Total Liabilities and
Member's Deficit.... $113,176,726 $ -- $168,983,599 $38,230,477 $ (44,580,928) $275,809,874
============ ============= ============ =========== ============= ============
</Table>
- ---------------
(a) To eliminate intercompany receivable and payable.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 7 Long-Term Debt, and The Majestic Star
Casino Capital Corp. is a co-obligor of the 9 1/2% Senior Secured Notes
issued by the Company. Accordingly, such indebtedness has been presented as
an obligation of both the Issuer and the co-obligor in the above balance
sheet.
F-30
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ----------- ------------
REVENUES:
Casino........................... $34,533,303 $ -- $30,042,208 $ 8,958,133 $ -- $73,533,644
Rooms............................ -- -- 2,155,546 1,707,342 -- 3,862,888
Food and beverage................ 362,514 -- 2,935,293 2,144,609 -- 5,442,416
Other............................ 523,958 -- 444,300 425,679 -- 1,393,937
----------- ----- ----------- ----------- ---------- -----------
Gross revenues................. 35,419,775 -- 35,577,347 13,235,763 -- 84,232,885
Less promotional allowances.... 284,693 -- 4,251,531 1,376,696 -- 5,912,920
----------- ----- ----------- ----------- ---------- -----------
Net revenues................... 35,135,082 -- 31,325,816 11,859,067 -- 78,319,965
----------- ----- ----------- ----------- ---------- -----------
COSTS AND EXPENSES:
Casino........................... 9,215,369 -- 12,232,100 4,273,416 -- 25,720,885
Rooms............................ -- -- 658,404 1,037,404 -- 1,695,808
Food and beverage................ 392,561 -- 897,638 1,610,075 -- 2,900,274
Other............................ -- -- 330,895 203,090 -- 533,985
Gaming taxes..................... 9,623,655 -- 3,895,542 732,769 -- 14,251,966
Advertising and promotion........ 1,835,473 -- 1,849,460 1,461,781 -- 5,146,714
General and administrative....... 6,873,678 -- 4,462,311 3,232,793 -- 14,568,782
Economic Incentive--City of
Gary........................... 1,035,573 -- -- -- -- 1,035,573
Depreciation and amortization.... 1,388,381 -- 3,092,955 721,225 -- 5,202,561
Loss on investment in Buffington
Harbor Riverboats, LLC......... 594,718 -- -- -- -- 594,718
----------- ----- ----------- ----------- ---------- -----------
Total costs and expenses....... 30,959,408 -- 27,419,305 13,272,553 -- 71,651,266
----------- ----- ----------- ----------- ---------- -----------
Operating income (loss)........ 4,175,674 -- 3,906,511 (1,413,486) -- 6,668,699
----------- ----- ----------- ----------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income.................. 12,715 -- 5,420 623 -- 18,758
Interest expense................. (3,534,893) -- (4,421,376) (5,117) -- (7,961,386)
Loss on sale of assets........... -- -- (4,671) -- -- (4,671)
Other non-operating expense...... (37,766) -- (9,582) -- -- (47,348)
Equity in net income (loss) of
subsidiaries................ (1,941,678) -- -- -- 1,941,678 --
----------- ----- ----------- ----------- ---------- -----------
Total other expense............ (5,501,622) -- (4,430,209) (4,494) 1,941,678 (7,994,647)
----------- ----- ----------- ----------- ---------- -----------
Net income (loss).............. $(1,325,948) $ -- $ (523,698) $(1,417,980) $1,941,678 $(1,325,948)
=========== ===== =========== =========== ========== ===========
</Table>
F-31
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ----------- ------------
REVENUES:
Casino........................... $35,847,438 $ -- $32,844,210 $8,998,609 $ -- $77,690,257
Rooms............................ -- -- 2,110,610 1,698,765 -- 3,809,375
Food and beverage................ 404,204 -- 2,862,527 1,818,896 -- 5,085,627
Other............................ 501,110 -- 397,753 629,949 -- 1,528,812
----------- ----- ----------- ---------- -------- -----------
Gross revenues................. 36,752,752 -- 38,215,100 13,146,219 -- 88,114,071
Less promotional allowances.... 219,143 -- 4,218,757 1,566,234 -- 6,004,134
----------- ----- ----------- ---------- -------- -----------
Net revenues................... 36,533,609 -- 33,996,343 11,579,985 -- 82,109,937
----------- ----- ----------- ---------- -------- -----------
COSTS AND EXPENSES:
Casino........................... 9,842,101 -- 12,773,085 4,727,150 -- 27,342,336
Rooms............................ -- -- 761,452 955,661 -- 1,717,113
Food and beverage................ 440,966 -- 1,061,546 1,542,864 -- 3,045,376
Other............................ -- -- 251,527 144,607 -- 396,134
Gaming taxes..................... 8,927,379 -- 4,283,466 697,675 -- 13,908,520
Advertising and promotion........ 2,189,136 -- 2,141,238 685,807 -- 5,016,181
General and administrative....... 6,882,000 -- 4,371,171 2,810,276 -- 14,063,447
Economic Incentive-- City of
Gary........................... 1,072,350 -- -- -- -- 1,072,350
Depreciation and amortization.... 1,730,004 -- 2,887,363 937,977 -- 5,555,344
Loss on investment in Buffington
Harbor Riverboats, LLC......... 600,301 -- -- -- -- 600,301
----------- ----- ----------- ---------- -------- -----------
Total costs and expenses....... 31,684,237 -- 28,530,848 12,502,017 -- 72,717,102
----------- ----- ----------- ---------- -------- -----------
Operating income (loss)........ 4,849,372 -- 5,465,495 (922,032) -- 9,392,835
----------- ----- ----------- ---------- -------- -----------
OTHER INCOME (EXPENSE):
Interest income.................. 23,992 -- 30,066 3,154 -- 57,212
Interest expense................. (3,608,999) -- (4,454,389) (8,574) -- (8,071,962)
Loss on sale of assets........... -- -- (9,889) -- -- (9,889)
Other non-operating expenses..... (38,593) -- (10,931) -- -- (49,524)
----------- ----- ----------- ---------- -------- -----------
Equity in net income (loss) of
subsidiaries................ 92,900 -- -- -- (92,900) --
Total other expense............ (3,530,700) -- (4,445,143) (5,420) (92,900) (8,074,163)
----------- ----- ----------- ---------- -------- -----------
Net income (loss).............. $ 1,318,672 $ -- $ 1,020,352 $ (927,452) $(92,900) $ 1,318,672
=========== ===== =========== ========== ======== ===========
</Table>
F-32
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ----------- ------------
REVENUES:
Casino.......................... $103,464,268 $ -- $ 90,169,721 $27,807,801 $ -- $221,441,790
Rooms........................... -- -- 6,042,051 5,204,535 -- 11,246,586
Food and beverage............... 1,097,999 -- 8,562,543 6,133,146 -- 15,793,688
Other........................... 1,723,907 -- 1,228,886 1,274,569 -- 4,227,362
------------ ------------ ------------ ----------- ---------- ------------
Gross revenues................ 106,286,174 -- 106,003,201 40,420,051 -- 252,709,426
Less promotional allowances... 924,219 -- 12,573,712 4,216,056 -- 17,713,987
------------ ------------ ------------ ----------- ---------- ------------
Net revenues.................. 105,361,955 -- 93,429,489 36,203,995 -- 234,995,439
------------ ------------ ------------ ----------- ---------- ------------
COSTS AND EXPENSES:
Casino.......................... 27,149,303 -- 36,231,997 12,444,225 -- 75,825,525
Rooms........................... -- -- 1,921,639 2,961,352 -- 4,882,991
Food and beverage............... 1,196,149 -- 2,772,990 4,797,073 -- 8,766,212
Other........................... -- -- 850,553 503,489 -- 1,354,042
Gaming taxes.................... 30,792,182 -- 11,468,760 2,194,171 -- 44,455,113
Advertising and promotion....... 5,038,353 -- 5,914,424 3,940,770 -- 14,893,547
General and administrative...... 19,237,130 -- 12,406,389 8,770,763 -- 40,414,282
Economic Incentive--City of
Gary.......................... 3,106,984 -- -- -- -- 3,106,984
Depreciation and amortization... 4,196,373 -- 9,081,218 2,094,976 -- 15,372,567
Loss on investment in Buffington
Harbor Riverboats, LLC........ 1,794,608 -- -- -- -- 1,794,608
------------ ------------ ------------ ----------- ---------- ------------
Total costs and expenses...... 92,511,082 -- 80,647,970 37,706,819 -- 210,865,871
------------ ------------ ------------ ----------- ---------- ------------
Operating income (loss)....... 12,850,873 -- 12,781,519 (1,502,824) -- 24,129,568
------------ ------------ ------------ ----------- ---------- ------------
OTHER INCOME (EXPENSE):
Interest income................. 42,807 -- 37,336 2,852 -- 82,995
Interest expense................ (10,603,782) (13,264,175) (17,403) (23,885,360)
Gain (loss) on sale of assets... (125,919) -- 20,290 -- -- (105,629)
Other non-operating expense..... (113,320) -- (28,482) -- -- (141,802)
Equity in net income (loss) of
subsidiaries................ (1,970,887) -- -- -- 1,970,887 --
------------ ------------ ------------ ----------- ---------- ------------
Total other expense........... (12,771,101) (13,235,031) (14,551) 1,970,887 (24,049,796)
------------ ------------ ------------ ----------- ---------- ------------
Net income (loss)............. $ 79,772 $ $ (453,512) $(1,517,375) $1,970,887 $ 79,772
============ ============ ============ =========== ========== ============
</Table>
F-33
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ----------- ------------
REVENUES:
Casino........................... $ 98,626,635 $-- $ 96,275,336 $28,348,575 $ -- $223,250,546
Rooms............................ -- -- 6,271,669 5,565,092 -- 11,836,761
Food and beverage................ 1,239,364 -- 8,610,993 5,516,362 -- 15,366,719
Other............................ 1,446,292 -- 1,236,373 1,657,331 -- 4,339,996
------------ -- ------------ ----------- ------- ------------
Gross revenues................ 101,312,291 -- 112,394,371 41,087,360 -- 254,794,022
Less promotional allowances... 626,152 -- 13,201,820 4,460,924 -- 18,288,896
------------ -- ------------ ----------- ------- ------------
Net revenues.................. 100,686,139 -- 99,192,551 36,626,436 -- 236,505,126
------------ -- ------------ ----------- ------- ------------
COSTS AND EXPENSES:
Casino........................... 25,275,831 -- 38,524,574 13,977,362 -- 77,777,767
Rooms............................ -- -- 2,028,992 2,946,794 -- 4,975,786
Food and beverage................ 1,311,440 -- 3,076,633 4,704,573 -- 9,092,646
Other............................ -- -- 744,670 426,719 -- 1,171,389
Gaming taxes..................... 26,153,991 -- 12,561,835 2,218,134 -- 40,933,960
Advertising and promotion........ 5,112,461 -- 6,624,831 3,152,888 -- 14,890,180
General and administrative....... 18,770,847 -- 12,220,400 8,337,580 -- 39,328,827
Economic Incentive--City of
Gary.......................... 2,959,492 -- -- -- -- 2,959,492
Depreciation and amortization.... 5,085,779 -- 8,502,499 2,203,006 -- 15,791,284
Loss on investment in Buffington
Harbor Riverboats, LLC........ 1,806,379 -- -- -- -- 1,806,379
Pre-opening expenses............. -- -- 124,269 -- -- 124,269
------------ -- ------------ ----------- ------- ------------
Total costs and expenses...... 86,476,220 -- 84,408,703 37,967,056 -- 208,851,979
------------ -- ------------ ----------- ------- ------------
Operating income (loss)....... 14,209,919 -- 14,783,848 (1,340,620) -- 27,653,147
------------ -- ------------ ----------- ------- ------------
OTHER INCOME (EXPENSE):
Interest income.................. 40,158 -- 84,691 10,333 -- 135,182
Interest expense................. (10,784,602) -- (13,547,333) (24,488) -- (24,356,423)
Gain (loss) on sale of assets.... 8,850 -- (9,311) -- -- (461)
Other non-operating expenses..... (103,509) -- (38,306) -- -- (141,815)
------------ -- ------------ ----------- ------- ------------
Equity in net income (loss) of
subsidiaries................ (81,186) -- -- -- 81,186 --
Total other expense........... (10,920,289) -- (13,510,259) (14,155) 81,186 (24,363,517)
------------ -- ------------ ----------- ------- ------------
Net income (loss)............. $ 3,289,630 $-- $ 1,273,589 $(1,354,775) $81,186 $ 3,289,630
============ == ============ =========== ======= ============
</Table>
F-34
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ----------- ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES....................... $14,037,416 $ -- $11,145,190 $ 1,208,346 $ -- $ 26,390,952
----------- ------ ----------- ----------- ------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in restricted cash...... -- -- (250,000) -- -- (250,000)
Acquisition of property and
equipment...................... (4,986,306) -- (4,269,936) (1,658,063) -- (10,914,305)
Appreciated value of land
purchased from a related
party.......................... (559,806) -- -- -- -- (559,806)
Decrease in prepaid leases and
deposits....................... 108,500 -- -- -- -- 108,500
Investment in Buffington Harbor
Riverboats, LLC................ (211,138) -- -- -- -- (211,138)
Proceeds from sale of
equipment...................... 14,750 -- 35,205 6,264 -- 56,219
----------- ------ ----------- ----------- ------ ------------
Net cash used in investing
activities................... (5,634,000) -- (4,484,731) (1,651,799) -- (11,770,530)
----------- ------ ----------- ----------- ------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance cost for the 9 1/2%
senior secured notes........... (203,939) -- (2,337) -- -- (206,276)
Proceeds from notes receivable
from affiliates................ 367,000 -- 700,000 -- -- 1,067,000
Repayment of long-term debt...... -- -- -- (114,014) -- (114,014)
Distribution to Barden
Development, Inc............... (1,726,009) -- (2,932,696) -- -- (4,658,705)
----------- ------ ----------- ----------- ------ ------------
Net cash used in financing
activities................... (1,562,948) -- (2,235,033) (114,014) -- (3,911,995)
----------- ------ ----------- ----------- ------ ------------
Net increase (decrease) in cash and
cash equivalents................. 6,840,468 -- 4,425,426 (557,467) -- 10,708,427
Cash and cash equivalents,
beginning of period.............. 8,564,057 -- 11,588,218 4,395,606 -- 24,547,881
----------- ------ ----------- ----------- ------ ------------
Cash and cash equivalents, end of
period........................... $15,404,525 $ -- $16,013,644 $ 3,838,139 $ -- $ 35,256,308
=========== ====== =========== =========== ====== ============
</Table>
F-35
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ----------- ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES....................... $ 7,308,679 $ -- $14,375,913 $ 506,046 $ -- $ 22,190,638
----------- ------ ----------- ----------- ------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition related costs........ -- -- (986,158) -- -- (986,158)
Proceeds from seller for purchase
price adjustment............... -- -- 3,800,000 -- -- 3,800,000
Acquisition of property and
equipment...................... (4,276,313) -- (2,783,564) (1,134,737) -- (8,194,614)
Decrease in prepaid leases and
deposits....................... 428,005 -- -- -- -- 428,005
Investment in Buffington Harbor
Riverboats, LLC................ (40,455) -- -- -- -- (40,455)
Proceeds from sale of
equipment...................... 8,850 -- 43,867 -- -- 52,717
----------- ------ ----------- ----------- ------ ------------
Net cash provided by (used in)
investing activities......... (3,879,913) -- 74,145 (1,134,737) -- (4,940,505)
----------- ------ ----------- ----------- ------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance cost for the 11.653%
senior secured notes........... -- -- (1,410,945) -- -- (1,410,945)
Proceeds from line of credit..... -- -- 2,500,000 -- -- 2,500,000
Repayment of line of credit...... -- -- (9,000,000) -- -- (9,000,000)
Repayment of long-term debt...... -- -- -- (104,808) -- (104,808)
Distribution to Barden
Development, Inc............... (976,152) -- (1,844,206) -- -- (2,820,358)
----------- ------ ----------- ----------- ------ ------------
Net cash used in financing
activities................... (976,152) -- (9,755,151) (104,808) -- (10,836,111)
----------- ------ ----------- ----------- ------ ------------
Net increase (decrease) in cash and
cash equivalents................. 2,452,614 -- 4,694,907 (733,499) -- 6,414,022
Cash and cash equivalents,
beginning of period.............. 8,220,476 -- 12,746,429 4,958,386 -- 25,925,291
----------- ------ ----------- ----------- ------ ------------
Cash and cash equivalents, end of
period........................... $10,673,090 $ -- $17,441,336 $ 4,224,887 $ -- $ 32,339,313
=========== ====== =========== =========== ====== ============
</Table>
F-36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
The Majestic Star Casino, LLC:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in member's deficit and of
cash flows present fairly, in all material respects, the financial position of
The Majestic Star Casino, LLC and its subsidiaries at December 31, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule of The Majestic Star Casino, LLC
listed in the index appearing on page F-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 audits. We conducted our audits 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
audits provide a reasonable basis for our opinion.
As more fully described in Note 2, the Company changed its method of
accounting for gains and losses on early retirement of debt in connection with
its adoption of Financial Accounting Standards Board Statement No. 145.
/s/ PRICEWATERHOUSECOOPERS LLP
Las Vegas, Nevada
February 23, 2003, except for Note 15,
as to which the date is March 17, 2003,
Note 2 (Gains and Losses on Retirement of Indebtedness)
as to which the date is May 15, 2003,
and Note 18, as to which
the date is October 7, 2003
F-37
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 24,547,881 $ 25,925,291
Restricted cash........................................... 250,000 --
Accounts receivable, less allowance for doubtful accounts
of $372,689 and $359,702, respectively................. 2,974,726 3,095,604
Inventories............................................... 982,486 995,708
Prepaid expenses.......................................... 2,921,064 2,190,255
Note receivable due from affiliate........................ 700,000 700,000
Due from Buffington Harbor Riverboats, L.L.C.............. 217,925 333,838
------------ ------------
Total current assets................................... 32,594,082 33,240,696
------------ ------------
Property, equipment and improvements, net................... 164,809,158 170,195,013
Intangible assets, net...................................... 17,691,746 19,290,753
Goodwill.................................................... 5,922,398 10,602,250
OTHER ASSETS:
Deferred financing costs, net of accumulated amortization
of $4,375,528 and $2,202,831, respectively............. 9,372,067 10,530,426
Investment in Buffington Harbor Riverboats, L.L.C......... 31,833,311 33,898,771
Restricted cash........................................... 1,000,000 1,000,000
Other assets, prepaid leases and deposits................. 12,587,112 12,317,704
------------ ------------
Total other assets..................................... 54,792,490 57,746,901
------------ ------------
Total Assets........................................... $275,809,874 $291,075,613
============ ============
LIABILITIES AND MEMBER'S DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 134,084 $ 6,656,574
Accounts payable.......................................... 4,048,298 2,978,502
Payroll and related....................................... 7,656,515 6,194,601
Accrued interest.......................................... 1,473,785 8,294,312
Other accrued liabilities................................. 11,895,469 13,036,178
------------ ------------
Total current liabilities.............................. 25,208,151 37,160,167
LONG-TERM DEBT, net of current maturities................... 274,526,285 273,896,933
------------ ------------
Total Liabilities...................................... 299,734,436 311,057,100
Commitments and contingencies............................... 250,000 --
MEMBER'S DEFICIT............................................ (24,174,562) (19,981,487)
------------ ------------
Total Liabilities and Member's Deficit................. $275,809,874 $291,075,613
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, DECEMBER 31, 2001, AND DECEMBER 31, 2000
<Table>
<Caption>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- ----------------- -----------------
REVENUES:
Casino.................................... $293,788,942 $132,553,506 $115,455,271
Rooms..................................... 15,495,620 1,079,456 --
Food and beverage......................... 21,094,121 2,803,706 1,564,684
Other..................................... 5,546,624 1,930,561 1,431,304
------------ ------------ ------------
Gross revenues......................... 335,925,307 138,367,229 118,451,259
Less promotional allowances............ (39,219,124) (8,081,983) (4,689,543)
------------ ------------ ------------
Net revenues........................... 296,706,183 130,285,246 113,761,716
COSTS AND EXPENSES:
Casino.................................... 87,159,935 28,213,481 23,787,240
Rooms..................................... 9,014,354 628,910 --
Food and beverage......................... 13,553,116 3,024,356 2,402,518
Other..................................... 1,559,861 108,732 --
Gaming taxes.............................. 51,572,106 34,834,624 32,350,368
Advertising and promotion................. 20,919,305 8,522,115 8,347,889
General and administrative................ 51,753,800 24,240,726 23,192,220
Economic incentive--City of Gary.......... 3,980,501 3,667,100 3,230,679
Depreciation and amortization............. 21,077,185 8,990,616 9,113,681
Loss on investment in Buffington Harbor
Riverboats LLC......................... 2,424,392 2,797,740 2,058,669
Pre-opening expenses...................... 13,391 1,018,234 --
------------ ------------ ------------
Total costs and expenses............... 263,027,946 116,046,634 104,483,264
------------ ------------ ------------
Operating income....................... 33,678,237 14,238,612 9,278,452
OTHER INCOME (EXPENSE):
Interest income........................... 193,792 399,752 893,453
Interest expense.......................... (32,436,813) (16,028,074) (14,998,377)
Other non-operating expense............... (183,200) (148,690) (124,503)
Loss on disposal of assets................ 5,219 12,114 416,904
Gain (loss) on bond redemption............ 68,957 -- (382,500)
------------ ------------ ------------
Total other expense.................... 32,362,483 15,789,126 15,028,831
------------ ------------ ------------
Net income (loss)...................... $ 1,315,754 $ (1,550,514) $ (5,750,379)
============ ============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002, DECEMBER 31, 2001 AND DECEMBER 31, 2000
<Table>
<Caption>
TOTAL
MEMBERS' DEFICIT
----------------
BALANCE, DECEMBER 31, 1999.................................. $(17,082,984)
Net loss.................................................... (5,750,379)
Distribution to Manager..................................... (597,610)
------------
BALANCE, DECEMBER 31, 2000.................................. (23,430,973)
Member's contribution....................................... 5,000,000
Net loss.................................................... (1,550,514)
------------
BALANCE, DECEMBER 31, 2001.................................. (19,981,487)
Net income.................................................. 1,315,754
Distribution to Manager..................................... (5,508,829)
------------
BALANCE, DECEMBER 31, 2002.................................. $(24,174,562)
============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, DECEMBER 31, 2001, AND DECEMBER 31, 2000
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 1,315,754 $ (1,550,514) $ (5,750,379)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation.............................................. 15,287,877 6,987,173 6,835,778
Amortization.............................................. 5,789,308 2,003,444 2,277,903
Loss on investment in Buffington Harbor Riverboats,
L.L.C................................................... 2,424,392 2,797,740 2,058,669
Loss on sale of assets.................................... 5,219 12,114 416,904
(Gain) loss on bond redemption............................ (68,957) -- 382,500
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable................ 224,482 (440,012) (65,416)
Decrease in inventories................................... 13,222 36,221 13,570
(Increase) decrease in prepaid expenses................... (1,259,507) (539,246) 405,411
Decrease (increase) in other assets....................... 1,511,208 (470,733) (1,738,980)
Increase (decrease) in accounts payable................... 873,426 637,465 (69,794)
Increase in accrued payroll and related expenses.......... 1,375,464 203,763 171,458
Decrease (increase) in accrued interest................... (6,820,527) 1,187,254 (796,202)
Increase in other accrued liabilities..................... 633,362 1,546,616 605,290
------------ ------------- ------------
Net cash provided by operating activities............... 21,304,723 12,411,285 4,746,712
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of Fitzgeralds, net of cash
received................................................ -- (143,758,152) --
Payment of acquisition related costs...................... (986,158) -- --
Proceeds from seller from purchase price adjustment....... 3,800,000 -- --
Acquisition of property, equipment and improvements....... (10,396,222) (5,089,848) (3,039,635)
(Increase) decrease in prepaid lease and deposits......... (113,186) 2,287,437 (98,404)
Purchase of naming rights................................. -- (1,500,000) --
(Increase) decrease in restricted cash.................... (250,000) 2,000,000 (2,000,000)
Investment in Buffington Harbor Riverboats, L.L.C......... (358,918) (214,665) (7,836,489)
Purchase of 49% interest in Gary New Century.............. -- -- (9,000,000)
Sale of 49% interest in Gary New Century.................. -- -- 9,000,000
Proceeds from sale of equipment........................... 53,117 1,850 179,200
------------ ------------- ------------
Net cash used in investing activities................... (8,251,367) (146,273,378) (12,795,328)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of 12 3/4% Senior Secured Notes................ -- -- (6,382,500)
Proceeds from issuance of 11.653% Senior Secured Notes.... -- 145,000,400 --
Line of credit, net....................................... (6,500,000) (1,300,000) 7,800,000
Payment of 11.653% Senior Secured Notes issuance costs.... (1,523,568) (5,349,230) --
Member's equity contribution.............................. -- 5,000,000 --
Decrease in restricted cash............................... -- -- 7,357,874
Cash paid for redemption of 11.653% Senior Secured
Notes................................................... (759,038) -- --
Cash paid to reduce long-term debt........................ (139,331) (983,298) (2,154,680)
Issuance of loans to Barden Development, Inc.............. -- (700,000) (6,000,000)
Cash received from loans from Barden Development, Inc..... -- 2,000,000 4,000,000
Distribution to Barden Development, Inc................... (5,508,829) -- (597,610)
------------ ------------- ------------
Net cash provided by (used in) financing activities..... (14,430,766) 143,667,872 4,023,084
------------ ------------- ------------
Net increase (decrease) in cash and cash equivalents........ (1,377,410) 9,805,779 (4,025,532)
Cash and cash equivalents, beginning of period.............. 25,925,291 16,119,512 20,145,044
------------ ------------- ------------
Cash and cash equivalents, end of period.................... $ 24,547,881 $ 25,925,291 $ 16,119,512
============ ============= ============
INTEREST PAID:
Equipment Debt............................................ $ 44,667 $ 35,898 $ 237,513
Senior Secured Notes-- Fixed Interest 10 7/8%............. $ 21,206,250 $ 14,137,500 $ 14,648,021
Senior Secured Notes-- Fixed Interest 12.75%.............. $ -- $ -- $ 382,500
Senor Secured Notes-- Contingent Interest, 12.75%......... $ -- $ -- $ 250,545
Senior Secured Notes-- Fixed Interest 11.653%............. $ 17,702,015 $ -- $ --
Lines of credit........................................... $ 303,878 $ 423,831 $ 276,000
Indiana Department of Revenue............................. $ -- $ 260,374 $ --
SUPPLEMENTAL NONCASH OPERATING AND FINANCING ACTIVITIES:
Elimination of slot based progressives...................... $ 400,000 $ -- $ --
Elimination of slot club.................................... $ 1,300,000 $ -- $ --
Conversion of Investment in Buffington Harbor Riverboats,
LLC to prepaid lease...................................... $ -- $ 6,213,615 $ --
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Majestic Star Casino, LLC (the "Company") was formed on December 8,
1993, as an Indiana limited liability company to provide gaming and related
entertainment to the public. The Company commenced gaming operations in the City
of Gary (the "City") at Buffington Harbor, located in Lake County, in the State
of Indiana on June 7, 1996. Majestic Investor, LLC ("Investor") was formed in
September 2000 as an "unrestricted subsidiary" of the Company under the
Indenture relating to the Company's 10 7/8% Senior Secured Notes (the "Majestic
Star Senior Secured Notes"). Investor was initially formed to satisfy the
Company's off-site development obligations under the Development Agreement with
the City of Gary.
Investor entered into a definitive purchase and sale agreement dated as of
November 22, 2000, as amended December 4, 2000, with Fitzgeralds Gaming
Corporation and certain of its affiliates (the "Seller") to purchase
substantially all of the assets of three of its subsidiaries for approximately
$149.0 million in cash, subject to adjustment in certain circumstances, plus
assumption of certain liabilities. Investor assigned all of its rights and
obligations to Majestic Investor Holdings, LLC, ("Investor Holdings") a
wholly-owned subsidiary of Investor, following the formation of Investor
Holdings. Investor Holdings completed the purchase of the Fitzgeralds assets on
December 6, 2001. The Fitzgeralds brand casinos are "restricted subsidiaries" of
Investor Holdings under the Indenture relating to Majestic Investor Holdings,
LLC's 11.653% Senior Secured Notes (the "Investor Holdings Senior Secured
Notes") and "unrestricted subsidiaries" under the Company's Indenture relating
to the Majestic Star Senior Secured Notes.
Except where otherwise noted, the words "we," "us," "our," and similar
terms, as well as the "Company," refer to The Majestic Star Casino, LLC and all
of its subsidiaries.
The accompanying consolidated financial statements include the accounts of
The Majestic Star Casino, LLC and its wholly-owned subsidiary, Majestic
Investor, LLC. Intercompany transactions are eliminated. Investment in
affiliates in which the Company has the ability to exercise significant
influence, but not control, are accounted for by the equity method.
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 the 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, 2002 and December 31, 2001 restricted cash
of $1,000,000 represents U.S. Treasury Notes held in an escrow account for the
benefit of certain owners of land leased to Barden Nevada Gaming, LLC. Also, at
December 31, 2002, restricted cash of $250,000 at Investor Holdings secures a
letter of credit for self insured workers compensation at Barden Mississippi
Gaming, LLC and Barden Colorado 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, 2002, no significant concentrations of credit
risk existed for which an allowance had not already been determined and
recorded.
F-42
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories--Inventories consisting principally of food, beverage,
operating supplies 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 sheets include $1,177,162 and $1,243,910 of base stock
inventories at December 31, 2002 and 2001, respectively.
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.
Capitalized Interest--The Company capitalizes interest costs associated
with debt incurred in connection with major construction projects. When no debt
is specifically identified as being incurred in connection with such
construction projects, the Company capitalizes interest on amounts expended on
the project at the Company's average cost of borrowed money.
Deferred Financing Costs--Deferred financing costs represent agent's
commissions, closing costs and professional fees incurred in connection with the
issuance of the Company's 10 7/8% Senior Secured Notes and a $20.0 million
credit facility with Foothill Capital Corporation (the "Majestic Star Credit
Facility"), and Investor Holdings Senior Secured Notes and a $15.0 million
credit facility with Foothill Capital Corporation ("the Investor Holdings Credit
Facility"). Such costs are being amortized over the terms of the related notes
and lines of credit, respectively, using the effective interest method and are
reflected in depreciation and amortization expense. Amortization of deferred
financing costs, totalled approximately $4.2 million, $1.9 million and $2.3
million for the years ended December 31, 2002, 2001 and 2000, respectively.
Deferred Costs--Development and obligation payments to the City of Gary,
(the "City") and licensing costs represent direct costs associated with the
development of the riverboat casino, and were deferred until operations
commenced on June 7, 1996. These costs have been amortized over five years, the
life of the gaming license.
Goodwill--Goodwill represents the cost of the Fitzgeralds 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. See Note 7.
Investment in Buffington Harbor Riverboats, L.L.C.--The Company accounts
for its 50 percent interest in Buffington Harbor Riverboats, L.L.C. ("BHR")
under the equity method, whereby the initial investments are recorded at cost
and then adjusted for the Company's share of BHR's net income or loss.
Casino Revenue--Casino revenue is the net win from gaming activities, which
is the difference between gaming wins and losses. Hotel and other revenue are
recognized at the time the related service is performed.
Promotional Allowances--Cash discounts and other cash incentives related to
gaming play are recorded as a reduction of gross casino revenues. In addition,
the retail value of accommodations, food and beverage, and other services
furnished to hotel/casino guests without charge is included in gross revenue and
then
F-43
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
deducted as promotional allowances. The estimated departmental cost of providing
such promotional allowances is included primarily in casino operating expenses
as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
----------- ---------- --------
Rooms............................................ $ 4,121,861 $ 254,918 $ --
Food and Beverage................................ 11,414,415 1,008,421 179,782
Other............................................ 1,354,876 231,933 105,391
----------- ---------- --------
$16,891,152 $1,495,272 $285,173
</Table>
The estimated retail value of such promotional allowances is included in
operating revenues as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
----------- ---------- --------
Rooms............................................ $ 5,592,973 $ 436,701 $ --
Food and Beverage................................ 11,990,058 1,070,136 243,108
Other............................................ 1,302,589 368,659 167,579
----------- ---------- --------
$18,885,620 $1,875,496 $410,687
</Table>
Pre-Opening Expenses--Pre-opening expenses are expensed as incurred.
Federal Income Taxes--The Company has historically been treated as a
partnership for U.S. federal income tax purposes. As a result of a change in the
Company's ownership structure in June 2001, the Company ceased to be a
partnership for U.S. federal income tax purposes, and is now an entity
disregarded for U.S. federal income tax purposes. At all times during 2002,
income of the Company was taxed directly to its members, and, accordingly, no
provision for federal income taxes is reflected in the financial statements.
Advertising Costs--Costs for advertising are expensed as incurred, except
costs for direct-response advertising, which are capitalized and amortized over
the period of the related program. Direct-response advertising consists
primarily of mailing costs associated with the direct-mail programs. Capitalized
advertising costs, included in prepaid expense, were immaterial at December 31,
2002 and 2001.
Consolidated advertising costs included in advertising and promotion
expenses were $4,000,467, $2,698,484, and $3,169,974 for the years ended
December 31, 2002, 2001 and 2000, respectively.
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. Effective January 1, 2002 SFAS 142 requires annual impairment
review all intangible assets with indefinite lives. The Company performed an
impairment test of its intangible assets with indefinite lives during the year
2002 and concluded that there was no impairment. See Note 7.
Casino Club Liability--The Fitzgeralds properties have accrued for the
liability of points earned but not redeemed by its casino club members, less
inactive players and expired points. The liability is calculated based on
average historical redemption rate. Expenses incurred from actual cash
redemption and the change in reserve for club redemption is included in
promotional allowances on the consolidated statement of operations.
Progressive Liability--The Company maintains a number of progressive slot
machines and table games. As wagers are made on the respective progressive
games, the amount available to win (to be paid out when the
F-44
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
appropriate jackpots are hit) increases. The Company has recorded the
progressive jackpots as a liability with a corresponding charge against casino
revenue.
Self-Insurance Liability--The Company maintains accruals for their
self-insured health program, which is classified in other accrued liabilities in
the consolidated balance sheet. Management determines the estimates of these
accruals by periodically evaluating the historical expenses and projected trends
related to these accruals. Actual results may differ from these estimates.
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 also estimates that 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 in the United States of America
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.
Gains and Losses on Retirement of Indebtedness--In April 2002, the
Financial Accounting Standards Board Issued Statement No. 145 (SFAS 145)
Rescission of FASB Statements Nos. 4, 44 and 64 and Amendment of FASB Statement
No. 13. SFAS 145 addresses the presentation for losses on early retirements of
debt in the statement of operations. The Company has adopted SFAS 145 and has
not presented losses on early retirements of debt as an extraordinary item.
Additionally, prior period extraordinary losses have been reclassified to
conform to this new presentation. Adoption of SFAS 145 had no impact on the
Company's financial condition or cash flows.
Recently Issued Accounting Pronouncements--In August 2001, the Financial
Accounting Standards Board issued Statement 143 ("SFAS 143"), "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets". Under SFAS
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 143 is
effective for fiscal years beginning after June 15, 2002. Adoption of SFAS No.
143 is not anticipated to have a material impact on our financial condition,
results of operations or cash flows.
In April 2002, the Financial Accounting Standards Board issued SFAS 145.
SFAS 145 addresses the presentation for gains and losses on early retirements of
debt in the statement of operations. SFAS 145 is effective for fiscal years
beginning after May 15, 2003. Adoption of SFAS 145 is not anticipated to have a
material impact on our financial condition, results of operations or cash flows.
In June 2002, the Financial Accounting Standard Board issued Statement No.
146 ("SFAS 146") "Accounting for Costs Associated with Exit or Disposal
Activities." The provisions of SFAS 146 became effective for exit or disposal
activities commenced subsequent to December 31, 2002 and the Company does not
expect any impact on its financial condition, results of operations or cash
flows.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This interpretation elaborates on the disclosures to be made by a
guarantor in its interim and an annual financial statement about its obligations
under certain guarantees that is has issued. It also clarifies (for guarantees
issued after January 1, 2003) that a guarantor is required to recognize at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing
F-45
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the guarantee. At December 31, 2002, the Company does not have any guarantees
outside of its consolidated group and accordingly does not expect the adoption
of FIN 45 to have a material impact on its financial condition, results of
operations or cash flows. Disclosures concerning guarantees are found in Notes
10 and 17.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities
("VIE")". This interpretation addresses the requirements for business
enterprises to consolidate related entities in which they are determined to be
the primary economic beneficiary as a result of their variable economic
interests. The interpretation is intended to provide guidance in judging
multiple economic interest in an entity and in determining the primary
beneficiary. The interpretation outlines disclosure requirements for VIEs in
existence prior to January 31, 2003, and outlines consolidation requirements for
VIEs created after January 31, 2003. The Company has reviewed its major
relationships and its overall economic interests with other companies consisting
of related parties, companies in which it has an equity position and other
suppliers to determine the extent of its variable economic interest in these
parties. The review has not resulted in a determination that the Company would
be judged to be the primary economic beneficiary in any material relationships,
or that any material entities would be judged to be Variable Interest Entities
of the Company. The Company believes it has appropriately reported the economic
impact and its share of risks of its commercial relationships through its equity
accounting along with appropriate disclosure of its other commitments.
Reclassification--The consolidated financial statements and footnotes for
prior years reflect certain reclassifications to conform with the current year
presentation, which have no effect on previously reported net income.
3. CERTIFICATE OF SUITABILITY
On December 9, 1994, the Indiana Gaming Commission (the "Commission")
awarded the Company one of two certificates (the "Certificate") for a riverboat
owner's license for a riverboat casino to be docked in the City. Having complied
with certain statutory and regulatory requirements and other conditions of the
SEC, the Company received a five-year riverboat owner's license on June 3, 1996.
On August 23, 2001, the Company's riverboat ownership license was renewed for a
one-year period beginning June 7, 2001 (as under Indiana gaming laws, a licensee
may only renew its original license for one-year periods). On May 13, 2002, the
Company's riverboat ownership license was again renewed by the IGC for another
one-year period beginning June 2, 2002. There can be no assurance that the
Company's license will be renewed beyond the one-year period.
The second certificate was issued to Trump Indiana, Inc. ("Trump"). The
Company and Trump jointly developed and operate a docking location from which
the entities are conducting their respective riverboat gaming operations in the
City.
4. CITY OF GARY, INDIANA DEVELOPMENT OBLIGATION
On September 7, 1995, the Company and the City entered into an agreement
for the purpose of summarizing procedures regarding the acquisition of a certain
parcel of land in accordance with the Certificate. The Company paid the City
$250,000 under the terms of this agreement. On September 29, 1995, the Company
and Trump entered into an agreement with the City for which the Company paid the
City $5,000,000. As of December 31, 2002, the deferred costs representing the
Company's development obligation to the City has been fully amortized.
As of March 26, 1996, the City and the Company entered into a development
agreement that supersedes the previous agreement between the City and the
Company. The development agreement ("Development Agreement") requires the
Company, among other things, (1) to invest $116 million in various on-site
F-46
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. CITY OF GARY, INDIANA DEVELOPMENT OBLIGATION--(CONTINUED)
improvements over the succeeding five years, (2) pay the City an economic
incentive equal to 3% of the Company's adjusted gross receipts, as defined by
the Riverboat Gambling Act and (3) pay a default payment in the amount of
damages for failure to complete certain on-site developments, which amount is
capped at $12 million.
The Company fulfilled all commitments with respect to the Development
Agreement as of September 2000, by purchasing and equipping the Permanent
Vessel, constructing substantial harbor improvements and the BHR facilities, and
by investing in an affiliated entity that purchased land for future development
adjacent to the BHR facility. In addition, the Company is current on its ongoing
economic incentive payments.
5. ACQUISITIONS
On December 6, 2001, we, through certain indirect wholly-owned
subsidiaries, 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 in cash. 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. Investor Holdings
funded the acquisition through the issuance of its 11.653% Senior Secured Notes
(see Note 10). Pursuant to the terms of the purchase and sale agreement, the
parties agreed to a $3.8 million reduction in the purchase price on May 9, 2002,
based upon a negotiated settlement of the value of working capital at December
6, 2001.
The $3.8 million reduction was taken against Goodwill. 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>
The Company (Gary property only) has no intangible assets. Intangible
assets at Investor Holdings 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 tradenames are being amortized
over a period of 8-10 years. In accordance with SFAS No. 142, goodwill and other
indefinite lived intangible assets,
F-47
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACQUISITIONS--(CONTINUED)
such as the Investor Holdings' gaming license, are not amortized but instead are
subject to impairment tests at least annually. See Note 7.
The following unaudited pro forma consolidated financial information has
been prepared assuming our acquisition had occurred on January 1, 2000.
<Table>
<Caption>
FOR THE YEARS ENDED
-------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
(UNAUDITED)
Net revenue......................................... $291,114,248 $273,171,030
Income from operations.............................. $ 36,724,595 $ 26,614,526
Net income (loss)................................... $ 167,824 $(10,531,166)
</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.
6. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2002 and 2001 consists of the
following:
<Table>
<Caption>
ESTIMATED
SERVICE LIFE
2002 2001 (YEARS)
------------ ------------ ------------
Land used in casino operations................ $ 6,403,375 $ 6,403,375 --
Vessel, Buildings & Improvements.............. 116,749,218 116,161,955 25--39
Site improvements............................. 17,596,240 15,870,892 9--15
Barge and improvements........................ 15,798,767 15,555,248 13--15
Leasehold improvements........................ 395,886 237,763 5
Furniture, fixtures and equipment............. 50,566,918 44,131,889 4--10
Construction in progress...................... 1,513,320 713,772
------------ ------------
209,023,724 199,074,894
Less accumulated depreciation and
amortization................................ (44,214,566) (28,879,881)
------------ ------------
Property and equipment, net................. $164,809,158 $170,195,013
============ ============
</Table>
Substantially all property and equipment are pledged as collateral on
long-term debt. See Note 10.
F-48
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. OTHER INTANGIBLE ASSETS
The gross carrying amount and accumulated amortization of the Company's
intangible assets, other than goodwill, as of December 31, 2002 are as follows:
<Table>
<Caption>
GROSS CARRYING ACCUMULATED NET AMOUNT
AMOUNT AMORTIZATION DECEMBER 31, 2002
-------------- -------------- -----------------
(IN THOUSANDS)
Amortized intangible assets:
Customer relationships.................... $ 9,800 $(1,312) $ 8,488
Tradename................................. 3,700 (396) 3,304
Riverboat excursion license............... 700 -- 700
------- ------- -------
Total..................................... $14,200 $(1,708) $12,492
======= ======= =======
Unamortized intangible assets:
Gaming license............................ $ 5,200 $ -- $ 5,200
------- ------- -------
Total..................................... $ 5,200 $ -- $ 5,200
======= ======= =======
</Table>
The amortization expense recorded on the intangible assets for the year
ended December 31, 2002 and for the period from inception of Investor Holdings
(September 14, 2001) through December 31, 2001 was $1.6 million and $0.1 million
respectively. The estimated amortization expenses for each of the five
succeeding fiscal years is as follows:
<Table>
For the Year Ended December 31, 2003........................ $1,618
2004...................................................... 1,642
2005...................................................... 1,642
2006...................................................... 1,642
2007...................................................... 1,642
</Table>
Under SFAS No. 142, goodwill and other indefinite 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, Investor Holdings
acquisition of the Fitzgeralds assets was immediately subject to the provision
of SFAS No. 142.
8. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C.
On October 31, 1995, the Company and Trump entered into the First Amended
and Restated Operating Agreement of BHR for the purpose of acquiring and
developing certain facilities for the gaming operations in the City ("BHR
Property"). BHR is responsible for the management, development and operation of
the BHR Property. The Company and Trump have each entered into an agreement with
BHR (the "Berthing Agreement") to use BHR Property for their respective gaming
operations and have committed to pay cash operating losses of BHR as additional
berthing fees. The Company and Trump share equally in the operating expenses
relating to the BHR Property, except for costs associated with food and
beverage, and valet operations, which are allocated on a percentage of use by
the casino customers of the Company and Trump.
The Company has paid approximately $6.0 million, $6.3 million and $6.9
million of berthing fees for the years 2002, 2001 and 2000, respectively. Such
amounts are recorded in general and administrative expense in the consolidated
statement of operations. In addition, the Company has paid approximately
$979,000, $805,000 and $435,000 of costs associated with food and beverage, and
valet operations, and such amounts are
F-49
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C.--(CONTINUED)
recorded in casino expense in the Company's consolidated statement of
operations, for the years 2002, 2001 and 2000, respectively. After the Company
and Trump reimburse BHR for all cash operational losses, the remaining net loss
of BHR results from depreciation expense associated with the BHR property. The
Company has elected to record its allocated portion of BHR's net loss within
depreciation expense in its consolidated statement of operations. The allocated
net loss recorded in depreciation expense for the years 2002, 2001 and 2000,
respectively, are approximately $2.4 million, $2.8 million and $2.1 million.
The following represents selected financial information of BHR:
<Table>
<Caption>
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
BALANCE SHEET
Cash................................................ $ 50,505 $ 317,646
Current assets...................................... 441,535 782,001
Property, plant and equipment, net.................. 65,616,042 69,650,069
Other assets........................................ 108,414 111,478
Total assets........................................ 66,165,991 70,543,548
Current liabilities................................. 2,499,369 2,745,899
Total liabilities................................... 2,499,369 2,745,899
Members' equity
The Majestic Star Casino, LLC....................... 31,833,311 33,898,825
Total members' equity............................... 63,666,622 67,797,649
</Table>
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------------------
2002 2001 2000
----------- ----------- -----------
STATEMENTS OF INCOME
Gross revenue................................. $16,095,365 $16,468,581 $17,814,012
Operating loss................................ (4,794,560) (5,981,620) (4,350,334)
Net loss...................................... (4,848,863) (5,595,475) (4,117,338)
</Table>
9. OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31 were comprised of:
<Table>
<Caption>
2002 2001
----------- -----------
Property taxes............................................. $ 3,884,271 $ 2,168,667
Casino Club points......................................... 738,559 2,087,087
Progressive jackpots....................................... 3,189,626 2,883,958
Other...................................................... 4,083,013 5,880,385
----------- -----------
$11,895,469 $13,020,097
</Table>
F-50
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LONG-TERM DEBT
<Table>
<Caption>
2002 2001
------------ ------------
LONG-TERM DEBT OUTSTANDING AT DECEMBER 31 IS AS FOLLOWS:
$152,632,000 senior secured notes payable, net of
unamortized discount of $6,235,552 at 2002 and
$7,546,568 at 2001, collateralized by a first priority
lien on substantially all of the assets of Majestic
Investor Holdings, LLC, 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. During 2002 Investor Holdings
purchased $865,000 of its senior secured notes......... $145,531,448 $145,085,432
$130,000,000 senior secured notes payable, net of
unamortized discount of $1,120,229 at 2002 and
$1,443,371 in 2001; collateralized by a first priority
lien on substantially all of the assets of The Majestic
Star Casino, LLC, due in semi-annual installments of
interest at 10 7/8% on July 1 and January 1; with a
final payment of principal and interest due on July 1,
2006................................................... 128,879,771 128,556,629
$20.0 million four-year credit facility established on
August 2,1999, expiring on August 2, 2003;
collateralized by substantially all current and future
assets of The Majestic Star Casino, LLC, other than
excluded assets; interest rate at the borrowers choice
of LIBOR plus 3.75% or 1.5% points above the base rate
which approximates the prime rate, with a minimum
interest rate of 8.5%.................................. -- --
$15.0 million four year credit facility established with
Majestic Investor Holdings, LLC, on December 6, 2001
expiring on December 6, 2005; collateralized by
substantially all current and future assets, other than
excluded assets; interest rate at the borrowers choice
of LIBOR plus 2.0% above the base rate which
approximates the prime rate, or the prime rate......... -- 6,500,000
Equipment and software financing payable at Barden Nevada
Gaming, LLC including related use taxes; collateralized
by gaming equipment; interest rates from 7.5% to 12.0%;
due in aggregate monthly installments of $13,526 with
varying maturity dates through 2005.................... 249,150 411,446
------------ ------------
274,660,369 280,553,507
Less current maturities................................ (134,084) (6,656,574)
------------ ------------
Long-term debt, net of current maturities................ $274,526,285 $273,896,933
============ ============
</Table>
The scheduled maturities of long-term debt are as follows:
<Table>
<Caption>
Year Ending December 31, 2003............................... $ 134,084
2004...................................................... 84,984
2005...................................................... 30,082
2006...................................................... 128,879,771
2007...................................................... 145,531,448
Thereafter................................................ --
------------
$274,660,369
============
</Table>
F-51
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LONG-TERM DEBT--(CONTINUED)
Senior Secured Notes
On June 18, 1999, the Company issued $130.0 million of 10 7/8% Senior
Secured Notes due 2006. In October 1999, the Company successfully completed an
exchange of its privately placed $130.0 million 10 7/8% Senior Secured Notes
Series A for $130.0 million 10 7/8% Senior Secured Notes Series B that are
registered with the Securities and Exchange Commission. The net proceeds from
the offering were utilized to redeem $99.0 million principal amount of the
Company's 12 3/4% Senior Secured Notes due 2003 with Contingent Interest. During
June 1999, approximately $4.2 million of the net proceeds were utilized for fees
to fund the repurchase and approximately $7.5 million of the net proceeds were
classified as restricted cash to effect a covenant defeasance of the $6.0
million of remaining 12 3/4% Senior Secured Notes due 2003 with Contingent
Interest. During May 2000, the Company redeemed this remaining $6.0 million of
12 3/4% Senior Secured Notes. Holders of the outstanding 10 7/8% Senior Secured
Notes have the right to require that the Company repurchase the notes at a
premium under certain conditions, including a change in control of the Company.
The 10 7/8% Senior Secured Notes bear interest at a fixed rate of 10 7/8%
per annum payable January 1 and July 1 each year, commencing January 1, 2000.
Substantially all of the Company's current and future assets other than certain
excluded assets are pledged as collateral. Excluded assets include the assets of
our "unrestricted subsidiaries," which include the subsidiaries that hold our
Fitzgeralds assets. 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.
After July 1, 2003, the Company may, at its option, redeem all or some of
the notes at a premium that will decrease over time from 105.438% to 100% of
their face amount, plus interest. Prior to July 1, 2002, if the Company publicly
offers certain equity securities, as defined, it may, at its option, apply part
of the net proceeds from those transactions to redeem up to 35% of the principal
amount of the notes at 110.875% of their face amount, plus interest. If the
Company goes through a change of control, it must give holders of the notes the
opportunity to sell the Company their notes at 101% of their face amount, plus
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.
On December 6, 2001, Investor Holdings and Majestic Investor Capital, as
co-issuer, 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 Investor, were utilized to purchase substantially all of the
assets of Fitzgeralds Mississippi Inc., 101 Main Street Limited Liability
Company and Fitzgeralds Las Vegas, Inc. and to pay related fees and expenses.
The Investor Holdings Senior Secured Notes bear interest at a fixed rate of
11.653% per annum payable May 31 and November 30 each year, commencing on May
31, 2002, Substantially all of Investor Holdings' current and future assets,
other than certain excluded assets, are pledged as collateral. The notes rank
senior in right of payment to any of Investor Holdings' subordinated
indebtedness and equally with any of Investor Holdings' senior indebtedness.
In connection with the issuance by Investor Holdings of $152,632,000 of
unregistered 11.653% Senior Secured Notes due 2007 (the "Unregistered Notes") on
December 6, 2001, Investor Holdings entered in a registration rights agreement
pursuant to which it agreed to file with the Securities and Exchange Commission
("SEC") a registration statement (the "Registration Statement") to exchange up
to $152,632,000 principal amount of 11.653% Senior Secured Notes due 2007
registered under the Securities Act of 1933 (the "Registered Notes") for any and
all of its outstanding Unregistered Notes. The registration rights agreement
required Investor Holdings to pay liquidated damages to the holders of the
Unregistered Notes if the
F-52
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LONG-TERM DEBT--(CONTINUED)
Registration Statement was not declared effective by the SEC on or prior to
April 5, 2002. The Registration Statement was declared effective by the SEC on
August 8, 2002 and Investor Holdings was required to pay liquidated damages
pursuant to the terms of the registration rights agreement for the period from
April 6, 2002 until August 8, 2002. On May 31, 2002, in connection with the
first scheduled interest payment on the Unregistered Notes, Investor Holdings,
made its initial liquidated damages payment of $61,053 to the holders of the
Notes. The final liquidated damages payment of $114,474 was paid to the holders
of the Unregistered Notes on November 30, 2002. Pursuant to the Registration
Statement, the offer to exchange the Registered Notes for any or all of the
Unregistered Notes commenced on August 8, 2002 and completed on Friday,
September 6, 2002 at 5 p.m. Eastern Standard Time.
On or after November 30, 2005, Investor Holdings has 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, Investor
Holdings may, at its option, apply part 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.
The Indenture contains covenants, which among other things, restrict
Investor Holdings 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.
During 2002, the Investor Holdings purchased for $759,000, plus accrued
interest, its 11.653% Senior Secured Notes with a face value of $865,000. The
notes, net of un-amortized original issue discount, were being carried at a
value of $828,000; the resulting gain was $69,000.
Credit Facilities
On August 2, 1999, the Company established a $20.0 million credit facility,
which is also secured by substantially all current and future assets, other than
certain excluded assets. The lien on the collateral securing this credit
facility is structurally senior to the lien securing the 10 7/8% Senior Secured
Notes. As of December 31, 2000, $7.8 million of the credit facility was
outstanding. During 2001, $8.0 million was borrowed on this credit facility, and
at December 31, 2001, these borrowings had been repaid in full. There were no
borrowing on the credit facility in 2002.
The terms of the $20.0 million line of credit is four years with an
interest rate at the Company's choice of LIBOR plus 3.75% or 1.5 percentage
points above the base rate. The base rate approximates the prime rate. The
minimum interest rate is 8.5%. The credit agreement includes covenants, which
among other things, (i) require operating income as defined in the credit
facility of at least $10.0 million for twelve consecutive months during the
credit period, and (ii) restrict the Company's ability to incur, assume, or
guarantee any indebtedness.
On December 6, 2001, Investor Holdings established a $15.0 million credit
facility. The terms of the $15.0 million line of credit is four years with an
interest rate at the Company's choice of LIBOR plus 2.0%, or the base rate,
which approximates the prime rate. The credit facility is secured by
substantially all of Investor Holdings current and future assets, other than
certain excluded assets. The lien on the collateral securing Investor Holdings'
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. At December 31, 2001 $6.5 million was borrowed on this credit
facility and at December 31, 2002, the borrowings had been paid in full.
F-53
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LONG-TERM DEBT--(CONTINUED)
Intercreditor Agreements
In connection with Majestic Star entering into its $20.0 million credit
facility, the trustee (as collateral agent) under the indenture associated with
Majestic Star's senior secured notes entered into an intercreditor agreement
with Foothill Capital Corporation, the lender under Majestic Star's credit
facility. In addition, in connection with Majestic Investor Holdings entering
into its $15.0 million credit facility, the trustee (as collateral agent) under
the indenture associated with Majestic Investor Holdings' senior secured notes
entered into a virtually identical intercreditor agreement with Foothill Capital
Corporation, the lender under Majestic Investor Holdings' credit facility. Both
intercreditor agreements provide for the subordination of the liens securing the
respective senior secured notes to the liens securing the indebtedness under the
respective credit facilities.
The intercreditor agreements, among other things, limit the trustee's
rights in an event of default under the respective senior secured notes. Under
the intercreditor agreements, if the respective 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 there is indebtedness outstanding under the
corresponding credit facilities, the trustee will not have the right to
foreclose upon the collateral unless and until the lender under the
corresponding credit facilities fails to take steps to exercise remedies with
respect to or in connection with the collateral within 180 days following notice
to such lender of the occurrence of an event of default under the corresponding
indenture. In addition, the intercreditor agreements prevent the trustee and the
holders of the respective senior secured notes from pursuing remedies with
respect to the collateral in an insolvency proceeding. The intercreditor
agreements also provide that the net proceeds from the sale of the corresponding
collateral will first be applied to repay indebtedness outstanding under the
corresponding credit facilities and thereafter to the holders of the
corresponding senior secured notes.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying value and estimated fair value as
of December 31, 2002 of the Company's financial instruments. (Refer to Notes 2
and 10).
<Table>
<Caption>
ESTIMATED
CARRYING VALUE FAIR VALUE
-------------- ------------
Assets:
Cash and equivalents................................... $ 24,547,881 $ 24,547,881
Restricted cash........................................ $ 1,250,000 $ 1,250,000
Liabilities:
Long-term debt (including capital lease obligations and
line of credit borrowings).......................... $274,660,369 $273,061,750
</Table>
12. SAVINGS PLAN
The Company contributes to a defined contribution plan, which provides for
contributions in accordance with the plan document. The plan is available to
certain employees with at least one year of service. The Company contributes a
matching contribution up to a maximum of 3% of an employee's salary limited to a
specified dollar amount as stated in the plan document. The Company's
contributions to the plan amounted to $1,188,000, $402,000 and $340,000 during
2002, 2001 and 2000, respectively. The $786,000 increase between 2002 and 2001
is directly related to the acquisition of the Fitzgeralds properties on December
6, 2001.
F-54
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. 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, 2002 are as follows:
<Table>
Years Ending December 31, 2003.............................. $ 1,922,915
2004...................................................... 1,550,269
2005...................................................... 1,500,130
2006...................................................... 1,477,845
2007...................................................... 1,477,845
Thereafter................................................ 10,929,895
-----------
$18,858,899
===========
</Table>
Rent Expense for the years ended December 31, 2002 and December 31, 2001
were $6,969,370 and $3,668,098 respectively.
In September of 2000, AMB Parking, LLC, (a limited liability company
indirectly owned by Don. H. Barden, Chairman and CEO of the Company) and Trump
Indiana, Inc. (the "Joint Venture Partner") entered into an Operating Agreement
to form Buffington Harbor Parking Associates, LLC ("BHPA"). The limited
liability company was formed for the purpose of constructing and operating a
2,000 space parking garage. BHPA purchased certain property owned by Gary New
Century, LLC (another company owned by Don H. Barden) for $15,000,000 (the
"Purchase"). To finance this transaction, BHR advanced BHPA $14,182,856 (which
advance accrues interest at the rate of 6%), and acquired approximately one acre
of land from BHPA for $817,144. In connection with the Purchase, the Company and
the Joint Venture Partner advanced $7,099,147 and contributed $7,900,833 to BHR,
which was used to fund the advance to BHPA and to acquire the one acre of land.
In June 2001, BHR and BHPA terminated the BHPA agreement. A new agreement was
reached between BHR, the Company and the Joint Venture Partner in which BHR
transferred one half of the loan receivable as a return of capital to the
Company in the amount of $7,099,167, and assigned the other half of the loan
balance to the Joint Venture Partner. In addition, BHR distributed one half of
the accrued interest receivable ($308,669) and an additional $34,347 as a return
of capital to the Company and the Joint Venture Partner in order to finance the
construction of the garage. The Company is recognizing $9,462,815 of advances
made on the parking garage construction as prepaid lease expense. The Company
and the Joint Venture Partner have each entered into parallel operating lease
agreements with BHPA, each having a term of until December 31, 2018. The rent
payable under the both leases is intended to service the debt incurred by BHPA
to construct the parking garage. The Company is amortizing its prepaid lease
over the term of the operating lease agreement. The operating lease agreement
calls for the Company and the Joint Venture Partner to make monthly lease
payments equal to 100% of BHPA's debt service requirement for the following
month, although each party is entitled to a credit for 50% of such payment if
the other party makes its monthly payment.
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
F-55
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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 the consolidated performance of the
Company. 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.
Mr. Jon S. Bennett serves as our Vice President and Chief Financial Officer
pursuant to a two-year employment agreement with The Majestic Star Casino, LLC
dated October 21, 2002. Under this agreement, Mr. Bennett will receive base
compensation of $250,000, subject to annual reviews, and can also earn bonuses
subject to the discretion of the President and Chief Executive Officer and
Executive Vice President and Chief Operating Officer. In addition to such
compensation, Mr. Bennett is entitled to term life insurance in an amount equal
to $1 million and other customary employee benefits, including participation in
the Company's 401(k) plan and reimbursement of relocation expenses. Mr. Bennett
is also entitled to additional compensation upon a change in control, equal to
the remaining amount due under his employment agreement plus six months of his
annual salary following the expiration of his current employment agreement. Mr.
Bennett's employment agreement contains certain non-competition provisions with
a duration of 12 months if Mr. Bennett should voluntarily terminate his
employment within 18 months of the commencement date of his employment
agreement.
The amounts payable pursuant to the agreements with Messrs. Barden, Kelly,
and Bennett are the responsibility of the Company. As indicated in Note 14, the
Company entered into an Expense Reimbursement/Sharing Agreement with Investor
Holdings whereby Investor Holdings will reimburse the Company for a specified
percentage of expenses paid by the Company for Investor Holdings' corporate
overhead.
Letter of Credit/Surety Bond
In May 1996, the Company was required by the City of Gary, to maintain a
Surety Bond in the amount of $12.5 million to guarantee the remaining $10.0
million of its off-site development obligation and $2.5 million to satisfy state
and local regulatory obligations. The Surety Bond was secured by a $3.5 million
letter of credit issued by a bank, which was collateralized by $3.6 million in
cash. In September 2000, the Company met its development obligation,
concurrently the Surety Bond was reduced from $12.5 million to $2.5 million and
the bank released $1.0 million of the cash collateral. In March 2001, the
Company replaced its existing Surety Bond with a new $2.5 million unsecured
Surety Bond. In conjunction with the release of the original Surety Bond, the
letter of credit was canceled and the remaining $2.6 million of cash collateral
was released to the Company.
Effective August 23, 2001, in accordance with an order of the Indiana
Gaming Commission, the Company's riverboat owner's license was renewed subject
to certain conditions. Pursuant to the license renewal, the Company was required
to post a bond in the amount of $1,000,000 to secure its regulatory obligations.
The $2.5 million bond previously posted was released on the effective date. The
$1,000,000 bond has yet to be provided. The Indiana Gaming Commission is
currently reviewing language to be included in the bond. When the language is
finalized, the Company will post the new bond.
During the year ended December 31, 2002, a $250,000 letter of credit was
issued to secure payment of workers compensation claims at Barden Colorado
Gaming, LLC and Barden Mississippi Gaming, LLC. In
F-56
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
order to collateralize the letter of credit the bank, through which the letter
of credit was issued, restricted $250,000 of Investor Holdings' cash in bank.
The States of Nevada and Mississippi have required Barden Nevada Gaming,
LLC and Barden Mississippi Gaming, LLC to post surety bonds as security for
current and future sales and gaming revenue tax obligations. Barden Nevada
Gaming, LLC currently has one surety bond in place with the Nevada Department of
Taxation in the amount of $122,250. Barden Mississippi Gaming, LLC has four
surety bonds; a $600,000 bond in place with the Mississippi State Tax Commission
and three $5,000 bonds with the Mississippi Alcoholic Beverage Control. These
surety bonds are secured only by personal guaranties of Don H. Barden. If Mr.
Barden is required to make payments to the bonding companies as a result of the
guaranties, Investor Holdings, Barden Nevada Gaming, LLC and Barden Mississippi
Gaming, LLC will be obligated to reimburse Mr. Barden for any such payments.
Legal Proceedings
On June 25, 1997, a complaint was filed in an Illinois Cook County Court
against Majestic Star Casino. The plaintiff, a former employee, was injured
during and as a result of a routine boat drill attempt and is requesting
compensatory and punitive damages totaling approximately $3.5 million. The suit
alleges that Majestic Star Casino failed to provide adequate safety measures to
their employees during these drills. This complaint was settled April 2002 with
no financial bearing on the company.
On March 27, 1998, a complaint was filed in the Lake County Superior Court
in East Chicago, Indiana, against BHR, the Joint Venture Partner, and the
Company. The plaintiff, a former employee of the Company, claims to have been
assaulted in the BHR parking lot on June 25, 1997 and is requesting compensatory
and punitive damages totaling approximately $11.0 million. The suit alleges that
the Joint Venture Partner and the Company failed to provide adequate security to
prevent assaults. The Company intends to vigorously defend against such suit.
However, it is too early to determine the outcome of such suit and the effect,
if any, on the Company's financial position and results of operations.
On March 2, 2000, the Company was issued a notice of audit findings, and on
May 11 and 12, 2000, was issued notices of assessment by the Indiana Department
of Revenue for income tax withholding deficiencies for the years ended 1996 and
1998. The Indiana Department of Revenue has taken the position that wagering
taxes should not be classified as an allowable deductible expense for
calculating state income taxes and therefore requires that wagering taxes be
added back to net income to determine the tax liability. The estimated tax
deficiency for 1996 is approximately $239,000 excluding interest and the
estimated tax deficiency for 1998 is approximately $315,000 excluding interest.
Other Indiana casinos have protested this same finding. The Company has filed an
administrative protest and demand for hearing with the Indiana Department of
Revenue. However, it is too early to determine the outcome.
On November 3, 2000, a complaint was filed in the State of Indiana, Lake
County Court, Civil Division. The plaintiff, a former employee filed a complaint
under Title VII of the Civil Rights Act of 1964. The suit alleges violation of
the American with Disabilities Act, retaliation and infliction of emotional
distress. On July 24, 2002 a jury award of $553,000 was entered in the
plaintiff's favor, plus attorney's fees and costs. The plaintiff is also seeking
$117,000 in front pay. There has been no award of front pay and a hearing is
scheduled in July 2003 regarding this issue. The Company believes that errors
were made during the trial and in the jury award. As a result, the Company is
appealing the award. The Company believes that the potential loss could range
from $250,000 to $450,000. An accrual of $250,000 was charged to operations in
the accompanying December 31, 2002 financial statements.
F-57
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana are
subject to strict state regulation under the Riverboat Gambling Act ("Act") and
the administrative rules promulgated thereunder. The Indiana Gaming Commission
("IGC") is empowered to administer, regulate and enforce the system of riverboat
gaming established under the Act and has jurisdiction and supervision over all
riverboat gaming operations in Indiana, as well as all persons on riverboats
where gaming operations are conducted. The IGC is empowered to regulate a wide
variety of gaming and nongaming related activities, including the licensing of
supplies to, and employees at, riverboat gaming operations and to approve the
form of entity qualifiers and intermediary and holding companies. Indian's
regulatory framework continues to develop. The IGC has adopted certain final
rules and has published others in proposed or draft form that are proceeding
through the review and final adoption process. The IGC has broad rulemaking
power, and it is impossible to predict what effect, if any, the amendment of
existing rules or the finalization of currently new rules might have on the
Company's operations.
A change in the Indiana state law governing gaming took effect on July 1,
2002, which enables Indiana's riverboat casinos to operate dockside. The IGC
approved Majestic Star's flexible boarding plan that allows the continuous
ingress and egress of patrons for the purpose of gambling while the riverboat is
docked. The plan went into effect on August 5, 2002 and imposes a graduated
wagering tax based upon adjusted gross receipts. The graduated wagering tax will
have a starting rate of 15% with a top rate of 35% for adjusted gross receipts
in excess of $150 million. For the period July 1 through August 4, 2002, the
wagering tax was raised by statute to 22.5% of adjusted gross receipts. Prior to
July 1, 2002, Indiana gaming taxes were levied on adjusted gross receipts, as
defined by Indiana gaming laws, at the rate of 20%. In addition to the wagering
tax, an admissions tax of $3 per turnstile count is assessed. Prior to August 5,
2002, Indiana imposed an admissions tax of $3 per patron turnstile count at
every boarding time plus the count of the patrons that stayed over on the vessel
from a previous boarding time period.
The ownership and operation of our other casino gaming facilities in
Nevada, Mississippi and Colorado are also 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 and to 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.
The Company's directors, officer, 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 renovation or non-renewal for cause. Under certain
circumstances, holders of our securities are required to secure independent
licenses and permits.
14. RELATED PARTY TRANSACTIONS
The Company entered into a LLC Manager Agreement on June 18, 1999 with BDI
to provide for, among other things, BDI to act as the managing member of the
LLC. Distributions of profits to BDI are limited under the Indenture for the
Majestic Star Senior Secured Notes. The distribution for each fiscal quarter
F-58
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. RELATED PARTY TRANSACTIONS--(CONTINUED)
cannot exceed 5% of the Company's Consolidated Cash Flow (as defined in the
Indenture for the Majestic Star Senior Secured Notes) for the immediately
preceding fiscal quarter and may not be paid if the Company is in default under
the Indenture governing such notes or if the Company does not meet certain
financial ratios as provided in such Indenture. During the twelve months ended
December 31, 2002, 2001 and 2002 the Company made distributions of approximately
$2,965,000, $280,000, and $315,000 respectively to Barden Development, Inc.
("BDI").
In September 2000, Majestic Investor, LLC was capitalized by the Company
with $9.0 million of capital contributions, including interest thereon. Majestic
Investor, LLC subsequently contributed this $9.0 million to Investor Holdings in
connection with the assignment of its rights and obligations under the
Fitzgeralds purchase and sale agreement to Investor Holdings.
Prior to the consummation of the offering of the Investor Holdings 11.653%
Senior Secured Notes, Investor Holdings issued a 35.71% membership interest to
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 member interests of Investor Holdings. BDI, upon closing of the offering of
the senior secured notes, contributed $5.0 million in repayment of the
promissory note.
On September 19, 2001, Investor Holdings entered into a LLC Manager
Agreement with BDI, which was amended and restated on December 5, 2001 effective
December 6, 2001, pursuant to which BDI will act as the Manager of Investor
Holdings. Distributions of profits to BDI are limited under the Indenture for
the Holdings Senior Secured Notes. The distribution for any fiscal quarter,
shall not exceed 1% of net revenues plus 5% of consolidated cash flow for the
immediately preceding fiscal quarter, provided that the payment of such
distribution shall be subordinated to the payment in full of principal,
interest, premium and liquidated damages, if any, then due on the senior secured
notes.
During the twelve months ended December 31, 2002, Investor Holdings made
distributions of approximately $2,544,000 to BDI. These distributions were made
in accordance with the LLC Manager Agreement between Investor Holdings and BDI
dated December 5, 2001.
On October 22, 2001, Investor Holdings entered into an Expense
Reimbursement/Sharing Agreement with the Company, pursuant to which Investor
Holdings and its restricted subsidiaries will each reimburse the Company for
sixty percent (60%) of the documented out-of-pocket expenses paid by the Company
for Investor Holdings' 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.
These executives and employees will provide services to both Investor
Holdings and to our subsidiaries and us. Currently, due to restrictions set
forth in the Investor Holdings Indenture, the reimbursement percentage is capped
at fifty percent (50%) up to an aggregate of $1.7 million.
On January 31, 2002, the Company made a $200,000 employee loan to Mr.
Kelly. This loan bears no interest and is due and payable in full on January 31,
2005.
15. SUBSEQUENT EVENTS
In December 2001, Investor Holdings issued a $700,000 note to BDI. The note
bears interest at a rate of 7% per annum and was paid in full, with accrued
interest, on March 17, 2003.
F-59
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS--(CONTINUED)
In December 2001, the Company made a $300,000 employee loan to Mr. Barden.
This loan bears interest at a rate of 7% per annum and was due and payable in
full on December 12, 2002. On March 17, 2003, $215,911 was paid on the note
leaving $84,089 in principal and $28,750 in interest as outstanding.
16. SEGMENT INFORMATION
The Company owns and operates four properties as follows: a riverboat
casino located in Gary, Indiana; 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 four segments based on geographic location. The
Properties market in each of their segments primarily to middle-income guests.
The major products offered in each segment are as follows: casino, hotel (except
in Gary, Indiana and Black Hawk, Colorado) 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 years
ended December 31, 2002 and December 31, 2001, is presented below:
<Table>
<Caption>
AS OF DECEMBER 31, 2002 AS OF DECEMBER 31, 2001
----------------------- -----------------------
(IN THOUSANDS)
Net revenues:
Majestic Star Casino...................... $127,294 $119,764
Fitzgeralds Tunica........................ 87,388 5,368
Fitzgeralds Black Hawk.................... 33,109 2,072
Fitzgeralds Las Vegas..................... 48,915 3,081
Unallocated and other(1).................. -- --
-------- --------
Total.................................. $296,706 $130,285
-------- --------
Income (loss) from operations:
Majestic Star Casino...................... $ 17,615 $ 14,505
Fitzgeralds Tunica........................ 14,281 654
Fitzgeralds Black Hawk.................... 6,715 674
Fitzgeralds Las Vegas..................... (1,977) (393)
Unallocated and other(1).................. (2,956) (1,214)
-------- --------
Total.................................. $ 33,678 $ 14,226
-------- --------
Segment depreciation and amortization:
Majestic Star Casino...................... $ 9,041 $ 10,867
Fitzgeralds Tunica........................ 7,373 485
Fitzgeralds Black Hawk.................... 1,538 100
Fitzgeralds Las Vegas..................... 2,952 167
Unallocated and other(1).................. 2,598 169
-------- --------
Total.................................. $ 23,502 $ 11,788
-------- --------
</Table>
F-60
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SEGMENT INFORMATION--(CONTINUED)
<Table>
<Caption>
AS OF DECEMBER 31, 2002 AS OF DECEMBER 31, 2001
----------------------- -----------------------
(IN THOUSANDS)
Expenditures for additions to long-lived
assets:
Majestic Star Casino...................... $ 5,189 $ 4,967
Fitzgeralds Tunica........................ 2,549 100
Fitzgeralds Black Hawk.................... 1,177 23
Fitzgeralds Las Vegas..................... 1,481 --
Unallocated and other(1).................. -- --
-------- --------
Total.................................. $ 10,396 $ 5,090
-------- --------
Segment assets:
Majestic Star Casino...................... $113,177 $121,359
Fitzgeralds Tunica........................ 88,307 91,338
Fitzgeralds Black Hawk.................... 30,468 30,915
Fitzgeralds Las Vegas..................... 38,231 45,171
Unallocated and other(1).................. 155,574 167,813
-------- --------
Total.................................. $425,757 $456,596
Less: intercompany........................ (149,947) (165,520)
-------- --------
Total.................................. $275,810 $291,076
======== ========
</Table>
- ---------------
(1) Unallocated and other include corporate items and eliminations that are not
allocated to the operation segments.
17. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $130.0 million, 10 7/8% Senior Secured Notes (See Note 10)
are guaranteed by substantially all of the assets of the Company, except for
those assets of Investor Holdings and its wholly-owned subsidiaries which
include the three casino properties acquired on December 6, 2001. The guarantees
on the 10 7/8% Senior Secured Notes rank senior in right of payment to the
Company's subordinated indebtedness and equal with any of the Company's senior
indebtedness.
Investor Holdings $151.8 million, 11.653% Senior Secured Notes (See Note
10) are unconditionally and irrevocably guaranteed, jointly and severally by all
of the restricted subsidiaries of Investor Holdings. 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.
The following condensed consolidating information presents condensed
consolidating financial statements as of December 31, 2002 and December 31, 2001
and for the years ended December 31, 2002, 2001 and 2000 of The Majestic Star
Casino, LLC, Majestic Investor Holdings, LLC, and the restricted subsidiaries of
Majestic Investor Holdings, LLC (on a combined basis) and the elimination
entries necessary to combine such entities on a consolidated basis. The Majestic
Star Casino Capital Corp. ("MSCCC"), a wholly-owned subsidiary of The Majestic
Star Casino, LLC and Majestic Investor Capital Corp. ("MICC"), a wholly-owned
subsidiary of Majestic Investor, LLC, do not have any material assets,
obligations or operations. Therefore, no information has been presented below
for these subsidiaries.
F-61
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2002
<Table>
<Caption>
THE
THE MAJESTIC
MAJESTIC STAR MAJESTIC
STAR CASINO INVESTOR MAJESTIC
CASINO, CAPITAL HOLDINGS, INVESTOR GUARANTOR ELIMINATING
LLC CORP. LLC CAPITAL CORP. SUBSIDIARIES ENTRIES
------------ ------------- ------------ ------------- ------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents..... $ 8,564,057 $ -- $ 1,007,660 $ -- $ 14,976,164 $ --
Restricted cash............... -- -- 250,000 -- -- --
Accounts receivable (net)..... 1,733,543 -- 52,695 -- 1,188,488 --
Inventories................... 53,360 -- -- -- 929,126 --
Prepaid expenses and other
current assets.............. 1,778,480 -- 5,573,991 -- 1,575,678 (5,089,160)(a)
------------ ------------- ------------ ------------- ------------ -------------
Total current assets...... 12,129,440 -- 6,884,346 -- 18,669,456 (5,089,160)
------------ ------------- ------------ ------------- ------------ -------------
Property, equipment and vessel
improvements, net............. 47,511,652 -- -- -- 117,297,506 --
Intangible assets, net......... -- -- 5,200,000 -- 12,491,746 --
Due from related parties....... -- -- 116,816,043 -- -- (116,816,043)(b)
Investment in Buffington Harbor
Riverboats, L.L.C............. 31,833,311 -- -- -- -- --
Other assets................... 13,619,918 -- 6,714,902 -- 8,546,757 --
Investment in subsidiaries..... 8,082,405 -- 19,959,009 -- -- (28,041,414)(b)
------------ ------------- ------------ ------------- ------------ -------------
Total Assets.............. $113,176,726 $ -- $155,574,300 $ -- $157,005,465 $(149,946,617)
============ ============= ============ ============= ============ =============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of
long-term debt.............. $ -- $ -- $ -- $ -- $ 134,084 $ --
Accounts payable, accrued and
other....................... 8,221,517 -- 1,960,447 -- 15,215,462 (323,359)
------------ ------------- ------------ ------------- ------------ -------------
Total current
liabilities............. 8,221,517 -- 1,960,447 -- 15,349,546 (323,359)
------------ ------------- ------------ ------------- ------------ -------------
Due to related parties......... -- -- -- -- 121,581,844 (121,581,844)(a)(b)
Long-term debt, net of current
maturities.................... 128,879,771 128,879,771 145,531,448 145,531,448 115,066 (274,411,219)(c)
------------ ------------- ------------ ------------- ------------ -------------
Total Liabilities......... 137,101,288 128,879,771 147,491,895 145,531,448 137,046,456 (396,316,422)
Commitments and
contingencies................. 250,000 -- -- -- -- --
Member's equity
(deficit):................ (24,174,562) (128,879,771) 8,082,405 (145,531,448) 19,959,009 246,369,805(b)(c)
------------ ------------- ------------ ------------- ------------ -------------
Total Liabilities and
Member's Equity
(Deficit)............... $113,176,726 $ -- $155,574,300 $ -- $157,005,465 $(149,946,617)
============ ============= ============ ============= ============ =============
<Caption>
TOTAL
CONSOLIDATED
-------------
ASSETS
Current Assets:
Cash and cash equivalents..... $ 24,547,881
Restricted cash............... 250,000
Accounts receivable (net)..... 2,974,726
Inventories................... 982,486
Prepaid expenses and other
current assets.............. 3,838,989
-------------
Total current assets...... 32,594,082
-------------
Property, equipment and vessel
improvements, net............. 164,809,158
Intangible assets, net......... 17,691,746
Due from related parties....... --
Investment in Buffington Harbor
Riverboats, L.L.C............. 31,833,311
Other assets................... 28,881,577
Investment in subsidiaries..... --
-------------
Total Assets.............. $ 275,809,874
=============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of
long-term debt.............. $ 134,084
Accounts payable, accrued and
other....................... 25,074,067
-------------
Total current
liabilities............. 25,208,151
-------------
Due to related parties......... --
Long-term debt, net of current
maturities.................... 274,526,285
-------------
Total Liabilities......... 299,734,436
Commitments and
contingencies................. 250,000
Member's equity
(deficit):................ (24,174,562)
-------------
Total Liabilities and
Member's Equity
(Deficit)............... $ 275,809,874
=============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 7 Long-Term Debt, The Majestic Star Casino
Capital Corp. is a co-obligor of certain of the Company's indebtedness and
Majestic Investor Capital Corp. is a co-obligor of the indebtedness of
Majestic Investor Holdings, LLC. Accordingly, such indebtedness has been
presented as an obligation of both the issuer and the co-obligor in the
above balance sheet.
F-62
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
THE MAJESTIC
THE STAR CASINO MAJESTIC MAJESTIC
MAJESTIC STAR CAPITAL INVESTOR INVESTOR GUARANTOR ELIMINATING
CASINO, LLC CORP. HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES
------------- ------------ ------------- ------------- ------------ ------------
REVENUES:
Casino............... $132,599,608 $-- $ -- $-- $161,189,334 $ --
Rooms................ -- -- -- -- 15,495,620 --
Food and beverage.... 1,623,621 -- -- -- 19,470,500 --
Other................ 1,941,880 -- -- -- 3,604,744 --
------------ --- ------------ --- ------------ ------------
Gross revenues..... 136,165,109 -- -- -- 199,760,198 --
Less promotional
allowances....... (8,870,991) -- -- -- (30,348,133) --
------------ --- ------------ --- ------------ ------------
Net revenues....... 127,294,118 -- -- -- 169,412,065 --
COSTS AND EXPENSES:
Casino............... 26,337,807 -- -- -- 60,822,128 --
Rooms................ -- -- -- -- 9,014,354 --
Food and beverage.... 2,285,881 -- -- -- 11,267,235 --
Other................ -- -- -- -- 1,559,861 --
Gaming taxes......... 33,621,349 -- -- -- 17,950,757 --
Advertising and
promotion.......... 7,636,379 -- -- -- 13,282,926 --
General and
administrative..... 26,775,809 -- 345,443 -- 24,632,548 --
Economic incentive--
City of Gary....... 3,980,501 -- -- -- -- --
Depreciation and
amortization....... 6,616,863 -- 2,597,154 -- 11,863,168 --
Loss on investments
in Buffington
Harbor Riverboats,
LLC................ 2,424,392
Pre-opening
expenses........... -- -- 13,391 -- -- --
------------ --- ------------ --- ------------ ------------
Total costs and
expenses......... 109,678,981 -- 2,955,988 -- 150,392,977 --
------------ --- ------------ --- ------------ ------------
Operating income
(loss)........... 17,615,137 -- (2,955,988) -- (19,019,088) --
OTHER INCOME (EXPENSE):
Interest income...... 57,962 -- 86,401 -- 49,429 --
Interest expense..... (14,318,995) -- (18,086,650) -- (31,168) --
Other non-operating
expense............ (141,516) -- (41,684) -- -- --
Gain (loss) on
disposal of
assets............. 8,850 -- -- -- (14,069) --
Gain on bond
redemption......... -- -- 68,957 -- -- --
Equity in net income
(loss) of
subsidiaries....... (1,905,684) -- 19,023,280 -- -- (17,117,597)(a)
------------ --- ------------ --- ------------ ------------
Total other
(expense)
income........... 16,299,383 -- 1,050,304 -- 4,192 (17,117,597)
------------ --- ------------ --- ------------ ------------
Net income
(loss)........... $ 1,315,754 $-- $ (1,905,684) $-- $ 19,023,280 $(17,117,597)
============ === ============ === ============ ============
<Caption>
CONSOLIDATED
------------
REVENUES:
Casino............... $293,788,942
Rooms................ 15,495,620
Food and beverage.... 21,094,121
Other................ 5,546,624
------------
Gross revenues..... 335,925,307
Less promotional
allowances....... (39,219,124)
------------
Net revenues....... 296,706,183
COSTS AND EXPENSES:
Casino............... 87,159,935
Rooms................ 9,014,354
Food and beverage.... 13,553,116
Other................ 1,559,861
Gaming taxes......... 51,572,106
Advertising and
promotion.......... 20,919,305
General and
administrative..... 51,753,800
Economic incentive--
City of Gary....... 3,980,501
Depreciation and
amortization....... 21,077,185
Loss on investments
in Buffington
Harbor Riverboats,
LLC................
Pre-opening
expenses........... 13,391
------------
Total costs and
expenses......... 263,027,946
------------
Operating income
(loss)........... 33,673,018
OTHER INCOME (EXPENSE):
Interest income...... 193,792
Interest expense..... (32,436,813)
Other non-operating
expense............ (183,200)
Gain (loss) on
disposal of
assets............. (5,219)
Gain on bond
redemption......... 68,957
Equity in net income
(loss) of
subsidiaries....... --
------------
Total other
(expense)
income........... 32,362,483
------------
Net income
(loss)........... $ 1,315,754
============
</Table>
- ---------------
(a) To eliminate equity in net income (loss) of subsidiaries.
F-63
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
THE
MAJESTIC
STAR MAJESTIC
THE CASINO INVESTOR
MAJESTIC STAR CAPITAL MAJESTIC INVESTOR CAPITAL GUARANTOR ELIMINATING CONSOLIDATED
CASINO, LLC CORP. HOLDINGS, LLC CORP. SUBSIDIARIES ENTRIES TOTAL
------------- -------- ----------------- -------- ------------ ----------- ------------
NET CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES:............. $ 8,960,224 $-- $(21,143,727) $-- $ 30,452,724 $ 3,035,502(a) $ 21,304,723
----------- -- ------------ -- ------------ ----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition related
costs................. -- -- (986,158) -- -- -- (986,158)
Proceeds from seller
from purchase price
adjustment............ -- -- 3,800,000 -- -- -- 3,800,000
Acquisition of property
and equipment......... (5,188,766) -- -- -- (5,207,456) -- (10,396,222)
Increase in restricted
cash.................. -- -- (250,000) -- -- -- (250,000)
Increase in prepaid
leases and deposits... (113,186) -- -- -- -- -- (113,186)
Investment in Buffington
Harbor Riverboats,
L.L.C................. (358,918) -- -- -- -- -- (358,918)
Proceeds from sale of
equipment............. 8,850 -- -- -- 44,267 -- 53,117
----------- -- ------------ -- ------------ ----------- ------------
Net cash provided by
(used in) investing
activities.......... (5,652,020) -- 2,563,842 -- (5,163,189) -- (8,251,367)
----------- -- ------------ -- ------------ ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of 11.653%
Senior Secured Notes
issuance costs........ -- -- (1,523,568) -- -- -- (1,523,568)
Line of credit, net..... -- -- (6,500,000) -- -- -- (6,500,000)
Cash advances to/from
affiliates............ -- -- 30,415,994 -- (27,380,492) (3,035,502)(a) --
Cash paid for redemption
of 11.653% Senior
Secured Notes......... -- -- (759,038) -- (759,038)
Cash paid to reduce
long-term debt........ -- -- -- -- (139,331) -- (139,331)
Distribution to Barden
Development, Inc...... (2,964,623) -- (2,544,206) -- -- -- (5,508,829)
----------- -- ------------ -- ------------ ----------- ------------
Net cash provided by
(used in) financing
activities.......... (2,964,623) -- 19,089,182 -- (27,519,823) (3,035,502) (14,430,766)
----------- -- ------------ -- ------------ ----------- ------------
Net increase (decrease) in
cash and cash
equivalents............. 343,581 -- 509,297 -- (2,230,288) -- (1,377,410)
Cash and cash equivalents,
beginning of period..... 8,220,476 -- 498,363 -- 17,206,452 -- 25,925,291
----------- -- ------------ -- ------------ ----------- ------------
Cash and cash equivalents,
end of period........... $ 8,564,057 $-- $ 1,007,660 $-- $ 14,976,164 $ -- $ 24,547,881
=========== == ============ == ============ =========== ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
F-64
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2001
<Table>
<Caption>
THE THE MAJESTIC
MAJESTIC STAR STAR CASINO MAJESTIC MAJESTIC INVESTOR MAJESTIC INVESTOR GUARANTOR
CASINO, LLC CAPITAL CORP. INVESTOR, LLC HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES
------------- ------------- ------------- ----------------- ----------------- ------------
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 8,220,476 $ -- $-- $ 498,363 $ -- $ 17,206,452
Accounts receivable,
net.................. 1,642,462 -- -- 269,501 -- 1,212,125
Inventories............ 38,144 -- -- -- -- 957,564
Prepaid expenses and
other current
assets............... 1,213,056 -- -- 707,467 -- 1,303,570
------------ ------------- --- ------------ ------------- ------------
Total current
assets............. 11,114,138 -- -- 1,475,331 -- 20,679,711
------------ ------------- --- ------------ ------------- ------------
Property and equipment,
net.................... 47,767,051 -- -- -- -- 122,427,962
Intangible assets, net... -- -- -- -- -- 19,290,753
Due from related
parties................ 1,177,829 -- -- 150,855,685 -- --
Investment in Buffington
Harbor Riverboats,
L.L.C. ................ 33,898,771 -- -- -- -- --
Other assets............. 14,869,249 -- -- 14,545,956 -- 5,025,618
Investment in
subsidiaries........... 12,532,295 -- -- 935,731 -- --
------------ ------------- --- ------------ ------------- ------------
Total Assets......... $121,359,333 $ -- $-- $167,812,703 $ -- $167,424,044
============ ============= === ============ ============= ============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of
long-term debt....... $ -- $ -- $-- $ 6,500,000 $ -- $ 156,574
Accounts payable,
accrued and other.... 12,784,191 -- -- 2,526,703 -- 15,211,626
------------ ------------- --- ------------ ------------- ------------
Total current
liabilities........ 12,784,191 -- -- 9,026,703 -- 15,368,200
------------ ------------- --- ------------ ------------- ------------
Due to related parties... -- -- -- 1,168,273 -- 150,865,241
Long-term debt, net of
current maturities..... 128,556,629 128,556,629 -- 145,085,432 145,085,432 254,872
------------ ------------- --- ------------ ------------- ------------
Total Liabilities.... 141,340,820 128,556,629 -- 155,280,408 145,085,432 166,488,313
Commitments and
contingencies.......... -- -- -- -- -- --
Member's equity
(deficit):........... (19,981,487) (128,556,629) -- 12,532,295 (145,085,432) 935,731
------------ ------------- --- ------------ ------------- ------------
Total Liabilities and
Member's Equity
(Deficit).......... $121,359,333 $ -- $-- $167,812,703 $ -- $167,424,044
============ ============= === ============ ============= ============
<Caption>
ELIMINATING TOTAL
ENTRIES CONSOLIDATED
------------- ------------
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ -- $ 25,925,291
Accounts receivable,
net.................. (28,484)(a) 3,095,604
Inventories............ -- 995,708
Prepaid expenses and
other current
assets............... -- 3,224,093
------------- ------------
Total current
assets............. (28,484) 33,240,696
------------- ------------
Property and equipment,
net.................... -- 170,195,013
Intangible assets, net... -- 19,290,753
Due from related
parties................ (152,033,514)(b) --
Investment in Buffington
Harbor Riverboats,
L.L.C. ................ -- 33,898,771
Other assets............. 9,557 (a) 34,450,380
Investment in
subsidiaries........... (13,468,026)(b) --
------------- ------------
Total Assets......... $(165,520,467) $291,075,613
============= ============
LIABILITIES AND MEMBER'S
Current Liabilities:
Current maturities of
long-term debt....... $ -- $ 6,656,574
Accounts payable,
accrued and other.... (18,927)(a) 30,503,593
------------- ------------
Total current
liabilities........ (18,927) 37,160,167
------------- ------------
Due to related parties... (152,033,514)(b) --
Long-term debt, net of
current maturities..... (273,642,061)(c) 273,896,933
------------- ------------
Total Liabilities.... (425,694,502) 311,057,100
Commitments and
contingencies.......... -- --
Member's equity
(deficit):........... 260,174,035(b)(c) (19,981,487)
------------- ------------
Total Liabilities and
Member's Equity
(Deficit).......... $(165,520,467) $291,075,613
============= ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 7 Long-Term Debt, The Majestic Star Casino
Capital Corp. is a co-obligor of certain of the Company's indebtedness and
Majestic Investor Capital Corp. is a co-obligor of the indebtedness of
Majestic Investor Holdings, LLC. Accordingly, such indebtedness has been
presented as an obligation of both the issuer and the co-obligor in the
above balance sheet.
F-65
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
THE MAJESTIC MAJESTIC
THE MAJESTIC STAR MAJESTIC INVESTOR INVESTOR
MAJESTIC STAR CASINO INVESTOR, HOLDINGS, CAPITAL GUARANTOR ELIMINATING
CASINO, LLC CAPITAL CORP. LLC LLC CORP. SUBSIDIARIES ENTRIES
------------- ------------- --------- ----------- -------- ------------ -----------
REVENUES:
Casino.................... $122,194,707 $-- $-- $ -- $-- $10,358,799 $ --
Rooms..................... -- -- -- -- -- 1,079,456 --
Food and beverage......... 1,613,902 -- -- -- -- 1,189,804 --
Other..................... 1,726,703 -- -- -- 203,858 --
------------ --- --- ----------- --- ----------- --------
Gross revenues.......... 125,535,312 -- -- -- -- 12,831,917 --
Less promotional
allowances............ (5,771,135) -- -- -- -- (2,310,848) --
------------ --- --- ----------- --- ----------- --------
Net Revenues............ 119,764,177 -- -- -- -- 10,521,069 --
COSTS AND EXPENSES:
Casino.................... 24,101,978 -- -- -- -- 4,111,503 --
Rooms..................... -- -- -- -- -- 628,910 --
Food and beverage......... 2,317,409 -- -- -- -- 706,947 --
Other..................... -- -- -- -- -- 108,732 --
Gaming taxes.............. 34,026,160 -- -- -- -- 808,464 --
Advertising and
promotion............... 7,595,889 -- -- -- -- 926,226 --
General and
administrative.......... 22,671,083 -- -- 26,476 -- 1,543,167 --
Economic incentive--City
of Gary................. 3,667,100 -- -- -- -- -- --
Loss on investments in
Buffington Harbor
Riverboats, LLC......... 2,797,740
Depreciation and
amortization............ 8,069,968 -- -- 168,930 -- 751,718 --
Pre-opening costs......... -- -- -- 1,018,234 -- -- --
------------ --- --- ----------- --- ----------- --------
Total costs and
expenses.............. 105,247,327 -- -- 1,213,640 -- 9,585,667 --
------------ --- --- ----------- --- ----------- --------
Operating income
(loss)................ 14,516,850 -- -- (1,213,640) -- 935,402 --
OTHER INCOME (EXPENSE):
Interest income........... 181,551 -- -- 215,791 -- 2,410 --
Interest expense.......... (14,817,214) -- -- (1,208,779) -- (2,081) --
Other non-operating
expense................. (148,690) -- -- -- -- -- --
Loss on disposal of
assets.................. (12,114) -- -- -- -- -- --
Equity in net income
(loss) of
subsidiaries............ (1,270,897) -- -- 935,731 -- -- 335,166(a)
------------ --- --- ----------- --- ----------- --------
Total other income
(expense)............. 16,067,364 -- -- (57,257) -- 329 335,166
------------ --- --- ----------- --- ----------- --------
Net income (loss)....... $ (1,550,514) $-- $-- $(1,270,897) $-- $ 935,731 $335,166
============ === === =========== === =========== ========
<Caption>
CONSOLIDATED
------------
REVENUES:
Casino.................... $132,553,506
Rooms..................... 1,079,456
Food and beverage......... 2,803,706
Other..................... 1,930,561
------------
Gross revenues.......... 138,367,229
Less promotional
allowances............ (8,081,983)
------------
Net Revenues............ 130,285,246
COSTS AND EXPENSES:
Casino.................... 28,213,481
Rooms..................... 628,910
Food and beverage......... 3,024,356
Other..................... 108,732
Gaming taxes.............. 34,834,624
Advertising and
promotion............... 8,522,115
General and
administrative.......... 24,240,726
Economic incentive--City
of Gary................. 3,667,100
Loss on investments in
Buffington Harbor
Riverboats, LLC......... 2,797,740
Depreciation and
amortization............ 8,990,616
Pre-opening costs......... 1,018,234
------------
Total costs and
expenses.............. 116,046,634
------------
Operating income
(loss)................ 14,238,612
OTHER INCOME (EXPENSE):
Interest income........... 399,752
Interest expense.......... (16,028,074)
Other non-operating
expense................. (148,690)
Loss on disposal of
assets.................. (12,114)
Equity in net income
(loss) of
subsidiaries............ --
------------
Total other income
(expense)............. 15,789,126
------------
Net income (loss)....... $ (1,550,514)
============
</Table>
- ---------------
(a) To eliminate equity in net income (loss) of subsidiaries
F-66
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
THE
THE MAJESTIC
MAJESTIC STAR MAJESTIC MAJESTIC
STAR CASINO MAJESTIC INVESTOR INVESTOR
CASINO, CAPITAL INVESTOR, HOLDINGS, CAPITAL GUARANTOR ELIMINATING
LLC CORP. LLC LLC CORP. SUBSIDIARIES ENTRIES
----------- -------- ----------- ------------- -------- ------------ -----------
NET CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES:................ $ 8,840,041 $-- $ 18,500 $ (14,700,259) $-- $17,334,730 $ 918,273
----------- -- ----------- ------------- -- ----------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for business
acquired, net of cash
acquired................. -- -- -- (143,758,152) -- -- --
Acquisition of property and
equipment................ (4,967,152) -- -- -- -- (122,696) --
Decrease in prepaid leases
and deposits............. 2,287,437 -- -- -- -- -- --
Purchase of naming
rights................... (1,500,000) -- -- -- -- -- --
Proceeds from sale of slot
machines................. 1,850 -- -- -- -- -- --
Investment in Buffington
Harbor Riverboats, LLC... (214,665) -- -- -- -- -- --
Decrease in restricted
cash..................... -- -- 2,000,000 -- -- -- --
----------- -- ----------- ------------- -- ----------- ---------
Net cash provided by
(used in) investing
activities............. (4,392,530) -- 2,000,000 (143,758,152) -- (122,696) --
----------- -- ----------- ------------- -- ----------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
11.653% Senior Secured
Notes.................... -- -- -- 145,000,400 -- -- --
Deferred financing costs... -- -- 1,465,860 (6,815,090) -- -- --
Member's equity
contribution............. -- -- -- 5,000,000 -- -- --
Contribution from Majestic
Investor................. -- -- (8,803,191) 8,803,191 -- -- --
Cash received for loan to
Barden Development,
Inc. .................... -- -- 2,000,000 -- -- -- --
Cash advances to/from
related parties.......... -- -- (250,000) 1,168,273 -- -- (918,273)
Issuance of loan to Barden
Development, Inc. ....... -- -- (700,000) -- -- (700,000)
Line of credit, net........ (7,800,000) -- -- 6,500,000 -- -- --
Cash paid to reduce
long-term debt........... (977,716) -- -- -- -- (5,582) --
----------- -- ----------- ------------- -- ----------- ---------
Net cash provided by
(used in) financing
activities............. (8,777,716) -- (5,587,331) 158,956,774 -- (5,582) (918,273)
----------- -- ----------- ------------- -- ----------- ---------
Net increase (decrease) in
cash and cash
equivalents................ (4,330,205) -- (3,568,831) 498,363 -- 17,206,452 --
Cash and cash equivalents,
beginning of period........ 12,550,681 -- 3,568,831 -- -- -- --
----------- -- ----------- ------------- -- ----------- ---------
Cash and cash equivalents,
end of period.............. $ 8,220,476 $-- $ -- $ 498,363 $-- $17,206,452 $ --
=========== == =========== ============= == =========== =========
<Caption>
CONSOLIDATED
TOTAL
-------------
NET CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES:................ $ 12,411,285
-------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for business
acquired, net of cash
acquired................. (143,758,152)
Acquisition of property and
equipment................ (5,089,848)
Decrease in prepaid leases
and deposits............. 2,287,437
Purchase of naming
rights................... (1,500,000)
Proceeds from sale of slot
machines................. 1,850
Investment in Buffington
Harbor Riverboats, LLC... (214,665)
Decrease in restricted
cash..................... 2,000,000
-------------
Net cash provided by
(used in) investing
activities............. (146,273,378)
-------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
11.653% Senior Secured
Notes.................... 145,000,400
Deferred financing costs... (5,349,230)
Member's equity
contribution............. 5,000,000
Contribution from Majestic
Investor................. --
Cash received for loan to
Barden Development,
Inc. .................... 2,000,000
Cash advances to/from
related parties.......... --
Issuance of loan to Barden
Development, Inc. .......
Line of credit, net........ (1,300,000)
Cash paid to reduce
long-term debt........... (983,298)
-------------
Net cash provided by
(used in) financing
activities............. 143,667,872
-------------
Net increase (decrease) in
cash and cash
equivalents................ 9,805,779
Cash and cash equivalents,
beginning of period........ 16,119,512
-------------
Cash and cash equivalents,
end of period.............. $ 25,925,291
=============
</Table>
F-67
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR STAR CASINO MAJESTIC ELIMINATING
CASINO, LLC CAPITAL CORP. INVESTOR, LLC ENTRIES CONSOLIDATED
----------------- ------------- ------------- ----------- ------------
REVENUES:
Casino........................ $115,455,271 $-- $ -- $ -- $115,455,271
Food and beverage............. 1,564,684 -- -- -- 1,564,684
Other......................... 1,431,304 -- -- -- 1,431,304
------------ --- --------- --------- ------------
Gross revenues............. 118,451,259 -- -- -- 118,451,259
Less promotional
allowances............... (4,689,543) -- -- -- (4,689,543)
------------ --- --------- --------- ------------
Net revenues............... 113,761,716 -- -- -- 113,761,716
COSTS AND EXPENSES:
Casino........................ 23,787,240 -- -- -- 23,787,240
Food and beverage............. 2,402,518 -- -- -- 2,402,518
Gaming taxes.................. 32,350,368 -- -- -- 32,350,368
Advertising and promotion..... 8,347,889 -- -- -- 8,347,889
General and administrative.... 22,941,994 -- 250,226 -- 23,192,220
Economic incentive-- City of
Gary....................... 3,230,679 -- -- -- 3,230,679
Depreciation and
amortization............... 11,172,350 -- -- -- 11,172,350
Loss on disposal of assets.... 416,904 -- -- -- 416,904
------------ --- --------- --------- ------------
Total costs and expenses... 104,649,942 -- 250,226 -- 104,900,168
------------ --- --------- --------- ------------
Operating income (loss).... 9,111,774 -- (250,226) -- 8,861,548
OTHER INCOME (EXPENSE):
Interest income............... 840,536 -- 52,917 -- 893,453
Interest expense.............. (14,998,377) -- -- -- (14,998,377)
Other non-operating expense... (124,503) -- -- -- (124,503)
Loss on bond redemption....... (382,500) -- -- (382,500) --
Equity in net income (loss) of
subsidiaries............... (197,309) -- -- 197,309 --
------------ --- --------- --------- ------------
Total other income
(expense)................ (14,862,153) -- 52,917 197,309 (14,229,427)
------------ --- --------- --------- ------------
Net loss................... $ (5,750,379) $-- $(197,309) $ 197,309 $ (5,750,379)
============ === ========= ========= ============
</Table>
F-68
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
THE MAJESTIC
THE STAR CASINO
MAJESTIC STAR CAPITAL MAJESTIC CONSOLIDATED
CASINO, LLC CORP. INVESTOR, LLC TOTAL
------------- ------------ ------------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:........................... $ 6,178,381 $ -- $(1,431,669) $ 4,746,712
------------ ----- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and
equipment.......................... (3,039,635) -- -- (3,039,635)
Sale of slot equipment................ 179,200 -- -- 179,200
Increase in deposits.................. (98,404) -- -- (98,404)
Investment in Buffington Harbor
Riverboats, LLC.................... (7,836,489) -- -- (7,836,489)
Increase in restricted cash........... -- -- (2,000,000) (2,000,000)
Contribution to Majestic Investor,
LLC................................ (9,000,500) -- 9,000,500 --
Purchase of 49% interest in Gary New
Century, LLC....................... -- -- (9,000,000) (9,000,000)
Sale of 49% interest in Gary New
Century, LLC....................... -- -- 9,000,000 9,000,000
------------ ----- ----------- ------------
Net cash provided by (used in)
investing activities............. (19,795,828) -- 7,000,500 (12,795,328)
------------ ----- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of 12 3/4% Senior Secured
Notes.............................. (6,382,500) -- -- (6,382,500)
Decrease in restricted cash........... 7,357,874 -- -- 7,357,874
Distribution to Barden Development,
Inc. .............................. (597,610) -- -- (597,610)
Line of credit, net................... 7,800,000 -- -- 7,800,000
Cash paid to reduce long-term debt.... (2,154,680) -- -- (2,154,680)
Issuance of loans to Barden
Development, Inc. ................. (4,000,000) -- (2,000,000) (6,000,000)
Cash received for loans to Barden
Development, Inc. ................. 4,000,000 -- -- 4,000,000
------------ ----- ----------- ------------
Net cash provided by (used in)
financing activities............. 6,023,084 -- (2,000,000) 4,023,084
------------ ----- ----------- ------------
Net increase (decrease) in cash and cash
equivalents........................... (7,594,363) -- 3,568,831 (4,025,532)
Cash and cash equivalents, beginning of
period................................ 20,145,044 -- -- 20,145,044
------------ ----- ----------- ------------
Cash and cash equivalents, end of
period................................ $ 12,550,681 $ -- $ 3,568,831 $ 16,119,512
============ ===== =========== ============
</Table>
F-69
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION -- 9 1/2% SENIOR SECURED NOTES
On October 7, 2003, The Majestic Star Casino, LLC and its wholly owned
subsidiary, The Majestic Star Casino Capital Corp. issued $260.0 million
aggregate principal amount of 9 1/2% Senior Secured Notes due 2010 (the "9 1/2%
Notes") in a private placement. The 9 1/2% Notes are secured by, among other
assets, the Company's equity interests, the equity interests in the subsidiary
guarantors described below (which guarantees are effective upon receipt of
gaming regulatory approval), and substantially all of the Company's and its
subsidiary guarantors' assets, other than the excluded assets. The lien on the
collateral securing the senior secured credit facility is senior to the lien on
the collateral securing the notes and the guarantees.
The registered notes are fully, unconditionally and jointly and severally
guaranteed on a senior secured basis by each of the Company's existing and
future restricted subsidiaries. The guarantees rank senior in right of payment
to all existing and future subordinated indebtedness of these restricted
subsidiaries and will rank equal in right of payment to all existing and future
senior indebtedness of these restricted subsidiaries.
The Company has applied to the Nevada Gaming Commission and Nevada Gaming
Control Board for approval to spin-off Barden Nevada Gaming, LLC ("Barden
Nevada"), the owner and operator of Fitzgeralds Las Vegas, to Barden
Development, Inc. ("BDI"), the Company's parent, and in anticipation of the
spin-off, the Company has designated Barden Nevada as an unrestricted subsidiary
under the 9 1/2% Notes. Barden Nevada is not a guarantor and none of Barden
Nevada's assets serve as collateral for the notes.
Prior to October 15, 2006, the Company may redeem up to 35% of the original
aggregate principal amount of the notes at a redemption price of 109.5% of the
principal amount of the notes, plus accrued and unpaid interest, with the net
cash proceeds of certain equity offerings. On or after October 15, 2007, the
Company may redeem all or a portion of the notes at the a redemption price of
104.75% of the principal amount of the notes, plus accrued and unpaid interest,
declining to 100.0% on October 15, 2009 and thereafter.
The indenture contains covenants limiting the Company's ability to, among
other things, incur more debt, pay dividends, redeem or purchase its equity
interests or make other distributions, make certain acquisitions or investments,
create liens in its assets, enter into transactions with affiliates, merge or
consolidate with others, transfer or sell assets, and extend credit.
The following condensed consolidating information presents condensed
consolidating balance sheets as of September 30, 2003 and December 31, 2002 and
condensed consolidating statements of operations for the three and nine months
ended September 30, 2003 and 2002, and condensed consolidating statements of
cash flows for the nine months ended September 30, 2003 and 2002, for The
Majestic Star Casino, LLC, Majestic Star Casino Capital Corp., the guarantor
subsidiaries and its non-guarantor subsidiary and eliminating entries necessary
to consolidate such entities as they relate to the 9 1/2% Notes:
F-70
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ------------ ------------
ASSETS
Current Assets:
Cash and cash
equivalents.............. $ 8,564,057 $ -- $ 11,588,218 $ 4,395,606 $ -- $ 24,547,881
Restricted cash............ -- -- 250,000 -- -- 250,000
Accounts receivable, less
allowance for doubtful
accounts of $372,689..... 1,233,543 -- 648,404 592,779 -- 2,474,726
Inventories................ 53,360 -- 610,097 319,029 -- 982,486
Prepaid expenses........... 1,237,196 -- 668,291 976,444 -- 2,881,931
Receivables from related
party.................... 323,359 -- -- 1,760 (325,119)(a) --
Note receivable from
affiliate................ 500,000 -- 700,000 -- -- 1,200,000
Due from Buffington Harbor
Riverboats, LLC.......... 217,925 -- -- -- -- 217,925
Other...................... -- -- 39,133 -- -- 39,133
------------ ------------- ------------ ----------- ------------ ------------
Total current assets..... 12,129,440 -- 14,504,143 6,285,618 (325,119) 32,594,082
------------ ------------- ------------ ----------- ------------ ------------
Property, equipment and
improvements, net.......... 47,511,652 -- 89,302,527 27,994,979 -- 164,809,158
Intangible assets, net...... -- -- 15,774,246 1,917,500 -- 17,691,746
Goodwill.................... -- -- 5,922,398 -- -- 5,922,398
Other assets:
Deferred financing costs,
net of accumulated
amortization of
$4,375,528............... 2,657,165 -- 6,714,902 -- -- 9,372,067
Investment in Buffington
Harbor Riverboats, LLC... 31,833,311 -- -- -- -- 31,833,311
Investment in Majestic
Investor Holdings, LLC... 8,082,405 -- -- -- (8,082,045)(b) --
Long term accounts
receivable -- related
parties.................. -- -- 36,173,404 -- (36,173,404)(a) --
Restricted cash............ -- -- -- 1,000,000 -- 1,000,000
Other assets............... 10,962,753 -- 591,979 1,032,380 -- 12,587,112
------------ ------------- ------------ ----------- ------------ ------------
Total other assets..... 53,535,634 -- 43,480,285 2,032,380 (44,255,809) 54,792,490
------------ ------------- ------------ ----------- ------------ ------------
Total Assets........... $113,176,726 $ -- $168,983,599 $38,230,477 $(44,580,928) $275,809,874
============ ============= ============ =========== ============ ============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of
long-term debt........... $ -- $ -- $ -- $ 134,084 $ -- 134,084
Accounts payable........... 1,911,929 -- 1,031,604 1,104,765 -- 4,048,298
Other accrued liabilities:
Payroll and related...... 1,707,240 3,914,357 2,034,918 -- 7,656,515
Interest................. -- -- 1,473,785 -- -- 1,473,785
Progressive jackpots..... 713,083 -- 2,236,782 239,761 -- 3,189,626
Slot club liability...... -- -- 611,785 126,774 -- 738,559
Other accrued
liabilities............ 4,139,265 -- 3,711,696 691,442 (325,119)(a) 8,217,284
------------ ------------- ------------ ----------- ------------ ------------
Total current
liabilities.......... 8,471,517 -- 12,980,009 4,331,744 (325,119) 25,458,151
------------ ------------- ------------ ----------- ------------ ------------
Due to related parties...... -- -- -- 36,173,404 (36,173,404)(a) --
Long-term debt, net of
current maturities......... 128,879,771 128,879,771 145,531,448 115,066 (128,879,771)(a) 274,526,285
------------ ------------- ------------ ----------- ------------ ------------
Total Liabilities...... 137,351,288 128,879,771 158,511,457 40,620,214 (165,378,294) 299,984,436
------------ ------------- ------------ ----------- ------------ ------------
Total member's
(deficit) equity..... (24,174,562) (128,879,771) 10,472,142 (2,389,737) 120,797,366(b)(c) (24,174,562)
------------ ------------- ------------ ----------- ------------ ------------
Total Liabilities and
Member's Deficit..... $113,176,726 $ -- $168,983,599 $38,230,477 $(44,580,928) $275,809,874
============ ============= ============ =========== ============ ============
</Table>
- ---------------
(a) To eliminate intercompany receivable and payable.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 10 Long-Term Debt, The Majestic Star Casino,
LLC and The Majestic Star Casino Capital Corp. are co-obligors of certain of
the Company's indebtedness. Accordingly, such indebtedness has been
presented of both entities in the above balance sheet.
F-71
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001
<Table>
<Caption>
THE MAJESTIC THE MAJESTIC MAJESTIC
STAR CASINO, STAR CASINO INVESTOR, GUARANTOR NON-GUARANTOR
LLC CAPITAL CORP. LLC SUBSIDIARIES SUBSIDIARY
------------ ------------- --------- ------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 8,220,476 $ -- $-- $ 12,746,429 $ 4,958,386
Accounts receivable, net...................... 1,642,462 -- -- 922,176 642,282
Inventories................................... 38,144 -- -- 582,010 375,554
Prepaid expenses and other current assets..... -- -- 429,965 782,688
Receivable from related party................. -- -- 700,000 --
Prepaid expenses and other current assets..... 1,213,056 -- -- 15,552 --
------------ ------------- --- ------------ -----------
Total current assets........................ 11,114,138 -- -- 15,396,132 6,758,910
------------ ------------- --- ------------ -----------
Property, equipment and improvements, net...... 47,767,051 -- -- 93,621,525 28,806,437
Intangible assets, net......................... -- -- -- 11,899,246 7,391,507
Goodwill....................................... -- -- -- 9,717,250 885,000
Other assets:
Deferred financing costs, net................. 3,506,720 -- -- 7,023,706 --
Investment in Buffington Harbor Riverboats,
LLC......................................... 33,898,771 -- -- -- --
Investment in Majestic Investor Holdings,
LLC......................................... 12,532,295 -- -- -- --
Long term accounts receivable--related
parties..................................... 1,177,829 -- -- 39,418,859 --
Restricted cash............................... -- -- -- 1,000,000
Other assets.................................. 11,362,529 -- -- 616,843 328,775
------------ ------------- --- ------------ -----------
Total Assets................................ $121,359,333 $ -- $-- $177,693,561 $45,170,629
============ ============= === ============ ===========
LIABILITIES AND MEMBER'S (DEFICIT)
Current Liabilities:
Current maturities of long-term debt.......... $ -- $ -- $-- $ 6,522,965 $ 133,609
Accounts payable.............................. 1,031,772 -- -- 968,782 977,948
Other accrued liabilities:
Payroll and related......................... 1,188,487 -- -- 3,033,930 1,972,184
Interest.................................... 7,085,533 -- -- 1,208,779 --
Progressive jackpot......................... -- -- -- 2,062,820 211,230
Slot club liability......................... -- -- -- 508,507 1,733,369
Other liabilities........................... 3,478,399 -- -- 4,197,265 863,515
------------ ------------- --- ------------ -----------
Total current liabilities................. 12,784,191 -- -- 18,501,026 5,877,796
------------ ------------- --- ------------ -----------
Due to related parties......................... -- -- 1,177,829 39,418,859
Long-term debt, net of current maturities...... 128,556,629 128,566,629 -- 145,085,432 254,872
------------ ------------- --- ------------ -----------
Total Liabilities......................... 141,340,820 128,566,629 -- 164,764,287 45,551,527
Total member's (deficit) equity........... (19,981,487) (128,566,629) -- 12,927,252 (394,957)
------------ ------------- --- ------------ -----------
Total Liabilities and member's equity
(deficit)............................... $121,359,333 $ -- $-- $177,693,561 $45,170,629
============ ============= === ============ ===========
<Caption>
ELIMINATING TOTAL
ENTRIES CONSOLIDATED
-------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents..................... $ -- $ 25,925,291
Accounts receivable, net...................... (28,484)(a) 3,178,436
Inventories................................... -- 995,708
Prepaid expenses and other current assets..... -- 1,212,653
Receivable from related party................. -- 700,000
Prepaid expenses and other current assets..... -- 1,228,608
-------------- ------------
Total current assets........................ (28,484) 33,240,696
-------------- ------------
Property, equipment and improvements, net...... -- 170,195,013
Intangible assets, net......................... -- 19,290,753
Goodwill....................................... -- 10,602,250
Other assets:
Deferred financing costs, net................. -- 10,530,426
Investment in Buffington Harbor Riverboats,
LLC......................................... -- 33,898,771
Investment in Majestic Investor Holdings,
LLC......................................... (12,532,295)(b) --
Long term accounts receivable--related
parties..................................... (40,596,688)(b) --
Restricted cash............................... -- 1,000,000
Other assets.................................. 9,557(a) 12,317,704
-------------- ------------
Total Assets................................ $ (53,147,910) $291,075,613
============== ============
LIABILITIES AND MEMBER'S (DEFICIT)
Current Liabilities:
Current maturities of long-term debt.......... $ -- $ 6,656,574
Accounts payable.............................. -- 2,978,502
Other accrued liabilities:
Payroll and related......................... -- 6,194,601
Interest.................................... -- 8,294,312
Progressive jackpot......................... -- 2,274,050
Slot club liability......................... -- 2,241,876
Other liabilities........................... (18,927)(a) 8,520,252
-------------- ------------
Total current liabilities................. (18,927) 37,160,167
-------------- ------------
Due to related parties......................... (40,596,688)(b) --
Long-term debt, net of current maturities...... (128,566,629)(c) 273,896,933
-------------- ------------
Total Liabilities......................... (169,182,244) 311,057,100
Total member's (deficit) equity........... 116,034,334(b),(c) (19,981,487)
-------------- ------------
Total Liabilities and member's equity
(deficit)............................... $ 53,147,910 $291,075,613
============== ============
</Table>
- ---------------
(a) To eliminate intercompany receivable and payable
(b) To eliminate intercompany accounts and investment in subsidiaries
(c) As more fully described in Note 10 Long-Term Debt, The Majestic Star Casino,
LLC and The Majestic Star Casino Capital Corp. are co-obligors of certain of
the Company's indebtedness. Accordingly, such indebtedness has been
presented as an obligation of both entities in the above balance sheets.
F-72
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 2002
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ----------- ------------
REVENUES:
Casino.......................... $132,599,608 $-- $124,228,663 $36,960,671 $ -- $293,788,942
Rooms........................... -- -- 8,160,611 7,335,009 -- 15,495,620
Food and beverage............... 1,623,621 -- 11,189,142 8,281,358 -- 21,094,121
Other........................... 1,941,880 -- 1,564,194 2,040,550 -- 5,546,624
------------ --- ------------ ----------- ---------- ------------
Gross revenues................ 136,165,109 -- 145,142,610 54,617,588 -- 335,925,307
Less promotional allowances... 8,870,991 -- 24,645,475 5,702,658 -- 39,219,124
------------ --- ------------ ----------- ---------- ------------
Net revenues.................. 127,294,118 -- 120,497,135 48,914,930 -- 296,706,183
------------ --- ------------ ----------- ---------- ------------
COSTS AND EXPENSES:
Casino.......................... 26,337,807 -- 42,791,686 18,030,442 -- 87,159,935
Rooms........................... -- -- 3,474,166 5,540,188 -- 9,014,354
Food and beverage............... 2,285,881 -- 3,963,068 7,304,167 -- 13,553,116
Other........................... -- -- 1,030,061 529,800 -- 1,559,861
Gaming taxes.................... 33,621,349 -- 15,049,686 2,901,071 -- 51,572,106
Advertising and promotion....... 7,636,379 -- 8,818,106 4,464,820 -- 20,919,305
General and administrative...... 26,775,809 -- 15,808,909 9,169,082 -- 51,753,800
Economic incentive--City of
Gary.......................... 3,980,501 -- -- -- -- 3,980,501
Depreciation and amortization... 6,616,863 -- 11,507,972 2,952,350 -- 21,077,185
Loss on investment in Buffington
Harbor Riverboats, LLC........ 2,424,392 -- -- -- -- 2,424,392
Pre-opening expenses............ -- -- 13,391 -- -- 13,391
------------ --- ------------ ----------- ---------- ------------
Total costs and expenses...... 109,678,981 -- 102,457,045 50,891,920 -- 263,027,946
------------ --- ------------ ----------- ---------- ------------
Operating income (loss)....... 17,615,137 -- 18,040,090 (1,976,990) -- 33,678,237
------------ --- ------------ ----------- ---------- ------------
OTHER INCOME (EXPENSE):
Interest income................. 57,962 -- 123,325 12,505 -- 193,792
Interest expense................ (14,318,995) -- (18,087,275) (30,543) -- (32,436,813)
Gain (loss) on sale of assets... 8,850 -- (14,320) 251 -- (5,219)
Other non-operating expense..... (141,516) -- (41,684) -- -- (183,200)
Gain on bond redemption......... -- -- 68,957 -- -- 68,957
Equity in net income (loss) of
subsidiaries.................. (1,905,684) -- (1,994,777) -- 3,900,461(a) --
------------ --- ------------ ----------- ---------- ------------
Total other expense........... (16,299,383) -- (19,945,774) (17,787) 3,900,461 (32,362,483)
------------ --- ------------ ----------- ---------- ------------
Net income (loss)............. $ 1,315,754 $-- $ (1,905,684) $(1,994,777) $3,900,461 $ 1,315,754
============ === ============ =========== ========== ============
</Table>
- ---------------
(a) To eliminate equity in net income (loss) of subsidiaries
F-73
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 2001
<Table>
<Caption>
THE MAJESTIC THE MAJESTIC MAJESTIC
STAR CASINO, STAR CASINO INVESTOR, GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
LLC CAPITAL CORP. LLC SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
------------ ------------- --------- ------------ ------------- ----------- ------------
REVENUES:
Casino.................. $122,194,707 $-- $-- $ 8,003,352 $2,355,447 $ -- $132,553,506
Rooms................... -- -- -- 544,249 535,207 -- 1,079,456
Food and beverage....... 1,613,902 -- -- 742,351 447,453 -- 2,803,706
Other................... 1,726,703 -- -- 96,828 107,030 -- 1,930,561
------------ -- -- ----------- ---------- ---------- ------------
Gross revenues........ 125,535,312 -- -- 9,386,780 3,445,137 -- 138,367,229
Less promotional
allowances.......... 5,771,135 -- -- 1,946,288 364,560 -- 8,081,983
------------ -- -- ----------- ---------- ---------- ------------
Net revenues.......... 119,764,177 -- -- 7,440,492 3,080,577 -- 130,285,246
------------ -- -- ----------- ---------- ---------- ------------
COSTS AND EXPENSES:
Casino.................. 24,101,978 -- -- 2,767,813 1,343,690 -- 28,213,481
Rooms................... -- -- -- 187,507 441,403 -- 628,910
Food and beverage....... 2,317,409 -- -- 286,402 420,545 -- 3,024,356
Other................... -- -- -- 68,523 40,209 -- 108,732
Gaming taxes............ 34,026,160 -- -- 669,203 139,261 -- 34,834,624
Advertising and
promotion............. 7,595,889 -- -- 604,448 321,778 -- 8,522,115
General and
administrative........ 22,671,083 -- -- 970,474 599,169 -- 24,240,726
Economic incentive--City
of Gary............... 3,667,100 -- -- -- -- -- 3,667,100
Depreciation and
amortization.......... 8,069,968 -- -- 753,250 167,398 -- 8,990,616
Loss on investment in
Buffington Harbor
Riverboats, LLC....... 2,797,740 -- -- -- -- -- 2,797,740
Pre-opening
expenses............ -- -- -- 1,018,234 -- -- 1,018,234
------------ -- -- ----------- ---------- ---------- ------------
Total costs and
expenses............ 105,247,327 -- -- 7,325,854 3,473,453 -- 116,046,634
------------ -- -- ----------- ---------- ---------- ------------
Operating income
(loss).............. 14,516,850 -- -- 114,638 (392,876) -- 14,238,612
------------ -- -- ----------- ---------- ---------- ------------
OTHER INCOME (EXPENSE):
Interest income......... 181,551 -- -- 218,201 -- -- 399,752
Interest expense........ (14,817,214) -- -- (1,208,779) (2,081) (16,028,074)
Loss on disposal of
assets................ (12,114) -- -- -- -- -- (12,114)
Other non-operating
expense............... (148,690) -- -- -- -- -- (148,690)
Equity in net income
(loss) of
subsidiaries.......... (1,270,897) -- -- (394,957) -- 1,665,854(a) --
------------ -- -- ----------- ---------- ---------- ------------
Total other expense... (16,067,364) -- -- (1,385,535) (2,081) 1,665,854 (15,789,126)
------------ -- -- ----------- ---------- ---------- ------------
Net loss.............. $ (1,550,514) $-- $-- $(1,270,897) $ (394,957) $1,665,854 $ (1,550,514)
============ == == =========== ========== ========== ============
</Table>
- ---------------
(a) To eliminate equity in net income (loss) of subsidiaries
F-74
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 2000
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO MAJESTIC GUARANTOR NON-GUARANTOR ELIMINATING
STAR CASINO, LLC CAPITAL CORP. INVESTOR, LLC SUBSIDIARIES SUBSIDIARY ENTRIES
---------------- ------------- ------------- ------------ ------------- -----------
REVENUES:
Casino.................... $115,455,271 $ -- $ -- $ -- $ -- $ --
Food and beverage......... 1,564,684 -- -- -- -- --
Other..................... 1,431,304 -- -- -- -- --
------------ ----- ----- --------- ----- --------
Gross revenues.......... 118,451,259 -- -- -- -- --
Less promotional
allowances........... 4,689,543 -- -- -- -- --
------------ ----- ----- --------- ----- --------
Net revenues............ 113,761,716 -- -- -- -- --
------------ ----- ----- --------- ----- --------
COSTS AND EXPENSES:
Casino.................... 23,787,240 -- -- -- -- --
Food and beverage......... 2,402,518 -- -- -- -- --
Gaming taxes.............. 32,350,368 -- -- -- -- --
Advertising and
promotion............... 8,347,889 -- -- -- -- --
General and
administrative.......... 22,941,994 -- -- 250,226 -- --
Economic incentive--City
of Gary................. 3,230,679 -- -- -- -- --
Depreciation and
amortization............ 9,113,681 -- -- -- -- --
Loss on investment in
Buffington Harbor
Riverboats, LLC......... 2,058,669 -- -- -- -- --
------------ ----- ----- --------- ----- --------
Total costs and
expenses............. 104,233,038 -- -- 250,226 -- --
------------ ----- ----- --------- ----- --------
Operating income
(loss)............... 9,528,678 -- -- (250,226) -- --
------------ ----- ----- --------- ----- --------
OTHER INCOME (EXPENSE):
Interest income........... 840,536 -- -- 52,917 -- --
Interest expense.......... (14,998,377) -- -- -- -- --
Loss on bond redemption... (382,500) -- -- -- -- --
Loss on sale of assets.... (416,904) -- -- -- -- --
Other non-operating
expense................. (124,503) -- -- -- -- --
Equity in net loss of
subsidiary.............. (197,309) -- -- -- -- 197,309(a)
------------ ----- ----- --------- ----- --------
Total other (expense)
income............... (15,279,057) -- -- 52,917 -- 197,309
------------ ----- ----- --------- ----- --------
Net loss................ $ (5,750,379) $ -- $ -- $(197,309) $ -- $197,309
============ ===== ===== ========= ===== ========
<Caption>
TOTAL
CONSOLIDATED
------------
REVENUES:
Casino.................... $115,455,271
Food and beverage......... 1,564,684
Other..................... 1,431,304
------------
Gross revenues.......... 118,451,259
Less promotional
allowances........... 4,689,543
------------
Net revenues............ 113,761,716
------------
COSTS AND EXPENSES:
Casino.................... 23,787,240
Food and beverage......... 2,402,518
Gaming taxes.............. 32,350,368
Advertising and
promotion............... 8,347,889
General and
administrative.......... 23,192,220
Economic incentive--City
of Gary................. 3,230,679
Depreciation and
amortization............ 9,113,681
Loss on investment in
Buffington Harbor
Riverboats, LLC......... 2,058,669
------------
Total costs and
expenses............. 104,483,264
------------
Operating income
(loss)............... 9,278,452
------------
OTHER INCOME (EXPENSE):
Interest income........... 893,453
Interest expense.......... (14,998,377)
Loss on bond redemption... (382,500)
Loss on sale of assets.... (416,904)
Other non-operating
expense................. (124,503)
Equity in net loss of
subsidiary.............. --
------------
Total other (expense)
income............... (15,028,831)
------------
Net loss................ $ (5,750,379)
============
</Table>
- ---------------
(a) To eliminate equity in net income (loss) of subsidiaries
F-75
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 30, 2002
<Table>
<Caption>
THE MAJESTIC
THE MAJESTIC STAR CASINO GUARANTOR NON-GUARANTOR ELIMINATING TOTAL
STAR CASINO, LLC CAPITAL CORP. SUBSIDIARIES SUBSIDIARY ENTRIES CONSOLIDATED
---------------- ------------- ------------ ------------- ----------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES....... $ 8,960,224 $ -- $11,286,678 $ 1,057,821 $ -- $ 21,304,723
----------- ------ ----------- ----------- ------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition related
costs.................... -- -- (986,158) -- -- (986,158)
Increase in restricted
cash..................... -- -- (250,000) -- -- (250,000)
Proceeds from seller for
purchase price
adjustment............... -- -- 3,800,000 -- -- 3,800,000
Acquisition of property and
equipment................ (5,188,766) -- (3,725,786) (1,481,670) -- (10,396,222)
Increase in prepaid leases
and deposits............. (113,186) -- -- -- -- (113,186)
Investment in Buffington
Harbor Riverboats, LLC... (358,918) -- -- -- -- (358,918)
Proceeds from sale of
equipment................ 8,850 -- 43,867 400 -- 53,117
----------- ------ ----------- ----------- ------ ------------
Net cash used in
investing activities... (5,652,020) -- (1,118,077) (1,481,270) -- (8,251,367)
----------- ------ ----------- ----------- ------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance cost for the
11.653% senior secured
notes.................... -- -- (1,523,568) -- -- (1,523,568)
Cash paid for redemption of
Senior Secured Notes..... -- -- (759,038) -- -- (759,038)
Proceeds from line of
credit................... -- -- 2,500,000 -- -- 2,500,000
Repayment of line of
credit................... -- -- (9,000,000) -- -- (9,000,000)
Repayment of long term
debt..................... -- -- -- (139,331) -- (139,331)
Distribution to Barden
Development, Inc......... (2,964,623) -- (2,544,206) -- -- (5,508,829)
----------- ------ ----------- ----------- ------ ------------
Net cash used in
financing activities... (2,964,623) -- (11,326,812) (139,331) -- (14,430,766)
----------- ------ ----------- ----------- ------ ------------
Net increase (decrease) in
cash and cash
equivalents................ 343,581 -- (1,158,211) (562,780) -- (1,377,410)
Cash and cash equivalents,
beginning of period........ 8,220,476 -- 12,746,429 4,958,386 -- 25,925,291
----------- ------ ----------- ----------- ------ ------------
Cash and cash equivalents,
end of period.............. $ 8,564,057 $ -- $11,588,218 $ 4,395,606 $ -- $ 24,547,881
=========== ====== =========== =========== ====== ============
</Table>
F-76
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 30, 2001
<Table>
<Caption>
THE MAJESTIC THE MAJESTIC
STAR CASINO, STAR CASINO MAJESTIC GUARANTOR NON-GUARANTOR ELIMINATING
LLC CAPITAL CORP. INVESTOR, LLC SUBSIDIARIES SUBSIDIARY ENTRIES
------------ ------------- ------------- ------------- ------------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............ $ 8,840,041 $-- $ 18,500 $ (2,352,439) $4,986,910 $ 918,273(a)
----------- --- ----------- ------------- ---------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for business acquired,
net of cash acquired.......... -- -- -- (143,758,152) -- --
Decrease in restricted cash..... -- -- 2,000,000 -- -- --
Acquisition of property and
equipment..................... (4,967,152) -- -- (99,754) (22,942) --
Decrease in prepaid leases and
deposits...................... 2,287,437 -- -- -- -- --
Purchase of naming rights....... (1,500,000) -- -- -- -- --
Investment in Buffington Harbor
Riverboats, LLC............... (214,665) -- -- -- -- --
Proceeds from sale of
equipment..................... 1,850 -- -- -- -- --
----------- --- ----------- ------------- ---------- ---------
Net cash provided by (used in)
investing activities........ (4,392,530) -- 2,000,000 (143,857,906) (22,942) --
----------- --- ----------- ------------- ---------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
11.653% senior secured
notes......................... -- -- -- 145,000,400 -- --
Deferred financing costs........ -- -- 1,465,860 (6,815,090) -- --
Proceeds from member's equity
contribution.................. -- -- -- 5,000,000 -- --
Contribution from Majestic
Investor, LLC................. -- -- (8,803,191) 8,803,191 -- --
Proceeds from line of credit.... -- -- -- 6,500,000 -- --
Repayment of line of credit..... (7,800,000) -- -- -- -- --
Cash received from loans to
Barden Development, Inc. ..... -- -- 2,000,000 -- -- --
Cash advance to/from related
party......................... -- -- (250,000) 1,168,273 -- (918,273) (a)
Issuance of loan to Barden
Development, Inc. ............ -- -- -- (700,000) -- --
Repayment of long term debt..... (977,716) -- -- -- (5,582) --
----------- --- ----------- ------------- ---------- ---------
Net cash provided by (used in)
financing activities........ (8,777,716) -- (5,587,331) 158,956,774 (5,582) (918,273)
----------- --- ----------- ------------- ---------- ---------
Net increase (decrease) in cash
and cash equivalents............ (4,330,205) -- (3,568,831) 12,746,429 4,958,386 --
Cash and cash equivalents,
beginning of period............. 12,550,681 -- 3,568,831 -- --
----------- --- ----------- ------------- ---------- ---------
Cash and cash equivalents, end of
period.......................... $ 8,220,476 $-- $ -- $ 12,746,429 $4,958,386 $ --
=========== === =========== ============= ========== =========
<Caption>
TOTAL
CONSOLIDATED
-------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............ $ 12,411,285
-------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for business acquired,
net of cash acquired.......... (143,758,152)
Decrease in restricted cash..... 2,000,000
Acquisition of property and
equipment..................... (5,089,848)
Decrease in prepaid leases and
deposits...................... 2,287,437
Purchase of naming rights....... (1,500,000)
Investment in Buffington Harbor
Riverboats, LLC............... (214,665)
Proceeds from sale of
equipment..................... 1,850
-------------
Net cash provided by (used in)
investing activities........ (146,273,378)
-------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
11.653% senior secured
notes......................... 145,000,400
Deferred financing costs........ (5,349,230)
Proceeds from member's equity
contribution.................. 5,000,000
Contribution from Majestic
Investor, LLC................. --
Proceeds from line of credit.... 6,500,000
Repayment of line of credit..... (7,800,000)
Cash received from loans to
Barden Development, Inc. ..... 2,000,000
Cash advance to/from related
party......................... --
Issuance of loan to Barden
Development, Inc. ............ (700,000)
Repayment of long term debt..... (983,298)
-------------
Net cash provided by (used in)
financing activities........ 143,667,872
-------------
Net increase (decrease) in cash
and cash equivalents............ 9,805,779
Cash and cash equivalents,
beginning of period............. 16,119,512
-------------
Cash and cash equivalents, end of
period.......................... $ 25,925,291
=============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables
F-77
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--9 1/2% SENIOR SECURED
NOTES--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 30, 2000
<Table>
<Caption>
THE MAJESTIC MAJESTIC
THE MAJESTIC STAR CASINO INVESTOR, GUARANTOR NON-GUARANTOR ELIMINATING
STAR CASINO, LLC CAPITAL CORP. LLC SUBSIDIARIES SUBSIDIARY ENTRIES
---------------- ------------- ----------- ------------ ------------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES........... $ 6,178,381 $ -- $(1,431,669) $ -- $ -- $ --
------------ ------ ----------- ------ ------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceed from sale of
equipment.................... 179,200 -- -- -- -- --
Increase in restricted cash.... -- -- (2,000,000) -- -- --
Acquisition of property and
equipment.................... (3,039,635) -- -- -- -- --
Increase in prepaid leases and
deposits..................... (98,404) -- -- -- -- --
Contribution to Majestic
Investor, LLC................ (9,000,500) -- 9,000,500 -- -- --
Investment in Buffington Harbor
Riverboats, LLC.............. (7,836,489) -- -- -- -- --
Purchase of 49% interest in
Gary New Century, LLC........ -- -- (9,000,000) -- -- --
Sale of 49% interest in Gary
New Century, LLC............. -- -- 9,000,000 -- -- --
------------ ------ ----------- ------ ------ ------
Net cash provided by (used
in) investing activities... (19,795,828) -- 7,000,500 -- -- --
------------ ------ ----------- ------ ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Redemption of 12 3/4% Senior
Secured Notes................ (6,382,500) -- -- -- -- --
Decrease in restricted cash.... 7,357,874 -- -- -- -- --
Distribution to Barden
Development, Inc............. (597,610) -- -- -- -- --
Proceeds from line of credit... 12,000,000 -- -- -- -- --
Repayment of line of credit.... (4,200,000) -- -- -- -- --
Cash received from loans to
Barden Development, Inc...... 4,000,000 -- -- -- -- --
Issuance of loan to Barden
Development, Inc............. (4,000,000) -- (2,000,000) -- -- --
Repayment of long term debt.... (2,154,680) -- -- -- -- --
------------ ------ ----------- ------ ------ ------
Net cash provided by (used
in) financing activities... 6,023,084 -- (2,000,000) -- -- --
------------ ------ ----------- ------ ------ ------
Net increase (decrease) in cash
and cash equivalents........... (7,594,363) -- 3,568,831 -- -- --
Cash and cash equivalents,
beginning of period............ 20,145,044 -- -- -- --
------------ ------ ----------- ------ ------ ------
Cash and cash equivalents, end of
period......................... $ 12,550,681 $ -- $ 3,568,831 $ -- $ -- $ --
============ ====== =========== ====== ====== ======
<Caption>
TOTAL
CONSOLIDATED
------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES........... $ 4,746,712
------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceed from sale of
equipment.................... 179,200
Increase in restricted cash.... (2,000,000)
Acquisition of property and
equipment.................... (3,039,635)
Increase in prepaid leases and
deposits..................... (98,404)
Contribution to Majestic
Investor, LLC................ --
Investment in Buffington Harbor
Riverboats, LLC.............. (7,836,489)
Purchase of 49% interest in
Gary New Century, LLC........ (9,000,000)
Sale of 49% interest in Gary
New Century, LLC............. 9,000,000
------------
Net cash provided by (used
in) investing activities... (12,795,328)
------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Redemption of 12 3/4% Senior
Secured Notes................ (6,382,500)
Decrease in restricted cash.... 7,357,874
Distribution to Barden
Development, Inc............. (597,610)
Proceeds from line of credit... 12,000,000
Repayment of line of credit.... (4,200,000)
Cash received from loans to
Barden Development, Inc...... 4,000,000
Issuance of loan to Barden
Development, Inc............. (6,000,000)
Repayment of long term debt.... (2,154,680)
------------
Net cash provided by (used
in) financing activities... 4,023,084
------------
Net increase (decrease) in cash
and cash equivalents........... (4,025,532)
Cash and cash equivalents,
beginning of period............ 20,145,044
------------
Cash and cash equivalents, end of
period......................... $ 16,119,512
============
</Table>
F-78
SCHEDULE II
THE MAJESTIC STAR CASINO, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, DECEMBER 31, 2001 AND DECEMBER 31, 2000
<Table>
<Caption>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CASH END
OF YEAR EXPENSES RECOVERIES DEDUCTIONS OF YEAR
---------- ---------- ---------- ---------- ----------
Descriptions
Allowance for doubtful accounts
Year ended December 31, 2000........................... $ 36,548 $140,182 $35,270 $ 92,000 $120,000
Year ended December 31, 2001........................... 120,000 400,685 35,704 196,687 359,702
Year ended December 31, 2002........................... 359,702 449,335 50,358 486,706 372,689
</Table>
F-79
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 year ended December 31, 2000. Our
audits also included the financial statement schedule of combined valuation and
qualifying accounts listed in the Index on page F-1. These financial statements
and financial statement schedule are the responsibility of the Properties'
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule 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
year ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic combined financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
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.
F-80
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-103 through F-108 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-81
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-82
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 PERIOD FROM
FOR THE YEAR ENDED JANUARY 1, 2001 TO
DECEMBER 31, 2000 DECEMBER 6, 2001
------------------ -------------------
OPERATING REVENUES:
Casino.................................................... $148,776,855 $150,670,567
Food and beverage......................................... 19,586,213 18,365,243
Rooms..................................................... 16,600,072 15,042,200
Other..................................................... 3,530,032 3,545,338
------------ ------------
Total................................................ 188,493,172 187,623,348
Less promotional allowances............................ 28,755,624 29,964,002
------------ ------------
Net.................................................. 159,737,548 157,659,346
------------ ------------
OPERATING COSTS AND EXPENSES:
Casino.................................................... 69,113,279 69,757,787
Food and beverage......................................... 11,508,965 10,625,017
Rooms..................................................... 10,904,351 9,818,552
Other..................................................... 1,717,182 1,657,265
Selling, general and administrative....................... 39,370,958 37,852,210
Depreciation and amortization............................. 11,687,964 --
Write-down of assets...................................... -- 13,005,582
Reorganization items...................................... 38,967 (10,499,075)
------------ ------------
Total................................................ 144,341,666 132,217,338
------------ ------------
INCOME FROM OPERATIONS...................................... 15,395,882 25,442,008
OTHER INCOME (EXPENSE):
Interest income........................................... 167,446 38,407
Interest expense.......................................... (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).................................. (26,031,023) --
Other, net................................................ 4,493 (81,660)
------------ ------------
NET INCOME (LOSS)........................................... $(10,534,584) $ 25,358,796
============ ============
</Table>
See notes to historical combined financial statements.
F-83
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, 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-84
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 PERIOD
FOR THE YEAR ENDED JANUARY 1, 2001 TO
DECEMBER 31, 2000 DECEMBER 6, 2001
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(10,534,584) $ 25,358,796
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 11,687,964 --
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................................................... 36,487 116,439
Changes in working capital, net of assets sold and
liabilities assumed:
Increase in accounts receivable, net.................... (233,359) (42,071)
Decrease in inventories................................. 98,529 66,048
(Increase) decrease in prepaid expenses................. (492,966) 255,985
(Increase) decrease in other assets..................... (139,028) 27,115
Increase (decrease) in accounts payable................. (1,408,119) 240,806
Increase in due to Majestic............................. -- 3,800,000
(Decrease) increase in accrued and other liabilities.... (2,124,978) 624,469
Increase (decrease) in amounts due to related parties,
net.................................................... 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............................ 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... 12,130,897 (7,923,148)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.............................. 8,463 28,250
Acquisition of property and equipment..................... (9,011,942) (1,054,131)
------------ ------------
Net cash used in investing activities................. (9,003,479) (1,025,881)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... (453,560) (240,288)
------------ ------------
Net cash used in financing activities..................... (453,560) (240,288)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 2,673,858 (9,189,317)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............... 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..................... $ 2,840,011 $ 3,762,566
============ ============
</Table>
See notes to historical combined financial statements.
F-85
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 a net loss during 2000, 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 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.
F-86
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. PETITION FOR RELIEF UNDER CHAPTER 11--(CONTINUED)
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
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
F-87
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. PETITION FOR RELIEF UNDER CHAPTER 11--(CONTINUED)
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>
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>
F-88
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
Revenue Recognition--Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. The majority of our
casino revenue is counted in the form of cash, chips and tokens and therefore is
not subject to any significant or complex estimation procedures. Food and
beverage and room revenues are recognized at retail value at the time the
related service is performed.
Operating revenues include the retail value of rooms, food and beverage,
and other items 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.
Promotional allowances also include cash-back incentives earned in our Slot
Club. The Properties provide cash-back incentives to patrons who earn a
percentage of their cash wagered using their slot card provided by the
Properties.
F-89
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The retail value of the complimentaries and the cash-back incentives
included in promotional allowances are as follows:
<Table>
<Caption>
2000 2001
----------- -----------
Hotel rooms................................................. $ 4,863,935 $ 4,527,788
Food and beverage........................................... 10,831,067 10,401,400
Other....................................................... 756,761 819,329
Cash-back incentives........................................ 12,303,861 14,215,485
----------- -----------
$28,755,624 $29,964,002
=========== ===========
</Table>
The estimated costs of providing the complimentary services are charged to
the casino department and are as follows:
<Table>
<Caption>
2000 2001
----------- -----------
Hotel rooms................................................. $ 2,528,282 $ 2,925,396
Food and beverage........................................... 10,935,259 10,638,710
Other....................................................... 524,426 572,390
----------- -----------
$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 $3,649,524 for the year ended December
31, 2000, 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-90
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(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
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
F-91
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 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 year ended December 31, 2000 and for the period
from January 1, 2001 through December 6, 2001:
Cash paid for interest, net of amounts capitalized, during the year
ended December 31, 2000 and for the period from January 1, 2001 through
December 6, 2001 was $67,600 and $48,824, respectively.
Certain non-cash operating, investing and financing activities were as
follows:
Long-term contracts payable of $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>
Substantially all property and equipment is pledged as collateral on the
Parent's long-term debt.
F-92
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
F-93
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 year ended December 31, 2000 was $1,732,028, 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 year ended December 31, 2000, 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.
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 $221,140 for the
year ended December 31, 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 and $351,847 for the year ended
December 31, 2000 and $342,172 for the period from January 1, 2001 through
December 6, 2001.
F-94
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
2000 2001
----------- -----------
Tax benefit at U.S. statutory rate.......................... $ 3,687,104 $(8,774,424)
(Increase) decrease in valuation allowance.................. (3,553,559) 8,738,172
Other....................................................... (133,545) 36,252
----------- -----------
Total....................................................... $ -- $ --
=========== ===========
</Table>
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.
F-95
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(CONTINUED)
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............................. $ 101,781 $ -- $ 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-96
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(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-97
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
13. CONTINGENCIES--(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 three segments based on
geographic location. The Properties market in each of their segments primarily
to middle-market customers, emphasizing their
F-98
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
14. SEGMENT INFORMATION--(CONTINUED)
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 2000 and
2001 is presented below:
<Table>
<Caption>
FOR THE
PERIOD JANUARY 1,
YEAR ENDED 2001 THROUGH
DECEMBER 31, DECEMBER 6,
2000 2001
------------ -----------------
(IN THOUSANDS)
Net operating revenues:
Fitzgeralds Las Vegas..................................... $ 52,139 $ 49,435
Fitzgeralds Tunica........................................ 75,062 76,713
Fitzgeralds Black Hawk.................................... 32,537 31,511
-------- --------
Total.................................................. $159,738 $157,659
======== ========
Income (loss) from operations:
Fitzgeralds Las Vegas..................................... $ (7) $(23,618)
Fitzgeralds Tunica........................................ 9,018 42,033
Fitzgeralds Black Hawk(1)................................. 6,385 7,027
-------- --------
Total.................................................. $ 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............................ $ 15,396 $ 25,442
Interest income........................................... 167 38
Interest expense.......................................... (71) (40)
Interest expense--related party........................... (26,031) --
Other, net................................................ 4 (81)
-------- --------
Net income (loss) before income tax.................... $(10,535) $ 25,359
======== ========
EBITDA(2):
Fitzgeralds Las Vegas(3).................................. $ 3,692 $(23,618)
Fitzgeralds Tunica........................................ 15,253 42,198
Fitzgeralds Black Hawk.................................... 8,138 7,027
-------- --------
Total.................................................. $ 27,083 $ 25,607
======== ========
</Table>
F-99
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
14. SEGMENT INFORMATION--(CONTINUED)
<Table>
<Caption>
FOR THE
PERIOD JANUARY 1,
YEAR ENDED 2001 THROUGH
DECEMBER 31, DECEMBER 6,
2000 2001
------------ -----------------
(IN THOUSANDS)
Segment depreciation and amortization:
Fitzgeralds Las Vegas..................................... $ 3,698 $ --
Fitzgeralds Tunica........................................ 6,235 --
Fitzgeralds Black Hawk.................................... 1,755 --
-------- --------
Total.................................................. $ 11,688 $ --
======== ========
Expenditures for additions to long-lived assets:
Fitzgeralds Las Vegas..................................... $ 1,619 $ 249
Fitzgeralds Tunica........................................ 6,199 627
Fitzgeralds Black Hawk.................................... 1,518 178
-------- --------
Total.................................................. $ 9,336 $ 1,054
======== ========
<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 and $0.9 million in 2001 and
2000, respectively, in FSE. Such investment was charged against earnings as
a selling, general and administrative expense.
F-100
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>
FITZGERALDS 101 MAIN
FITZGERALDS LAS MISSISSIPPI, STREET LIMITED ELIMINATING COMBINED
VEGAS, INC. 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-101
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>
FITZGERALDS FITZGERALDS 101 MAIN
LAS VEGAS, MISSISSIPPI, STREET LIMITED ELIMINATING COMBINED
INC. 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-102
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
FITZGERALDS FITZGERALDS STREET
LAS VEGAS, MISSISSIPPI, LIMITED ELIMINATING COMBINED
INC. 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)
----------- ----------- ----------- -- ------------
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-103
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
LAS VEGAS, MISSISSIPPI, LIABILITY ELIMINATING COMBINED
INC. INC. 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-104
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 LAS FITZGERALDS LIMITED ELIMINATING COMBINED
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-105
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>
FITZGERALDS FITZGERALDS 101 MAIN STREET
LAS VEGAS, MISSISSIPPI, LIMITED ELIMINATING COMBINED
INC. 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
reorganization 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-106
SCHEDULE II
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 VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSES DEDUCTIONS(1) END OF PERIOD
------------ ---------- ------------- -------------
Description
Allowance for doubtful accounts receivable
Period from January 1, 2001 to December 6, 2001.......... $210,586 $209,983 $(223,670) $196,899
Year ended December 31, 2000............................... 356,397 98,242 (244,053) 210,586
</Table>
- ---------------
(1) Write-offs of uncollectible accounts receivable, net of recoveries
F-107
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 19,851,783 $ 15,983,824
Restricted cash........................................... 500,000 250,000
Accounts receivable, less allowance for doubtful accounts
of $140,720 and $239,066 as of September 30, 2003 and
December 31, 2002, respectively........................ 1,288,604 1,241,183
Inventories............................................... 942,599 929,126
Prepaid expenses.......................................... 1,597,318 1,644,735
Note receivable due from affiliate........................ -- 700,000
Other..................................................... 40,835 39,133
------------ ------------
Total current assets................................... 24,221,139 20,788,001
------------ ------------
Property, equipment and improvements, net................... 115,221,758 117,297,506
Intangible assets, net...................................... 16,495,496 17,691,746
Goodwill.................................................... 5,922,398 5,922,398
Other assets:
Deferred financing costs, net of accumulated amortization
of $2,453,231 and $1,407,041 as of September 30, 2003
and December 31, 2002, respectively.................... 5,671,049 6,714,902
Restricted cash........................................... 1,000,000 1,000,000
Other assets.............................................. 1,669,150 1,624,359
------------ ------------
Total other assets..................................... 8,340,199 9,339,261
------------ ------------
Total Assets........................................... $170,200,990 $171,038,912
============ ============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt...................... $ 83,083 $ 134,084
Accounts payable.......................................... 1,781,238 2,136,369
Payroll and related....................................... 4,721,979 5,949,275
Accrued interest.......................................... 5,895,136 1,473,785
Progressive jackpots...................................... 2,352,707 2,476,543
Slot club liability....................................... 863,428 738,559
Other accrued liabilities................................. 4,789,910 4,401,378
------------ ------------
Total current liabilities.............................. 20,487,481 17,309,993
Long-term debt, net of current maturities................... 146,534,687 145,646,514
------------ ------------
Total Liabilities...................................... 167,022,168 162,956,507
------------ ------------
Member's Equity............................................. 3,178,822 8,082,405
------------ ------------
Total Liabilities and Member's Deficit................. $170,200,990 $171,038,912
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-108
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
REVENUES
Casino............................................. $39,000,341 $41,842,819 $117,977,522 $124,623,911
Rooms.............................................. 3,862,888 3,809,375 11,246,586 11,836,761
Food and beverage.................................. 5,079,902 4,681,423 14,695,689 14,127,355
Other.............................................. 869,979 1,027,702 2,503,455 2,893,704
----------- ----------- ------------ ------------
Gross revenues.................................. 48,813,110 51,361,319 146,423,252 153,481,731
Less promotional allowances..................... 5,628,227 5,784,991 16,789,768 17,662,744
----------- ----------- ------------ ------------
Net revenues.................................... 43,184,883 45,576,328 129,633,484 135,818,987
----------- ----------- ------------ ------------
COSTS AND EXPENSES
Casino............................................. 16,505,516 17,500,235 48,676,222 52,501,936
Rooms.............................................. 1,695,808 1,717,113 4,882,991 4,975,786
Food and beverage.................................. 2,507,713 2,604,410 7,570,063 7,781,206
Other.............................................. 533,985 396,134 1,354,042 1,171,389
Gaming taxes....................................... 4,628,311 4,981,141 13,662,931 14,779,969
Advertising and promotion.......................... 3,311,241 2,827,045 9,855,194 9,777,719
General and administrative......................... 7,695,104 7,181,447 21,177,152 20,557,980
Depreciation and amortization...................... 3,814,180 3,825,340 11,176,194 10,705,505
Pre-opening expenses............................... -- -- -- 124,269
----------- ----------- ------------ ------------
Total costs and expenses........................ 40,691,858 41,032,865 118,354,789 122,375,759
----------- ----------- ------------ ------------
Operating income................................ 2,493,025 4,543,463 11,278,695 13,443,228
----------- ----------- ------------ ------------
OTHER INCOME (EXPENSE)
Interest income.................................... 6,043 33,220 40,188 95,024
Interest expense................................... (4,426,493) (4,462,963) (13,281,578) (13,571,821)
Gain (loss) on sale of assets...................... (4,671) (9,889) 20,290 (9,311)
Other expense...................................... (9,582) (10,931) (28,482) (38,306)
----------- ----------- ------------ ------------
Total other expense............................. (4,434,703) (4,450,563) (13,249,582) (13,524,414)
----------- ----------- ------------ ------------
Net income (loss)............................... $(1,941,678) $ 92,900 $ (1,970,887) $ (81,186)
=========== =========== ============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-109
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<Table>
<Caption>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,970,887) $ (81,186)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 7,982,568 7,285,135
Amortization.............................................. 3,193,626 3,420,370
(Gain) loss on sale of assets............................. (20,290) 9,311
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable................ (47,421) 380,982
Increase in related party receivables..................... (61,897) (134,651)
(Increase) decrease in inventories........................ (13,473) 147,631
Decrease (Increase) in prepaid expenses................... 47,417 (795,948)
(Increase) decrease in other assets....................... (46,485) 879,182
Decrease in accounts payable.............................. (355,131) (223,128)
Decrease in accrued payroll and related expenses.......... (1,227,296) (864,418)
Increase in accrued interest.............................. 4,421,351 4,719,957
Increase in other accrued liabilities..................... 451,454 138,722
----------- -----------
Net cash provided by operating activities............... 12,353,536 14,881,959
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition related costs................................. -- (986,158)
Increase in restricted cash............................... (250,000) --
Proceeds from seller for purchase price adjustment........ -- 3,800,000
Acquisition of property and equipment..................... (5,927,999) (3,918,301)
Proceeds from sale of equipment........................... 41,469 43,867
----------- -----------
Net cash used in investing activities................... (6,136,530) (1,060,592)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance cost for the 11.653% senior secured notes........ -- (1,410,945)
Issuance cost for the 9 1/2% senior secured notes......... (2,337) --
Proceeds from line of credit.............................. -- 2,500,000
Repayment of line of credit............................... -- (9,000,000)
Proceeds from notes receivable affiliates................. 700,000 --
Repayment of long-term debt............................... (114,014) (104,808)
Distribution to Barden Development, Inc................... (2,932,696) (1,844,206)
----------- -----------
Net cash used in financing activities................... (2,349,047) (9,859,959)
----------- -----------
Net increase in cash and cash equivalents................... 3,867,959 3,961,408
Cash and cash equivalents, beginning of period.............. 15,983,824 17,704,815
----------- -----------
Cash and cash equivalents, end of period.................... $19,851,783 $21,666,223
=========== ===========
INTEREST PAID:
Equipment Debt............................................ $ 12,154 $ 8,391
Senior Secured Notes -- Fixed Interest 11.653%............ 8,842,704 8,707,126
Lines of credit........................................... 119 98,168
----------- -----------
$ 8,854,977 $ 8,813,685
=========== ===========
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Elimination of slot based progressive..................... $ -- $ 400,000
Elimination of slot club.................................. -- 1,300,000
----------- -----------
$ -- $ 1,700,000
=========== ===========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-110
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 1. ORGANIZATION
Majestic Investor Holdings, LLC ("Majestic Investor Holdings" or "Investor
Holdings") owns three Fitzgeralds-brand casino-hotels located in Tunica County,
Mississippi ("Fitzgeralds Tunica"), Black Hawk, Colorado (casino only)
("Fitzgeralds Black Hawk"), and Las Vegas, Nevada ("Fitzgeralds Las Vegas").
Majestic Investor Holdings is an indirect wholly-owned subsidiary of The
Majestic Star Casino, LLC, owner and operator of the Majestic Star Casino, a
riverboat gaming facility located in Gary, Indiana.
On August 26, 2003, Majestic Investor Holdings, commenced a cash tender
offer and consent solicitation for all of Majestic Investor Holdings' 11.653%
Senior Secured Notes, in connection with a refinancing transaction of such
notes. On October 7, 2003, The Majestic Star Casino, LLC and its restricted
subsidiary, The Majestic Star Casino Capital Corp., issued $260.0 million of
9 1/2% Senior Secured Notes due 2010 (the "9 1/2% Senior Secured Notes") and
entered into a new $80.0 million credit facility (the "$80 million Credit
Facility") with Wells Fargo Foothill, Inc. Also, on October 7, 2003, a portion
of the proceeds from the issuance of the 9 1/2% Senior Secured Notes were used
to redeem $135.5 million or 89.3% of the 11.653% Senior Secured Notes. Please
see Note 6 to the Notes to Consolidated Financial Statements (Unaudited) for
more information about the issuance of the 9 1/2% Senior Secured Notes and the
establishment of the $80.0 million Credit Facility.
As part of the refinancing, Majestic Investor Holdings and its operating
subsidiaries Fitzgeralds Tunica and Fitzgeralds Black Hawk are guarantors under
both the 9 1/2% Senior Secured Notes and the $80 million Credit Facility;
however, the operating subsidiary of Fitzgeralds Las Vegas is now an
unrestricted subsidiary of The Majestic Star Casino, LLC and Majestic Investor
Holdings. It is anticipated that Fitzgeralds Las Vegas will be spun out to
Barden Development, Inc. ("BDI") promptly after Majestic Investor Holdings and
BDI receive approval from the Nevada Gaming Control Board and the Nevada Gaming
Commission. Approval is anticipated to occur in December 2003; however, such
regulatory approval is not within Majestic Investor Holding's control.
Majestic Investor Capital Corp., a wholly-owned subsidiary of Majestic
Investor Holdings, was formed specifically to facilitate the offering of the
Majestic Investor Holding's $152.6 million 11.653% Senior Secured Notes due 2007
(the "11.653% Senior Secured Notes") Majestic Investor Capital Corp. continues
as a co-issuer of the 11.653% notes that remain outstanding after the
refinancing transaction. Majestic Investor Capital Corp. does not have any
assets or operations.
Except where otherwise noted, the words "we," "us," "our" and similar
terms, as well as the "Company" refer to the Majestic Investor Holdings and all
of its subsidiaries.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited. All
inter-company transactions and balances have been eliminated. These financial
statements have been prepared in accordance with accounting principals generally
accepted in the United States of America, or "GAAP" and with the instructions to
Article 10 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates incorporated into our consolidated
financial statements include the estimated useful lives of depreciable and
amortizable assets, the estimated allowance for doubtful accounts receivable,
estimated cash flow in assessing the recoverability of long lived assets,
estimated liabilities for our self insured medical plan, slot club point
programs and litigation, claims and assessments. Actual results could differ
from those estimates.
Our consolidated financial statements include the results of the operating
subsidiary of Fitzgeralds Las Vegas. See Note 10 to the Notes to Consolidated
Financial Statements (unaudited) for consolidating information. In conjunction
with our refinancing, it is anticipated that Fitzgeralds Las Vegas will be spun
out to BDI promptly after Majestic Investor Holdings and BDI receive approval
from the Nevada Gaming Control Board and the Nevada Gaming Commission to effect
such transaction. Such regulatory approval is not within the Company's control.
F-111
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 2. BASIS OF PRESENTATION--(CONTINUED)
In the opinion of management, all adjustments (which include normal
recurring adjustments) considered necessary for a fair presentation of the
results for the interim periods have been made. The results for the three and
nine months ended September 30, 2003 are not necessarily indicative of results
to be expected for the full fiscal year. The financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Registration Statement on Form S-4 of The Majestic Star Casino, LLC.
The consolidated financial statements and footnotes for the prior year
reflect certain reclassifications to conform to the current year presentation.
Included in such reclassification is an increase in net revenues (and a
corresponding increase in operating expenses) of approximately $7.6 million for
the nine-month period ended September 30, 2002, to classify the cost of certain
promotional expenses consistently with the 2003 presentation. Such
reclassifications have no effect on previously reported net income.
NOTE 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board issued statement
145 ("SFAS 145"). SFAS 145 addresses the presentation for gains and losses on
early retirements of debt in the statement of operations. SFAS 145 is effective
for fiscal years beginning after May 15, 2002. The Company adopted SFAS 145 and
as a result, reclassified $69,000 in a gain from the early extinguishment of
debt, which item had previously been reported as an extraordinary item in the
fourth quarter of 2002. In the fourth quarter of 2003, the Company also expects
to recognize a loss on the retirement of debt of $22.0 million on October 7,
2003. The loss on the retirement of debt is comprised of the premium on the
offers to purchase, the write-off of deferred debt issuance costs and the
original issue discount on 89.3% of the 11.653% Senior Secured Notes, which
amounts will be reflected in the computation of net income for the year ended
December 31, 2003.
In June 2002, the Financial Accounting Standard Board issued Statement 146
("SFAS 146") "Accounting for Costs Associated with Exit or Disposal Activities."
The provisions of SFAS 146 became effective for exit or disposal activities
commenced subsequent to December 31, 2002. Adoption of SFAS 146 did not have any
material impact on the Company's financial position, results of operations or
cash flows.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Guarantees of Indebtedness of Others."
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees
that it has issued. It also clarifies (for guarantees issued after January 1,
2003) that a guarantor is required to recognize at the inception of a guarantee,
a liability for the fair value of the obligations undertaken in issuing the
guarantee. At September 30, 2003, the Company did not have any guarantees
outside of its consolidated group. Adoption of FIN 45 did not have a material
impact on the Company's financial condition, results of operations or cash
flows.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
FIN 46 addresses the requirements for business enterprises to consolidate
related entities in which they are determined to be the primary economic
beneficiary as a result of their variable economic interests. FIN 46 is intended
to provide guidance in judging multiple economic interests in an entity and in
determining the primary beneficiary. FIN 46 outlines disclosure requirements for
Variable Interest Entities ("VIEs") in existence prior to January 31, 2003, and
outlines consolidation requirements for VIEs created after January 31, 2003. The
Company has reviewed its major relationships and its overall economic interests
with other companies consisting of related parties, companies in which it has an
equity position and other suppliers to determine the extent of its variable
economic interest in these parties. Adoption of FIN 46 did not have a material
impact on the Company's financial condition, results of operations or cash
flows.
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149 ("SFAS 149") "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." Provisions of SFAS 149 became
effective for contracts and hedging relationships entered into or modified after
June 30, 2003. Adoption of SFAS 149 did not have a material impact on our
financial position, results of operations or cash flows as the Company has not
entered into or modified any agreements that contain derivative instrument or
involve hedging activities.
F-112
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--(CONTINUED)
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 ("SFAS 150") "Accounting for Certain
Financial Instruments with Characteristic of both Liabilities and Equity." The
Company is considered a non-public entity, as defined by SFAS 150 because its
equity securities are not listed on a public exchange. Accordingly, for the
Company, the provisions of SFAS 150 will become effective during the quarter
ending March 31, 2004. The Company does not anticipate the adoption of SFAS 150
would have a material impact on our financial position, results of operations or
cash flows.
NOTE 4. RESTRICTED CASH
As of September 30, 2003 and December 31, 2002, restricted cash of $1.0
million represents U.S. Treasury Notes held in an escrow account for the benefit
of certain owners of land leased to Fitzgeralds Las Vegas. As of December 31,
2002, restricted cash of $250,000 represents a letter of credit for self-insured
workers compensation at Fitzgeralds Tunica and Fitzgeralds Black Hawk. As of
September 30, 2003 the restricted cash balance relating to the self-insured
workers compensation increased to $500,000. The increase occurred during the
first quarter of 2003, when Fitzgeralds Las Vegas was added to the self-insured
workers compensation program.
NOTE 5. INTANGIBLE ASSETS
Intangible assets primarily include $9.8 million for customer
relationships, $3.7 million for trade name and $5.2 million for a gaming
license. Intangible assets for customer relationships and trade names are being
amortized over a period of 8-10 years. The gaming license is not amortized but
instead is subject to impairment testing at least annually.
The gross carrying amount and accumulated amortization of the intangible
assets, other than goodwill, as of September 30, 2003, are as follows:
<Table>
<Caption>
GROSS CARRYING ACCUMULATED NET AMOUNT
AMOUNT AMORTIZATION SEPTEMBER 30, 2003
-------------- ------------ ------------------
(IN THOUSANDS)
Amortized intangible assets:
Customer relationship.................................. $ 9,800 $(2,359) $ 7,441
Tradename.............................................. 3,700 (546) 3,154
Riverboat excursion license............................ 700 -- 700
------- ------- -------
14,200 (2,905) 11,295
Unamortized intangible assets:
Gaming license......................................... 5,200 -- 5,200
------- ------- -------
Total intangible assets.................................. $19,400 $(2,905) $16,495
======= ======= =======
</Table>
The amortization expense recorded on the intangible assets for both the
three and nine months ended September 30, 2003 and 2002 were $0.4 million and
$1.2 million, respectively.
NOTE 6. LONG-TERM DEBT
Refinancing of Debt
On August 26, 2003, Majestic Investor Holdings commenced a cash tender
offer and consent solicitation at a price of 109.0% for its 11.653% Senior
Secured Notes. The solicitation of consents sought approval for amendments to
the Indenture governing the 11.653% Senior Secured Notes (the "Indenture") in
order to (i) eliminate substantially all restrictive covenants, (ii) to
terminate the guarantees of the restricted subsidiaries of Majestic Investor
Holdings and (iii) to release the liens on the collateral that secured the
11.653% Senior Secured Notes. Upon expiration of the consent solicitation on
September 25, 2003, $135,477,000 or 89.3% of the aggregate outstanding principal
amount of the 11.653% Senior Secured Notes had been tendered. A portion of the
proceeds from the issuance of the 9 1/2% Senior Secured Notes by The Majestic
Star Casino, LLC and its
F-113
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 6. LONG-TERM DEBT--(CONTINUED)
subsidiary, The Majestic Star Casino Capital Corp. were used by the Company to
fund the payment of the tendered 11.653% Senior Secured Notes, along with
accrued and unpaid interest. After the expiration of the offer and consent
solicitation related to the 11.653% Senior Secured Notes, Majestic Investor
Holdings has $16.3 million in 11.653% Senior Secured Notes still outstanding.
Upon the closing of the 9 1/2% Senior Secured Notes on October 7, 2003, the
Company used $153.2 million of the proceeds to retire 89.3% of its 11.653%
Senior Secured Notes, along with accrued and unpaid interest. The remaining
proceeds from the issuance of the 9 1/2% Senior Secured Notes were used to
redeem a portion of The Majestic Star Casino, LLC's 10 7/8% Senior Secured Notes
and pay certain fees associated with the issuance of the 9 1/2% Senior Secured
Notes. The Company recognized a loss on the retirement of debt of $22.0 million
on October 7, 2003. The loss on the retirement is comprised of premiums on the
offer to purchase, the write-off of deferred issuance costs and the write-off of
original issuance discount on 89.3% of the 11.653% Senior Secured Notes, which
amounts will be reflected in the computation of net income for the fourth
quarter and for the year ended December 31, 2003.
The 9 1/2% Senior Secured Notes bear interest at a fixed annual rate of
9.5% payable on April 15 and October 15 of each year, commencing April 15, 2004.
The 9 1/2% Senior Secured Notes will mature on October 15, 2010. The 9 1/2%
Senior Secured Notes are secured by a pledge of substantially all of The
Majestic Star Casino, LLC's and the Company's current and future assets, other
than the assets of Fitzgeralds Las Vegas (which has become an unrestricted
subsidiary of The Majestic Star Casino, LLC and the Company). It is anticipated
that Fitzgeralds Las Vegas will be spun out to BDI promptly after Majestic
Investor Holdings, the direct owner of the operating subsidiary of Fitzgeralds
Las Vegas, and BDI receive approval from the Nevada Gaming Commission and the
Nevada Gaming Control Board to effect such transaction. Approval is anticipated
to occur in December 2003; however, such regulatory approval is not within the
Company's control.
The Indenture governing the 9 1/2% Senior Secured Notes contains covenants
which, among other things, restricts The Majestic Star Casino, LLC and the
Company's ability to (i) make certain payments to, or investments in, third
parties; (ii) incur additional indebtedness or liens on any assets; (iii) enter
into transactions with affiliates; and (iv) sell any restricted subsidiaries'
assets.
Concurrently with the closing of the 9 1/2% Senior Secured Notes, The
Majestic Star Casino, LLC established the $80 million Credit Facility with Wells
Fargo Foothill, Inc. The Company terminated the existing $15 million credit
facility with Wells Fargo Foothill, Inc. Subject to certain exceptions, the $80
million Credit Facility is secured by a first priority lien on substantially all
of the assets of the Company, except the assets of Fitzgeralds Las Vegas. The
credit agreement includes covenants, which among other things, (i) require The
Majestic Star Casino, LLC and the Company to maintain, as defined in the
covenants, minimum EBITDA and Interest Coverage Ratios, which increase
periodically, (ii) restrict The Majestic Star Casino, LLC's and the Company's
ability to incur, assume, or guarantee any indebtedness, and (iii) restrict The
Majestic Star Casino, LLC's and the Company's ability to transfer or sell
assets, including the equity interest of the restricted subsidiaries.
Old Majestic Investor Holdings Notes
At September 30, 2003, Majestic Investor Holdings, had debt outstanding of
$146.5 million, net of unamortized discount of $5.3 million compared to debt of
$145.5 million, net of unamortized discount of $6.3 million at December 31,
2002. The 11.653% Senior Secured Notes bear interest at a fixed rate of 11.653%
per annum payable May 31 and November 30 each year. Fitzgeralds Las Vegas had
debt of $135,000 for a capital lease. For the three and nine month periods ended
September 30, 2003 and September 30, 2002, the Company had interest expense of
$4.4 million, $4.5 million, $13.3 million and $13.6 million, respectively.
In 2002, Majestic Investor Holdings was required to pay liquidated damages
related to the unregistered 11.653% Senior Secured Notes. Majestic Investor
Holdings entered into a registration rights agreement that required Majestic
Investor Holdings to file a registration statement with the Securities and
Exchange Commission to exchange its unregistered 11.653% Senior Secured Notes
with registered 11.653% Senior Secured Notes and that required such registration
statement to be declared effective prior to a specified date. There were delays
in filing the registration statement and such registration statement
F-114
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 6. LONG-TERM DEBT--(CONTINUED)
was not declared effective by such specified date, which caused Majestic
Investor Holdings to pay liquidated damages of $176,000 during 2002. The
registration statement for the 11.653% Senior Secured Notes was declared
effective on August 8, 2002.
During the fourth quarter of 2002, Majestic Investor Holdings purchased for
$759,000, plus accrued interest, its 11.653% Senior Secured Notes with a face
value of $865,000. The notes, net of unamortized original issue discount, were
being carried at a value of $828,000; the resulting gain was $69,000.
Old Credit Facilities
At September 30, 2003, Majestic Investor Holdings had a $15.0 million
credit facility (the "Majestic Investor Holdings Credit Facility"). This credit
facility was replaced with the $80 million Credit Facility. There were no
borrowings on the Majestic Investor Holdings Credit Facility as of September 30,
2003 and December 31, 2002.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, comprised primarily of personal injury
and equal employment opportunity (EEO) claims, to be routine litigation
incidental to the Company's business. Management believes that the resolution of
these proceedings will not individually or in the aggregate, have a material
effect on the Company's financial condition, results of operations or cash
flows.
Gaming Regulations
The ownership and operation of our casino gaming facilities in Nevada,
Mississippi and Colorado are also 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.
Pursuant to new legislation signed into law by the Governor of Nevada on July
23, 2003, the license fees on the number of gaming devices operated has been
increased effective immediately, increased taxes on gross revenues became
effective on August 1, 2003, and the expanded range of events covered by the
casino entertainment tax became effective September 1, 2003. Fitzgeralds Las
Vegas will also become subject to a payroll tax based on wages paid to its
employees effective October 1, 2003. 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 which is empowered 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, in Colorado a statewide ballot measure which would have
allowed the installation of up to five hundred video lottery terminals at each
of five designated dog and horse racetracks along Colorado's front range was
rejected by the voters in Colorado on November 4, 2003.
The Company's directors, officers, managers and key employees are required
to hold individual licenses. These requirements vary from jurisdiction to
jurisdiction. Licenses and permits for gaming operations and for 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.
F-115
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 7. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Other Contingencies
The Company received assessments of additional amounts due related to
insurance premiums paid for the period December 6, 2001 through December 6,
2002. The premiums, totaling $160,000, related to an audit by the insurance
carrier of the Company's workers compensation and general liability plans. The
Company has settled with the insurance carrier for $90,000 and has recorded the
liability.
NOTE 8. SEGMENT INFORMATION
Majestic Investor Holdings, LLC 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 four segments based on geographic
location. The Properties, in each of their segments, market primarily to
middle-income guests. The major products offered in each segment are as follows:
casino, hotel rooms (except in Black Hawk, Colorado) and food and beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies previously described
in Note 1 to the audited financial statements included in the Registration
Statement on Form S-4 of The Majestic Star Casino, LLC. There are minimal
inter-segment sales. Corporate costs are allocated to the business segments
through management fees from Majestic Star Casino and are reflected in "General
and Administrative" expenses.
F-116
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 8. SEGMENT INFORMATION--(CONTINUED)
A summary of the Properties' operations by business segment as of and for
the three and nine months ended September 30, 2003 and 2002 is presented below:
<Table>
<Caption>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2003 2002 2003 2002
-------- -------- --------- --------
(IN THOUSANDS)
Net revenues:
Fitzgeralds Tunica........................................ $22,497 $24,273 $ 68,150 $ 72,194
Fitzgeralds Black Hawk.................................... 8,829 9,724 25,279 26,998
Fitzgeralds Las Vegas..................................... 11,859 11,579 36,204 36,627
------- ------- --------- --------
Total................................................ $43,185 $45,576 $ 129,633 $135,819
======= ======= ========= ========
Operating income (loss):
Fitzgeralds Tunica........................................ $ 2,610 $ 3,867 $ 10,049 $ 11,806
Fitzgeralds Black Hawk.................................... 2,165 2,264 4,956 5,052
Fitzgeralds Las Vegas..................................... (1,413) (922) (1,503) (1,341)
Unallocated and other(1).................................. (869) (666) (2,223) (2,074)
------- ------- --------- --------
Total................................................ $ 2,493 $ 4,543 $ 11,279 $ 13,443
======= ======= ========= ========
Segment depreciation and amortization:
Fitzgeralds Tunica........................................ $ 1,989 $ 1,866 $ 5,823 $ 5,481
Fitzgeralds Black Hawk.................................... 438 364 1,261 1,091
Fitzgeralds Las Vegas..................................... 721 938 2,095 2,203
Unallocated and other(1).................................. 666 657 1,997 1,931
------- ------- --------- --------
Total................................................ $ 3,814 $ 3,825 $ 11,176 $ 10,706
======= ======= ========= ========
Expenditure for additions to long-lived assets:
Fitzgeralds Tunica........................................ $ 953 $ 324 $ 2,749 $ 1,820
Fitzgeralds Black Hawk.................................... 749 524 1,521 963
Fitzgeralds Las Vegas..................................... 738 335 1,658 1,135
------- ------- --------- --------
Total................................................ $ 2,440 $ 1,183 $ 5,928 $ 3,918
======= ======= ========= ========
Segment assets:
Fitzgeralds Tunica........................................ $ 83,712
Fitzgeralds Black Hawk.................................... 30,629
Fitzgeralds Las Vegas..................................... 37,326
Unallocated and other(1).................................. 122,226
---------
Total..................................................... 273,893
Less: Intercompany........................................ (103,692)
---------
Total....................................................... $ 170,201
=========
</Table>
- ---------------
(1) Unallocated and other include corporate items and eliminations that are not
allocated to the operating segments.
F-117
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 9. RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2003, the Company made
distributions totaling $2,594,000, to BDI, under a LLC Manager Agreement related
to the fourth quarter of 2002 and the six months ended June 30, 2003.
In December 2001, the Company issued a $700,000 note to BDI. The note bore
interest at a rate of 7% annum. The principal and accrued but unpaid interest
was due and payable in full on December 12, 2002. The principal and accrued
interest was paid on March 17, 2003.
In April 2003, Majestic Investor Holdings, as authorized by the Majestic
Investor Holdings Indenture governing the 11.653% Senior Secured Notes, made a
distribution of $338,000 to BDI for income taxes. The calculation for the
distribution was based on Majestic Investor Holdings' net income during the
three-month period ended March 31, 2003.
NOTE 10. GUARANTOR FINANCIAL INFORMATION
A portion of the proceeds from the issuance of the 9 1/2% Senior Secured
Notes were used to retire substantially all of the 11.653% Senior Secured Notes.
Under the Indenture for the 9 1/2% Senior Secured Notes and the Loan and
Security Agreement for the $80 million Credit Facility, Fitzgeralds Tunica and
Fitzgeralds Black Hawk remain as guarantors; however, Fitzgeralds Las Vegas is
now an unrestricted subsidiary of The Majestic Star Casino, LLC and the Company,
and a non-guarantor under the 9 1/2% Senior Secured Notes and $80.0 million
Credit Facility. It is anticipated that Fitzgeralds Las Vegas will be spun out
to BDI promptly after Majestic Investor Holdings and BDI receive approval from
the Nevada Gaming Control Board and the Nevada Gaming Commission. Approval is
anticipated to occur in December 2003.
The 11.653% Senior Secured Notes were unconditionally and irrevocably
guaranteed, jointly and severally, by all of the restricted subsidiaries of
Majestic Investor Holdings. The guarantees ranked 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. As explained in Note 6 to the
Notes to Consolidated Financial Statements (Unaudited), these guarantees were
terminated on October 7, 2003, in connection with a consent solicitation.
The following condensed consolidating information presents condensed
consolidating balance sheets as of September 30, 2003 and December 31, 2002 and
condensed consolidating statements of operations for the three and nine months
ended September 30, 2003 and 2002, and condensed consolidating statements of
cash flows for the nine months ended September 30, 2003 and 2002, for Majestic
Investor Holdings, LLC, Majestic Investor Capital Corp. and the guarantor
subsidiaries and eliminating entries necessary to consolidate such entities.
F-118
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2003
<Table>
<Caption>
MAJESTIC MAJESTIC
INVESTOR INVESTOR GUARANTOR ELIMINATING TOTAL
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------- ------------ ------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents................... $ 7,107,027 $ -- $ 12,744,756 $ -- $ 19,851,783
Restricted cash............................. 500,000 -- -- -- 500,000
Accounts receivable, net.................... 1,208 -- 1,287,396 -- 1,288,604
Inventories................................. -- -- 942,599 -- 942,599
Prepaid expenses and other current assets... 59,325 -- 1,578,828 -- 1,638,153
Receivable from related party............... 248,286 -- 4,321 (252,607)(a) --
------------ ------------- ------------ ------------- ------------
Total current assets................... 7,915,846 -- 16,557,900 (252,607) 24,221,139
------------ ------------- ------------ ------------- ------------
Property, equipment and improvements, net..... -- -- 115,221,758 -- 115,221,758
Intangible assets, net........................ 5,200,000 -- 11,295,496 -- 16,495,496
Goodwill...................................... -- -- 5,922,398 -- 5,922,398
Other assets:
Deferred financing costs, net............... 5,671,049 -- -- -- 5,671,049
Restricted cash............................. -- -- 1,000,000 -- 1,000,000
Due from related parties.................... 103,439,586 -- -- (103,439,586)(a) --
Other assets................................ -- -- 1,669,150 -- 1,669,150
Investment in Subsidiaries.................. 33,474,451 -- -- (33,474,451) --
------------ ------------- ------------ ------------- ------------
Total Assets........................... $155,700,932 $ -- $151,666,702 $(137,166,644) $170,200,990
============ ============= ============ ============= ============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt........ $ -- $ -- $ 83,083 $ -- $ 83,083
Accounts payable............................ -- -- 1,781,238 -- 1,781,238
Other accrued liabilities:
Payroll and related....................... -- -- 4,721,979 -- 4,721,979
Interest.................................. 5,895,136 -- -- -- 5,895,136
Progressive jackpot....................... -- -- 2,352,707 -- 2,352,707
Slot club liabilities..................... -- -- 863,428 -- 863,428
Other accrued liabilities................. 144,340 -- 4,898,177 (252,607)(a) 4,789,910
------------ ------------- ------------ ------------- ------------
Total current liabilities.............. 6,039,476 -- 14,700,612 (252,607) 20,487,481
------------ ------------- ------------ ------------- ------------
Due from related parties...................... -- -- 103,439,586 (103,439,586)(a) --
Long-term debt, net of current maturities..... 146,482,634 146,482,634 52,053 (146,482,634) 146,534,687
------------ ------------- ------------ ------------- ------------
Total Liabilities...................... 152,522,110 146,482,634 118,192,251 (250,174,827) 167,022,168
Member's Equity (Deficit)................... 2,178,822 (146,482,634) 33,474,451 113,008,183 3,178,822
------------ ------------- ------------ ------------- ------------
Total Liabilities and Member's Equity
(Deficit)............................ $155,700,932 $ -- $151,666,702 $(137,166,644) $170,200,990
============ ============= ============ ============= ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
F-119
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
<Table>
<Caption>
MAJESTIC
INVESTOR MAJESTIC
HOLDINGS, INVESTOR GUARANTOR ELIMINATING TOTAL
LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ------------ ------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 1,007,660 $ -- $ 14,976,164 $ -- $ 15,983,824
Restricted cash................................ 250,000 -- -- -- 250,000
Accounts receivable, net....................... 52,695 -- 1,188,488 -- 1,241,183
Inventories.................................... -- -- 929,126 -- 929,126
Prepaid expenses and other current assets...... 125,620 -- 1,558,248 -- 1,683,868
Receivable from related party.................. 4,748,371 -- 17,430 (4,765,801)(a) --
Note receivable from related party............. 700,000 -- -- -- 700,000
------------ ------------- ------------ ------------- ------------
Total current assets....................... 6,884,346 -- 18,669,456 (4,765,801) 20,788,001
------------ ------------- ------------ ------------- ------------
Property, equipment and improvements, net........ -- -- 117,297,506 -- 117,297,506
Intangible assets, net........................... 5,200,000 -- 12,491,746 -- 17,691,746
Goodwill......................................... -- -- 5,922,398 -- 5,922,398
Other assets:
Deferred financing costs, net.................. 6,714,902 -- -- -- 6,714,902
Restricted cash................................ -- -- 1,000,000 -- 1,000,000
Due from related parties....................... 116,816,043 -- -- (116,816,043)(a) --
Investment in Subsidiaries..................... 19,959,009 -- -- (19,959,009) --
Other assets................................... -- -- 1,624,359 1,624,359
------------ ------------- ------------ ------------- ------------
Total Assets............................... $155,574,300 $ -- $157,005,465 $(141,540,853) $171,038,912
============ ============= ============ ============= ============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term
debt......................................... $ -- $ -- $ 134,084 $ -- $ 134,084
Accounts payable............................... -- -- 2,136,369 -- 2,136,369
Other accrued liabilities:
Payroll and related.......................... -- -- 5,949,275 -- 5,949,275
Interest..................................... 1,473,785 -- -- -- 1,473,785
Progressive jackpot.......................... -- -- 2,476,543 -- 2,476,543
Slot club liabilities........................ -- -- 738,559 -- 738,559
Other accrued liabilities.................... 486,662 -- 3,914,716 -- 4,401,378
------------ ------------- ------------ ------------- ------------
Total current liabilities.................. 1,960,447 -- 15,349,546 -- 17,309,993
------------ ------------- ------------ ------------- ------------
Due to related parties........................... -- -- 121,581,844 (121,581,844)(a) --
Long-term debt, net of current
maturities..................................... 145,531,448 145,531,448 115,066 (145,531,448)(b) 145,646,514
------------ ------------- ------------ ------------- ------------
Total Liabilities.......................... 147,491,895 145,531,448 137,046,456 (267,113,292) 162,956,507
Member's Equity (Deficit)...................... 8,082,405 (145,531,448) 19,959,009 125,572,439(b) 8,082,405
------------ ------------- ------------ ------------- ------------
Total Liabilities and Member's Equity
(Deficit)............................... $155,574,300 $ -- $157,005,465 $(141,540,853) $171,038,912
============ ============= ============ ============= ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
(b) As more fully described in Note 6 Long Term Debt, Majestic Investor Capital
Corp is a co-obligor of indebtedness issued by Majestic Investor Holdings,
LLC. Accordingly, such indebtedness has been presented as an obligation of
both the issuer and the co-obligor in the above balance sheet.
F-120
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
MAJESTIC MAJESTIC
INVESTOR INVESTOR GUARANTOR ELIMINATING TOTAL
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------- ------------ ----------- ------------
REVENUES:
Casino.................................. $ -- $ -- $39,000,341 $ -- $39,000,341
Rooms................................... -- -- 3,862,888 -- 3,862,888
Food and beverage....................... -- -- 5,079,902 -- 5,079,902
Other................................... -- -- 869,979 -- 869,979
----------- ----- ----------- ----------- -----------
Gross revenues....................... -- -- 48,813,110 -- 48,813,110
Less promotional allowances.......... -- -- 5,628,227 -- 5,628,227
----------- ----- ----------- ----------- -----------
Net revenues......................... -- -- 43,184,883 -- 43,184,883
----------- ----- ----------- ----------- -----------
COSTS AND EXPENSES:
Casino.................................. -- -- 16,505,516 -- 16,505,516
Rooms................................... -- -- 1,695,808 -- 1,695,808
Food and beverage....................... -- -- 2,507,713 -- 2,507,713
Other................................... -- -- 533,985 -- 533,985
Gaming taxes............................ -- -- 4,628,311 -- 4,628,311
Advertising and promotion............... -- -- 3,311,241 -- 3,311,241
General and administrative.............. 202,516 -- 7,492,588 -- 7,695,104
Depreciation and amortization........... 665,819 -- 3,148,361 -- 3,814,180
----------- ----- ----------- ----------- -----------
Total costs and expenses............. 868,335 -- 39,823,523 -- 40,691,858
----------- ----- ----------- ----------- -----------
Operating income (loss).............. (868,335) -- 3,361,360 -- 2,493,025
----------- ----- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income......................... 3,645 -- 2,398 -- 6,043
Interest expense........................ (4,421,376) -- (5,117) -- (4,426,493)
Loss on sale of assets.................. -- -- (4,671) -- (4,671)
Other non-operating expense............. (9,582) -- -- -- (9,582)
Equity in net income (loss) of
subsidiaries......................... 3,353,970 -- -- (3,353,970) --
Total other expense.................. (1,073,343) -- (7,390) (3,353,970) (4,434,703)
----------- ----- ----------- ----------- -----------
Net income (loss).................... $(1,941,678) $ -- $ 3,353,970 $(3,353,970) $(1,941,678)
=========== ===== =========== =========== ===========
</Table>
F-121
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
MAJESTIC MAJESTIC
INVESTOR INVESTOR GUARANTOR ELIMINATING TOTAL
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------- ------------ ----------- ------------
REVENUES:
Casino.................................. $ -- $-- $41,842,819 $ -- $41,842,819
Rooms................................... -- -- 3,809,375 -- 3,809,375
Food and beverage....................... -- -- 4,681,423 -- 4,681,423
Other................................... -- -- 1,027,702 -- 1,027,702
----------- --- ----------- ----------- -----------
Gross revenues....................... -- -- 51,361,319 -- 51,361,319
Less promotional allowances.......... -- -- 5,784,991 -- 5,784,991
----------- --- ----------- ----------- -----------
Net revenues......................... -- -- 45,576,328 -- 45,576,328
----------- --- ----------- ----------- -----------
COSTS AND EXPENSES:
Casino.................................. -- -- 17,500,235 -- 17,500,235
Rooms................................... -- -- 1,717,113 -- 1,717,113
Food and beverage....................... -- -- 2,604,410 -- 2,604,410
Other................................... -- -- 396,134 -- 396,134
Gaming taxes............................ -- -- 4,981,141 -- 4,981,141
Advertising and promotion............... -- -- 2,827,045 -- 2,827,045
General and administrative.............. 8,175 -- 7,173,272 -- 7,181,447
Depreciation and amortization........... 657,668 -- 3,167,672 -- 3,825,340
----------- --- ----------- ----------- -----------
Total costs and expenses............. 665,843 -- 40,367,022 -- 41,032,865
----------- --- ----------- ----------- -----------
Operating income (loss).............. (665,843) -- 5,209,306 -- 4,543,463
----------- --- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income......................... 19,190 -- 14,030 -- 33,220
Interest expense........................ (4,454,389) -- (8,574) -- (4,462,963)
Loss on sale of assets.................. -- -- (9,889) -- (9,889)
Other non-operating expenses............ (10,931) -- -- -- (10,931)
Equity in net income (loss) of
subsidiaries......................... 5,204,873 -- -- (5,204,873) --
----------- --- ----------- ----------- -----------
Total other expense.................. 758,743 -- (4,433) (5,204,873) (4,450,563)
----------- --- ----------- ----------- -----------
Net income (loss)....................... $ 92,900 $-- $ 5,204,873 $(5,204,873) $ 92,900
=========== === =========== =========== ===========
</Table>
F-122
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
MAJESTIC MAJESTIC
INVESTOR INVESTOR GUARANTOR ELIMINATING TOTAL
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------- ------------ ------------ ------------
REVENUES:
Casino................................... $ -- $ -- $117,977,522 $ -- $117,977,522
Rooms.................................... -- -- 11,246,586 -- 11,246,586
Food and beverage........................ -- -- 14,695,689 -- 14,695,689
Other.................................... -- -- 2,503,455 -- 2,503,455
------------ ----- ------------ ------------ ------------
Gross revenues........................ -- -- 146,423,252 -- 146,423,252
Less promotional allowances........... -- -- 16,789,768 -- 16,789,768
------------ ----- ------------ ------------ ------------
Net revenues.......................... -- -- 129,633,484 -- 129,633,484
------------ ----- ------------ ------------ ------------
COSTS AND EXPENSES:
Casino................................... -- -- 48,676,222 -- 48,676,222
Rooms.................................... -- -- 4,882,991 -- 4,882,991
Food and beverage........................ -- -- 7,570,063 -- 7,570,063
Other.................................... -- -- 1,354,042 -- 1,354,042
Gaming taxes............................. -- -- 13,662,931 -- 13,662,931
Advertising and promotion................ -- -- 9,855,194 -- 9,855,194
General and administrative............... 225,203 -- 20,951,949 -- 21,177,152
Depreciation and amortization............ 1,997,376 -- 9,178,818 -- 11,176,194
------------ ----- ------------ ------------ ------------
Total costs and expenses.............. 2,222,579 -- 116,132,210 -- 118,354,789
------------ ----- ------------ ------------ ------------
Operating income (loss)............... (2,222,579) -- 13,501,274 -- 11,278,695
------------ ----- ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income.......................... 28,916 -- 11,272 -- 40,188
Interest expense......................... (13,264,175) -- (17,403) -- (13,281,578)
Gain on sale of assets................... -- -- 20,290 -- 20,290
Other non-operating expense.............. (28,482) -- -- -- (28,482)
------------ ----- ------------ ------------ ------------
Equity in net income (loss) of
subsidiaries.......................... 13,515,433 -- -- (13,515,433) --
Total other income (expense).......... 251,692 -- 14,159 (13,515,433) (13,249,582)
------------ ----- ------------ ------------ ------------
Net income (loss)..................... $ (1,970,887) $ -- $ 13,515,433 $(13,515,433) $ (1,970,887)
============ ===== ============ ============ ============
</Table>
F-123
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
MAJESTIC MAJESTIC
INVESTOR INVESTOR GUARANTOR ELIMINATING TOTAL
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------- ------------ ------------ ------------
REVENUES:
Casino.................................... $ -- $-- $124,623,911 $ -- $124,623,911
Rooms..................................... -- -- 11,836,761 -- 11,836,761
Food and beverage......................... -- -- 14,127,355 -- 14,127,355
Other..................................... -- -- 2,893,704 -- 2,893,704
------------ --- ------------ ------------ ------------
Gross revenues......................... -- -- 153,481,731 -- 153,481,731
Less promotional allowances............ -- -- 17,662,744 -- 17,662,744
------------ --- ------------ ------------ ------------
Net revenues........................... -- -- 135,818,987 -- 135,818,987
------------ --- ------------ ------------ ------------
COSTS AND EXPENSES:
Casino.................................... -- -- 52,501,936 -- 52,501,936
Rooms..................................... -- -- 4,975,786 -- 4,975,786
Food and beverage......................... -- -- 7,781,206 -- 7,781,206
Other..................................... -- -- 1,171,389 -- 1,171,389
Gaming taxes.............................. -- -- 14,779,969 -- 14,779,969
Advertising and promotion................. -- -- 9,777,719 -- 9,777,719
General and administrative................ 19,878 -- 20,538,102 -- 20,557,980
Depreciation and amortization............. 1,930,193 -- 8,775,312 -- 10,705,505
Pre-opening expenses...................... 124,269 -- -- -- 124,269
------------ --- ------------ ------------ ------------
Total costs and expenses............... 2,074,340 -- 120,301,419 -- 122,375,759
------------ --- ------------ ------------ ------------
Operating income (loss)................ (2,074,340) -- 15,517,568 -- 13,443,228
------------ --- ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income........................... 53,988 -- 41,036 -- 95,024
Interest expense.......................... (13,546,708) -- (25,113) -- (13,571,821)
Loss on sale of assets.................... -- -- (9,311) -- (9,311)
Other non-operating expenses.............. (38,306) -- -- -- (38,306)
Equity in net income (loss) of
subsidiaries........................... 15,524,180 -- -- (15,524,180) --
------------ --- ------------ ------------ ------------
Total other income (expense)........... 1,993,154 -- 6,612 (15,524,180) (13,524,414)
------------ --- ------------ ------------ ------------
Net income (loss)...................... $ (81,186) $-- $ 15,524,180 $(15,524,180) $ (81,186)
============ === ============ ============ ============
</Table>
F-124
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
MAJESTIC MAJESTIC
INVESTOR INVESTOR GUARANTOR ELIMINATING TOTAL
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------- ------------ ----------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:................................... $(9,415,600) $-- $ 21,769,136 $-- $12,353,536
----------- --- ------------ --- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in restricted cash................... (250,000) -- -- -- (250,000)
Acquisition of property and equipment......... -- -- (5,927,999) -- (5,927,999)
Proceeds from sale of equipment............... -- -- 41,469 -- 41,469
----------- --- ------------ --- -----------
Net cash used in investing activities...... (250,000) -- (5,886,530) -- (6,136,530)
----------- --- ------------ --- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance cost for the 9 1/2% senior secured
notes...................................... (2,337) -- -- -- (2,337)
Proceeds from notes receivables affiliates.... 700,000 -- -- -- 700,000
Advances to (from) affiliates................. 18,000,000 -- (18,000,000) -- --
Repayment of long term debt................... -- -- (114,014) -- (114,014)
Distribution to Barden Development, Inc....... (2,932,696) -- -- -- (2,932,696)
----------- --- ------------ --- -----------
Net cash provided by (used in) financing
activities............................... 15,764,967 -- (18,114,014) -- (2,349,047)
----------- --- ------------ --- -----------
Net increase (decrease) in cash and cash
equivalents................................... 6,099,367 -- (2,231,408) -- 3,867,959
Cash and cash equivalents, beginning of
period........................................ 1,007,660 -- 14,976,164 -- 15,983,824
----------- --- ------------ --- -----------
Cash and cash equivalents, end of period........ $ 7,107,027 $-- $ 12,744,756 $-- $19,851,783
=========== === ============ === ===========
</Table>
F-125
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
MAJESTIC MAJESTIC
INVESTOR INVESTOR GUARANTOR ELIMINATING TOTAL
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------- ------------ ----------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:................................ $(10,568,902) $ -- $22,405,364 $ 3,045,497(a) $14,881,959
------------ ----- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition related costs.................. (986,158) -- -- -- (986,158)
Proceeds from seller for purchase price
adjustment.............................. 3,800,000 -- -- -- 3,800,000
Acquisition of property and equipment...... -- -- (3,918,301) -- (3,918,301)
Decrease in prepaid leases and deposits.... -- -- -- -- --
Proceeds from sale of equipment............ -- -- 43,867 -- 43,867
------------ ----- ----------- ----------- -----------
Net cash provided by (used in) investing
activities............................ 2,813,842 -- (3,874,434) -- (1,060,592)
------------ ----- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance cost for the 11.653% senior
secured notes........................... (1,410,945) -- -- -- (1,410,945)
Proceeds from line of credit............... 2,500,000 -- -- -- 2,500,000
Repayment of line of credit................ (9,000,000) -- -- -- (9,000,000)
Advances to (from) affiliates.............. 23,320,991 -- (20,275,494) (3,045,497)(a) --
Repayment of long term debt................ -- -- (104,808) -- (104,808)
Distribution to Barden Development, Inc.... (1,844,206) -- -- -- (1,844,206)
------------ ----- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................ 13,565,840 -- (20,380,302) (3,045,497) (9,859,959)
------------ ----- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................ 5,810,780 -- (1,849,372) -- 3,961,408
Cash and cash equivalents, beginning of
period..................................... 498,363 -- 17,206,452 -- 17,704,815
------------ ----- ----------- ----------- -----------
Cash and cash equivalents, end of period..... $ 6,309,143 $ -- $15,357,080 $ -- $21,666,223
============ ===== =========== =========== ===========
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
F-126
MAJESTIC INVESTOR HOLDINGS, LLC
To the Members of
Majestic Investor Holdings, LLC:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in member's equity,
and of cash flows present fairly, in all material respects, the financial
position of Majestic Investor Holdings, LLC and its subsidiaries at December 31,
2002 and December 31, 2001, and the results of their operations and their cash
flows for the year ended December 31, 2002 and 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 of Majestic Investor Holdings, LLC
listed in the index appearing on page F-2 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 audits. We conducted our audits 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
audits provide a reasonable basis for our opinion.
As more fully explained in Note 2, the Company changed its method of
accounting for gains and losses on early retirement of debt in connection with
its adoption of Financial Accounting Standards Board Statement No. 145.
/s/ PRICEWATERHOUSECOOPERS LLP
Las Vegas, Nevada
February 23, 2003, except for Note 11,
as to which the date is March 17, 2003
and Note 2, as to which
the date is May 15, 2003
F-127
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 15,983,824 $ 17,704,815
Restricted cash........................................... 250,000 --
Accounts receivable, less allowance for doubtful accounts
of $239,066 and $248,042, respectively................. 1,241,183 1,464,834
Inventories............................................... 929,126 957,564
Prepaid expenses.......................................... 1,644,735 1,212,653
Due from seller........................................... -- 98,913
Note receivable from related party........................ 700,000 700,000
Other..................................................... 39,133 15,552
------------ ------------
Total current assets................................. 20,788,001 22,154,331
------------ ------------
Property, equipment and improvements, net................... 117,297,506 122,427,962
Intangible assets, net...................................... 17,691,746 19,290,753
Goodwill.................................................... 5,922,398 10,602,250
Other Assets:
Deferred financing costs, net of accumulated amortization
of $1,407,041 and $83,897, respectively................ 6,714,902 7,023,706
Restricted cash........................................... 1,000,000 1,000,000
Other assets, prepaid leases and deposits................. 1,624,359 945,618
------------ ------------
Total other assets................................... 9,339,261 8,969,324
------------ ------------
Total Assets......................................... $171,038,912 $183,444,620
============ ============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 134,084 $ 6,656,574
Accounts payable.......................................... 2,136,369 1,946,730
Other accrued liabilities:
Payroll and related.................................... 5,949,275 5,006,114
Interest............................................... 1,473,785 1,208,779
Progressive jackpots................................... 2,476,543 2,274,050
Slot club liability.................................... 738,559 2,241,876
Other accrued liabilities.............................. 4,401,378 5,060,069
------------ ------------
Total current liabilities............................ 17,309,993 24,394,192
------------ ------------
Due to related parties...................................... -- 1,177,829
Long-term debt, net of current maturities................... 145,646,514 145,340,304
------------ ------------
Total Liabilities.................................... 162,956,507 170,912,325
Commitments and contingencies
Member's Equity:............................................ 8,082,405 12,532,295
------------ ------------
Total Liabilities and Member's Equity................ $171,038,912 $183,444,620
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-128
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE PERIOD
FROM INCEPTION
(SEPTEMBER 14, 2001)
FOR THE YEAR ENDED THROUGH
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------ --------------------
REVENUES:
Casino.................................................... $161,189,334 $10,358,799
Rooms..................................................... 15,495,620 1,079,456
Food and beverage......................................... 19,470,500 1,189,804
Other..................................................... 3,604,744 203,858
------------ -----------
Gross revenues......................................... 199,760,198 12,831,917
Less promotional allowances............................ (30,348,133) (2,310,848)
------------ -----------
Net revenues........................................... 169,412,065 10,521,069
COSTS AND EXPENSES:
Casino.................................................... 60,822,128 4,111,503
Rooms..................................................... 9,014,354 628,910
Food and beverage......................................... 11,267,235 706,947
Other..................................................... 1,559,861 108,732
Gaming taxes.............................................. 17,950,757 808,464
Advertising and promotion................................. 13,282,926 926,226
General and administrative................................ 24,977,991 1,569,643
Depreciation and amortization............................. 14,460,322 920,648
Loss on disposal of assets................................ 14,069 --
Pre-opening expenses...................................... 13,391 1,018,234
------------ -----------
Total costs and expenses............................... 153,363,034 10,799,307
------------ -----------
Operating income (loss)................................ 16,049,031 (278,238)
------------ -----------
OTHER INCOME (EXPENSE):
Interest income........................................... 135,830 218,201
Interest expense.......................................... (18,117,818) (1,210,860)
Other non-operating expense............................... (41,684) --
Gain on bond redemption................................... 68,957 --
------------ -----------
Total other expense.................................... (17,954,715) (992,659)
Net loss............................................... $ (1,905,684) $(1,270,897)
============ ===========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-129
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2002 AND FOR THE PERIOD FROM INCEPTION
(SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
<Table>
<Caption>
TOTAL
MEMBERS' EQUITY
---------------
Contribution from Majestic Investor, LLC.................... $ 8,803,192
Contribution from Majestic Investor, LLC.................... 5,000,000
Net loss.................................................... (1,270,897)
-----------
BALANCE, DECEMBER 31, 2001.................................. 12,532,295
Net loss.................................................... (1,905,684)
Distribution paid to Barden Development, Inc................ (2,544,206)
-----------
BALANCE, DECEMBER 31, 2002.................................. $ 8,082,405
===========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-130
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
INCEPTION
(SEPTEMBER 14,
2001)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
2002 2001
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (1,905,684) $ (1,270,897)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 9,843,712 642,472
Amortization.............................................. 4,616,610 278,176
Loss on sale of assets.................................... 14,069 --
Gain on redemption of bonds............................... (68,957) --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable................ 325,118 (532,843)
Decrease in inventories................................... 28,438 20,886
Increase in prepaid expenses.............................. (817,442) (296,365)
Decrease (increase) in other assets....................... 788,685 (24,503)
Decrease (increase) in accounts payable................... (6,733) 394,988
Decrease in amounts due to related parties, net........... (836,249) (8,665)
Increase in accrued payroll and related expenses.......... 856,711 --
Increase in accrued interest.............................. 265,006 1,208,779
(Decrease) increase in other accrued liabilities.......... (758,785) 2,222,443
------------ -------------
Net cash provided by operating activities............... 12,344,499 2,634,471
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of Fitzgeralds, net of cash
acquired................................................ -- (143,758,152)
Increase in restricted cash............................... (250,000) --
Acquisition of property, equipment and improvements....... (5,207,456) (122,696)
Payment of acquisition related costs...................... (986,158) --
Proceeds from seller from purchase price adjustment....... 3,800,000 --
Proceeds from sale of equipment........................... 44,267 --
------------ -------------
Net cash used in investing activities................... (2,599,347) (143,880,848)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Investor Holdings senior secured
notes................................................... -- 145,000,400
Payment of Investor Holdings 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, net....................................... (6,500,000) 6,500,000
Payment of Investor Holdings senior secured notes issuance
costs................................................... (1,523,568) --
Cash paid for redemption of Investor Holdings senior
secured notes........................................... (759,038) --
Cash paid to reduce long-term debt........................ (139,331) (5,582)
Distribution to Barden Development, Inc................... (2,544,206) --
------------ -------------
Net cash (used in) provided by financing activities..... (11,466,143) 158,951,192
------------ -------------
Net (decrease) increase in cash and cash equivalents........ (1,720,991) 17,704,815
Cash and cash equivalents, beginning of period.............. 17,704,815 --
------------ -------------
Cash and cash equivalents, end of period.................... $ 15,983,824 $ 17,704,815
============ =============
INTEREST PAID:
Equipment Debt............................................ $ 8,391 $ 2,081
Senior Secured Notes -- Fixed Interest 11.653%............ $ 8,707,126 $ --
Lines of credit........................................... $ 98,168 $ --
SUPPLEMENTAL NONCASH OPERATING AND FINANCING ACTIVITIES:
Elimination of slot based progressives...................... $ 400,000 $ --
Elimination of slot club.................................... $ 1,300,000 $ --
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-131
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Majestic Investor Holdings, LLC (the "Company"), is a wholly-owned
subsidiary of Majestic Investor, LLC ("Investor") 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 Manager, Chairman, President and Chief Executive
Officer.
On November 22, 2000, Investor 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 $149.0 million in cash, subject to adjustment in certain
circumstances, plus the assumption of certain liabilities. Investor 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,
Investor had approximately $8.8 million of assets, no liabilities and $8.8
million of members' equity. Because all entities were under common control the
assignment and contribution has been reflected in the consolidated financial
statements of the Company as though it occurred as of the beginning of the
period.
On December 6, 2001, the Company completed the acquisition of substantially
all of the assets and assumed certain liabilities of Fitzgeralds Las Vegas,
Inc., Fitzgeralds Mississippi, Inc., and 101 Main Street Limited Liability
Company (collectively the "Fitzgeralds Assets") for approximately $152.7 million
(the "Acquisition") (See Note 3). In connection with the Acquisition, the
Company formed three new subsidiaries that hold the respective Fitzgeralds
Assets and provide gaming and related entertainment to the public. These are
Barden Mississippi Gaming, LLC ("Fitzgeralds Tunica"), Barden Colorado Gaming,
LLC ("Fitzgeralds Black Hawk"), and Barden Nevada Gaming, LLC ("Fitzgeralds Las
Vegas").
The Company formed Majestic Investor Capital Corp. ("Majestic Investor
Capital"), a wholly-owned subsidiary of the Company, to specifically serve as a
co-issuer to facilitate the offering of 11.653% Senior Secured Notes ("the
Investor Holdings Senior Secured Notes") which proceeds were used to purchase
the Fitzgeralds Assets (See Note 6). Majestic Investor Capital does not have any
material assets or operations. The three Fitzgeralds brand casinos are
"restricted subsidiaries" of the Company under the indenture agreement relating
to the Investor Holdings Senior Secured Notes.
The results of operations for the twenty-five days ended December 31, 2001,
since the acquisition on December 7, 2001, are included in our consolidated
statement of operations and consolidated statement of cash flows.
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, 2002 and December 31, 2001, restricted
cash of $1.0 million represents U.S. Treasury Notes held in an escrow account
for the benefit of certain owners of land leased to Fitzgeralds Las Vegas. Also
at December 31, 2002, restricted cash of $250,000 at Majestic Investor Holdings
represents a letter of credit for self-insured workers compensation at
Fitzgeralds Mississippi and Fitzgeralds Black Hawk.
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 approximate fair value. Management
believes that as of December 31, 2002, no significant concentrations of credit
risk existed for which an allowance had not already been determined and
recorded.
F-132
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(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 $661,488 and $627,473, respectively, of base
stock inventories at December 31, 2002 and 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 Investor Holdings Senior Secured Notes and a $15.0 million
credit facility with Foothill Capital Corporation ("the Investor Holdings Credit
Facility"). 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 and are reflected in depreciation and amortization
expense. Amortization of deferred financing costs totalled approximately $2.6
million for the year ended December 31, 2002 and $0.2 million for the period
from inception (September 14, 2001) through December 31, 2001.
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--Cash discounts and other cash incentives related to
gaming play are recorded as a reduction of gross casino revenues. In addition,
the retail value of accommodations, food and beverage, and other services
furnished to hotel/ casino guests without charge is included in gross revenue
and then deducted as promotional allowances. The estimated departmental cost of
providing such promotional allowances is included primarily in casino operating
expenses as follows:
<Table>
<Caption>
FOR THE PERIOD FROM (INCEPTION)
YEAR ENDED SEPTEMBER 14, 2001
DECEMBER 31, 2002 THROUGH DECEMBER 31, 2001
----------------- -------------------------------
Rooms..................................................... $ 4,121,861 $ 254,918
Food and Beverage......................................... 11,194,141 837,469
Other..................................................... 1,083,884 50,543
----------- ----------
$16,399,886 $1,142,930
=========== ==========
</Table>
F-133
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The estimated retail value of such promotional allowances is included in
operating revenues as follows:
<Table>
<Caption>
FOR THE PERIOD FROM (INCEPTION)
YEAR ENDED SEPTEMBER 14, 2001
DECEMBER 31, 2002 THROUGH DECEMBER 31, 2001
----------------- -------------------------------
Rooms..................................................... $ 5,592,973 $ 436,701
Food and Beverage......................................... 11,621,979 770,142
Other..................................................... 849,824 50,526
----------- ----------
$18,064,776 $1,257,369
=========== ==========
</Table>
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.
Advertising Costs--Costs for advertising are expensed as incurred, except
costs for direct-response advertising, which are capitalized and amortized over
the period of the related program. Direct-response advertising consists
primarily of mailing costs associated with the direct-mail programs. Capitalized
advertising costs, included in prepaid expense, were immaterial at December 31,
2002 and 2001. Advertising costs included in advertising and promotion expenses
were $2,440,021 and $199,337, respectively, for the year ended December 31, 2002
and for the period from inception (September 14, 2001) through December 31,
2001, respectively.
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. Effective January 1, 2002 SFAS 142 requires annual impairment
review of all intangible assets with indefinite lives. The Company performed an
impairment test of its intangible assets with indefinite lives during the year
2002 and concluded that there was no impairment. See Note 5.
Casino Club Liability--The Company has established a promotional club (the
"Casino Club") to encourage repeat business from frequent and active slot
machine customers and table games patrons. Members earn points based on gaming
activity and such points can be redeemed for cash. The Company accrues for club
points based upon the estimates for expected redemptions.
Self-Insurance Liability--The Company maintains accruals for self-insured
health costs, which is classified in other accrued liabilities in the
consolidated balance sheet. Management determines the estimate of these accruals
by periodically evaluating the historical experience and projects trends related
to these accruals. Actual results could differ from these estimates.
Progressive Liability--The Company maintains a number of progressive slot
machines and table games. As wagers are made on the respective progressive
games, the amount available to win (to be paid out when the appropriate jackpots
are hit) increases. The Company has recorded the progressive jackpots as a
liability with a corresponding charge against casino revenue.
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 also estimates that 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
F-134
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
Gains and Losses on Retirement of Indebtedness--In April 2002, the
Financial Accounting Standards Board issued Statement No. 145 (SFAS 145)
Rescission of FASB Statements Nos. 4, 44 and 64 and Amendment of FASB Statement
No. 13. SFAS 145 addresses the presentation for losses on early retirements of
debt in the statement of operations. The Company has adopted SFAS 145 and has
not presented losses on early retirements of debt as an extraordinary item.
Additionally, prior period extraordinary losses have been reclassified to
conform to this new presentation. Adoption of SFAS 145 had no impact on the
Company's financial condition or cash flows.
Recently Issued Accounting Pronouncements--In August 2001, the Financial
Accounting Standards Board issued Statement No. 143 ("SFAS 143"), "Accounting
for Obligations Associated with the Retirement of Long-Lived Assets". Under SFAS
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 143 is
effective for fiscal years beginning after June 15, 2002. Adoption of SFAS No.
143 is not anticipated to have a material impact on our financial condition,
results of operations or cash flows.
In April 2002, the Financial Accounting Standards Board issued SFAS 145.
SFAS 145 addresses the presentation for gains and losses on early retirements of
debt in the statement of operations. SFAS 145 is effective for fiscal years
beginning after May 15, 2003. Adoption of SFAS 145 is not anticipated to have a
material impact on our financial condition, results of operations or cash flow.
In June 2002, the Financial Accounting Standard Board issued Statement No.
146 ("SFAS 146") "Accounting for Costs Associated with Exit or Disposal
Activities." The provisions of SFAS 146 become effective for exit or disposal
activities commenced subsequent to December 31, 2002 and the Company does not
expect any impact on its financial condition, results of operations or cash
flows.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Guarantees of Indebtedness of Others."
This interpretation elaborates on the disclosures to be made by a guarantor in
its interim and an annual financial statement about its obligations under
certain guarantees that it has issued. It also clarifies (for guarantees issued
after January 1, 2003) that a guarantor is required to recognize at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee. At December 31, 2002, the Company does not
have any guarantees outside of its consolidated group and accordingly does not
expect the adoption of FIN 45 to have a material impact on its financial
condition, results of operations or cash flows. Disclosures concerning
guarantees are found in Notes 6 and 13.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities
("VIE")." This interpretation addresses the requirements for business
enterprises to consolidate related entities in which they are determined to be
the primary economic beneficiary as a result of their variable economic
interests. The interpretation is intended to provide guidance in judging
multiple economic interest in an entity and in determining the primary
beneficiary. The interpretation outlines disclosure requirements for VIEs in
existence prior to January 31, 2003, and outlines consolidation requirement for
VIEs created after January 31, 2003. The Company has reviewed its major
relationships and its overall economic interests with other companies consisting
of related parties, companies in which it has an equity position and other
suppliers to determine the extent of its variable economic interest in these
parties. The review has not resulted in a determination that the Company would
be judged to be the primary economic beneficiary in any material relationships,
or that any material entities would be judged to be Variable Interest Entities
of the Company. The Company believes it has appropriately reported the economic
impact and its share of risks of its commercial relationships through its equity
accounting along with appropriate disclosure of its commitments.
F-135
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reclassification--The consolidated financial statements and footnotes for
prior years reflect certain reclassifications to conform with the current year
presentation, which have no effect on previously reported net income.
3. FITZGERALDS ACQUISITION
The Company accounted 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. Pursuant to the terms of the purchase and sale agreement, the
parties agreed to a $3.8 million reduction on May 9, 2002, based upon a
negotiated settlement of the value of working capital at December 6, 2001. The
$3.8 million reduction went against Goodwill. 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. (See
Note 5).
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
------------------
(UNAUDITED IN
THOUSANDS)
Net revenue................................................. $168,260
Income from operations...................................... $ 14,482
Net income (loss)........................................... $ (3,542)
</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.
F-136
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2002 and 2001 consists of the
following:
<Table>
<Caption>
ESTIMATED SERVICE
2002 2001 LIFE (YEARS)
------------ ------------ -----------------
Land used in casino operations.......................... $ 6,403,375 $ 6,403,375 --
Vessel, Buildings & Improvements........................ 69,812,270 69,287,364 25-39
Site improvements....................................... 15,971,805 15,870,892 9-15
Barge and improvements.................................. 14,691,854 14,655,000 13-15
Furniture, fixtures and equipment....................... 20,050,973 16,157,574 4-10
Construction in progress................................ 900,221 696,229
------------ ------------
127,830,498 123,070,434
Less accumulated depreciation........................... (10,532,992) (642,472)
------------ ------------
Property and equipment, net........................ $117,297,506 $122,427,962
============ ============
</Table>
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, 2002 are as follows:
<Table>
<Caption>
GROSS CARRYING ACCUMULATED NET AMOUNT
AMOUNT AMORTIZATION DECEMBER 31, 2002
-------------- ------------ -----------------
(IN THOUSANDS)
Amortized intangible assets:
Customer relationships.................................. $ 9,800 $(1,312) $ 8,488
Tradename............................................... 3,700 (396) 3,304
Riverboat excursion license............................. 700 -- 700
------- ------- -------
Total.............................................. $14,200 $(1,708) $12,492
======= ======= =======
Unamortized intangible assets:
Gaming license.......................................... $ 5,200 $ -- $ 5,200
------- ------- -------
Total.............................................. $ 5,200 $ -- $ 5,200
======= ======= =======
</Table>
The amortization expense recorded on the intangible assets for the year
ended December 31, 2002 and for the period from (inception) September 14, 2001
through December 31, 2001 was $1.6 million and $0.1 million, respectively. The
estimated amortization expense for each of the five succeeding fiscal years is
as follows:
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
2003........................................................ $1,618
2004........................................................ 1,642
2005........................................................ 1,642
2006........................................................ 1,642
2007........................................................ 1,642
</Table>
F-137
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
Long-term debt at December 31, 2002 and 2001 is as follows:
<Table>
<Caption>
2002 2001
------------ ------------
$152,632,000 senior secured notes payable, net of
unamortized discount of $6,235,552 at 2002 and $7,546,568 at
2001; collateralized by a first priority lien on
substantially all of the assets of Majestic Investor
Holdings, LLC, 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. During
2002, Majestic Investor Holdings, LLC purchased $865,000 of
its senior secured notes.................................... $145,531,448 $145,085,432
$15.0 million four year credit facility established with
Majestic Investor Holdings, LLC, on December 6, 2001
expiring on December 6, 2005; collateralized by
substantially all current and future assets, other than
excluded assets; interest rate at the borrowers choice of
LIBOR plus 2.0% above the base rate which approximates the
prime rate, or the prime rate............................... -- 6,500,000
Equipment and software financing payable at Barden Nevada
Gaming including related use taxes; collateralized by gaming
equipment; interest rates from 7.5% to 12.0%; due in
aggregate monthly installments of $13,526 with varying
maturity dates through 2005................................. 249,150 411,446
------------ ------------
145,780,598 151,996,878
Less current maturities..................................... (134,084) (6,656,574)
------------ ------------
Long-term debt, net of current maturities................... $145,646,514 $145,340,304
============ ============
</Table>
The scheduled maturities of long-term debt are as follows:
<Table>
<Caption>
YEAR ENDING DECEMBER 31,
- ------------------------
2003........................................................ 134,084
2004........................................................ 84,984
2005........................................................ 30,082
2006........................................................ --
2007........................................................ 145,531,448
Thereafter.................................................. --
------------
$145,780,598
============
</Table>
Investor Holdings Senior Secured Notes
On December 6, 2001, the Company and Majestic Investor Capital, as
co-issuer, 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, were utilized to complete the acquisition.
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.
In connection with the issuance by the Company and Majestic Investor
Capital of $152,632,000 of unregistered 11.653% Senior Secured Notes due 2007
(the "Unregistered Notes") on December 6, 2001, the Company entered in a
registration rights agreement pursuant to which the Company agreed to file with
the Securities and Exchange Commission ("SEC") a registration statement (the
"Registration Statement") to exchange up to $152,632,000 principal amount of
11.653% Senior Secured Notes due 2007 registered under the Securities Act of
1933 (the "Registered Notes") for any and all of its outstanding Unregistered
Notes. The registration rights agreement requires the Company to pay liquidated
damages to the holders of the
F-138
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT--(CONTINUED)
Unregistered Notes if the Registration Statement was not declared effective by
the SEC on or prior to April 5, 2002. The Registration Statement was declared
effective by the SEC on August 8, 2002 and the Company was required to pay
liquidated damages pursuant to the terms of the registration rights agreement
for the period from April 6, 2002 until August 8, 2002, at an amount per week
per $1,000 principal amount of Registrable Securities 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, in connection with the first scheduled
interest payment on the Unregistered Notes, the Company made its initial
liquidated damages payment of $61,053 to the holders of the Notes. The final
liquidated damages payment of $114,474 was paid to the holders of the
Unregistered Notes with the scheduled interest payment on November 30, 2002.
Pursuant to the Registration Statement, the offer to exchange the Registered
Notes for any or all of the Unregistered Notes commenced on August 8, 2002 and
was completed on Friday, September 6, 2002 at 5 p.m. Eastern Standard Time.
On or after November 30, 2005, the Company has 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.
During 2002, the Company purchased for $759,037, plus accrued interest
Investor Holdings Senior Secured Notes with a face value of $865,000. The notes,
net of unamortized original issue discount, were being carried at value of
$827,994. The resulting gain was $68,957.
Credit Facility
On December 6, 2001, the Company established a $15.0 million four-year
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. The interest rate can be
at the Company's choice of LIBOR plus 2.0% above the base rate, which
approximates prime, or the prime rate.
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
Investor Holdings Senior Secured Notes to the liens securing the indebtedness
under the Investor Holdings Credit Facility.
The intercreditor agreement, among other things, limits the trustee's
rights in an event of default under the Investor Holdings Senior secured notes.
Under the intercreditor agreement, if the Investor Holdings 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 Investor Holdings Credit Facility, the trustee will not have the right
to foreclose upon the collateral unless and until the lenders under the Investor
Holdings 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 Investor Holdings 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
F-139
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT--(CONTINUED)
outstanding under the Investor Holdings Credit Facility and thereafter to the
holders of the Investor Holdings Senior Secured Notes.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying value and estimated fair value as
of December 31, 2002 of the Company's financial instruments. (Refer to Notes 2
and 6).
<Table>
<Caption>
CARRYING ESTIMATED
VALUE FAIR VALUE
------------ ------------
Assets:
Cash and equivalents...................................... $ 15,983,824 $ 15,983,824
Restricted cash........................................... $ 1,250,000 $ 1,250,000
Liabilities:
Long-term debt (including capital lease obligations and
line of credit borrowings)............................. $145,780,598 $145,780,598
</Table>
8. SAVINGS PLAN
The Company contributes to a defined contribution plan which provides for
contributions in accordance with the plan document. The plan is available to
certain employees with at least one year of service. The Company contributes a
matching contribution up to a maximum of 3% of an employee's salary limited to a
specified dollar amount as stated in the plan document. The Company's
contributions to the plan amounted to $713,608 during the year ended December
31, 2002.
9. 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, 2002 are as follows:
<Table>
<Caption>
YEAR ENDING DECEMBER 31,
------------------------
2003........................................................ $ 757,451
2004........................................................ 268,278
2005........................................................ 33,890
2006........................................................ 15,932
2007........................................................ 15,932
Thereafter.................................................. 15,932
----------
$1,107,415
==========
</Table>
Rent expense for the year ended December 31, 2002 and from (inception)
September 14, 2001 through December 31, 2001 was approximately $3,159,900 and
$363,925, respectively.
Legal Proceedings
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, comprised primarily of personal injury
and equal employment opportunity (EEO) claims, to be routine litigation
incidental to the Company's business. Management believes that the resolution of
these proceedings will not individually or in the aggregate, have a material
effect on the Company's financial condition or results of operations.
F-140
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Letter of Credit/Surety Bond
During the year ended December 31, 2002, a $250,000 letter of credit was
issued to secure payment of workers compensation claims at Barden Colorado
Gaming, LLC and Barden Mississippi Gaming, LLC. In order to collateralize the
letter of credit, the bank, through which the letter of credit was issued,
restricted $250,000 of the Company's cash in bank.
The States of Nevada and Mississippi have required Barden Nevada Gaming,
LLC and Barden Mississippi Gaming, LLC to post surety bonds as security for
current and future sales and gaming revenue tax obligations. Barden Nevada
Gaming, LLC currently has one surety bond in place with the Nevada Department of
Taxation in the amount of $122,250. Barden Mississippi Gaming, LLC has four
surety bonds; a $600,000 bond in place with the Mississippi State Tax Commission
and three $5,000 bonds with the Mississippi Alcoholic Beverage Control. These
surety bonds are secured only by personal guarantees of Don H. Barden. If Mr.
Barden is required to make payments to the bonding companies as a result of the
guarantees, the Company, Barden Nevada Gaming, LLC and Barden Mississippi
Gaming, LLC will be obligated to reimburse Mr. Barden for any such payments.
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 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.
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 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,
the performance of Majestic Star and the performance of the three Fitzgeralds
casinos. 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.
F-141
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Mr. Jon S. Bennett serves as our Vice President and Chief Financial Officer
pursuant to a two-year employment agreement with the Majestic Star Casino, LLC
dated October 21, 2002. Under this agreement, Mr. Bennett will receive base
compensation of $250,000, subject to annual reviews, and can also earn bonuses
subject to the discretion of the President and Chief Executive Officer and
Executive Vice President and Chief Operating Officer. In addition to such
compensation, Mr. Bennett is entitled to term life insurance in an amount equal
to $1.0 million and other customary employee benefits, including participation
in the Company's 401(k) plan and reimbursement of relocation expenses. Mr.
Bennett is also entitled to additional compensation upon a change in control,
equal to the remaining amount due under his employment agreement plus six months
of his annual salary following the expiration of his current employment
agreement. Mr. Bennett's employment agreement contains certain non-competition
provisions with a duration of 12 months if Mr. Bennett should voluntarily
terminate his employment within 18 months of the commencement date of his
employment agreement.
The amounts payable pursuant to the agreements with Messrs. Barden, Kelly
and Bennett are the responsibility of Majestic Star. As indicated in Note 10,
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.
10. 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 Investor Holdings 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 an agreement with BDI,
which was amended and restated on December 5, 2001, effective December 6, 2001,
pursuant to which BDI will for act as the Manager of the Company. Distribution
of profits to BDI are limited by the Indenture for the Investor Holdings Senior
Secured Notes. Distribution's for any fiscal quarter, cannot exceed 1% of net
revenues plus 5% of consolidated cash flow for the immediately preceding fiscal
quarter, provided that the payment of such distributions are subordinated to the
payment in full of principal, interest, premium and liquidated damages, as
defined, if any, then due on the Investor Holdings Senior Secured Notes. During
the year ended December 31, 2002, the Company made distributions of
approximately $2,544,000 to BDI.
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.
F-142
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. RELATED PARTY TRANSACTIONS--(CONTINUED)
Interest of $185,750 on a $2.0 million note made by Majestic Investor, LLC
to BDI which was later assigned to the Company was outstanding at December 31,
2001. BDI paid the principal of the note in conjunction with the closing of the
acquisition on December 6, 2001. The interest was paid on May 24, 2002.
11. SUBSEQUENT EVENTS
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 were due and payable in full on December 12, 2002. The principal and
accrued interest was paid on March 17, 2003.
12. 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 year
ended December 31, 2002 and for the period from inception (September 14, 2001)
through December 31, 2001 is presented below:
<Table>
<Caption>
FOR THE PERIOD
FROM INCEPTION
(SEPTEMBER 14, 2001)
AS OF THROUGH
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- --------------------
(IN THOUSANDS)
Net revenues:
Fitzgeralds Tunica........................................ $ 87,388 $ 5,368
Fitzgeralds Black Hawk.................................... 33,109 2,072
Fitzgeralds Las Vegas..................................... 48,915 3,081
Unallocated and other(1).................................. -- --
--------- ---------
Total................................................ $ 169,412 $ 10,521
========= =========
Income (loss) from operations:
Fitzgeralds Tunica........................................ $ 14,281 $ 654
Fitzgeralds Black Hawk.................................... 6,715 674
Fitzgeralds Las Vegas..................................... (1,977) (393)
Unallocated and other(1).................................. (2,956) (1,213)
--------- ---------
Total................................................ $ 16,063 $ (278)
========= =========
Segment depreciation and amortization:
Fitzgeralds Tunica........................................ $ 7,373 $ 485
Fitzgeralds Black Hawk.................................... 1,538 100
Fitzgeralds Las Vegas..................................... 2,952 167
Unallocated and other(1).................................. 2,597 169
--------- ---------
Total................................................ $ 14,460 $ 921
========= =========
</Table>
F-143
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SEGMENT INFORMATION--(CONTINUED)
<Table>
<Caption>
FOR THE PERIOD
FROM INCEPTION
(SEPTEMBER 14, 2001)
AS OF THROUGH
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- --------------------
(IN THOUSANDS)
Expenditures for additions to long-lived assets:
Fitzgeralds Tunica........................................ $ 2,549 $ 100
Fitzgeralds Black Hawk.................................... 1,177 --
Fitzgeralds Las Vegas..................................... 1,481 23
Unallocated and other(1).................................. -- --
--------- ---------
Total................................................ $ 5,207 $ 123
========= =========
Segment assets:
Fitzgeralds Tunica........................................ $ 88,307 $ 91,338
Fitzgeralds Black Hawk.................................... 30,468 30,915
Fitzgeralds Las Vegas..................................... 38,231 45,171
Unallocated and other(1).................................. 155,574 167,813
--------- ---------
Total................................................ $ 312,580 $ 335,237
Less: Intercompany........................................ (141,541) (151,792)
--------- ---------
Total................................................ $ 171,039 $ 183,445
========= =========
</Table>
- ---------------
(1) Unallocated and other include certain corporate items and eliminations that
are not allocated to the operating segments.
13. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $151.8 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.
The following condensed consolidating information presents condensed
consolidating financial statements as of December 31, 2002 and December 31,
2001, for the year ended December 31, 2002 and for the period of inception
(September 14, 2001) through December 31, 2001, of the Company, the guarantor
subsidiaries (on a combined basis) and the elimination entries necessary to
combine such entities on a consolidated basis.
F-144
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2002
<Table>
<Caption>
MAJESTIC INVESTOR MAJESTIC INVESTOR GUARANTOR ELIMINATING TOTAL
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
----------------- ----------------- ------------ -------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 1,007,660 $ -- $ 14,976,164 $ -- $ 15,983,824
Restricted cash...................... 250,000 -- -- -- 250,000
Accounts receivable (net)............ 52,695 -- 1,188,488 -- 1,241,183
Inventories.......................... -- -- 929,126 -- 929,126
Prepaid expenses and other current
assets............................. 5,573,991 -- 1,575,678 (4,765,801)(a) 2,383,868
------------ ------------- ------------ -------------- ------------
Total current assets............... 6,884,346 -- 18,669,456 (4,765,801) 20,788,001
------------ ------------- ------------ -------------- ------------
Property and equipment, net............ -- -- 117,297,506 -- 117,297,506
Intangible assets, net................. 5,200,000 -- 12,491,746 -- 17,691,746
Due from related parties............... 116,816,043 -- -- (116,816,043)(b) --
Other assets........................... 6,714,902 -- 8,546,757 15,261,659
Investment in subsidiaries............. 19,959,009 -- -- (19,959,009)(b) --
------------ ------------- ------------ -------------- ------------
Total Assets....................... $155,574,300 $ -- $157,005,465 $ (141,540,853) $171,038,912
============ ============= ============ ============== ============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of long-term
debt............................... $ -- $ -- $ 134,084 $ -- $ 134,084
Accounts payable, accrued and
other.............................. 1,960,447 -- 15,215,462 -- 17,175,909
------------ ------------- ------------ -------------- ------------
Total current liabilities.......... 1,960,447 -- 15,349,546 -- 17,309,993
------------ ------------- ------------ -------------- ------------
Due to related parties................. -- -- 121,581,844 (121,581,844)(b) --
Long-term debt, net of current
maturities........................... 145,531,448 145,531,448 115,066 (145,531,448)(c) 145,646,514
------------ ------------- ------------ -------------- ------------
Total Liabilities.................. 147,491,895 145,531,448 137,046,456 (267,113,292) 162,956,507
Member's equity (deficit).............. 8,082,405 (145,531,448) 19,959,009 125,572,439(b)(c) 8,082,405
------------ ------------- ------------ -------------- ------------
Total Liabilities and Member's
equity........................... $155,574,300 $ -- $157,005,465 $ (141,540,853) $171,038,912
============ ============= ============ ============== ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 6 Long Term Debt, Majestic Investor Capital
Corp is a co-obligor of indebtedness issued by Majestic Investor Holdings,
LLC. Accordingly, such indebtedness has been presented as an obligation of
both the issuer and the co-obligor in the above balance sheet.
F-145
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
2002
<Table>
<Caption>
MAJESTIC INVESTOR MAJESTIC INVESTOR GUARANTOR ELIMINATING
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
----------------- ----------------- ------------ ------------ ------------
REVENUES:
Casino................................... $ -- $ -- $161,189,334 $ -- $161,189,334
Rooms.................................... -- -- 15,495,620 -- 15,495,620
Food and beverage........................ -- -- 19,470,500 -- 19,470,500
Other.................................... -- -- 3,604,744 -- 3,604,744
------------ ------ ------------ ------------ ------------
Gross Revenues......................... -- -- 199,760,198 -- 199,760,198
Less promotional allowances............ -- -- (30,348,133) -- (30,348,133)
------------ ------ ------------ ------------ ------------
Net Revenues........................... -- -- 169,412,065 -- 169,412,065
------------ ------ ------------ ------------ ------------
COSTS AND EXPENSES:
Casino................................... -- -- 60,822,128 -- 60,822,128
Rooms.................................... -- -- 9,014,354 -- 9,014,354
Food and beverage........................ -- -- 11,267,235 -- 11,267,235
Other.................................... -- -- 1,559,861 -- 1,559,861
Gaming taxes............................. -- -- 17,950,757 -- 17,950,757
Advertising and promotion................ -- -- 13,282,926 -- 13,282,926
General and administrative............... 345,443 -- 24,632,548 -- 24,977,991
Depreciation and amortization............ 2,597,154 -- 11,863,168 -- 14,460,322
Pre-opening expenses..................... 13,391 -- -- -- 13,391
------------ ------ ------------ ------------ ------------
Total costs and expenses............... 2,955,988 -- 150,392,977 -- 153,348,965
------------ ------ ------------ ------------ ------------
Operating income (loss)................ (2,955,988) -- 19,019,088 -- 16,063,100
------------ ------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income.......................... 86,401 -- 49,429 -- 135,830
Interest expense......................... (18,086,650) -- (31,168) -- (18,117,818)
Loss on disposal of assets............... -- -- (14,069) -- (14,069)
Other non-operating expense.............. (41,684) -- -- -- (41,684)
Gain on bond redemption.................. 68,957 -- -- -- 68,957
------------ ------ ------------ ------------ ------------
Equity in net income (loss) of
subsidiaries........................... 19,023,280 -- -- (19,023,280)(a) --
------------ ------ ------------ ------------ ------------
Total other income (expense)........... 1,050,304 -- 4,192 (19,023,280) 17,968,784
------------ ------ ------------ ------------ ------------
Net income (loss)...................... $ (1,905,684) $ -- $ 19,023,280 $(19,023,280) $ (1,905,684)
============ ====== ============ ============ ============
</Table>
- ---------------
(a) To eliminate equity in net income of subsidiaries.
F-146
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
MAJESTIC MAJESTIC
INVESTOR INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------ ----------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES......................................... $(21,143,727) $ -- $ 30,452,724 $ 3,035,502(a) $ 12,344,499
------------ ----- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and vessel
improvements..................................... -- -- (5,207,456) -- (5,207,456)
Increase in restricted cash........................ (250,000) -- -- -- (250,000)
Payment of acquisition related costs............... (986,158) -- -- -- (986,158)
Proceeds from seller from purchase price
adjustment....................................... 3,800,000 -- -- -- 3,800,000
Proceeds from sale of equipment.................... -- -- 44,267 -- 44,267
------------ ----- ------------ ----------- ------------
Net cash provided by (used in) investing
activities................................ 2,563,842 -- (5,163,189) -- (2,599,347)
------------ ----- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit, net................................ (6,500,000) -- -- -- (6,500,000)
Payment of 11.653% Senior Secured Notes issuance
costs............................................ (1,523,568) -- -- -- (1,523,568)
Cash paid for redemption of Senior Secured Notes... (759,038) -- -- -- (759,038)
Cash paid to reduce long-term debt................. -- -- (139,331) -- (139,331)
Cash advances to/from affiliates................... 30,415,994 -- (27,380,492) (3,035,502)(a) --
Distribution to Barden Development, Inc............ (2,544,206) -- -- -- (2,544,206)
------------ ----- ------------ ----------- ------------
Net cash provided by (used in) financing
activities................................ 19,089,182 -- (27,519,823) (3,035,502) (11,466,143)
------------ ----- ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents........................................ 509,297 -- (2,230,288) -- (1,720,991)
Cash and cash equivalents, beginning of period....... 498,363 -- 17,206,452 -- 17,704,815
------------ ----- ------------ ----------- ------------
Cash and cash equivalents, end of period............. $ 1,007,660 $ -- $ 14,976,164 $ -- $ 15,983,824
============ ===== ============ =========== ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
F-147
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001
<Table>
<Caption>
MAJESTIC
INVESTOR MAJESTIC
HOLDINGS, INVESTOR GUARANTOR ELIMINATING TOTAL
LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ------------ ------------- ------------
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 expenses and other current assets.... 707,467 1,319,651 -- 2,027,118
------------ ------------- ------------ ------------- ------------
Total current assets....................... 1,475,331 -- 20,679,711 (711) 22,154,331
------------ ------------- ------------ ------------- ------------
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
Investment in subsidiaries..................... 935,731 -- -- (935,731)(b) --
------------ ------------- ------------ ------------- ------------
Total Assets............................... $167,812,703 -- $167,424,044 $(151,792,127) $183,444,620
============ ============= ============ ============= ============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt......... $ 6,500,000 -- $ 156,574 $ -- $ 6,656,574
Accounts payable, accrued and other.......... 2,526,703 -- 15,211,626 (711)(a) 17,737,618
------------ ------------- ------------ ------------- ------------
Total current liabilities.................. 9,026,703 -- 15,368,200 (711) 24,394,192
------------ ------------- ------------ ------------- ------------
Due to related parties......................... 1,168,273 -- 150,865,241 (150,855,685)(b) 1,177,829
Long-term debt, net of current maturities...... 145,085,432 145,085,432 254,872 (145,085,432)(c) 145,340,304
------------ ------------- ------------ ------------- ------------
Total Liabilities.......................... 155,280,408 145,085,432 166,488,313 (295,941,828) 170,912,325
Member's equity (deficit)...................... 12,532,295 (145,085,432) 935,731 (144,149,701)(b)(c) 12,532,295
------------ ------------- ------------ ------------- ------------
Total Liabilities and Member's Equity
(deficit)................................ $167,812,703 $ -- $167,424,044 $(151,792,127) $183,444,620
============ ============= ============ ============= ============
</Table>
- ---------------
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 6 Long Term Debt, Majestic Investor Capital
Corp is a co-obligor of indebtedness issued by Majestic Investor Holdings,
LLC. Accordingly, such indebtedness has been presented as an obligation of
both the issuer and the co-obligor in the above balance sheet.
F-148
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE PERIOD FROM
(INCEPTION) SEPTEMBER 14, 2001 THROUGH DECEMBER 31, 2001
<Table>
<Caption>
MAJESTIC INVESTOR MAJESTIC INVESTOR GUARANTOR ELIMINATING
HOLDINGS, LLC CAPITAL CORP. SUBSIDIARIES ENTRIES CONSOLIDATED
----------------- ----------------- ------------ ----------- ------------
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
----------- ----------- ----------- --------- -----------
Gross Revenues......................... -- -- 12,831,917 -- 12,831,917
Less promotional allowances............ -- -- (2,310,848) -- (2,310,848)
----------- ----------- ----------- --------- -----------
Net Revenues........................... -- -- 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 administrative............... 26,476 -- 1,543,167 -- 1,569,643
Depreciation and amortization............ 168,930 -- 751,718 -- 920,648
Pre-opening expenses..................... 1,018,234 -- -- -- 1,018,234
----------- ----------- ----------- --------- -----------
Total costs and expenses............... 1,213,640 -- 9,585,667 -- 10,799,307
----------- ----------- ----------- --------- -----------
Operating income (loss)................ (1,213,640) -- 935,402 -- (278,238)
----------- ----------- ----------- --------- -----------
OTHER INCOME (EXPENSE):
Interest income.......................... 215,791 -- 2,410 -- 218,201
Interest expense......................... (1,208,779) -- (2,081) -- (1,210,860)
Equity in net income of subsidiaries..... 935,731 -- -- (935,731)(a) --
----------- ----------- ----------- --------- -----------
Total other income (expense)........... (57,257) -- 329 (935,731) (992,659)
----------- ----------- ----------- --------- -----------
Net income (loss)...................... $(1,270,897) $ -- $ 935,731 $(935,731) $(1,270,897)
=========== =========== =========== ========= ===========
</Table>
- ---------------
(a) To eliminate equity in net income of subsidiaries.
F-149
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE PERIOD
FROM (INCEPTION) SEPTEMBER 14, 2001 THROUGH DECEMBER 31, 2001
<Table>
<Caption>
MAJESTIC
MAJESTIC INVESTOR INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC CAPITAL CORP. 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, equipment
and vessel improvements.......... -- -- (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 11.653% 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
Issurance 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>
F-150
SCHEDULE II
MAJESTIC INVESTOR HOLDINGS, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2002 AND FOR THE PERIOD
FROM (INCEPTION) SEPTEMBER 14, 2001 THROUGH DECEMBER 31, 2001
<Table>
<Caption>
BALANCE AT CHARGED TO
BEGINNING COSTS AND CHARGED TO BALANCE AT
DESCRIPTIONS OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
------------ ---------- ------------ -------------- ---------- -------------
Allowance for doubtful accounts
Year ended December 31, 2001..................... $ -- $ 15,463 $232,579(a) $ -- $248,042
======== ======== ======== ======== ========
Year ended December 31, 2002..................... $248,042 $203,811 $ 28,534 $241,321 $239,066
======== ======== ======== ======== ========
</Table>
- ---------------
(a) Related to acquisition of Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc. and 101 Main Street Limited Liability Company.
F-151
REPORT OF INDEPENDENT AUDITORS
To the Members of
Buffington Harbor Riverboats, L.L.C.
We have audited the accompanying balance sheet of Buffington Harbor
Riverboats, L.L.C. (a Delaware limited liability company) as of December 31,
2002, and the related statements of operations, members' capital, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Buffington
Harbor Riverboats, L.L.C. for the years ended December 31, 2001 and 2000 were
audited by other auditors who have ceased operations and whose report dated
January 30, 2002 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Buffington Harbor
Riverboats, L.L.C. at December 31, 2002, and the results of its operations and
its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 18, 2003
F-152
The following report of Arthur Andersen LLP is a copy of a previously
issued report that has not been reissued by Arthur Andersen LLP. The report of
Ernst & Young LLP included in this Offering Circular relates to the year ended
December 31, 2002. Consequently, for the purposes of this Offering Circular, the
following report of Arthur Andersen LLP, which is the most recently issued
report, relates only to the years ended December 31, 2001 and 2000.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Buffington Harbor Riverboats, L.L.C.
We have audited the accompanying balance sheets of Buffington Harbor
Riverboats, L.L.C. (a Delaware limited liability company) as of December 31,
2001 and 2000, and the related statements of operations, members' capital, and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Buffington Harbor
Riverboats, L.L.C. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 30, 2002
F-153
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
BALANCE SHEET
DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
----------- -----------
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 50,505 $ 317,646
Trade Receivables......................................... 92,787 26,014
Inventory................................................. 181,292 310,348
Prepaid expenses and other current assets................. 116,951 127,993
----------- -----------
Total current assets................................. 441,535 782,001
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 2 AND 3).......... 65,616,042 69,650,069
OTHER ASSETS................................................ 108,414 111,478
----------- -----------
Total assets......................................... $66,165,991 $70,543,548
=========== ===========
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.......................................... $ 712,876 $ 435,325
Accrued expenses.......................................... 1,435,326 1,752,105
Due to members' (Note 2).................................. 351,167 558,469
----------- -----------
Total current liabilities............................ 2,499,369 2,745,899
COMMITMENTS AND CONTINGENCIES (NOTE 4)
MEMBERS' CAPITAL............................................ 63,666,622 67,797,649
----------- -----------
Total liabilities and members' capital............... $66,165,991 $70,543,548
=========== ===========
</Table>
The accompanying notes to financial statements are an integral part of these
balance sheets
F-154
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
<Table>
<Caption>
2002 2001 2000
----------- ----------- -----------
REVENUES:
Food and beverage......................................... $ 1,343,800 $ 1,495,123 $ 4,017,032
Other (Note 2)............................................ 14,751,565 14,973,458 13,796,980
----------- ----------- -----------
Net revenues................................................ 16,095,365 16,468,581 17,814,012
----------- ----------- -----------
COST AND EXPENSES:
Food and beverage......................................... 2,646,737 2,725,991 2,483,154
General and administrative................................ 13,026,312 13,659,254 13,151,389
Depreciation.............................................. 4,848,501 5,595,497 6,260,583
Other..................................................... 368,375 469,459 269,220
----------- ----------- -----------
20,889,925 22,450,201 22,164,346
----------- ----------- -----------
Loss from operations........................................ (4,794,560) (5,981,620) (4,350,334)
INTEREST INCOME, NET........................................ (54,303) 386,145 232,996
----------- ----------- -----------
Net loss.................................................... $(4,848,863) $(5,595,475) $(4,117,338)
=========== =========== ===========
</Table>
The accompanying notes to financial statements are an integral part of these
statements.
F-155
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
<Table>
<Caption>
RETAINED
MEMBER EARNINGS
CONTRIBUTIONS (DEFICIT) TOTAL
------------- ------------ -----------
BALANCE, DECEMBER 31, 1999.................................. $100,098,408 $(23,805,982) $76,292,426
Capital contributions made by Trump Indiana, Inc.......... 737,322 -- 737,322
Capital contributions made by Majestic Star Casino, LLC... 7,836,489 -- 7,836,489
Net loss.................................................. -- (4,117,338) (4,117,338)
------------ ------------ -----------
BALANCE, DECEMBER 31, 2000.................................. 108,672,219 (27,923,320) 80,748,899
Capital contributions made by Trump Indiana, Inc.......... 214,759 -- 214,759
Capital contributions made by Majestic Star Casino, LLC... 214,666 -- 214,666
Transfer of assignment of BHPA interest receivable (Note
4)..................................................... (343,016) -- (343,016)
Transfer of assignment of BHPA note receivable (Note 4)... (7,442,184) -- (7,442,184)
Net loss.................................................. -- (5,595,475) (5,595,475)
------------ ------------ -----------
BALANCE, DECEMBER 31, 2001.................................. 101,316,444 (33,518,795) 67,797,649
Capital contributions made by Trump Indiana, Inc.......... 358,918 -- 358,918
Capital contributions made by Majestic Star Casino, LLC... 358,918 -- 358,918
Net loss.................................................. -- (4,848,863) (4,848,863)
------------ ------------ -----------
BALANCE, DECEMBER 31, 2002.................................. $102,034,280 $(38,367,658) $63,666,622
============ ============ ===========
</Table>
The accompanying notes to financial statements are an integral part of these
statements.
F-156
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
<Table>
<Caption>
2002 2001 2000
----------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(4,848,863) $ (5,595,475) $ (4,117,338)
Adjustments to reconcile net loss to net cash flows
provided by (used in) operating activities--
Depreciation........................................... 4,848,501 5,595,497 6,260,583
Deferred rent.......................................... -- -- (2,142,845)
Loss on disposal of fixed assets....................... 10,861 -- --
Changes in operating assets and liabilities--
(Increase) decrease in trade receivables............... (66,773) 180,743 (146,574)
(Increase) decrease in inventory....................... 129,056 (81,829) 26,962
(Increase) decrease in prepaid expenses and other
current assets........................................ 11,042 41,212 (39,227)
(Increase) decrease in due from affiliate.............. -- 14,402,010 (14,402,010)
(Increase) decrease in other assets.................... 3,064 5,477 155,777
Increase (decrease) in accounts payable................ 277,551 (990,074) 605,507
Increase (decrease) in accrued expenses................ (316,779) (35,114) 181,523
Increase (decrease) in due to members'................. (207,302) 1,108,416 (173,182)
----------- ------------ ------------
Net cash flows (used in) provided by operating
activities............................................ (159,642) 14,630,863 (13,790,824)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net........... (825,335) (145,196) (1,688,037)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital distributions, net of contributions............... 717,836 (7,355,775) 8,573,811
Member advance............................................ -- (7,099,167) 7,099,167
----------- ------------ ------------
Net cash flows provided by financing activities........ 717,836 (14,454,942) 15,672,978
----------- ------------ ------------
Net increase (decrease) in cash........................ (267,141) 30,725 194,117
CASH BEGINNING OF PERIOD.................................... 317,646 286,921 92,804
----------- ------------ ------------
CASH END OF PERIOD.......................................... $ 50,505 $ 317,646 $ 286,921
=========== ============ ============
</Table>
The accompanying notes to financial statements are an integral part of these
statements.
F-157
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. ORGANIZATION AND OPERATIONS
Trump Indiana, Inc. (Trump Indiana) and The Majestic Star Casino, LLC
(Barden), the two holders of certificates of suitability for the Gary, Indiana
riverboat casinos, formed Buffington Harbor Riverboats, L.L.C. (BHR) on
September 27, 1995 and have entered into an agreement (the BHR Agreement)
relating to the joint ownership, development, and operation of all common
land-based and waterside operations in support of the Trump Indiana and Barden
riverboat casinos. Under the BHR Agreement, BHR acquired property and
constructed common roadways, utilities, and other infrastructure improvements on
BHR's property.
The BHR Agreement terminates on December 31, 2035, but may be extended
through Trump Indiana's and Barden's mutual consent.
The BHR Agreement provides the framework for the operations of BHR. BHR
relies on the continued financial support of Trump Indiana and Barden in order
to support its operating activities and to meet its current working capital
obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Under the terms of the BHR Agreement, all expenditures requiring a cash
outlay by BHR are billed to Trump Indiana and Barden at cost. Accordingly, BHR
records as expenses the cost of providing such services and records as other
revenues the amounts billed to Trump Indiana and Barden.
Advertising Costs
Included in the land-based and waterside operations is the advertising of
joint venture interests. BHR expenses advertising costs as incurred. Advertising
costs were $290,945, $167,168, and $258,729 for 2002, 2001, and 2000,
respectively.
Property, Plant, and Equipment
Property, plant, and equipment is carried at cost. Property, plant, and
equipment is depreciated on the straight-line method over the following useful
lives:
<Table>
Land improvements........................................... 15 years
Building.................................................... 40 years
Building improvements....................................... 5-10 years
Harbor improvements......................................... 10-15 years
Furniture, fixtures, and equipment.......................... 5 years
</Table>
Income Taxes
BHR makes no provision (benefit) for income taxes since taxable income
(loss) is allocated to the members for inclusion in their respective income tax
returns.
F-158
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Long-Lived Assets
BHR accounts for long-lived assets under the provisions of Statement of
Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS No. 144). SFAS No. 144 requires, among other things,
that an entity review its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. BHR had assets no longer operable and
in use at December 31, 2002. BHR took a loss on impairment charge of $18,694 in
2002 to record the disposal of these assets in compliance with SFAS No. 144.
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is comprised of the following:
<Table>
<Caption>
2002 2001
------------ ------------
Land and land improvements.................................. $ 34,469,021 $ 34,469,021
Building and building improvements.......................... 40,475,757 40,400,529
Harbor improvements......................................... 19,628,473 19,519,620
Furniture, fixtures, and equipment.......................... 8,439,418 7,939,228
Construction-in-progress.................................... 44,009 --
------------ ------------
103,056,678 102,328,398
Less--accumulated depreciation.............................. 37,440,636 32,678,329
------------ ------------
Total property, plant, and equipment, net................... $ 65,616,042 $ 69,650,069
============ ============
</Table>
4. COMMITMENTS AND CONTINGENCIES
Indiana Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana are
subject to state regulation under the Riverboat Gambling Act (Act) and the
administrative rules promulgated thereunder. The Indiana Gaming Commission (IGC)
is empowered to administer, regulate, and enforce the system of riverboat gaming
established under the Act and has jurisdiction and supervision over all
riverboat gaming operations in Indiana, as well as all persons on riverboats
where gaming operations are conducted. The IGC is empowered to regulate a wide
variety of gaming- and nongaming-related activities, including the licensing of
suppliers to, and employees at, riverboat gaming operations and to approve the
form of ownership and financial structure of not only riverboat owner and
supplier licensees, but also their entity qualifiers and intermediary and
holding companies. Indiana regulations continue to be revised and adopted by the
IGC. The IGC has broad rulemaking power, and it is impossible to predict what
effect, if any, the amendment of existing rules or the finalization of currently
new rules might have on the operations of BHR, Trump Indiana, and Barden.
Leases
Under a lease agreement assumed by BHR from Trump Indiana with Lehigh
Portland Cement Co. (Lehigh Cement), BHR leased certain property which is
integral to the gaming operations of Trump Indiana and Barden (the BHR Lease).
The BHR Lease was rent free through December 29, 1997 and subject to certain
conditions, primarily continuing progress toward permitting and construction of
a new harbor, the BHR Lease was to extend until the earlier of December 31, 2005
or the completion of a new harbor. Subsequent to the original 30-month term and
beginning January 1998, BHR was required to make payments of $125,000 per month
for the remainder of the lease term. As of December 31, 1999, BHR had recorded
deferred rent expense of $2,142,845.
F-159
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In September 2000, Buffington Harbor Parking Associates (BHPA), a joint
venture formed by Trump Indiana and Barden for the purpose of constructing a
garage, purchased for $15,000,000 (the Purchase) the Lehigh Cement property,
which was subject to the BHR Lease, and at such time the BHR Lease was
terminated. In order to finance this purchase, BHR advanced BHPA $14,182,856,
with interest at 6%, and acquired one acre of land from BHPA for $817,144. In
connection with the Purchase, the members advanced $7,099,167 and contributed
$7,900,833 to BHR, which was used to fund the advance to BHPA and acquire the
one acre of land. As a result of the above, BHR reversed $1,874,986 of deferred
rent expense into income in 2000.
In June 2001, BHR and BHPA terminated the BHPA agreement. A new agreement
was reached between BHR, Barden, and Trump Indiana in which BHR transferred half
of the loan receivable as a return of capital to Barden in the amount of
$7,099,167. Trump Indiana was assigned half of the loan receivable, $7,099,167,
in satisfaction of the advance. In addition, BHR distributed half of the accrued
interest receivable, $308,669, and an additional $34,347 as a return of capital
to each member in order to finance the construction of the garage.
BHR has historically had noncancelable office equipment and vehicle leases.
During 2001, BHR exercised its purchase options on all vehicles under lease. As
of December 31, 2002, only office equipment leases are noncancelable. Rental
expense for all operating leases was $500,000, $412,309, and $1,367,607 for
2002, 2001, and 2000 respectively. Minimum rental payments under noncancelable
operating leases are $6,000 and $4,500 for 2003 and 2004, respectively, and
nothing thereafter.
Other
The Company is currently undergoing a sales and use tax examination by the
Indiana Department of Revenue for the tax years 1998 to 2001. Although the
outcome of this examination is not complete, the Company believes there will be
no material impact to the Company's financial condition or results of
operations.
F-160
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE MAJESTIC STAR CASINO, LLC
THE MAJESTIC STAR CAPITAL CORP.
OFFER TO EXCHANGE
9 1/2% SENIOR SECURED NOTES DUE 2010,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
9 1/2% SENIOR SECURED NOTES DUE 2010
-------------------------
PROSPECTUS
-------------------------
, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION
THE MAJESTIC STAR CASINO, LLC
The Majestic Star Casino, LLC is a limited liability company organized
under the laws of the State of Indiana. Section 23-18-4-4 of the Indiana Code
provides that a written operating agreement may provide for indemnification of a
member or manager for judgments, settlements, penalties, fines, or expenses
incurred in a proceeding to which a person is a party because the person is or
was a member or manager.
Article VIII of our operating agreement provides that we will indemnify any
manager, any member, any employee, officer, manager, director or agent of a
manager or member, and any employee, officer or agent of our company, 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 or in our
right) by reason that such person is or was a manager, member, employee,
director or agent of us or of a manager or member, against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with the action,
suit or proceeding, but only if the person acted in good faith and in a manner
that such person believed to be in our best interests, and, with respect to a
criminal action or proceeding, if such person believed their conduct was not
unlawful. Any indemnification permitted will (unless ordered by a court) be made
by us only as authorized in the specific case, in the absence of a judicial
determination that the indemnification is improper under the standard of conduct
and upon an evaluation of the reasonableness of the expenses and amount paid in
settlement. Notwithstanding the foregoing, we will not provide indemnification
to any person for or in connection with (i) the receipt of a financial benefit
to which such person is not entitled, (ii) voting for or assenting to a
distribution to members in violation of our operating agreement, or (iii) a
knowing violation of law.
THE MAJESTIC STAR CASINO CAPITAL CORP.
The Majestic Star Casino Capital Corp. is a corporation organized under the
laws of the State of Indiana. We are empowered under Chapter 37 of the Indiana
Business Corporation Law ("IBCL") to indemnify an individual made a party to a
proceeding because such person is or was a director or officer of our company if
such conduct was in good faith and he or she reasonably believed that, if acting
in the individual's official capacity, the conduct was in the best interests of
the corporation and in all other cases, the conduct was not opposed to the
corporation's best interests. In the case of any criminal proceeding, a
corporation is empowered to indemnify a person if he or she had reasonable cause
to believe the conduct was lawful or had no reasonable cause to believe the
conduct was unlawful. Unless limited by its articles of incorporation, the IBCL
provides that a corporation will indemnify a director or officer who was wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which the director or officer was a party because he or she is or was a director
or officer of the corporation against reasonable expenses incurred by him or her
in connection with the proceeding.
Under certain circumstances, a corporation may pay or reimburse a director
or officer for reasonable expenses prior to the final disposition of a
proceeding. Unless a corporation's articles of incorporation otherwise provide,
a director or officer also may also apply for indemnification to a court which
may order indemnification upon a determination that the director or officer is
entitled to mandatory indemnification for reasonable expenses or that the
director is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances without regard to whether such actions satisfied the
appropriate standard of conduct.
Before a corporation may indemnify any director or officer against
liability or reasonable expenses under the IBCL, a quorum consisting of
directors who are not parties to the proceeding must (1) determine that
indemnification is permissible in the specific circumstances because the
director or officer met the requisite
II-1
standard of conduct, (2) authorize the corporation to indemnify the director or
officer and (3) if appropriate, evaluate the reasonableness of expenses for
which indemnification is sought. If it is not possible to obtain a quorum of
directors, the foregoing action may be taken by a committee of two or more
directors who are not parties to the proceeding, special legal counsel selected
by the board of directors or such designated committee, or by the stockholders
of the corporation.
Indemnification under the IBCL does not exclude any other rights that a
person may have under the corporation's articles of incorporation, bylaws,
resolutions of the board of directors or stockholders, or any other
authorization adopted after notice by a majority vote of all the voting shares
then issued and outstanding.
Article XI of our bylaws provides that we will indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (other than an action by or in the
right of the corporation) by reason of the fact that the person is or was a
director or officer of the corporation, or, while serving as a director or
officer of the corporation, is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses (including actual and reasonable
attorneys' fees), judgments, penalties, fines, and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, and, with respect to any criminal action or
proceeding, if the person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
or not opposed to the best interests of the corporation or its shareholders,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
We shall indemnify any person who was or is a party to or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that the person is or was a director or officer of the corporation, or,
while serving as a director or officer of the corporation, is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, whether for profit or not, against
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action or suit if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation or its shareholders.
However, indemnification will not be made for any claim, issue or matter in
which such person has been found liable to the corporation unless and only to
the extent that the court in which such action or suit was brought has
determined upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnification for the reasonable expenses incurred.
To the extent that a person has been successful on the merits or otherwise
in defense of any action, suit, proceeding or in defense of any claim, issue or
matter in the action, suit or proceeding, the person shall be indemnified
against actual and reasonable expenses (including attorneys' fees) incurred by
such person in connection with such defense.
Any indemnification under our bylaws (unless ordered by a court) will be
made by us, only as authorized in the specific case upon a determination that
indemnification of the person is proper in the circumstances because the person
has met the applicable standard of conduct and upon an evaluation of the
reasonableness of expenses and amount paid in settlement.
If a person is entitled to indemnification in connection with a
non-derivative or derivative action, suit or proceeding under our bylaws for a
portion of expenses (including attorneys' fees, judgments, penalties, fines, and
amounts paid in settlement, but not for the total amount thereof), we will
indemnify the person for the
II-2
portion of the expenses, judgments, penalties, fines, or amounts paid in
settlement for which the person is entitled to be indemnified.
As provided in our bylaws, we may also pay or reimburse the reasonable
expenses incurred by a person who is a party or threatened to be made a party to
an action, suit, or proceeding in advance of final disposition of the proceeding
if both of the following apply: (a) the person furnishes a written affirmation
of his or her good faith belief that he or she has met the applicable standards
of conduct; and (b) the person furnishes a written undertaking executed
personally, or on his or her belief, to repay the advance if it is ultimately
determined that he or she did not meet the standard of conduct. A provision in
our articles of incorporation, bylaws, a resolution by the board or the
shareholders, or an agreement making indemnification mandatory shall also make
advancement of expenses mandatory unless the provision specifically provides
otherwise.
The indemnification or advancement of expenses provided under Article XI of
our bylaws is not exclusive of other rights to which a person seeking
indemnification or advancement of expenses may be entitled under a contractual
arrangement with the corporation. However, the total amount of expenses advanced
or indemnified from all sources combined cannot exceed the amount of actual
expenses incurred by the person seeking indemnification or advancement of
expenses.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
1.1* Purchase Agreement, dated as of September 26, 2003, by and
among The Majestic Star Casino, LLC, The Majestic Star
Casino Capital Corp., Jefferies & Company, Inc. and Wells
Fargo Securities, LLC.
3.1** Amended and Restated Articles of Organization of The
Majestic Star Casino, LLC, filed as Exhibit 3.1 to the
Company's Registration Statement, No. 333-06489, and
incorporated herein by reference.
3.2** Third Amended and Restated Operating Agreement of The
Majestic Star Casino, LLC dated as of March 29, 1996, filed
as Exhibit 3.2 to the Company's Registration Statement, No.
333-06489, and incorporated herein by reference.
3.3** First Amendment of Third Amended and Restated Operating
Agreement of The Majestic Star Casino, LLC, dated as of June
18, 1999, filed as Exhibit 3.3 to the Company's Registration
Statement, No. 333-085089, and incorporated herein by
reference.
3.4** Articles of Incorporation of The Majestic Star Casino
Capital Corp., filed as Exhibit 3.4 to the Company's
Registration Statement, No. 333-085089, and incorporated
herein by reference.
3.5** Bylaws of The Majestic Star Casino Capital Corp., filed as
Exhibit 3.5 to the Company's Registration Statement, No.
333-085089, and incorporated herein by reference.
3.6* Certificate of Formation of Majestic Investor Holdings, LLC.
3.7* Limited Liability Company Agreement of Majestic Investor
Holdings, LLC dated September 25, 2001.
3.8* Certificate of Incorporation of Majestic Investor Capital
Corp.
3.9* Bylaws of Majestic Investor Capital Corp.
3.10* Amended and Restated Articles of Organization of Barden
Colorado Gaming, LLC.
3.11* Operating Agreement of Barden Colorado Gaming, LLC.
3.12* Certificate of Formation of Barden Mississippi Gaming, LLC.
3.13* Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed September 25, 2001.
3.14* Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed October 17, 2001.
3.15* Amended and Restated Operating Agreement of Barden
Mississippi Gaming, LLC.
</Table>
II-3
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
4.1* Indenture, dated as of October 7, 2003, among The Majestic
Star Casino, LLC and Majestic Star Casino Capital Corp., as
issuers, and the subsidiary guarantors, as subsidiary
guarantors and The Bank of New York, as trustee.
4.2* Indenture, dated as of December 6, 2001, between Majestic
Investor Holdings, LLC and Majestic Investor Capital Corp.,
as issuers, Barden Colorado Gaming, LLC, Barden Nevada
Gaming, LLC, and Barden Mississippi Gaming, LLC, as
guarantors, and The Bank of New York, as trustee.
4.3* Supplemental Indenture, dated as of September 25, 2003, by
and among The Majestic Star Casino, LLC, The Majestic Star
Casino Capital Corp. and The Bank of New York.
4.4* Supplemental Indenture, dated as of September 25, 2003, by
and among Majestic Investor Holdings, Majestic Investor
Capital Corp. and The Bank of New York.
4.5* Registration Rights Agreement, dated as of October 7, 2003,
among The Majestic Star Casino, LLC, The Majestic Star
Casino Capital Corp., Jefferies & Company, Inc., and Wells
Fargo Securities, LLC.
4.6* Intercreditor Agreement, dated as of October 7, 2003,
between The Bank of New York and Wells Fargo Foothill, Inc.
5.1* Opinion of Dykema Gossett PLLC.
5.2* Opinion of Ice Miller.
5.3* Opinion of Watkins Ludlam Winter & Stennis, P.A.
5.4* Opinion of Robinson Waters & O'Dorisio.
10.1* Loan and Security Agreement dated as of October 7, 2003, by
and among The Majestic Star Casino, LLC, certain
subsidiaries signatory thereto, the lenders signatories
thereto and Wells Fargo Foothill, Inc., as Agent.
10.2* Letter Agreement, dated October 22, 2001, between Don H.
Barden and The Majestic Star Casino, LLC.
10.3* Employment Agreement, dated October 22, 2001, between
Michael E. Kelly and The Majestic Star Casino, LLC.
10.4* Employment Agreement, dated October 21, 2002, between Jon
Bennett and The Majestic Star Casino, LLC.
10.5* Employment Agreement, dated March 24, 2003, between Troy
Keeping and The Majestic Star Casino, LLC, with Addendum.
10.6* Employment Agreement, dated July 20, 2001, between Domenic
Mezzetta and Barden Mississippi Gaming, LLC.
10.7* Employment Agreement, dated June 25, 2001, between Joseph
Collins and Barden Colorado Gaming, LLC.
10.8* Management Agreement dated as of October 7, 2003, between
The Majestic Star Casino, LLC and Barden Development, Inc.
10.9* Expense Reimbursement Agreement, dated as of October 7,
2003, between Barden Nevada Gaming, LLC and The Majestic
Star Casino, LLC.
10.10** Berthing Agreement dated as of April 23, 1996 between The
Majestic Star Casino, LLC and Buffington Harbor Riverboats,
filed as Exhibit 10.5 to the Company's Registration
Statement, No. 333-06489, and incorporated herein by
reference.
10.11** First Amended and Restated Operating Agreement of Buffington
Harbor Riverboats, LLC made as of October 31, 1995 by and
between Trump Indiana, Inc. and The Majestic Star Casino,
LLC, as amended by Amendment No. 1 to First Amended and
Restated Operating Agreement of Buffington Harbor
Riverboats, LLC, dated as of April 23, 1996, filed as
Exhibit 10.6 to the Company's Registration Statement No.
333-06489, and incorporated herein by reference.
10.12* Second Amendment to The First Amended and Restated Operating
Agreement of Buffington Harbor Riverboats, LLC.
</Table>
II-4
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.13** Development Agreement, dated March 26, 1996, by and between
the Company and the City of Gary, Indiana, filed as Exhibit
10.8 to the Company's Registration Statement, No. 333-06489,
and incorporated herein by reference.
12.1* Computation of Ratio of Earnings to Fixed Charges for The
Majestic Star Casino, LLC.
21.1* List of Subsidiaries of The Majestic Star Casino, LLC.
23.1* Consent of Dykema Gossett PLLC (included as part of its
opinion filed as Exhibit 5.1).
23.2* Consent of Ice Miller (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).
23.4* Consent of Robinson Waters & O'Dorisio (included as part of
its opinion filed as Exhibit 5.4).
23.5* Consent of PricewaterhouseCoopers LLP.
23.6* Consent of Deloitte & Touche LLP.
23.7* Consent of Ernst & Young 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.
99.1* Form of Letter of Transmittal for 9 1/2% Senior Secured
Notes due 2010.
99.2* Form of Notice of Guaranteed Delivery of 9 1/2% Senior
Secured Notes due 2010.
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>
- ---------------
* Filed herewith
** Previously Filed
(b) Financial Statement Schedules
None.
ITEM 22. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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 SEC 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
II-5
(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 payment by the registrants of expenses
incurred or paid by a 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 filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(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-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants listed below has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Detroit, State of Michigan, on December 5, 2003.
THE MAJESTIC STAR CASINO, LLC
By: /s/ DON H. BARDEN
------------------------------------
Don H. Barden
Member, Chairman, President and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does herby constitute and appoint Don H. Barden and Jon S. Bennett
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes, as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 5, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DON H. BARDEN Member, Chairman, President and
- -------------------------------------- Chief Executive Officer
Don H. Barden (Principal Executive Officer)
/s/ JON S. BENNETT Vice President and Chief Financial Officer
- -------------------------------------- (Principal Financial and
Jon S. Bennett Principal Accounting Officer)
</Table>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants listed below has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Detroit, State of Michigan, on December 5, 2003.
THE MAJESTIC STAR CASINO CAPITAL CORP.
By: /s/ DON H. BARDEN
------------------------------------
Don H. Barden
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does herby constitute and appoint Don H. Barden and Jon S. Bennett
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes, as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 5, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DON H. BARDEN Chairman, President, Chief Executive Officer,
- -------------------------------------- and Director
Don H. Barden (Principal Executive Officer)
/s/ JON S. BENNETT Vice President and Chief Financial Officer
- -------------------------------------- (Principal Financial Officer and
Jon S. Bennett Principal Accounting Officer)
</Table>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants listed below has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Detroit, State of Michigan, on December 5, 2003.
MAJESTIC INVESTOR HOLDINGS, LLC
By: /s/ DON H. BARDEN
------------------------------------
Don H. Barden
Member, Chairman, President and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does herby constitute and appoint Don H. Barden and Jon S. Bennett
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes, as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 5, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DON H. BARDEN Member, Chairman, President and
- -------------------------------------- Chief Executive Officer
Don H. Barden (Principal Executive Officer)
/s/ JON S. BENNETT Vice President and Chief Financial Officer
- -------------------------------------- (Principal Financial and
Jon S. Bennett Principal Accounting Officer)
</Table>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants listed below has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Detroit, State of Michigan, on December 5, 2003.
BARDEN COLORADO GAMING, LLC
By: /s/ DON H. BARDEN
------------------------------------
Don H. Barden
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does herby constitute and appoint Don H. Barden and Jon S. Bennett
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes, as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 5, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DON H. BARDEN Chairman, President and Chief Executive Officer
------------------------------------------------ (Principal Executive Officer)
Don H. Barden
/s/ JON S. BENNETT Vice President and Chief Financial Officer
----------------------------------------- (Principal Financial and
Jon S. Bennett Principal Accounting Officer)
</Table>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants listed below has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Detroit, State of Michigan, on December 5, 2003.
BARDEN MISSISSIPPI GAMING, LLC
By: /s/ DON H. BARDEN
------------------------------------
Don H. Barden
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does herby constitute and appoint Don H. Barden and Jon S. Bennett
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes, as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 5, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DON H. BARDEN Chairman, President and Chief Executive Officer
------------------------------------------------ (Principal Executive Officer)
Don H. Barden
/s/ JON S. BENNETT Vice President and Chief Financial Officer
----------------------------------------- (Principal Financial and
Jon S. Bennett Principal Accounting Officer)
</Table>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants listed below has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Detroit, State of Michigan, on December 5, 2003.
MAJESTIC INVESTOR, LLC
By /s/ DON H. BARDEN
------------------------------------
Don H. Barden
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does herby constitute and appoint Don H. Barden and Jon S. Bennett
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes, as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 5, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DON H. BARDEN Chairman, President and Chief Executive Officer
------------------------------------------------ (Principal Executive Officer)
Don H. Barden
/s/ JON S. BENNETT Vice President and Chief Financial Officer
----------------------------------------- (Principal Financial and
Jon S. Bennett Principal Accounting Officer)
</Table>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants listed below has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Detroit, State of Michigan, on December 5, 2003.
MAJESTIC INVESTOR CAPITAL CORP.
By: /s/ DON H. BARDEN
------------------------------------
Don H. Barden
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does herby constitute and appoint Don H. Barden and Jon S. Bennett
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes, as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 5, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DON H. BARDEN Chairman, President, Chief Executive
------------------------------------------------ Officer and Director
Don H. Barden (Principal Executive Officer)
/s/ JON S. BENNETT Vice President and Chief Financial Officer
----------------------------------------- (Principal Financial and
Jon S. Bennett Principal Accounting Officer)
</Table>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
1.1* Purchase Agreement, dated as of September 26, 2003, by and
among The Majestic Star Casino, LLC, The Majestic Star
Casino Capital Corp., Jefferies & Company, Inc. and Wells
Fargo Securities, LLC.
3.1** Amended and Restated Articles of Organization of The
Majestic Star Casino, LLC, filed as Exhibit 3.1 to the
Company's Registration Statement, No. 333-06489, and
incorporated herein by reference.
3.2** Third Amended and Restated Operating Agreement of The
Majestic Star Casino, LLC dated as of March 29, 1996, filed
as Exhibit 3.2 to the Company's Registration Statement, No.
333-06489, and incorporated herein by reference.
3.3** First Amendment of Third Amended and Restated Operating
Agreement of The Majestic Star Casino, LLC, dated as of June
18, 1999, filed as Exhibit 3.3 to the Company's Registration
Statement, No. 333-085089, and incorporated herein by
reference.
3.4** Articles of Incorporation of The Majestic Star Casino
Capital Corp., filed as Exhibit 3.4 to the Company's
Registration Statement, No. 333-085089, and incorporated
herein by reference.
3.5** Bylaws of The Majestic Star Casino Capital Corp., filed as
Exhibit 3.5 to the Company's Registration Statement, No.
333-085089, and incorporated herein by reference.
3.6* Certificate of Formation of Majestic Investor Holdings, LLC.
3.7* Limited Liability Company Agreement of Majestic Investor
Holdings, LLC dated September 25, 2001.
3.8* Certificate of Incorporation of Majestic Investor Capital
Corp.
3.9* Bylaws of Majestic Investor Capital Corp.
3.10* Amended and Restated Articles of Organization of Barden
Colorado Gaming, LLC.
3.11* Operating Agreement of Barden Colorado Gaming, LLC.
3.12* Certificate of Formation of Barden Mississippi Gaming, LLC.
3.13* Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed September 25, 2001.
3.14* Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed October 17, 2001.
3.15* Amended and Restated Operating Agreement of Barden
Mississippi Gaming, LLC.
4.1* Indenture, dated as of October 7, 2003, among The Majestic
Star Casino, LLC and Majestic Star Casino Capital Corp., as
issuers, and the subsidiary guarantors, as subsidiary
guarantors and The Bank of New York, as trustee.
4.2* Indenture, dated as of December 6, 2001, between Majestic
Investor Holdings, LLC and Majestic Investor Capital Corp.,
as issuers, Barden Colorado Gaming, LLC, Barden Nevada
Gaming, LLC, and Barden Mississippi Gaming, LLC, as
guarantors, and The Bank of New York, as trustee.
4.3* Supplemental Indenture, dated as of September 25, 2003, by
and among The Majestic Star Casino, LLC, The Majestic Star
Casino Capital Corp. and The Bank of New York.
4.4* Supplemental Indenture, dated as of September 25, 2003, by
and among Majestic Investor Holdings, Majestic Investor
Capital Corp. and The Bank of New York.
4.5* Registration Rights Agreement, dated as of October 7, 2003,
among The Majestic Star Casino, LLC, The Majestic Star
Casino Capital Corp., Jefferies & Company, Inc., and Wells
Fargo Securities, LLC.
4.6* Intercreditor Agreement, dated as of October 7, 2003,
between The Bank of New York and Wells Fargo Foothill, Inc.
5.1* Opinion of Dykema Gossett PLLC.
5.2* Opinion of Ice Miller.
5.3* Opinion of Watkins Ludlam Winter & Stennis, P.A.
</Table>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
5.4* Opinion of Robinson Waters & O'Dorisio.
10.1* Loan and Security Agreement dated as of October 7, 2003, by
and among The Majestic Star Casino, LLC, certain
subsidiaries signatory thereto, the lenders signatories
thereto and Wells Fargo Foothill, Inc., as Agent.
10.2* Letter Agreement, dated October 22, 2001, between Don H.
Barden and The Majestic Star Casino, LLC.
10.3* Employment Agreement, dated October 22, 2001, between
Michael E. Kelly and The Majestic Star Casino, LLC.
10.4* Employment Agreement, dated October 21, 2002, between Jon
Bennett and The Majestic Star Casino, LLC.
10.5* Employment Agreement, dated March 24, 2003, between Troy
Keeping and The Majestic Star Casino, LLC, with Addendum.
10.6* Employment Agreement, dated July 20, 2001, between Domenic
Mezzetta and Barden Mississippi Gaming, LLC.
10.7* Employment Agreement, dated June 25, 2001, between Joseph
Collins and Barden Colorado Gaming, LLC.
10.8* Management Agreement dated as of October 7, 2003, between
The Majestic Star Casino, LLC and Barden Development, Inc.
10.9* Expense Reimbursement Agreement, dated as of October 7,
2003, between Barden Nevada Gaming, LLC and The Majestic
Star Casino, LLC.
10.10** Berthing Agreement dated as of April 23, 1996 between The
Majestic Star Casino, LLC and Buffington Harbor Riverboats,
filed as Exhibit 10.5 to the Company's Registration
Statement, No. 333-06489, and incorporated herein by
reference.
10.11** First Amended and Restated Operating Agreement of Buffington
Harbor Riverboats, LLC made as of October 31, 1995 by and
between Trump Indiana, Inc. and The Majestic Star Casino,
LLC, as amended by Amendment No. 1 to First Amended and
Restated Operating Agreement of Buffington Harbor
Riverboats, LLC, dated as of April 23, 1996, filed as
Exhibit 10.6 to the Company's Registration Statement No.
333-06489, and incorporated herein by reference.
10.12* Second Amendment to The First Amended and Restated Operating
Agreement of Buffington Harbor Riverboats, LLC.
10.13** Development Agreement, dated March 26, 1996, by and between
the Company and the City of Gary, Indiana, filed as Exhibit
10.8 to the Company's Registration Statement, No. 333-06489,
and incorporated herein by reference.
12.1* Computation of Ratio of Earnings to Fixed Charges for The
Majestic Star Casino, LLC.
21.1* List of Subsidiaries of The Majestic Star Casino, LLC.
23.1* Consent of Dykema Gossett PLLC (included as part of its
opinion filed as Exhibit 5.1).
23.2* Consent of Ice Miller (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).
23.4* Consent of Robinson Waters & O'Dorisio (included as part of
its opinion filed as Exhibit 5.4).
23.5* Consent of PricewaterhouseCoopers LLP.
23.6* Consent of Deloitte & Touche LLP.
23.7* Consent of Ernst & Young 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.
99.1* Form of Letter of Transmittal for 9 1/2% Senior Secured
Notes due 2010.
99.2* Form of Notice of Guaranteed Delivery of 9 1/2% Senior
Secured Notes due 2010.
99.3* Form of Letter to DTC Participants.
</Table>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
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>
- ---------------
* Filed herewith
** Previously Filed