AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 2002
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MAJESTIC INVESTOR HOLDINGS, LLC
MAJESTIC INVESTOR CAPITAL CORP.
AND THE GUARANTORS NAMED IN FOOTNOTE (1) BELOW
(Exact names of Co-Registrants as Specified in their Charters)
DELAWARE 7900 36-4468392
DELAWARE 7900 36-4471622
(State or Other (Primary Standard I.R.S. Employer
Jurisdiction of Industrial Identification Numbers)
Incorporation or Classification Code
Organization) Numbers)
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA 46406-3000
(219) 977-7777
(Address, including zip code,
and telephone number, including
area code, of Co-Registrants'
principal executive offices)
MICHAEL E. KELLY
EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING AND FINANCIAL OFFICER
MAJESTIC INVESTOR HOLDINGS, LLC
MAJESTIC INVESTOR CAPITAL CORP.
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA 46406-3000
(219) 977-7823
(Name, address, including zip
code, and telephone number,
including area code, of agent for service)
With a copy to:
MICHAEL D. LEVIN, ESQ.
LATHAM & WATKINS
5800 SEARS TOWER
233 S. WACKER DRIVE, SUITE 5800
CHICAGO, ILLINOIS 60606
(312) 876-7700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE PRICE(3) FEE(2)(3)
- -----------------------------------------------------------------------------------------------------
11.653% Senior Secured Notes Due 2007 $152,632,000 100% $152,632,000 $14,042.15
Senior Secured Guarantees(3) -- -- -- --
(1) Barden Colorado Gaming, LLC, a Colorado limited liability company (I.R.S.
Employer Identification Number 91-2118674), Barden Mississippi Gaming, LLC, a
Mississippi limited liability company (I.R.S. Employer Identification Number
62-1868783) and Barden Nevada Gaming, LLC, a Nevada limited liability company
(I.R.S. Employer Identification Number 88-0453840).
(2) 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.
(3) The notes are guaranteed by the guarantors named in footnote (1) above. No
separate consideration will be paid in respect of the guarantees.
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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 JANUARY 29, 2002
PROSPECTUS
MAJESTIC INVESTOR HOLDINGS, LLC
MAJESTIC INVESTOR CAPITAL CORP.
OFFER TO EXCHANGE
11.653% SENIOR SECURED NOTES DUE 2007, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
11.653% SENIOR SECURED NOTES 2007
We are offering to exchange all of our outstanding 11.653% Senior
Secured Notes due 2007, which we refer to as the unregistered notes, for our
registered 11.653% Senior Secured Notes due 2007, which we refer to as the
registered notes. We refer to the unregistered notes and the registered notes
collectively as the notes. We issued the unregistered notes on December 6, 2001.
The terms of the registered notes are substantially identical to the terms of
the unregistered notes in all material respects, except for the elimination of
some transfer restrictions, registration rights and liquidated damages
provisions relating to the unregistered notes.
PLEASE CONSIDER THE FOLLOWING:
- - Our offer to exchange the notes expires at 5:00 p.m. New York City
time, on __________, 2002, unless we extend the offer.
- - You should carefully review the procedures for tendering the
unregistered notes beginning on page 58 of this prospectus. If you do
not follow these procedures, we may not exchange your unregistered
notes for registered notes.
- - If you fail to tender your unregistered notes, you will continue to
hold unregistered notes and your ability to transfer them could be
adversely affected.
- - No public market currently exists for the unregistered notes. We do not
intend to list the registered notes on any securities exchange and,
therefore, no active public market is anticipated.
- - You may withdraw tenders of unregistered notes at any time before the
exchange offer expires.
- - The exchange of registered notes for unregistered notes will not be a
taxable exchange for U.S. federal income tax purposes.
- - We will not receive any proceeds from the exchange offer.
- - We are not asking you for a proxy and you are requested not to send us
a proxy.
INFORMATION ABOUT THE REGISTERED NOTES:
- - The notes will mature on November 30, 2007.
- - We will pay interest on the notes at a rate of 11.653% per year payable
semi-annually on May 31 and November 30, beginning May 31, 2002.
- - The notes will rank senior to all of our existing and future
subordinated indebtedness and equal in right of payment with all of our
existing and future senior indebtedness.
- - Our restricted subsidiaries will guarantee the notes on a senior
secured basis.
- - As security for the notes, we have pledged our equity interests and
substantially all of our and the subsidiary guarantors' current and
future assets. These equity interests and assets are also subject to a
lien securing our credit facility, which is senior to the lien securing
the notes.
- - We may redeem the notes on or after November 30, 2005, from time to
time at a price that will decrease over time from 105.827% of the
principal amount in 2005 to 100% of the principal amount in 2006, plus,
in each case, accrued and unpaid interest. Prior to November 30, 2004,
we may also apply a portion of the net proceeds from certain equity
offerings to redeem up to 35% of the principal amount of the notes at
111.653% of their face amount, plus accrued and unpaid interest.
- - Following certain determinations by any gaming regulatory authority,
you may be required to dispose of your notes and we may be required to
redeem the notes.
- - If we experience a change of control, you will have the right to
require us to purchase your notes at a price equal to 101% of the
principal amount, plus accrued and unpaid interest.
- - If we sell assets, we may have to use the proceeds to offer to purchase
some of the notes at a price equal to 100% of the principal amount,
plus accrued and unpaid interest.
FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE
PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 17 OF
THIS PROSPECTUS.
NONE OF THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION, ANY STATE GAMING COMMISSION OR ANY OTHER GAMING AUTHORITY OR OTHER
REGULATORY AGENCY HAS APPROVED OR DISAPPROVED OF THE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE NOTES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2002
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AS IF WE HAD
AUTHORIZED IT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, NOR DOES THIS PROSPECTUS CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
----------------------
TABLE OF CONTENTS
Where You Can Find More Information........................................... ii
Incorporation of Certain Documents by Reference............................... ii
Industry and Market Data...................................................... iii
Forward-Looking Statements.................................................... iii
Prospectus Summary............................................................ 1
Risk Factors.................................................................. 17
The Majestic Entities......................................................... 29
Use of Proceeds............................................................... 30
Capitalization................................................................ 30
Selected Financial Data....................................................... 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 34
Quantitative and Qualitative Disclosure About Market Risk..................... 41
Business...................................................................... 42
Management.................................................................... 50
Summary Compensation Table.................................................... 52
Principal Owner............................................................... 53
Certain Relationships and Related Transactions................................ 54
Description of Credit Facility and Intercreditor Agreement.................... 55
The Exchange Offer............................................................ 56
Description of Registered Notes............................................... 67
Material Agreements........................................................... 101
Government Regulation and Licensing........................................... 102
United States Federal Income Tax Considerations............................... 115
Plan of Distribution.......................................................... 120
Legal Matters................................................................. 121
Experts....................................................................... 121
Index to Unaudited Pro Forma Consolidated Financial Statements................ PF-1
Index to Historical Combined Financial Statements............................. F-1
Index to Audited Balance Sheet................................................ MF-1
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we
have filed with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"). This prospectus does
not contain all of the information set forth in the registration statement. For
further information about us and the notes, you should refer to the registration
statement. This prospectus summarizes material provisions of contracts and other
documents to which we refer you. Since this prospectus may not contain all of
the information that you may find important, you should review the full text of
these documents. We have filed these documents as exhibits to our registration
statement.
Upon the effectiveness of the registration statement, we will be
subject to the informational reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). We have agreed that, whether or
not required to do so by the rules and regulations of the SEC (and within the
time periods that are or would be prescribed thereby), for so long as any of the
notes remain outstanding, we will furnish to the holders of the notes and file
with the SEC (unless the SEC will not accept such a filing) (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the SEC on Forms 10-Q and 10-K if we were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by our independent certified public accountants and (ii) all
information that would be required to be contained in a filing with the SEC on
Form 8-K if we were required to file such reports. In addition, for so long as
any of the unregistered notes remain outstanding, we have agreed to make
available, upon request, to any prospective purchaser or beneficial owner of the
unregistered notes in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act. Information also may be obtained
from us at Majestic Investor Holdings, LLC, One Buffington Harbor Drive, Gary,
Indiana 46406, Attention: Michael E. Kelly, telephone (219) 977-7823.
The registration statement (including the exhibits and schedules
thereto) and the periodic reports and other information that we file with the
SEC may be inspected and copied at the public reference facilities of the SEC,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain copies of such material from the SEC by mail at prescribed rates. You
should direct requests to the SEC's Public Reference Section, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
the SEC maintains a website (http://www.sec.gov) that contains such reports and
other information filed by us.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents and reports filed by Majestic Investor Holdings or
Majestic Investor Capital Corp. pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this prospectus and prior to the
termination of the exchange offer to which this prospectus relates shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such documents and reports.
All information contained in a document or report incorporated or
deemed to be incorporated by reference is part of this prospectus, unless and
until that information is updated and superseded by the information contained in
this prospectus or any information filed with the SEC and incorporated later.
Any information that we subsequently file with the SEC that is incorporated by
reference will automatically update and supersede any previous information that
is part of this prospectus.
Majestic Investor Holdings will provide a copy of any and all such
documents (exclusive of exhibits unless such exhibits are specifically
incorporated by reference therein) without charge to each person to whom a copy
of this prospectus is delivered, upon written or oral request to us at Majestic
Investor Holdings at One Buffington Harbor Drive, Gary, Indiana 46406,
Attention: Michael E. Kelly, telephone (219) 977-7823. To obtain timely delivery
of information, we must receive your request no later than five (5) business
days before the expiration date of the exchange offer.
ii
INDUSTRY AND MARKET DATA
Market data used throughout this prospectus, including information
relating to our relative position in the casino and gaming industry, is based on
our good faith estimates, which estimates we based upon our review of internal
surveys, independent industry publications and other publicly available
information. Although we believe these sources are reliable, we have not
independently verified the information and cannot guarantee its accuracy and
completeness.
FORWARD-LOOKING STATEMENTS
Throughout this prospectus we make forward-looking statements.
Forward-looking statements include the words "may," "will," "would," "could,"
"likely," "estimate," "intend," "plan," "continue," "believe," "expect" or
"anticipate" and other similar words and include all discussions about our
acquisition and development plans. We do not guarantee that the transactions and
events described in this prospectus will happen as described or that any
positive trends noted in this prospectus will continue. The forward-looking
statements contained in this prospectus are generally located in the material
set forth under the headings "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business," but may be found in other
locations as well. These forward-looking statements generally relate to our
plans, objectives and expectations for future operations and are based upon
management's reasonable estimates of future results or trends. Although we
believe that our plans and objectives reflected in or suggested by such
forward-looking statements are reasonable, we may not achieve such plans or
objectives. You should read this prospectus completely and with the
understanding that actual future results may be materially different from what
we expect. We will not update forward-looking statements even though our
situation may change in the future.
SPECIFIC FACTORS THAT MIGHT CAUSE ACTUAL RESULTS TO DIFFER FROM OUR
EXPECTATIONS, MAY AFFECT OUR ABILITY TO PAY TIMELY AMOUNTS DUE UNDER THE NOTES
OR MAY AFFECT THE VALUE OF THE NOTES, INCLUDE, BUT ARE NOT LIMITED TO:
- the availability and adequacy of our cash flow to meet our
requirements, including payment of amounts due under the
notes;
- economic, competitive, demographic, business and other
conditions in our local and regional markets;
- changes or developments in laws, regulations or taxes in the
casino and gaming industry;
- actions taken or omitted to be taken by third parties,
including our customers, suppliers, competitors and members as
well as legislative, regulatory, judicial and other
governmental authorities;
- competition in the gaming industry, including the availability
and success of alternative gaming venues and other
entertainment attractions;
- a decline in the public acceptance of gaming;
- changes in personnel or compensation, including federal
minimum wage requirements;
- our failure to obtain, delays in obtaining or the loss of any
licenses, permits or approvals, including gaming and liquor
licenses, or the limitation, conditioning, suspension or
revocation of any such licenses, permits or approvals, or our
failure to obtain an unconditional renewal of any such
licenses, permits or approvals on a timely basis;
- the loss of any of our casino facilities due to casualty,
weather, mechanical failure or any extended or extraordinary
maintenance or inspection that may be required;
iii
- other adverse conditions, such as adverse economic conditions,
changes in general customer confidence or spending, increased
transportation costs, travel concerns or weather-related
factors, that may adversely affect the economy in general
and/or the casino and gaming industry in particular;
- our substantial indebtedness, debt service requirements and
liquidity constraints;
- risks related to the registered notes and to high-yield
securities and gaming securities generally;
- changes in our business strategy, capital improvements or
development plans;
- the availability of additional capital to support capital
improvements and development;
- factors relating to the current state of world affairs and any
further acts of terrorism or any other destabilizing events in
the United States or elsewhere; and
- other factors discussed under "Risk Factors" or elsewhere in
this prospectus.
All future written and verbal forward-looking statements attributable
to us or any person acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
iv
PROSPECTUS SUMMARY
This summary highlights information that we believe is especially
important concerning our business and this exchange offer, and may not contain
all of the information that may be important to you. The following summary is
qualified in its entirety by the more detailed information and the financial
statements and notes thereto appearing elsewhere in this prospectus. You should
carefully read this entire prospectus and should consider, among other things,
the matters set forth under "Risk Factors" before making an investment decision.
Majestic Investor Holdings, LLC will conduct its operations through its
subsidiaries. In this prospectus, unless indicated otherwise, "Majestic," "the
Company," "we," "us," and "our" refer to Majestic Investor Holdings, LLC and its
wholly owned subsidiaries, Majestic Investor Capital Corp., Barden Mississippi
Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming, LLC, and the
term "issuers" refers to Majestic Investor Holdings, LLC and Majestic Investor
Capital Corp., collectively. The term "unregistered notes" refers to our
outstanding 11.653% Senior Secured Notes due 2007 that we issued on December 6,
2001 and that have not been registered under the Securities Act. The term
"registered notes" refers to the 11.653% Senior Secured Notes due 2007 offered
pursuant to this prospectus. The term "notes" refers to the unregistered notes
and the registered notes collectively.
Slot machines and table counts, unless otherwise stated, are as of
December 31, 2001. EBITDA is defined in note (2) to "Summary Financial and
Operating Data."
THE COMPANY
Our operations consist of three casino properties formerly owned and
operated by Fitzgeralds Gaming Corporation in Tunica, Mississippi, Black Hawk,
Colorado and downtown Las Vegas, Nevada. We acquired these casino properties
from Fitzgeralds Gaming Corporation and certain of its affiliates on December 6,
2001. Our properties collectively contain approximately 2,950 slot machines, 60
table games and 1,100 hotel rooms. Our properties are well established, each
having been in operation for at least five years, and are located within
significant gaming markets. These markets collectively generated approximately
$2.3 billion in gaming revenue in 2000. We operate our properties under the
Fitzgeralds name to continue to benefit from the strong name brand recognition.
We are indirectly wholly owned subsidiaries of The Majestic Star
Casino, LLC (the "Parent") and are indirectly wholly owned and controlled by Don
H. Barden, our Chairman, President and Chief Executive Officer. Mr. Barden has
an established track record of operating, developing and acquiring properties in
the gaming industry and in other industries. Mr. Barden, through Parent, owns
and operates the Majestic Star Casino, a gaming facility containing 1,434 slot
machines and 49 table games in Gary, Indiana that serves the Chicago
metropolitan area.
OUR PROPERTIES AND THEIR MARKETS
The following table summarizes some key operating data of our
properties and the performance of their respective gaming markets:
1
FITZGERALDS FITZGERALDS FITZGERALDS
TUNICA BLACK HAWK LAS VEGAS
------ ---------- ---------
(Dollars in thousands)
PROPERTY DATA:
Date Opened........................ June 1994 May 1995 July 1980
Gaming Square Feet................. 36,000 16,000 42,000
Slot Machines(1)................... 1,388 596 973
Table Games(1)..................... 34 6 23
Hotel Rooms(1)..................... 435 standard -- 624 standard
72 suites 14 suites
Amenities(1)....................... - 3 restaurants - Restaurant - 4 restaurants
- 2 bars - Bar - 3 bars
- Ballroom - Keno lounge
- Gift shop - Sports book
- Jewelry store
- Car rental kiosk
- Special events center
- Ice cream parlor
- Gift shop
Parking(1)......................... 411 covered 392 covered valet 335 covered
1,264 surface 41 surface
120 covered valet
Gaming Revenues(2)................. $82,025 $37,600 $39,460
Growth Rate since 1998(3).......... 12.3% 2.5% 3.6%
Year-To-Date Growth Rate(4)........ 15.5% 2.8% 3.3%
Fair Share(5)...................... 87.3% 124.2% 108.5%
MARKET DATA:
Market............................. Tunica Black Hawk/ Downtown Las Vegas
Central City
Primary Population Center.......... Memphis MSA Denver MSA Las Vegas MSA
MSA Population(6).................. 1.1 million 2.1 million 1.6 million
Tourists(7)........................ 22.0 million Not available 35.8 million
Gaming Revenues(2)................. $1,102,190 $526,612 $685,327
Growth Rate since 1998(3).......... 4.9% 14.1% 0.4%
Year-To-Date Growth Rate(4)........ 0.4% 7.8% 2.3%
(1) As of December 31, 2001.
(2) For the four quarters ended September 30, 2001 for property data, and
for the twelve reporting months ended September 2001 for market data.
(3) Compounded annual growth rate of gaming revenues over the period from
January 1, 1998 through September 30, 2001 for property data, and over
the period from January 1998 through September 2001 for market data.
See "Business--Markets" for annual growth rates.
(4) Growth rate of gaming revenues during the period from January 1, 2001
through September 30, 2001 for property data, and during the period
from January 2001 through September 2001 for market data, in each case
as compared to the comparable period in the prior year.
(5) Equals property's market share of gaming revenues divided by property's
market share of gaming positions for the four quarters ended September
30, 2001 for property data, and for the twelve reporting months ended
September 2001 for market data. The number of gaming positions for a
specified period is determined by averaging the number of gaming
positions for each reporting month in such period. The number of gaming
positions for a reporting month is equal to the sum of (i) the number
of slot machines reported to the applicable gaming regulatory agency
for such month and (ii) the product of six times the number of table
games reported to the applicable gaming regulatory agency for such
month.
(6) Based on U.S. Census data for 2000.
(7) For the year ended December 31, 2000. Based on data from the
Mississippi Gaming Commission, in the case of Tunica, and the Las Vegas
Convention and Visitors Bureau, in the case of Las Vegas.
2
OUR OPERATING STRATEGY
The principal elements of our operating strategy include:
Focus on Quality and Service at an Affordable Price. Our casinos
provide a high-quality casino entertainment experience at an affordable price to
attract middle market guests. We believe these middle market guests constitute
the largest segment of potential gaming customers whom we can then identify,
qualify and target for direct marketing activities. Our approach to business at
our three properties focuses on guest service and includes:
- trained hosts to personally assist guests;
- friendly employees;
- quality food, beverages and lodging (except for Black Hawk,
which does not include a hotel) at a moderate price;
- a mix of gaming machines tailored to our customers; and
- personal attention through direct mail promotions, targeted
incentives and the use of the Fitzgeralds Card as part of a
frequent player recognition program.
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 the Fitzgeralds nationally recognized gaming brand and
our reputation for quality and service at an affordable price.
Capitalize on Fully Integrated Player Tracking and Extensive Guest
Database. Direct marketing to our guests is a key component of our customer
service. Each of our properties contains a fully integrated player tracking
system that permits detailed player tracking at each individual property. The
system uses the Fitzgeralds Card to track individual or combined play at slot
machines, table games and keno, as well as food and beverage and hotel
expenditures at each individual property. This fully integrated system allows us
to identify players and their gaming preferences and practices and to develop a
comprehensive customer database for marketing and guest services purposes. Our
player tracking program allows us to target our marketing programs to categories
of players, including through advertising programs, promotions, tournaments with
substantial cash prizes, special group and tour packages and other events and
incentives designed to promote customer loyalty and increase repeat business.
Our tracking system also allows us to better tailor our pricing, promotions,
gaming machine selection and other guest services to customer preferences. In
the future, we intend to use the tracking system data to encourage customers of
each individual property to patronize our other properties. We currently have
over 670,000 active players in our database.
Promote Nationally Recognized Gaming Brand. The Fitzgeralds brand has
developed into a nationally recognized gaming brand by using a consistent Irish
Luck theme throughout the casinos, hotels, restaurants and bars at all of its
properties. The Irish Luck theme allows us to capitalize on our belief that
every casino guest wants to feel lucky. The Irish Luck theme incorporates
various aspects of Irish folklore, such as leprechauns, horseshoes, four-leaf
clovers, the Blarney Stone and a pot of gold at the end of a rainbow, as well as
Irish music. We believe that this theme creates an exciting and comfortable
environment together with a distinctive brand identity for customers.
Fitzgeralds customers have come to associate the Irish Luck theme and the
associated trade dress and Fitzgeralds brand trademarks with strong guest
services such as the personal attention and quality product and gaming
experience that we seek to provide at each of our properties.
Leverage Existing Majestic Star Customer Base. Parent has established
the Club M-Star Slot Club to increase the frequency of visits by Parent's
existing customers. This program enables Parent to maintain a comprehensive
database of information on approximately 160,000 of its active gaming patrons,
including their gaming levels, duration of play and preferences. Parent uses
this information to create a comprehensive direct mail marketing program. We
will be able to use this information and the marketing program to market our
properties to existing customers of Parent.
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:
3
- Fitzgeralds Tunica. A 168-acre, $20 million Tunica River Front
Park is under development adjacent to our Fitzgeralds Tunica
property. The park as currently planned would include a marina
and boat dock along the Mississippi river (including space for
sightseeing paddle wheel riverboats), a historic Mississippi
river museum, nature trails, retail space, and parking.
Construction began on the park in mid October 2001, and we
expect the park to open in March 2003. Tunica County has
assumed the full obligation to fund this project and will
require no financial contribution from us. Fitzgeralds Tunica
conveyed approximately 71 acres of the river park land to the
County, and as consideration for the conveyance, the County
granted Fitzgeralds Tunica a rent-free lease to use and
further sublease the boat dock for 15 years, as well as a
perpetual easement allowing ingress and egress between the
Fitzgeralds Tunica property and the boat dock. We have
licensed our right to use the boat dock to a riverboat
operator who will provide riverboat excursions along the
Mississippi River from the marina and boat dock. In an effort
to increase customer traffic in the Tunica area, Tunica County
also is expanding its airport into a regional airport, with
the first phase of expansion scheduled for completion in 2003
and the second phase scheduled for completion in 2005.
Although there can be no assurance, we believe that both the
Tunica River Front Park and the regional airport will attract
new customers to our Tunica property.
- Fitzgeralds Black Hawk. The Black Hawk/Central City market
serves the rapidly growing Denver area, of which the
population of the metropolitan statistical area grew 30.0%
from 1990 to 2000. The compounded annual growth rate of gaming
revenues for the Black Hawk/Central City market was 14.1% for
the period from January 1998 through September 2001. The
market continues to experience rapid growth as year-to-date
gaming revenues through September 2001 increased 7.8% over the
same period in the prior year, although our Black Hawk
property experienced a slight decline in year-to-date gaming
revenues due to increased competition. We believe that the
market has potential for future growth as well, in part due to
a proposal to improve access to Black Hawk. The City of Black
Hawk Development Authority is currently pursuing plans to
expand the road leading to Black Hawk and construct a tunnel
leading to the downtown gaming area from I-70, the major
interstate highway from Denver. A referendum is expected to be
held in May 2002 to approve the financing for the proposed
tunnel. We cannot assure you that the financing for the
proposed tunnel will be approved, or if the financing is
approved, when or if the proposed tunnel will be built. Our
Fitzgeralds Black Hawk property has available adjacent land
for expansion if market conditions warrant and we are
currently evaluating the possibility of such an expansion to
better serve this growing market.
- Fitzgeralds Las Vegas. The downtown Las Vegas area has long
been the focus of continued efforts to increase tourist
traffic, beginning with the Fremont Street Experience, an
entertainment and retail promenade, which opened in December
1995. The most recent development is the approximately $100
million Neonopolis project, a 250,000 square foot retail and
entertainment venue with a 14 screen movie theater that is
currently expected to open in May 2002. The project will also
include a $32 million, 600 space underground parking garage.
This project is located at the east end of the Fremont Street
Experience and across from our Fitzgeralds Las Vegas property.
We believe that this project will attract more potential
customers to downtown Las Vegas and shift the focus of traffic
along the Fremont Street Experience towards our Fitzgeralds
Las Vegas property. Additionally, a project has been proposed
to visually enhance the Fremont Street Experience "Sound and
Light Shows" by replacing the existing light display with flat
panel display screens which have the capability to show
televised and other multimedia events and programming, thereby
dramatically enhancing the range of entertainment programming
options.
MAJESTIC INVESTOR CAPITAL CORP.
Majestic Investor Capital Corp. is a wholly owned subsidiary of
Majestic Investor Holdings, LLC, and was formed specifically to facilitate the
offering of the notes. It does not have any material assets, obligations or
operations.
4
SUMMARY OF THE TERMS OF EXCHANGE OFFER
SECURITIES TO BE EXCHANGED..... On December 6, 2001, we issued $152,632,000 in
aggregate principal amount of unregistered
notes in a transaction exempt from the
registration requirements of the Securities
Act. In connection with the initial sale of the
unregistered notes, we entered into a
registration rights agreement in which we
agreed, among other things, to deliver this
prospectus to you and to complete an exchange
offer. The terms of the registered notes and
the unregistered notes are substantially
identical in all material respects, except for
the elimination of some transfer restrictions,
registration rights and liquidated damages
provisions relating to the unregistered notes.
See "Description of Registered Notes."
THE EXCHANGE OFFER............. We are offering to exchange $1,000 principal
amount of our registered notes for each $1,000
principal amount of unregistered notes. As of
the date of this prospectus, unregistered notes
representing $152,632,000 in aggregate
principal amount are outstanding.
Based on interpretations by the staff of the
SEC set forth in published no-action letters,
we believe you may offer for resale, resell and
otherwise freely transfer the registered notes
without further registering those notes or
delivering a prospectus to a buyer, unless you:
- are our "affiliate" within the
meaning of Rule 405 promulgated
under the Securities Act;
- are a broker-dealer who purchased
unregistered notes directly from us
for resale pursuant to Rule 144A or
any other available exemption under
the Securities Act;
- are acquiring the registered notes
in the exchange offer other than in
the ordinary course of your
business; or
- have an arrangement or understanding
with any person to engage in the
distribution of the registered
notes.
However, the SEC has not considered this
exchange offer in the context of a no-action
letter and we cannot be sure that the staff of
the SEC would make a similar determination with
respect to the exchange offer as in these other
circumstances. Furthermore, you must
acknowledge that (i) you are not affiliated
with us, (ii) you are not engaged in, a
distribution of registered notes, and (iii) you
are not acquiring the registered notes in your
ordinary course of business. If you are a
broker-dealer that receives registered notes
for your own account pursuant to the exchange
offer, you must deliver a prospectus in
connection with any resale of your registered
notes.
If you are a broker-dealer who acquired
original notes directly from us or our
affiliates, you may not rely on the SEC staff's
interpretations discussed above and must comply
with the registration and prospectus delivery
requirements of the
5
Securities Act in connection with a secondary
resale transaction. Such secondary resale
transaction must be covered by an effective
registration statement containing the required
selling security holder information.
REGISTRATION RIGHTS AGREEMENT.. We sold the unregistered notes to the initial
purchaser on December 6, 2001. The initial
purchaser resold the unregistered notes to
qualified institutional buyers under Rule 144A
under the Securities Act. In connection with
the initial sale of the unregistered notes, we
entered into a registration rights agreement
requiring us to make the exchange offer. The
registration rights agreement also requires us
to use our best efforts:
- to cause the registration statement
with respect to the exchange offer
to become effective under the
Securities Act by April 5, 2002; and
- Complete the exchange offer no later
than 30 days after the SEC declares
the registration statement with
respect to the exchange offer
effective.
See "The Exchange Offer -- Purpose and Effect."
If we do not do so, we will pay special
additional interest on the unregistered notes
at an initial per week rate of $0.05 per $1,000
principal amount for the first 90 days, and
this amount will increase by an additional
$0.05 per week for each subsequent 90 day
period, to a maximum of $0.20 per week.
EXPIRATION DATE............. The exchange offer will expire at 5:00 p.m.,
New York City time, ___________ __, 2002, or a
later date and time if we extend it.
WITHDRAWAL.................. You may withdraw the tender of your
unregistered notes at any time prior to 5:00
p.m., New York City time, on the expiration
date of the exchange offer. We will return to
you any of your unregistered notes that we do
not accept for exchange for any reason, without
expense to you, promptly after the exchange
offer expires or terminates.
INTEREST ON THE REGISTERED
NOTES AND THE UNREGISTERED
NOTES..................... The registered notes will bear interest at the
rate of 11.653% per year beginning December 6,
2001. This interest will be payable
semi-annually on each May 31 and November 30,
with the first payment on May 31, 2002. We will
not pay interest on the unregistered notes
after we accept them for exchange. See
"Description of Registered Notes."
NO MINIMUM CONDITION........ We are not conditioning the exchange offer on
the tender of any minimum principal amount of
old notes.
CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is subject to customary
conditions, some of which we may waive. We
currently anticipate that each of the
conditions will be satisfied and that we will
not need to
6
waive any conditions. For additional
information, see "The Exchange Offer --
Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
UNREGISTERED NOTES....... If you wish to accept the exchange offer and
tender your unregistered notes, you must:
- complete, sign and date the letter
of transmittal, or a copy of the
letter of transmittal, in accordance
with the instructions contained in
this prospectus and in the letter of
transmittal, and mail or otherwise
deliver the letter of transmittal,
or the copy, together with the
unregistered notes and all other
required documentation, to the
exchange agent at the address set
forth in this prospectus; or
- arrange for The Depository Trust
Company to transmit certain required
information, including an agent's
message forming part of a book-entry
transfer in which you will agree to
be bound by the letter of
transmittal, to the Exchange Agent
in connection with a book-entry
transfer. By executing or agreeing
to be bound by the letter of
transmittal, you will represent to
us that, among other things:
- the registered notes you
receive pursuant to the
exchange offer are being
acquired in the ordinary
course of your business;
- you are not
participating, do not
intend to participate,
and have no arrangement
or understanding with any
person to participate, in
the distribution of the
exchange notes issued to
you in the exchange
offer; and
- you are not our
"affiliate."
SHELF REGISTRATION............ Pursuant to the registration rights agreement
if:
- we are not permitted to consummate
the exchange offer because the
exchange offer is not permitted by
applicable law or SEC policy; or
- specified holders of unregistered
notes notify us within 20 days after
consummation of the exchange offer:
- that they are prohibited
by law or SEC policy from
participating in the
exchange offer;
- that they may not resell
the registered notes
acquired by them in the
exchange offer to the
public without delivering
a prospectus and that
this prospectus is not
appropriate or available
for these resales; or
7
- that they are
broker-dealers and own
unregistered notes
acquired directly from us
or one of our affiliates,
we may be required to file a "shelf"
registration statement for a continuous
offering pursuant to Rule 415 under the
Securities Act in respect of the unregistered
notes.
ACCEPTANCE OF UNREGISTERED
NOTES AND DELIVERY OF
REGISTERED NOTES........... Subject to the satisfaction or waiver of the
conditions to the exchange offer, we will
accept for exchange any and all unregistered
notes which are properly tendered (and are not
withdrawn) in the exchange offer prior to 5:00
p.m., New York City time, on ____________ __,
2002. The registered notes issued pursuant to
the exchange offer will be delivered promptly
following the expiration date. For additional
information, see "The Exchange Offer - Terms of
the Exchange Offer."
SPECIAL PROCEDURE FOR
BENEFICIAL OWNERS......... If you beneficially own unregistered notes that
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your unregistered notes
in the exchange offer, you should promptly
contact the person in whose name your
outstanding unregistered notes are registered
and instruct that person to tender your
unregistered notes on your behalf. If you wish
to tender on your own behalf, you must, prior
to completing and executing the letter of
transmittal and delivering and executing the
letter of transmittal and delivering your
unregistered notes, either arrange to have your
unregistered notes registered in your name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES............... If you wish to tender your unregistered notes
and time will not permit your required
documents to reach the exchange agent by the
expiration date, or the procedures for
book-entry transfer cannot be completed on
time, you may tender your unregistered notes
according to the guaranteed delivery procedures
described in "The Exchange Offer - Procedures
for Tendering Unregistered Notes."
EXCHANGE AGENT............. The Bank of New York is serving as exchange
agent for the exchange offer.
USE OF PROCEEDS............ We will not receive any proceeds from the
issuance of the registered notes in the
exchange offer. We will pay for our expenses
incident to the exchange offer.
FEDERAL INCOME TAX
CONSIDERATIONS........... The exchange of unregistered notes for
registered notes pursuant to the exchange offer
will not constitute a taxable exchange for
federal income tax purposes. Therefore, you
will not have to pay federal income tax as a
result of your participation in the exchange
offer. For additional
8
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 56 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 the Registered Notes." For purposes of the description of the
notes included in this prospectus, references to the "Company," "Issuers," "us,"
"we" and "our" refer only to Majestic Investor Holdings, LLC and Majestic
Investor Capital Corp., collectively, and do not include our subsidiaries or any
other entities.
ISSUERS.................... Majestic Investor Holdings, LLC and its wholly
owned subsidiary, Majestic Investor Capital
Corp.
REGISTERED NOTES OFFERED... $152,632,000 million aggregate principal amount
of 11.653% Senior Secured Notes due 2007.
MATURITY DATE.............. November 30, 2007.
INTEREST RATE.............. We will pay interest on the registered notes at
an annual rate of 11.653%.
INTEREST PAYMENT DATES..... May 31 and November 30 of each year, beginning
May 31, 2002.
SECURITY INTEREST.......... The registered notes will be secured by, among
other things, a pledge or assignment of the
assets of each of our casinos; all of our
furniture, fixtures and equipment; the equity
interests in Majestic Investor Holdings, LLC;
the equity interests in the subsidiary
guarantors; our rights to the service mark
"Fitzgeralds" and any of our other intellectual
property; and substantially all of our and the
subsidiary guarantors' other assets, other than
the excluded assets. The lien on the collateral
securing our $15.0 million senior secured
credit facility will be senior to the lien on
the collateral securing the registered notes
and the guarantees.
GUARANTEES................. The registered notes will be unconditionally
guaranteed on a senior secured basis by each of
our restricted subsidiaries. The guarantees
will rank senior in right of payment to all
existing and future subordinated indebtedness
of these restricted subsidiaries and equal in
right of payment with all existing and future
senior indebtedness of these restricted
subsidiaries.
RANKING.................... The registered notes will rank senior in right
of payment to all of our existing and future
subordinated indebtedness and equal in right of
payment with all of our other existing and
future senior indebtedness but, because of the
security interests, will be effectively senior
to all of our future unsecured senior
indebtedness and unsecured trade credit.
OPTIONAL REDEMPTION........ On or after November 30, 2005, we will have the
right to redeem registered notes, from time to
time, at the following redemption prices
(expressed as percentages of the principal
amount), plus accrued and unpaid interest, if
redeemed during the 12-month period commencing
November 30 of the year indicated below:
10
FOR THE PERIOD PERCENTAGE
2005............................. 105.827%
2006 and thereafter.............. 100.000%
In addition, at any time on or prior to November
30, 2004, we may, at our option, apply part of the
net proceeds from certain equity offerings to
redeem up to 35% of the principal amount of the
registered notes at 111.653% of their face amount,
plus accrued and unpaid interest.
GAMING REDEMPTION.......... The registered notes will be subject to
mandatory disposition and redemption
requirements following certain determinations
by any gaming regulatory authority.
CHANGE OF CONTROL OFFER.... If we experience a change in control, the
holders of the registered notes will have the
right to require us to purchase their
registered notes at a price equal to 101% of
the principal amount, plus accrued and unpaid
interest, if any.
ASSET SALE OFFER........... If we sell assets, we may have to use the
proceeds to offer to purchase some of the
registered notes at a price equal to 100% of
the principal amount, plus accrued and unpaid
interest, if any.
CERTAIN INDENTURE
PROVISIONS............... We will issue the registered notes under an
indenture with The Bank of New York, as
trustee. The indenture will contain covenants
limiting our ability to, among other things:
- incur more debt;
- pay dividends or make other
distributions;
- redeem our equity interests;
- make certain investments;
- create liens;
- enter into transactions with affiliates;
- merge or consolidate; and
- transfer or sell assets, including the
equity interests of our subsidiaries.
These covenants will be subject to a number of
important exceptions.
FORM OF THE REGISTERED
NOTES................... The registered notes will be represented by a
permanent global note in definitive, fully
registered form. The global note will be
registered in the name of a nominee of The
Depository Trust Company and will be deposited
with The Bank of New York, as custodian for The
Depository Trust Company's nominee.
USE OF PROCEEDS............ We will not receive any proceeds from the
exchange offer. For a description of the use
of proceeds from the offering of the
unregistered notes, see "Use of Proceeds."
11
TRANSFER RESTRICTIONS;
ABSENCE OF A PUBLIC
MARKET FOR THE NOTES.... There has been no public market for the
unregistered notes, and we do not anticipate that
an active market for the registered notes will
develop. We do not intend to apply to list the
registered notes on any securities exchange or to
include them in any automated quotation system. We
cannot make any assurances regarding the liquidity
of the market for the registered notes, your
ability to sell your registered notes or the price
at which you may sell your registered notes. See
"Plan of Distribution."
RISK FACTORS
Before making an investment in the registered notes, you should
carefully consider the information included in "Risk Factors" beginning on page
17, as well as all other information set forth in this prospectus.
12
SUMMARY FINANCIAL AND OPERATING DATA
The following tables summarize, on a combined basis and by property, the
historical financial data set forth in the section "Selected Financial Data" and
provide certain pro forma financial and operating data giving effect to our
acquisition of the Fitzgeralds casino properties on December 6, 2001. You should
read this historical and pro forma data in conjunction with the sections of this
prospectus entitled "Capitalization," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and the historical combined financial statements and the unaudited
pro forma consolidated financial statements and the notes thereto included in
this prospectus. The summary historical financial data for the years ended
December 31, 1998, 1999 and 2000, presented below, have been derived from the
audited combined financial statements for Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company for
those periods. The summary historical financial data for the years ended
December 31, 1996 and 1997 have been derived from the unaudited combined
financial statements for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi,
Inc. and 101 Main Street Limited Liability Company for those periods. The
summary historical financial data at September 30, 2001, and for the three
quarters ended October 1, 2000 and September 30, 2001, presented below, have
been derived from the unaudited combined financial statements for Fitzgeralds
Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited
Liability Company at such date and for those periods. The unaudited financial
statements have been prepared on a basis consistent with the audited financial
statements. All adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the interim combined financial statements,
have been included. Results for the three quarters ended October 1, 2000 and
September 30, 2001 are not necessarily indicative of results for the full year.
The summary financial data for the four quarters ended September 30, 2001,
presented below, have been derived from the audited combined financial
statements for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and
101 Main Street Limited Liability Company for the year ended December 31, 2000
and the unaudited combined financial statements for Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company for
the three quarters ended October 1, 2000 and September 30, 2001.
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
For the
For the Four Quarters
Three Quarters Ended Ended
For the Year Ended December 31, October 1, September 30, September 30,
1996 1997 1998 1999 2000 2000 2001 2001
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Statement of Operations Data:
Net operating revenues...... $120,209 $149,261 $149,222 $152,776 $159,738 $121,882 $129,692 $167,548
Income from operations...... 6,851 14,677 10,543 11,723 15,396 12,738 24,143 (5) 26,801(5)
Net income (loss)........... (11,593) (11,475) (21,269) (16,248) (10,535) (8,241) 24,047 (5) 21,753(5)
Other Data:
Depreciation and amortization 7,611 10,320 11,052 11,726 11,688 9,295 -- (5) 2,393(5)
Capital expenditures........ 53,647(6) 3,014 6,047 4,715 9,336(7) 9,004(7) 944 1,276
Cash Flow Data:
Operating activities........ 18,662 10,008 7,803 8,773 12,131 8,707 933 4,357
Investing activities........ (7,661) (28,701)(8) (4,126) (4,268) (9,003) (8,749) (911) (1,165)
Financing activities........ (7,662) 17,164 (8) (3,875) (2,976) (454) (371) (214) (297)
Pro Forma Data:(1)
EBITDA(2)................... 28,445 25,244 30,664
Ratio of EBITDA to cash interest expense(3).................................................................... 1.7x
Ratio of total long-term debt (including current portion) to EBITDA............................................ 4.7x
13
AT SEPTEMBER 30, 2001
AS ADJUSTED(4)
--------------
BALANCE SHEET DATA:
Cash and cash equivalents......................................... $ 11,208
Total assets...................................................... 166,104
Total long-term debt (including current portion).................. 145,420
Total member's equity............................................. 14,000
(1) Gives effect to our acquisition of the Fitzgeralds casino properties as
if they occurred on the first day of each of the respective periods in
the case of EBITDA and interest expense and on the last day of the
applicable period in the case of total debt, and assumes no borrowings
under our credit facility. Pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the
Fitzgeralds acquisition had occurred as of the beginning of the first
period presented nor is it necessarily indicative of our future operating
results or financial position. The pro forma data should be read in
conjunction with the unaudited pro forma consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
(2) EBITDA, pro forma for the Fitzgeralds acquisition, is defined as
historical earnings before interest, taxes, depreciation and
amortization, represented here as historical income from operations plus
historical depreciation and amortization, adjusted (a) to exclude
$38,967, $108,644 and $147,611 for certain non-recurring reorganization
expenses related to the bankruptcy restructuring for the year ended
December 31, 2000, the three quarters ended September 30, 2001 and the
four quarters ended September 30, 2001, respectively, and (b) to include
cost reductions, which we expect to realize as a result of the
Fitzgeralds acquisition, of $1.3 million for the year ended December 31,
2000 and for the four quarters ended September 30, 2001 and $1.0 million
for the three quarters ended September 30, 2001. For more detailed
information on these items, see Notes to Unaudited Pro Forma Consolidated
Financial Statements beginning on page PF-6. There can be no assurance
that the expected cost reductions will occur.
EBITDA is presented to enhance the understanding of our financial
performance and our ability to service our indebtedness, including the
registered notes. Although EBITDA is not necessarily a measure of our
ability to fund our cash needs, we understand that it is used by certain
investors as one measure of cash flow and to compare our performance with
the performance of other companies that report EBITDA. EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles ("GAAP"), is unaudited and should not be considered an
alternative to, or more meaningful than, net income or income from
operations, as an indicator of our operating performance, or cash flows
from operating activities, as a measure of liquidity. This definition of
EBITDA may not be the same as that of similarly named measures used by
other companies or the definition used in any of our debt agreements.
(3) Pro forma interest expense for the four quarters ended September 30, 2001
is $17.8 million, which includes interest related to the registered notes
and assumed capital lease obligations, and excludes $1.4 million related
to the amortization of fees and expenses related to this offering and
$1.3 million related to the amortization of debt discount related to this
offering. See Notes to Unaudited Pro Forma Consolidated Financial
Statements beginning on page PF-6.
(4) Gives effect to the Fitzgeralds acquisition as if it occurred on
September 30, 2001, and assumes no borrowings under our credit facility.
(5) Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101
Main Street Limited Liability Company discontinued recording
depreciation and amortization of their property and equipment and
interest on the senior secured notes subsequent to the filing of the
bankruptcy cases on December 5, 2000.
(6) Includes approximately $34.0 million for hotel expansion and related
amenities at Fitzgeralds Mississippi, Inc. and costs associated with the
refurbishment of the hotel and remodeling expansion at Fitzgeralds Las
Vegas, Inc.
(7) Includes $5.6 million for construction of the parking garage and
additional surface parking at Fitzgeralds Mississippi, Inc.
(8) Activity reflects the purchase of the remaining 78% interest in 101 Main
Street Limited Liability Company by Fitzgeralds Gaming Corporation on
August 15, 1997.
14
SUMMARY FINANCIAL AND OPERATING DATA BY PROPERTY
For the For the
For the Three Quarters Ended Four Quarters
Year Ended December 31, -------------------- Ended
----------------------- Oct. 1, Sept. 30, Sept. 30,
1996 1997 1998 1999 2000 2000 2001 2001
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
NET OPERATING REVENUES
Fitzgeralds Tunica $ 48,748 $ 68,734 $ 64,012 $ 69,582 $ 75,062 $ 57,191 $ 63,176 $ 81,047
Fitzgeralds Black Hawk 27,944 33,987 34,223 32,284 32,537 25,087 25,916 33,366
Fitzgeralds Las Vegas 43,517 46,540 50,987 50,910 52,139 39,604 40,600 53,135
--------- --------- --------- --------- --------- --------- --------- ---------
Total $ 120,209 $ 149,261 $ 149,222 $ 152,776 $ 159,738 $ 121,882 $ 129,692 $ 167,548
========= ========= ========= ========= ========= ========= ========= =========
INCOME (LOSS) FROM
Operations
Fitzgeralds Tunica $ (597) $ 6,013 $ 2,063 $ 5,321 $ 9,018 $ 7,210 $ 15,580 $ 17,388
Fitzgeralds Black Hawk 7,778 9,208 9,074 7,517 6,385 5,228 6,245 7,402
Fitzgeralds Las Vegas (330) (544) (594) (1,115) (7) 300 2,318 2,011
--------- --------- --------- --------- --------- --------- --------- ---------
Total $ 6,851 $ 14,677 $ 10,543 $ 11,723 $ 15,396 $ 12,738 $ 24,143(5) $ 26,801(5)
========= ========= ========= ========= ========= ========= =========== ===========
NET INCOME (LOSS)
Fitzgeralds Tunica $ (9,462) $ (4,692) $ (10,355) $ (7,399) $ (2,803) $ (250) $ 15,574 $ 13,021
Fitzgeralds Black Hawk 6,085 2,205 (81) 194 (384) (2,358) 6,213 8,187
Fitzgeralds Las Vegas (8,216) (8,988) (10,833) (9,043) (7,348) (5,633) 2,260 545
--------- --------- --------- --------- --------- --------- --------- ---------
Total $ (11,593) $ (11,475) $ (21,269) $ (16,248) $ (10,535) $ (8,241) $ 24,047(5) $ 21,753(5)
========= ========= ========= ========= ========= ========= ========= =========
DEPRECIATION AND
AMORTIZATION
Fitzgeralds Tunica $ 4,386 $ 5,731 $ 5,987 $ 6,231 $ 6,235 $ 4,953 $ -- $ 1,282
Fitzgeralds Black Hawk 1,238 1,440 1,789 1,786 1,755 1,393 -- 362
Fitzgeralds Las Vegas 1,987 3,149 3,276 3,709 3,698 2,949 -- 749
--------- --------- --------- --------- --------- --------- --------- ---------
Total $ 7,611 $ 10,320 $ 11,052 $ 11,726 $ 11,688 $ 9,295 $ --(5) $ 2,393(5)
========= ========= ========= ========= ========= ========= ========= =========
CAPITAL EXPENDITURES
Fitzgeralds Tunica $ 34,295(1) $ 928 $ 2,903 $ 2,393 $ 6,199(2) $ 6,161(2) $ 627 $ 665
Fitzgeralds Black Hawk 1,381 265 1,312 687 1,518 1,419 156 255
Fitzgeralds Las Vegas 17,971(4) 1,821 1,832 1,635 1,619 1,424 161 356
--------- --------- --------- --------- --------- --------- --------- ---------
Total 53,647 $ 3,014 $ 6,047 $ 4,715 $ 9,336 $ 9,004 $ 944 $ 1,276
========= ========= ========= ========= ========= ========= ========= =========
PRO FORMA EBITDA(3)
Fitzgeralds Tunica $ 15,730 $ 15,989 $ 19,225
Fitzgeralds Black Hawk 8,582 6,568 8,199
Fitzgeralds Las Vegas 4,133 2,687 3,240
--------- --------- ---------
Total $ 28,445 $ 25,244 $ 30,664
========= ========= =========
(1) Includes approximately $34.0 million for hotel expansion and related
amenities.
(2) Includes $5.6 million for construction of the parking garage and
additional surface parking.
(3) Gives effect to the Fitzgeralds acquisition as if it occurred on the
first day of each of the respective periods, and assumes no borrowings
under our credit facility . Pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the
Fitzgeralds acquisition had occurred as of the beginning of the first
period presented, nor is it necessarily indicative of our future
operating results or financial position. The pro forma data should be
read in conjunction with the unaudited pro forma consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
EBITDA, pro forma for the Fitzgeralds acquisition, is defined as
historical earnings before interest, taxes, depreciation and
amortization, represented here as historical income (loss) from
operations plus historical depreciation and amortization, adjusted (a)
to exclude, for the three properties on a combined
15
basis, an aggregate of $38,967, $108,644 and $147,611 for certain
non-recurring reorganization expenses related to the bankruptcy
restructuring for the year ended December 31, 2000, the three quarters
ended September 30, 2001 and the four quarters ended September 30,
2001, respectively and (b) to include cost reductions, which we expect
to realize as a result of the Fitzgeralds acquisition, of $1.3 million,
for the three properties on a combined basis, for the year ended
December 31, 2000 and for the four quarters ended September 30, 2001
and $1.0 million, for the three properties on a combined basis, for the
three quarters ended and September 30, 2001. For more detailed
information on these items, see Notes to Unaudited Pro Forma
Consolidated Financial Statements beginning on page PF-6. There can be
no assurance that the expected cost reductions will occur.
EBITDA is presented to enhance the understanding of our financial
performance and our ability to service our indebtedness, including the
registered notes. Although EBITDA is not necessarily a measure of our
ability to fund our cash needs, we understand that it is used by
certain investors as one measure of cash flow and to compare our
performance with the performance of other companies that report EBITDA.
EBITDA is not a measurement determined in accordance with GAAP, is
unaudited and should not be considered an alternative to, or more
meaningful than, net income or income from operations, as an indicator
of our operating performance, or cash flows from operating activities,
as a measure of liquidity. This definition of EBITDA may not be the
same as that of similarly named measures used by other companies or the
definition used in any of our debt agreements.
(4) Includes costs associated with the refurbishment of the hotel and
remodeling expansion of the casino which was substantially completed in
December 1996.
(5) Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main
Street Limited Liability Company discontinued recording depreciation
and amortization of their property and equipment and interest on the
senior secured notes subsequent to the filing of the bankruptcy cases
on December 5, 2000.
GENERAL
Our executive offices are located at One Buffington Harbor Drive, Gary,
Indiana 46406, and our telephone number is (219) 977-7823. Our World Wide Web
site address is http://www.majesticstar.com. The information in our website is
not part of this prospectus. Additionally, none of the information contained in
the website of Fitzgeralds Gaming Corporation, located at
http://www.fitzgeralds.com, or any of the related sites for its properties, is
part of this prospectus.
16
RISK FACTORS
Our business, operations and financial condition are subject to various
risks. Some of these risks are described below and under "Forward-Looking
Statements," and you should take these risks into account in evaluating us or
any investment decision involving us or in deciding whether to participate in
the exchange offer proposed in this prospectus. This section does not describe
all risks applicable to us or our industry, and it is intended only as a summary
of certain material factors.
RISKS RELATED TO OUR SUBSTANTIAL DEBT
OUR SIGNIFICANT INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL
HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES
AND OUR OTHER OUTSTANDING INDEBTEDNESS.
We have now and, after the exchange offer, will continue to have a
significant amount of debt. We currently have outstanding $152.6 million of
long-term debt represented by the unregistered notes. We also have a $15.0
million senior credit facility, under which $6.5 million is currently
outstanding. In addition, the indenture governing the notes will permit us to
incur additional debt in certain circumstances, including to finance the
purchase of furniture and equipment.
Our high level of debt could have important consequences to you and
significant effects on our business. For example, it could, among other things:
- make it more difficult for us to satisfy our obligations with
respect to the notes and our other outstanding indebtedness;
- increase our vulnerability to adverse economic and industry
conditions or a downturn in our business;
- limit our ability to fund a required regulatory redemption or
a change of control offer;
- result in an event of default if we fail to comply with the
financial and other restrictive covenants contained in the
indenture or our credit facility , which event of default
could result in all of our indebtedness becoming immediately
due and payable and would permit some or all of our lenders to
foreclose on our assets securing such indebtedness;
- limit our ability to fund or obtain additional financing for
future working capital, capital expenditures and other general
financial requirements;
- require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures, development projects,
acquisitions and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes
in our business and industry; and
- place us at a competitive disadvantage compared to our
competitors that have less debt.
The occurrence of any one of these events could have a material adverse
effect on our business, financial condition, results of operations, prospects
and ability to satisfy our obligations under the notes. For more information on
the terms of the registered notes, see the discussion under the section entitled
"Description of Registered Notes."
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO SERVICE OUR DEBT.
We might not be able to generate sufficient cash flow to service our
debt, to repay the notes when due or to meet unanticipated capital needs or
shortfalls in our projections. We plan to be able to service our debt and repay
the notes when due with cash from operations. Pro forma for the Fitzgeralds
acquisition and assuming no borrowings under our credit facility, our
17
debt-to-equity ratio as of September 30, 2001 would have been approximately
10.4x, our ratio of total long-term debt to EBITDA would have been approximately
4.7x, our ratio of EBITDA to cash interest expense would have been approximately
1.7x and our ratio of earnings to fixed charges would have been approximately
1.0x. For the ratio of earnings to fixed charges, "earnings" are defined as
earnings before income taxes and fixed charges. "Fixed charges" consist of
interest on indebtedness, imputed interest on capital lease obligations and the
portion of rent expense deemed to represent interest.
Our ability to generate sufficient cash flow to satisfy our obligations
will depend on the future performance of our gaming operations, which is subject
to many economic, political, competitive, regulatory and other factors that we
are not able to control. However, if cash flows from operations are not
sufficient to satisfy our obligations, we may need to seek additional financing
in the debt or equity markets, refinance the notes, sell selected assets or
reduce or delay planned activities and capital expenditures. Any such financings
or sale of assets might not be available on economically favorable terms, if at
all. In the event that we are left without sufficient liquidity to meet our debt
service requirements, an event of default would occur under the indenture and
our credit facility.
RISKS RELATED TO THE NOTES
YOUR FAILURE TO TENDER YOUR UNREGISTERED NOTES IN THE EXCHANGE OFFER COULD LIMIT
THE TRADING MARKET AND TRADING VALUE OF YOUR UNREGISTERED NOTES.
We will only issue registered notes in exchange for unregistered notes
that are timely received by the exchange agent together with all required
documents, including a properly completed and signed letter of transmittal.
Therefore, you should allow sufficient time to ensure timely delivery of the
unregistered notes and you should carefully follow the instructions on how to
tender your unregistered notes. Neither we nor the exchange agent are required
to tell you of any defects or irregularities with respect to your tender of the
unregistered notes. If you do not tender your unregistered notes or if we do not
accept your unregistered notes because you did not tender your unregistered
notes properly, then, after we consummate the exchange offer, you may continue
to hold unregistered notes that are subject to the existing transfer
restrictions. In addition, if you tender your unregistered notes for the purpose
of participating in a distribution of the registered notes, you will be required
to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the registered notes. If you are
a broker-dealer that receives registered notes for your own account in exchange
for unregistered notes that you acquired as a result of market-making activities
or any other trading activities, you will be required to acknowledge that you
will deliver a prospectus in connection with any resale of those registered
notes.
The trading market for unregistered notes that are not exchanged in the
exchange offer could be adversely affected due to the limited amount, or
"float," of the unregistered notes that are expected to remain outstanding
following the exchange offer. Generally, a lower "float" of a security could
result in less demand to purchase that security and could, therefore, result in
lower prices for that security. For the same reason, to the extent that a large
amount of unregistered notes are not exchanged in the exchange offer, the
trading market for the unregistered notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO
PAYMENTS UNDER OUR CREDIT FACILITY AND ANY EQUIPMENT FINANCING TO THE EXTENT OF
THE COLLATERAL SECURING THIS OTHER DEBT. THE PROCEEDS FROM THE COLLATERAL
SECURING THE NOTES MAY NOT BE SUFFICIENT TO PAY ALL AMOUNTS OWED UNDER THE
REGISTERED NOTES IF AN EVENT OF DEFAULT OCCURS, EVEN IF THE FAIR MARKET VALUE OF
THE COLLATERAL WOULD OTHERWISE BE SUFFICIENT TO PAY THE AMOUNTS OWED UNDER THE
NOTES.
The notes and guarantees will be effectively subordinated to (a) up to
$15.0 million principal amount of indebtedness that may be incurred under our
credit facility, pursuant to the intercreditor agreement described below, and
(b) any future equipment financing and purchase money debt, in each case to the
extent of the assets securing that indebtedness. As a result, upon any
distribution to our creditors or the creditors of any subsidiary guarantors in
bankruptcy, liquidation, reorganization or similar proceedings, or following
acceleration of our indebtedness or an event of default under such indebtedness,
our lenders under our credit facility, our equipment financing and our purchase
money indebtedness will be entitled to be repaid in full from the proceeds of
the assets securing such indebtedness, or the sale of the equipment subject to
such equipment financing, before any payment is made to you from such proceeds.
Consequently, it is unlikely that the 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
18
liquidated damages, if any, on the notes after also satisfying the obligations
to pay any other senior secured creditors, even if the fair market value of the
collateral would otherwise be sufficient to pay the amounts owed under the
notes. The market value of the collateral will also impact our ability to make
payments due on the notes, as described above. There can be no assurance that
the fair market value of the collateral securing the notes would be sufficient
to pay the amounts due under the notes, even absent our credit facility and any
equipment financing. An event of default under or acceleration of our other
senior secured debt also may prohibit us and the subsidiary guarantors from
paying the notes or the guarantees.
The trustee under the indenture and the lenders under our credit
facility have entered into an intercreditor agreement to govern the
relationships among them and their obligations and rights. Financing by multiple
lenders with security interests in common collateral may result in increased
complexity and lack of flexibility in a debt restructuring or other work-out
arrangements relating to us. Furthermore, under the intercreditor agreement, the
trustee's remedies in the event of a default will be limited. Under the
intercreditor agreement, if the notes become due and payable prior to the stated
maturity or are not paid in full at the stated maturity at a time during which
we have indebtedness outstanding under our credit facility, the trustee will not
have the right to foreclose upon the collateral unless and until the lenders
under our credit facility fail to take steps to exercise remedies with respect
to or in connection with the collateral within 180 days following notice to such
lenders of the occurrence of an event of default under the indenture. In
addition, the intercreditor agreement will prevent the trustee and the holders
of the notes from pursuing remedies with respect to the collateral in an
insolvency proceeding. The intercreditor agreement also provides that the net
proceeds from the sale of collateral will first be applied to repay indebtedness
outstanding under our credit facility and thereafter to the holders of the
notes.
GAMING LAWS, OTHER REGULATIONS AND LESSOR GROUND LEASE ISSUES MAY DELAY OR
OTHERWISE IMPEDE THE TRUSTEE'S ABILITY TO FORECLOSE ON THE COLLATERAL.
The licensing process and the terms of certain ground leases, along
with other foreclosure and sale laws, could substantially delay or prevent the
ability of the trustee or any noteholder to obtain the benefit of any collateral
securing the registered notes, and may adversely affect the sales price for such
collateral and may reduce the number of potential bidders. See "Government
Regulation and Licensing." The trustee's ability to foreclose on a number of the
assets in which we will grant security interests will be subject to (i) the
prior approval of gaming authorities and the senior lender under our credit
facility and (ii) the terms of certain ground leases. The notes and the
guarantees will be secured by substantially all of our and the subsidiary
guarantors' current and future assets (including the equity interests of our
gaming licensee subsidiaries), other than the excluded assets. Approval of
gaming regulatory authorities is required before any person may foreclose on,
take possession of or dispose of certain of such assets. In the event we fail to
pay the notes or otherwise default under the indenture, before the trustee or
the holders of the notes can foreclose or take possession of the assets or
exercise certain other rights, they may need to become licensed under the local
state gaming laws and the regulations promulgated thereunder. See "Risks Related
to Our Business--Extensive government regulation continuously impacts our
operations." Further, the Merchant Marine Act of 1936 imposes additional
restrictions and limitations on the ability of non-U.S. citizens to foreclose on
the barges at Fitzgeralds Tunica. Such restrictions and limitations may
adversely affect the trustee's ability to foreclose on such collateral if you or
any other holder of our notes is not a U.S. citizen.
In addition, a significant portion of our Las Vegas real property is not
owned in fee title, but is leased by us under four ground leases, under which
our gaming licensee subsidiary is the lessee. Due to restrictions contained in
two of the ground leases, we are only able to grant security interests in two of
the four leasehold interests. The two leasehold interests in which we have not
granted a security interest are among the excluded assets for the Las Vegas real
property. However, the trustee will receive a pledge of the equity interests in
our gaming licensee subsidiary which is the tenant under all the ground leases.
Although there can be no assurances, a foreclosure of such equity interests by
the trustee should result in the noteholders controlling the leasehold
interests.
With respect to the two excluded leasehold interests, there is an
absence of provisions characteristic of financeable ground leases, including
requirements that the lessors thereunder provide notices of default to the
trustee, grant independent cure rights to the trustee, or otherwise reinstate
such ground leases in favor of the trustee or the note holders upon a
termination of the ground lease. In the absence of these provisions, we have
agreed to take certain actions, as described below, to attempt to provide the
trustee and the noteholders with some protections under these leases; however,
there can be no assurances as to the effectiveness or sufficiency of these
limited protections. One of the excluded ground leases gives the tenant the
right to amend the
19
notice provisions and provides for a thirty (30) day cure period for tenant
defaults. With respect to this ground lease, we have agreed to amend the notice
provision to require the landlord to copy the trustee on all notices. Although
such notice, together with the thirty (30) day cure period for tenant defaults
could provide the trustee or the note holders with time to cure any default
under such ground lease there can be no assurances that any default can be
remedied within such cure period. The other excluded ground lease does not
provide for any amendment to the notice provisions (although we have agreed to
send a notice to such landlord requesting that any notices be copied to the
trustee) and has no cure period. There can be no assurance that the landlord
thereunder will provide such notices to the trustee, and, even if such notice is
provided to the trustee, that the default could be remedied since there is no
cure period.
WE ARE A HOLDING COMPANY AND THEREFORE OUR ABILITY TO MAKE PAYMENTS ON THE NOTES
AND SERVICE OUR OTHER DEBT DEPENDS ON CASH FLOW FROM OUR SUBSIDIARIES.
We are a holding company. Our only material assets are our ownership
interests in our subsidiaries. Consequently, we will depend on distributions or
other intercompany transfers of funds from our subsidiaries to make payments on
the notes and service our other debt. In addition, distributions and
intercompany transfers to us from our subsidiaries will depend on:
- their earnings;
- covenants contained in our debt agreements (including our
credit facility and the registered notes) and the debt
agreements of our subsidiaries;
- covenants contained in other agreements to which we or our
subsidiaries are or may become subject;
- business and tax considerations; and
- applicable law, including regulations of gaming authorities
and state laws regulating the payment of dividends and
distributions.
We cannot assure you that the operating results of our subsidiaries at
any given time will be sufficient to make distributions or other payments to us
or that any distributions and/or payments will be adequate to pay principal and
interest, and any other amounts, on the notes when due.
A COURT COULD VOID OUR SUBSIDIARIES' GUARANTEES OF THE NOTES UNDER FRAUDULENT
TRANSFER LAW.
Our restricted subsidiaries will guarantee the notes, and each
guarantor will grant a security interest in certain of its assets to secure its
guarantee. Although the guarantees provide you with a direct claim against the
assets of the subsidiary guarantors, under federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, under certain circumstances a
court could avoid (i.e., cancel) a guarantee and order the return of any
payments made thereunder to the guarantor or to a fund for the benefit of its
other creditors.
A court might take these actions if it found, among other things, that
when the guarantor incurred the indebtedness evidenced by its guarantee, (i) it
received less than reasonably equivalent value or fair consideration for the
incurrence of the guarantee, and (ii) that any one of the following conditions
was satisfied:
- the guarantor was insolvent or rendered insolvent by reason of
such incurrence;
- the guarantor was engaged in a business or transaction for
which its remaining assets constituted unreasonably small
capital; or
- 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.
20
In applying the above factors, a court would likely find that a
subsidiary guarantor did not receive fair consideration or reasonably equivalent
value for its guarantee, except to the extent that it benefited directly or
indirectly from the registered notes' issuance or from the Fitzgeralds
acquisition. The determination of whether a subsidiary was or was rendered
"insolvent" when it entered into its guarantee will vary depending on the law of
the jurisdiction being applied. Generally, an entity would be considered
insolvent if the sum of its debts (including contingent or unliquidated debts)
is greater than all of its property at a fair valuation or if the present fair
salable value of its assets is less than the amount that will be required to pay
its probable liability on its existing debts as they become absolute and
matured.
If a court avoided a subsidiary's guarantee, you would no longer have a
claim against that subsidiary. We cannot assure you that the assets of the other
subsidiary guarantors would be sufficient to pay amounts then due under the
notes.
THE INDENTURE GOVERNING THE NOTES AND OUR CREDIT FACILITY CONTAIN COVENANTS
THAT SIGNIFICANTLY RESTRICT OUR OPERATIONS.
The indenture governing the notes, our credit facility and any other
future debt agreement does and will contain numerous covenants imposing
financial and operating restrictions on our business. These restrictions may
affect our ability to operate our business, may limit our ability to take
advantage of potential business opportunities as they arise and may adversely
affect the conduct of our current business. These covenants will place
restrictions on our ability and the ability of our subsidiaries to, among other
things:
- incur more debt;
- pay dividends, redeem or repurchase our stock or make other
distributions;
- make acquisitions or investments;
- use assets as security in other transactions;
- enter into transactions with affiliates;
- merge or consolidate with others;
- dispose of assets or use asset sale proceeds;
- create liens on our assets; and
- extend credit.
The credit facility also requires us to meet a number of financial
ratios and tests. Our ability to meet these ratios and tests and to comply with
other provisions governing our indebtedness may be adversely affected by our
operations and by changes in economic or business conditions or other events
beyond our control. Our failure to comply with our debt-related obligations
could result in an event of default under the notes.
WE MAY BE UNABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of specific change of control events, we will be
required to offer to repurchase your notes at 101% of their principal amount,
plus accrued interest. The lenders under our credit facility will have a similar
right to be repaid upon a change on control. Any of our future debt agreements
also may contain a similar provision. Our ability to pay cash to the holders of
the notes in connection with such repurchase will be limited by our then
existing financial resources. Accordingly, it is possible that we will not have
sufficient funds at the time of the change of control to make the required
repurchase of notes. The terms of our credit facility also limit our ability to
purchase your notes until all debt under our credit facility is paid in full.
Any of our future debt agreements may contain similar restrictions. Accordingly,
it is possible that restrictions in our credit facility will not allow such
repurchases. If we fail to repurchase any notes submitted in a change of control
offer, it would constitute an event of default under the indenture which would,
in turn, constitute an event of default under our credit facility and could
constitute an event of
21
default under our other indebtedness, even if the change in control itself would
not cause a default.
THERE IS CURRENTLY NO PUBLIC MARKET FOR THE REGISTERED NOTES, AND AN ACTIVE
TRADING MARKET MAY NOT DEVELOP FOR THESE REGISTERED NOTES.
We are offering the registered notes to the holders of the unregistered
notes. The unregistered notes were sold on December 6, 2001 and are eligible for
trading in the Private Offerings, Resale and Trading through Automatic Linkages
(PORTAL) Market. To the extent that unregistered notes are tendered and accepted
in the exchange offer, the trading market for untendered and tendered but
unaccepted unregistered notes will be adversely affected. We cannot assure you
that this market will provide liquidity for you if you want to sell your
unregistered notes.
The registered notes are a new issue of securities, and there is no
existing market for the registered notes. An active market may not develop for
the registered notes, and there can be no assurance as to the liquidity of any
market that may develop for the registered notes. If an active market does not
develop, the market price and liquidity of the registered notes may be adversely
affected. If any of the registered notes are traded after their initial
issuance, they may trade at a discount from their initial offering price. Future
trading prices of the registered notes will depend on many factors, including,
among other things, prevailing interest rates, our operating results and the
market for similar securities. Historically, the market for high-yield debt has
been subject to disruptions that have caused substantial fluctuations in the
prices of these securities. In addition, securities of gaming companies
historically have been more volatile than securities of other companies. The
market for the registered notes may be subject to such disruptions, and there
can be no assurance that the registered notes will not be subject to such
volatility, either of which could have an adverse effect on the price and
liquidity of the registered notes. We do not intend to apply for listing of the
registered notes on any securities exchange or for quotation of the registered
notes in any automated dealer quotation system.
THE NOTES WERE ISSUED WITH ORIGINAL ISSUE DISCOUNT. AS A RESULT, YOU WILL
GENERALLY BE REQUIRED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES TO INCLUDE
IN GROSS INCOME ACCRUED ORIGINAL ISSUE DISCOUNT ON THE NOTES BEFORE THE RECEIPT
OF A CASH PAYMENT ON ACCOUNT THEREOF, AND IN THE EVENT OF A BANKRUPTCY OF THE
COMPANY, A NOTE HOLDER'S CLAIM WOULD NOT INCLUDE ANY UNAMORTIZED ORIGINAL
DISCOUNT.
Original issue discount (the difference between the notes' stated
redemption price at maturity and their issue price) will accrue from the issue
date of the notes, and purchasers of the notes generally will be required to
include such amounts in gross income for United States federal income tax
purposes in advance of their receipt of the cash payments to which the income is
attributable. See "United States Federal Income Tax Considerations."
If a bankruptcy case is commenced by or against us under the United
States Bankruptcy Code after the issuance of the notes, the claim of a holder of
the notes may be limited to an amount equal to the sum of (1) the notes' issue
price, (2) accrued and unpaid interest thereon through the date of the
bankruptcy filing, and (3) that portion of the original issue discount deemed to
have accrued from the issue date through the date of the bankruptcy filing. Any
original issue discount deemed not to have accrued as of the date of any such
bankruptcy filing would constitute "unmatured interest" and would not be allowed
under the Bankruptcy Code. Accordingly, the holder's claim would likely be less
than the notes' stated redemption price at maturity.
RISKS RELATED TO OUR BUSINESS
WE MAY FACE DISRUPTION IN MANAGING THE THREE FITZGERALDS CASINO PROPERTIES OR IN
PURSUING ANY EXPANSION OF THOSE PROPERTIES, AND WE MAY NOT REALIZE ANY OF THE
ANTICIPATED BENEFITS OF THE ACQUISITION.
We acquired the three Fitzgeralds Casino properties, which constitute
all of our current operations, from Fitzgeralds Gaming Corporation and certain
of its affiliates on December 6, 2001. We cannot assure you that we will be able
to integrate or manage the Fitzgeralds properties effectively or realize any of
the anticipated benefits of the acquisition, including expected cost reductions.
Our ability to integrate the three Fitzgeralds casino properties, to realize the
expected cost reductions and to achieve our objectives in connection with the
Fitzgeralds acquisition is highly dependent on, among other things, our ability
to maintain effective senior management teams at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas. We plan to
22
maintain such management through retention of certain current executives,
relocation of certain Majestic executives to the Fitzgeralds properties and the
attraction of new executives. If, for any reason, these executives do not
continue to be active in management after the acquisition, or we fail to attract
capable new executives, our operations after consummation of the Fitzgeralds
acquisition could be materially adversely affected.
In addition, we may pursue expansion and acquisition opportunities in
the future and would face significant challenges not only in managing and
integrating the combined operations, but also in managing our expansion projects
and any other gaming operations that we might acquire in the future. Management
of such new projects will require that we increase our managerial resources. If
we fail to manage our growth effectively, it could materially adversely affect
our operating results.
Although we believe there are substantial future growth opportunities
within each of the markets where our properties are located, including without
limitation the growth opportunities described under "Prospectus Summary--Our
Operating Strategy--Capitalize on Market Growth Opportunities," we cannot assure
you that such growth will take place, or that we will be able to capitalize on
such growth opportunities.
WE FACE SIGNIFICANT COMPETITION IN EACH MARKET WHERE WE OPERATE.
We face intense competition in each of the markets in which our gaming
facilities are located. Many of our competitors have significantly greater name
recognition and financial, marketing and other resources than we do. Our
properties compete principally with other gaming properties in or near
California, Nevada, Mississippi and Colorado. In some of these jurisdictions,
competition is expected to intensify as new gaming operations enter these
markets and existing competitors consolidate with one another or expand or
enhance their operations. Our Black Hawk property will face additional
competition from the new Black Hawk Casino by Hyatt, which opened on December
19, 2001. At this time we are unable to determine what impact this casino will
have on our operations. In addition to these regional competitors, we compete
with gaming facilities nationwide, including casinos located on Indian
reservations and other land-based casinos in Nevada and Atlantic City, as well
as elsewhere, not only for customers but also for employees and potential future
gaming sites. We also compete, to some extent, with other forms of gaming on
both a local and national level, including state-sponsored lotteries, Internet
gaming, on- and off-track wagering and card parlors. The expansion of legalized
gaming to new jurisdictions throughout the United States also has increased
competition faced by us and will continue to do so in the future. Additionally,
if gaming were legalized in jurisdictions near our properties where gaming
currently is not permitted, we would face additional competition.
Increased competition may require us to make substantial capital
expenditures to maintain and enhance the competitive positions of our
properties, including updating slot machines to reflect changing technology,
refurbishing rooms and public service areas periodically, replacing obsolete
equipment on an ongoing basis and making other expenditures to increase the
attractiveness and add to the appeal of our properties. Because we are highly
leveraged, after satisfying our obligations under our outstanding indebtedness,
there can be no assurance that we will have sufficient funds to undertake these
expenditures or that we will be able to obtain sufficient financing to fund such
expenditures. If we are unable to make such expenditures, our competitive
position and our results of operations could be materially adversely affected.
EXTENSIVE GOVERNMENT REGULATION CONTINUOUSLY IMPACTS OUR OPERATIONS.
The ownership, management and operation of gaming facilities is subject
to extensive laws, regulations and ordinances which are administered by various
federal, state and local government entities and agencies. The gaming
authorities located in the jurisdictions in which we operate have broad
authority and discretion to require us and our officers, directors, managers,
members, employees and certain security holders to obtain various licenses,
registrations, permits, findings of suitability and other approvals. To enforce
applicable gaming regulations, gaming authorities may, among other things,
limit, suspend or revoke the licenses of any gaming entity or individual, and
may levy fines or forfeiture of assets against us or individuals for violations
of gaming laws or regulations. Any of these actions would have a material
adverse effect on us. See "Government Regulation and Licensing."
Government regulations require us to:
- pay gaming fees and taxes in each state where we operate a
casino;
23
- obtain a gaming license in each state where we operate a
casino, which we must have renewed periodically and which may
be suspended or revoked if we do not meet detailed regulatory
requirements;
- receive and maintain federal and state environmental
approvals; and
- receive and maintain local licenses to sell alcoholic
beverages in our casinos.
No assurances can be given that any new gaming licenses, liquor
licenses, registrations, findings of suitability, permits and approvals,
particularly those related to any proposed expansion, will be given or that
existing ones will be renewed when they expire. We know of no reason why our
existing gaming licenses would not be renewed or maintained, or why new licenses
would not be granted to us; however, any failure to renew or maintain our
licenses or receive new licenses when necessary would have a material adverse
effect on us.
The compliance costs associated with these laws, regulations and
licenses are significant. A change in the laws, regulations and licenses
applicable to our business or a violation of any current or future laws or
regulations or our gaming licenses could require us to make material
expenditures or could otherwise materially adversely affect our business or
financial results.
LOCAL REFERENDA ON GAMING MAY RESTRICT OR ADVERSELY IMPACT OUR OPERATIONS.
In some of the jurisdictions in which we currently operate or from
which we attract customers, or in which we may expand, gaming is subject to
local referenda. If the results of a referendum held in a jurisdiction in which
we operate were to restrict gaming in whole or in part or if the results of a
referendum in a nearby non-gaming jurisdiction were to permit gaming, our
results of operations could be negatively impacted.
For example, in three separate instances in Mississippi, referenda were
proposed which, if approved, would have amended the Mississippi Constitution to
ban gaming in Mississippi and would have required all currently legal gaming
entities to cease operations within two years of the ban. All three of the
proposed referenda have been ruled illegal by Mississippi courts because, among
other reasons, each of the proposed referenda failed to include required
information regarding the anticipated effect of such a ban on government
revenues. It is likely at some point that a revised initiative will be filed
which will adequately address the issues regarding the effect on government
revenues of a prohibition of gaming in Mississippi. While we are unable to
predict whether such a referendum will appear on a future ballot or the
likelihood of the passage of such a referendum, if such a referendum were passed
and gaming were prohibited in Mississippi, it would have a material adverse
effect on us and our Mississippi gaming operations. See "Government Regulation
and Licensing." In addition, the Arkansas Attorney General certified for the
November 2000 general election ballot at least three ballot initiatives,
including a proposed constitutional amendment, that would have permitted casino
gambling in Arkansas. Although none of the initiatives was approved in the
November 2000 election, there can be no assurance that similar initiatives will
not be proposed in the future. Our Tunica property, in particular, could be
negatively impacted by the existence of casino gambling in Arkansas. See "--We
face significant competition in each market where we operate."
In Colorado, the legislation establishing the Colorado Division of
Gaming is scheduled to be repealed effective July 1, 2003, unless continued by
act of the Colorado General Assembly. This is a "sunset" provision common in
assessing the continuing necessity for the existence of administrative agencies
within Colorado. If the repeal takes effect, Colorado law provides a procedure
for winding up the affairs of the Colorado Division of Gaming, public hearings,
analysis and evaluation, and for determining claims by or against the Colorado
Division of Gaming. The potential effect of the possible repeal upon the
regulatory structure governing limited gaming in Colorado is unknown.
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
24
questions or be licensed, qualified, found suitable or make filings or
submissions within a required time period. If a gaming authority determines that
a holder is unsuitable to own any of our securities, including the notes, such
holder will have no further right to exercise any right conferred by the
securities, to receive any economic benefit or payment, including payments of
interest, with respect to the securities or to continue its ownership or
economic interest in us. For more information, refer to "Government Regulation
and Licensing" and "Description of Registered Notes--Redemption."
THE RIGHT OF FITZGERALDS GAMING CORPORATION TO CONTINUE TO USE THE NAME
"FITZGERALDS" MAY NEGATIVELY IMPACT OUR NATIONAL BRAND RECOGNITION.
Under an exclusive license from us, Fitzgeralds Gaming Corporation has
the right to use the name "Fitzgeralds" in connection with its operation of its
existing casino property in Reno, Nevada and in connection with any casino
properties it may operate in the future in Northern California, Northern Nevada,
Oregon and Washington. We have all other rights to the Fitzgeralds name and all
Fitzgeralds trademarks, service marks and trade dress for use in connection with
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas. In
connection with any use of the Fitzgeralds name, the terms of the license
require Fitzgeralds Gaming Corporation to comply with certain requirements,
including operating any casino property using the Fitzgeralds name in accordance
with our current operating standards. We may terminate the license under certain
circumstances, including if Fitzgeralds Gaming Corporation fails to comply with
these operating standards. Because Fitzgeralds Gaming Corporation operates the
existing Reno casino property and may operate any future casino properties in
certain geographic areas under the Fitzgeralds name, we cannot assure you that
our customers will not associate Fitzgeralds Reno and these other casino
properties with our Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds
Las Vegas properties, which association may negatively impact our nationally
recognized brand.
MEMBERS OF THE FITZGERALDS GAMING CORPORATION SENIOR MANAGEMENT TEAM MAY BECOME
EMPLOYED BY OUR COMPETITORS IN THE FUTURE, AND THIS COULD ADVERSELY IMPACT OUR
OPERATIONS.
In connection with the Fitzgeralds acquisition, certain members of the
senior management team of Fitzgeralds Gaming Corporation entered into limited
noncompete agreements that will expire on June 6, 2003. Following the expiration
of these noncompete agreements, these former members of the management team of
Fitzgeralds may operate, control, manage or consult for any of our competitors
in Tunica, Mississippi, Black Hawk, Colorado, Las Vegas, Nevada and the
surrounding areas.
These managers have specific knowledge regarding our customer base and
the markets in which we operate. If these managers provide this information to
our competitors, it may adversely affect our ability to compete with other
casino properties in the markets in which we operate.
WE HAVE LIMITED OPERATING HISTORY.
Prior to our acquisition of the Fitzgeralds casino properties on
December 6, 2001, we had limited cash assets, our only liabilities were those
under the purchase agreement with Fitzgeralds, and we had no significant
operating history. We cannot assure you that we will be able to operate the
Fitzgeralds casino properties effectively or realize any of the anticipated
benefits of the acquisition, including expected cost reductions. In addition,
although we present in this prospectus historical data for a number of periods
for the Fitzgeralds properties we are acquiring, such historical data may not
necessarily be meaningful, as our cost structure and capitalization will be
significantly different following the acquisition, nor should it be relied upon
as a reliable indicator of our future performance with respect to the acquired
properties. In addition, our operating results may fluctuate significantly from
quarter to quarter as a result of a variety of factors, including integration
issues, labor disruptions or shortages, and changes in government regulation of
the gaming industry, many of which are outside of our control, and any of which
could materially adversely affect our business going forward.
MANY OF OUR EMPLOYEES BELONG TO UNIONS; ANY LABOR DISRUPTIONS, WORK STOPPAGES OR
SIGNIFICANT UNION IMPOSED WAGE INCREASES COULD HAVE AN ADVERSE IMPACT ON OUR
BUSINESS.
Approximately 15% of our workforce is unionized. As of December 31,
2001, Fitzgeralds Las Vegas employed approximately 906 people, approximately 381
of whom are represented by the Culinary Workers Union, Local No. 226 and the
Bartenders Union, Local 165, under a five-year contract expiring on May 31,
2002. In addition, four employees are represented
25
by the United Brotherhood of Carpenters and Joiners of America, Southern
California-Nevada Regional Council of Carpenters and its Affiliated Local No.
1780, under a three-year contract that expired on July 31, 2001. This contract
is currently being renegotiated and we can give no assurances that such contract
will be renegotiated without a significant increase in wages, or the imposition
of other adverse terms. As of December 31, 2001, Fitzgeralds Tunica and
Fitzgeralds Black Hawk employed approximately 1,230 and 362 people,
respectively, none of whom are represented by a union. Any labor disruptions or
work stoppages could have a material adverse effect on our operations. See
"Business--Employees."
LOSS OF OUR CASINO PROPERTIES FROM SERVICE WOULD ADVERSELY AFFECT OUR
OPERATIONS.
The operations of our properties are subject to disruptions or reduced
patronage as a result of severe weather conditions. Our Tunica vessel and its
dockside facilities are subject to risks in addition to those associated with
land-based casinos, including loss of service due to casualty, mechanical
failure, extended or extraordinary maintenance or inspection (including routine
inspections required by the U.S. Coast Guard) and access restrictions which may
be imposed by the Mississippi authorities controlling the mainline Mississippi
River levee in Tunica. Although there can be no assurances, we believe that
these authorities will not exercise their right to impose access restrictions in
the absence of flood or other flood related effects, hurricane or other severe
weather conditions. Reduced patronage and the loss of our Tunica dockside vessel
or either of our land-based casino properties from service for any period of
time due to severe weather could adversely affect our business, financial
condition and results of operations.
WE ARE SUBJECT TO POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES.
Generally, we are subject to a variety of federal, state and local
governmental laws and regulations relating to the use, storage, discharge,
emission and disposal of hazardous materials. Failure to comply with such laws
could result in the imposition of severe penalties or restrictions on operations
by governmental agencies or courts that could adversely affect operations. We
are not aware of any environmental contamination at the Fitzgeralds properties.
The Fitzgeralds Black Hawk property, however, is located within a 400-square
mile area that in 1983 was designated as the Clear Creek/Central City National
Priorities List Site Study Area ("Study Area") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended.
Although Fitzgeralds Black Hawk is not within any of the specific areas of the
Study Area currently identified for investigation or remediation, no assurance
can be given that environmental problems will not subsequently be discovered,
including in connection with any future construction on the expansion parcel of
the property. Furthermore, the EPA or other governmental authorities could
broaden their investigations and identify areas of concern within the site, we
could be identified as a "potentially responsible party" and any liability
related thereto could have a material adverse effect on us. We do not have
insurance to cover environmental liabilities, if any. Under our purchase and
sale agreement with Fitzgeralds, we are entitled to indemnification for
environmental matters relating to the properties only in very limited
circumstances. For additional information regarding environmental regulation,
see "Business--Environmental Matters."
ENERGY PRICE INCREASES MAY ADVERSELY AFFECT OUR COSTS OF OPERATIONS AND OUR
REVENUES.
Our casino properties use significant amounts of electricity, natural
gas and other forms of energy. While no shortages of energy have been
experienced, the recent substantial increases in the cost of electricity in the
United States will negatively affect our operating results. The extent of the
impact is subject to the magnitude and duration of the energy price increases,
but this impact could be material. In addition, energy price increases in cities
that constitute a significant source of customers for our properties could
result in a decline in disposable income of potential customers and a
corresponding decrease in visitation to our properties, which could negatively
impact our revenues.
THE CASINO INDUSTRY GENERALLY IS DEPENDENT IN PART ON A NUMBER OF FACTORS THAT
ARE BEYOND OUR CONTROL.
The economic health of the casino industry is affected by a number of
factors that are beyond our control, including: (i) general economic conditions;
(ii) levels of disposable income of casino patrons; (iii) increased
transportation costs resulting in decreased travel by patrons; (iv) local
conditions in key gaming markets, including seasonal and weather-related
factors; (v) increase in gaming taxes or fees; (vi) competitive conditions in
the gaming industry and in particular gaming markets, including the effect of
such conditions on the pricing of our games and products; and (vii) the relative
popularity of entertainment
26
alternatives to casino gaming that compete for the leisure dollar. Any of these
factors could negatively impact the casino industry generally, and as a result,
our revenues and results of operations.
CONTINUING EFFECTS OF THE TERRORIST ATTACKS ON THE WORLD TRADE CENTER IN NEW
YORK AND THE PENTAGON IN WASHINGTON, D.C., AND ANY FUTURE OCCURRENCES OF
TERRORIST OR OTHER DESTABILIZING EVENTS, COULD NEGATIVELY AFFECT OUR REVENUES
AND CASH FLOW.
On September 11, 2001, the World Trade Center buildings in New York
City and the Pentagon in Washington, D.C. were attacked by terrorists using
hijacked airplanes. The effects of these events have included a decline in
vacation travel and tourism due to, among other factors, fears regarding
additional acts of terrorism, and reduced operations by airlines due to
decreased demands for air travel, new security directives and increased costs.
The magnitude and duration of these effects is unknown and cannot be predicted.
Any decline in vacation travel and tourism could adversely affect our revenues,
particularly with respect to Fitzgeralds Las Vegas, where the majority of our
customers rely on air travel to visit our casino property. Continued or even
worsening negative market conditions related to those terrorist actions, any
future occurrences of terrorist or other destabilizing events, and other actions
that perpetuate a climate of war could cause existing and potential customers to
further delay and cancel travel, convention and vacation plans, could decrease
wagering and increase costs, and as a result could adversely affect our revenues
and cash flow in the future.
OUR PRINCIPAL OWNER EXERCISES SIGNIFICANT CONTROL OVER OUR BUSINESS AND
OPERATIONS AND IS NOT RESTRICTED FROM PURSUING OTHER ACTIVITIES THAT MAY
COMPETE WITH US.
Barden Development, Inc. ("BDI"), an entity wholly owned and controlled
by Don H. Barden, beneficially owns all of our outstanding equity interests and
voting power. Mr. Barden is our Chairman of the Board, President and Chief
Executive Officer and the Chairman of the Board, President and Chief Executive
Officer of Majestic Investor, LLC, which is our parent, and Parent, which is the
parent of Majestic Investor, LLC. See "Management" and "Principal Owner." In
addition, we have entered into a management agreement with BDI which provides
for, among other things, a management fee payable by us to BDI for acting as our
manager, and an expense sharing agreement pursuant to which we will reimburse
Parent for a specified percentage of the costs and expenses of executives and
certain other employees who will also provide services to us and our
subsidiaries, rent and other similar costs and expenses. See "Material
Agreements--Management Agreement."
Accordingly, Mr. Barden has the power to elect a majority of our
managers, appoint new management and approve any action requiring the approval
of the holders of our membership interests, including adopting amendments to our
certificate of formation and operating agreement, approving mergers or sales of
substantially all of our assets or pursuing other transactions which may
increase the value of the principal owner's equity investment even though these
transactions may involve risks to you as a holder of notes. The managers elected
by our principal owner also have the authority to make decisions affecting our
capital structure. Accordingly, there can be no assurance that the interests of
our principal owner will not conflict with your interests as a holder of notes.
In addition, neither Mr. Barden nor any of the entities which he controls is
restricted from pursuing other opportunities which may compete for business with
our operations.
WE AND MAJESTIC INVESTOR, LLC ARE PROHIBITED BY THE INDENTURE GOVERNING THE
OUTSTANDING SENIOR SECURED NOTES OF PARENT FROM ENGAGING IN CERTAIN TRANSACTIONS
WITH PARENT.
We and Majestic Investor, LLC have been designated as unrestricted
subsidiaries by Parent under the indenture governing Parent's outstanding senior
secured notes. As a result, Parent and certain of its other subsidiaries are
prohibited from providing cash or credit support to us or our subsidiaries or to
Majestic Investor. We and our subsidiaries and Majestic Investor also are
prohibited from engaging in transactions with Parent and certain of its
subsidiaries other than on an arm's length basis and, if a proposed transaction
exceeds $2.0 million in value, Parent and certain of its subsidiaries may only
participate in such transaction with the approval of a majority of the
disinterested members of Parent's board of managers or following receipt of a
written fairness opinion from a nationally recognized investment banking firm
stating that the transaction is fair to Parent from a financial point of view.
Such restrictions could have an adverse effect on us by limiting our ability and
the ability of Majestic Investor to engage in transactions with Parent and its
other subsidiaries, which could potentially impact any synergies we realize from
the Fitzgeralds acquisition.
27
On the other hand, Parent may redesignate us or Majestic Investor as a
restricted subsidiary under its indenture. In such a case, our business and
operations and the business and operations of Majestic Investor, respectively,
would become subject to, and would be required to comply with, the restrictions
set forth in such indenture. These restrictions, many of which are similar to
those contained in the indenture governing the notes, could impair our ability
to raise capital, enter into certain transactions and conduct our business,
which could have a material effect on our business, growth, financial condition
and results of operations and our ability to make payments on the notes and our
other outstanding indebtedness.
28
THE MAJESTIC ENTITIES
MAJESTIC INVESTOR HOLDINGS, LLC AND MAJESTIC INVESTOR CAPITAL CORP.
We are indirect wholly owned subsidiaries of Parent, owner and operator
of The Majestic Star Casino, a riverboat casino located at Buffington Harbor in
Gary, Indiana, and are indirectly wholly owned and controlled by Don H. Barden,
our Chairman, President and Chief Executive Officer.
Majestic Investor Holdings, LLC was formed solely for the purposes of
acquiring substantially all of the assets of Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas. We completed this acquisition on December
6, 2001. Majestic Investor Holdings is a holding company and currently its only
material assets are its ownership interests in Majestic Investor Capital Corp.
and in Barden Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Barden
Nevada Gaming, LLC, the three newly formed subsidiaries which hold the
Fitzgeralds assets. Majestic Investor Capital Corp., the co-issuer of the
registered notes, was formed specifically to facilitate the offering of the
unregistered notes and the exchange of unregistered notes for registered notes,
and will have no material assets or operations.
Our ownership structure following the Fitzgeralds acquisition on
December 6, 2001, is as follows:
<Table>
<Caption>
Don H. Harden
Barden Development, Inc. ("BDI")1
The Majestic Star Casino, LLC2
Majestic Investor, LLC3
Majestic Investor Holdings, LLC4
Majestic Investor Capital Corp5 Barden Mississippi Barden Colorado Barden Nevada
(Issuer) Gaming, LLC6 Gaming, LLC6 Gaming, LLC6
Assets of Fitzgeralds Assets of Fitzgeralds Assets of Fitzgeralds
Tunica Black Hawk Las Vegas
</Table>
(1) An Indiana corporation wholly owned and controlled by Don H. Barden.
(2) An Indiana limited liability company formed in December 1993 that
commenced operations in June 1996. Wholly owned by BDI, the sole member
and manager.
(3) A Delaware limited liability company formed in September 2000 as an
"unrestricted subsidiary" of Parent under the indenture relating to
Majestic Star's 10 7/8% Senior Secured Notes due 2006. Wholly owned by
Parent, the sole member. Managed by certain of its officers.
(4) A Delaware limited liability company formed in September 2001 as an
indirect "unrestricted subsidiary" of Parent under the Majestic Star
indenture. Wholly owned by Majestic Investor, the sole member. Managed
by our executive officers.
(5) Formed in August 2001 solely to facilitate the offering of the notes.
(6) Barden Mississippi Gaming, LLC was formed in March 2001, Barden
Colorado Gaming, LLC was formed in April 2001 and Barden Nevada Gaming,
LLC was formed in November 2000, each to hold a gaming license in the
applicable jurisdiction and, upon consummation of the Fitzgeralds
acquisition, to hold the Fitzgeralds assets. Until the consummation of
the Fitzgeralds acquisition on December 6, 2001, these subsidiaries had
no material assets or operations. Wholly owned by Majestic Investor
Holdings, the sole member.
For a description of the casino properties that we acquired in the
Fitzgeralds acquisition, please see "Business."
29
USE OF PROCEEDS
We will not receive any proceeds from the exchange of the registered
notes for the unregistered notes pursuant to the exchange offer. We intend the
exchange offer to satisfy our obligations under the registration rights
agreement that we entered into in connection with the private offering of the
unregistered notes. Unregistered notes surrendered in exchange for the
registered notes will be retired and canceled and cannot be reissued.
We used the aggregate net proceeds from the offering of the
unregistered notes, together with the contribution of an aggregate of $14.0
million of equity from our member and one of our managers, (i) to acquire the
three Fitzgeralds casino properties and (ii) to pay related fees and expenses.
The acquisition of the Fitzgeralds properties closed concurrently with the
offering of the unregistered notes.
CAPITALIZATION
The following table sets forth the pro forma cash and cash equivalents
and consolidated capitalization of the Company as of September 30, 2001, giving
effect to the offering of the unregistered notes, borrowings under our new
credit facility and the application of the net proceeds of the offering of the
unregistered notes. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes thereto appearing
elsewhere in this prospectus.
AT SEPTEMBER 30, 2001
AS ADJUSTED
-----------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents.................. $ 11,208
===========
New credit facility(1)..................... $ 4,500
11.653% Senior Secured Notes due 2007(2)... 145,000
Capital lease obligations.................. 420
-----------
TOTAL LONG-TERM DEBT (INCLUDING CURRENT PORTION) 149,920
-----------
TOTAL MEMBER'S EQUITY..................... 14,000
-----------
TOTAL CAPITALIZATION.................... $ 163,920
===========
(1) We entered into a new $15.0 million senior secured credit facility, and
borrowed $4.5 million under that credit facility, concurrently with the
closing of the offering of the unregistered notes. We currently have
$6.5 million outstanding under that credit facility.
(2) Reflects issuance of $152.6 million aggregate principal amount of
registered notes at 95.0% of the principal amount thereof.
30
SELECTED FINANCIAL DATA
The following table presents selected historical combined financial
data for Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas at
December 31, 1999 and 2000 and September 30, 2001, for the years ended December
31, 1996, 1997, 1998, 1999 and 2000 and for the three quarters ended October 1,
2000 and September 30, 2001. The selected historical financial data at December
31, 1999 and 2000, and for the years ended December 31, 1998, 1999 and 2000,
presented below, have been derived from the audited combined financial
statements for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and
101 Main Street Limited Liability Company at those dates and for those periods.
The selected historical financial data at September 30, 2001, for the years
ended December 31, 1996 and 1997, and for the three quarters ended October 1,
2000 and September 30, 2001, presented below, have been derived from the
unaudited combined financial statements for Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company at
such date and for those periods. The unaudited financial statements have been
prepared on a basis consistent with the audited financial statements. All
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the interim combined financial statements, have been
included. Results for the three quarters ended October 1, 2000 and September 30,
2001 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" and the financial statements and the notes thereto appearing
elsewhere in this prospectus.
31
For the
Three Quarters
Ended
For the Year Ended December 31, October 1, September 30,
------------------------------- ------------------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Statement of Operations Data:
Operating revenues:
Casino ............................ $ 102,324 $ 124,599 $ 130,465 $ 138,929 $ 148,777 $ 112,934 $ 123,242
Food and beverage ................. 14,098 17,581 19,300 18,729 19,586 15,023 14,994
Rooms ............................. 10,850 15,932 15,822 16,293 16,600 12,456 12,309
Other ............................. 2,405 3,185 3,109 3,285 3,530 2,614 2,883
--------- --------- --------- --------- --------- --------- ---------
Total .......................... 129,677 161,297 168,696 177,236 188,493 143,027 153,428
Less: promotional allowances ......... 9,468 12,036 19,474 24,460 28,755 21,145 23,736
--------- --------- --------- --------- --------- --------- ---------
Net operating revenues ......... 120,209 149,261 149,222 152,776 159,738 121,882 129,692
Operating costs and expenses:
Casino ............................ 50,306 60,273 62,958 64,147 69,113 51,741 55,194
Food and beverage ................. 11,108 13,448 14,648 11,793 11,509 8,687 8,714
Rooms ............................. 7,793 10,674 10,747 10,701 10,905 8,039 8,061
Other operating expenses .......... 1,757 1,778 1,911 1,877 1,717 1,332 1,309
Selling, general and administrative 34,783 38,091 37,363 40,809 39,371 30,050 32,162
Depreciation and amortization ..... 7,611 10,320 11,052 11,726 11,688 9,295 --(1)
Reorganization items .............. -- -- -- -- 39 -- 109
--------- --------- --------- --------- --------- --------- ---------
Total .......................... 113,358 134,584 138,679 141,053 144,342 109,144 105,549
--------- --------- --------- --------- --------- --------- ---------
Income from operations ............... 6,851 14,677 10,543 11,723 15,396 12,738 24,143
Other income (expense):
Interest income ................... 1,783 445 191 130 167 133 34
Interest expense .................. (17,926) (20,987) (28,695) (28,200) (26,102) (21,105) (40)(1)
Other income (expense) ............ (1,624) (1,706) (3,308) 99 4 (7) (90)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income tax
provision and extraordinary item .... (10,916) (7,571) (21,269) (16,248) (10,535) (8,241) 24,047
Income tax provision ................. (677) -- -- -- -- -- --
Extraordinary loss on early
extinguishment of debt ............ -- (3,904) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) .................... (11,593) (11,475) $ (21,269) $ (16,248) $ (10,535) $ (8,241) $ 24,047
========= ========= ========= ========= ========= ========= =========
- ----------
(1) Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main
Street Limited Liability Company discontinued recording depreciation
and amortization of their property and equipment and interest on the
senior secured notes subsequent to the filing of the bankruptcy cases
on December 5, 2000.
32
At December 31, At September 30,
--------------- ----------------
1996 1997 1998 1999 2000 2000
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents ....... $ 10,475 $ 8,945 $ 8,748 $ 10,278 $ 2,840 $ 2,951
Net assets held for sale ........ -- -- -- -- 143,343(1) 147,017(1)
Total assets .................... 163,552 168,341 162,025 157,033 147,320 170,156
Total long-term debt
(including current portion) 17,644 4,558 3,326 719 -- --
Liabilities subject to compromise -- -- -- -- 225,873(1) 220,703(1)
Total stockholder's deficiency .. (4,231) (30,993) (52,262) (68,510) (79,045) (54,998)
- ----------
(1) The presentation relates to the planned sale of Fitzgeralds Las Vegas,
Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited
Liability Company and the related bankruptcy proceedings.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section discusses the combined results of operations of the three
Fitzgeralds casino properties, on a pro forma basis, giving effect to our
acquisition of those properties, and on a historical basis. The following
discussion should be read in conjunction with the "Summary Financial and
Operating Data," and the "Selected Financial Data" and the unaudited pro forma
consolidated financial statements and the historical combined financial
statements and the notes thereto appearing elsewhere in this prospectus. Certain
statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute "forward-looking statements"
within the meaning of the Litigation Reform Act, which statements involve risks
and uncertainties. See "Forward-Looking Statements" for additional information.
Historical information, other than revenues, may not necessarily be
meaningful, as our cost structure and capitalization following the acquisition
of the three Fitzgeralds casino properties is significantly different, nor
should it be relied upon as a reliable indicator of our future performance with
respect to the acquired properties. See "Pro Forma Results of Operations" below,
which should be read in conjunction with the unaudited pro forma consolidated
financial statements and the notes thereto included elsewhere in this
prospectus.
THE FITZGERALDS ACQUISITION
Majestic Investor Holdings, LLC was formed on September 14, 2001,
solely for the purposes of acquiring substantially all of the assets of
Fitzgeralds Las Vegas, Inc. (Fitzgeralds Las Vegas), Fitzgeralds Mississippi,
Inc. (Fitzgeralds Mississippi) and 101 Main Street Limited Liability Company
(Fitzgeralds Black Hawk) from Fitzgeralds Gaming Corporation. We completed the
Fitzgeralds acquisition on December 6, 2001, and we refer to the Fitzgeralds
casino properties in this Management's Discussion and Analysis of Financial
Condition and Results of Operations as the "properties." We do not currently own
or operate any other properties. Majestic Investor Holdings, LLC is a holding
company and its only material assets are its ownership interests in Majestic
Investor Capital Corp. and the three subsidiaries which hold the Fitzgeralds
casino properties.
To facilitate our acquisition of the Properties, Fitzgeralds Gaming
Corporation and its subsidiaries voluntarily filed for Chapter 11 Bankruptcy in
the United States Bankruptcy Court for the Northern District of Nevada on
December 5, 2000. The bankruptcy cases were commenced in accordance with a
restructuring agreement with the holders of a majority in interest of
Fitzgeralds Gaming Corporation's outstanding senior secured registered notes.
PRO FORMA RESULTS OF OPERATIONS
The pro forma results of operations include several pro forma
adjustments to the historical combined financial statements of the properties.
These adjustments fall into two principal categories: (i) cost reductions and
(ii) other adjustments related to the offering of the unregistered notes, the
acquisition and the restructuring and bankruptcy.
We expect to reduce costs by approximately $1.3 million per year. These
expected cost reductions for the three quarters ended September 30, 2001 and for
the year ended December 31, 2000, respectively, include a reduction of $1.0
million and $1.3 million in selling, general and administrative costs to more
closely approximate those expenses expected to be incurred under the new
ownership. These cost reductions exclude a reduction of $1.8 million and $2.4
million in casino costs to reflect employment terminations and cancellations of
certain leases and marketing agreements for the three quarters ended September
30, 2001 and for the year ended December 31, 2000, respectively as these cost
reductions may not fall within the SEC's Regulation S-X definition of "pro forma
adjustments." See the Notes to Unaudited Pro Forma Consolidated Financial
Statements for more detailed information on these adjustments.
The pro forma results of operations also reflect a $24.8 million net
increase in expenses for the three quarters ended September 30, 2001 and a $4.4
million net decrease in expenses for the year ended December 31, 2000, as a
result of adjustments related to the offering of the unregistered notes, the
acquisition of the properties, the bankruptcy, and the related restructuring.
These adjustments primarily are to record depreciation and amortization and to
accrue interest expense, which, in each case, the properties had ceased to
record following the filing of the bankruptcy cases and the entering into of the
restructuring agreement, in December 2000. For the three quarters ended
September 30, 2001 and for the year ended December 31, 2000, respectively,
depreciation and amortization expense has been increased by $9.6 million and
$1.1 million, respectively, related to depreciation and amortization for
34
previous periods for which no depreciation or amortization had been recognized,
as the related assets had been classified as "net assets held for sale"
following the restructuring. Interest expense has been adjusted to eliminate
$26.0 million of interest expense due to a related party for 2000 and to include
$13.3 million and $17.8 million of interest expense related to the notes for the
three quarters ended September 30, 2001 and for the year ended December 31,
2000, respectively (based on the 11.653% annual interest rate and the issuance
price of 95.0%), $1.0 million and $1.4 million related to the amortization of
the fees and expenses relating to the offering of the unregistered notes, and
$1.0 million and $1.3 million related to the amortization of debt discount. Pro
forma interest expense also includes $40,401 and $71,382 of interest expense for
the three quarters ended September 30, 2001 and for the year ended December 31,
2000, respectively, related to capital leases which we assumed at the closing of
the Fitzgeralds acquisition. Aggregate adjustments of $0.1 million and $(0.1)
million have been made to eliminate certain items of interest income, other
income and expense, and reorganization items as non-recurring one-time charges
and credits for the three quarters ended September 30, 2001 and for the year
ended December 31, 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the properties had unrestricted cash of $12.8
million compared to $13.0 million at December 31, 2000, which amounts each
include $9.8 million and $10.1 million of cash classified in net assets held for
sale. The properties' primary sources of liquidity and cash flows during the
three quarters ended September 30, 2001 were operations of $0.9 million. Net
cash used in investing activities was $0.9 million for the three quarters ended
September 30, 2001 compared to net cash used in investing activities of $8.7
million for the three quarters ended October 1, 2000. Cash used in investing
activities for the three quarters ended October 1, 2000 included $5.5 million
for the parking garage expansion at Fitzgeralds Tunica. Net cash used in
financing activities was $0.2 million and $0.4 million for the three quarters
ended September 30, 2001 and October 1, 2000, respectively. The properties'
principal sources of capital historically have consisted of cash from
operations, and vendor or third party financing of gaming and other equipment.
We used the net proceeds from the issuance of the unregistered notes,
together with the contribution of an aggregate of $14.0 million of equity by our
member and one of our managers, to acquire the three Fitzgeralds casino
properties on December 6, 2001, and to pay related fees and expenses. See "Use
of Proceeds."
At September 30, 2001, after giving pro forma effect to the Fitzgeralds
acquisition and the offering of the unregistered notes, cash, cash equivalents
and short-term investments on a pro forma basis would have been $11.2 million,
and our total debt on a pro forma basis would have been $145.4 million. Pro
forma for such transactions, EBITDA for the four quarters ended September 30,
2001 would have been $30.7 million. Such calculation of EBITDA equals historical
income from operations of $26.8 million, plus historical depreciation and
amortization of $2.4 million, plus $147,611 to exclude certain non-recurring
reorganization expenses, plus anticipated annual cost reductions of $1.3 million
which we expect to realize from such transactions.
We entered into a new $15.0 million senior secured credit facility
concurrently with the closing of the offering of the unregistered notes, under
which $6.5 million is currently outstanding. At the time we entered into our
credit facility, the trustee under the indenture (as collateral agent) entered
into an intercreditor agreement with the lender under our credit facility which,
among other things, subordinated the liens securing the registered notes and the
guarantees to the liens securing the indebtedness under our credit facility. See
"Description of Credit Facility and Intercreditor Agreement" and "Description of
Registered Notes-- Intercreditor Agreement."
We believe that pro forma cash flow from operations, pro forma cash and
cash equivalents and availability of borrowings under our credit facility will
be adequate to meet our pro forma debt service obligations for the next twelve
months and our maintenance capital expenditure requirements, which we estimate
to be approximately $6.0 million in the aggregate, over the next twelve months.
However, there can be no assurance that these sources of cash or our credit
facility will be sufficient to enable us to do so. In addition to making
maintenance capital expenditures, we may expand our existing properties, pursue
the acquisition of other properties or companies or engage in new development
opportunities. See "Business--Properties." As a result, we may need to enter
into new financing arrangements and raise additional capital in the future.
There can be no assurance that we will be able to raise capital or obtain the
necessary sources of liquidity and financing on favorable terms, or at all. In
addition, any debt financing that we incur in the future will increase the
amount of our outstanding indebtedness, our debt service requirements, and the
related risks we currently face.
35
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain historical operating results for
the properties for the periods indicated.
FOR THE FOR THE
THREE QUARTERS ENDED FOUR QUARTERS
FOR THE YEAR ENDED DECEMBER 31, -------------------- ENDED
------------------------------- OCTOBER 1, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 2000 2000 2001 2001
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
NET OPERATING REVENUES
Fitzgeralds Tunica .......... $ 64,012 $ 69,582 $ 75,062 $ 57,191 $ 63,176 $ 81,047
Fitzgeralds Black Hawk ...... 34,223 32,284 32,537 25,087 25,916 33,366
Fitzgeralds Las Vegas ....... 50,987 50,910 52,139 39,604 40,600 53,135
--------- --------- --------- --------- --------- ---------
Total ................... $ 149,222 $ 152,776 $ 159,738 $ 121,882 $ 129,692 $ 167,548
========= ========= ========= ========= ========= =========
INCOME (LOSS) FROM OPERATIONS
Fitzgeralds Tunica .......... $ 2,063 $ 5,321 $ 9,018 $ 7,210 $ 15,580 $ 17,388
Fitzgeralds Black Hawk ...... 9,074 7,517 6,385 5,228 6,245 7,402
Fitzgeralds Las Vegas ....... (594) (1,115) (7) 300 2,318 2,011
--------- --------- --------- --------- --------- ---------
Total ................... $ 10,543 $ 11,723 $ 15,396 $ 12,738 $ 24,143 $ 26,801
========= ========= ========= ========= ========= =========
THREE QUARTERS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE QUARTERS
ENDED OCTOBER 1, 2000
Operating Revenues. Total operating revenues for the properties were
$153.4 million and net operating revenues were $129.7 million for the three
quarters ended September 30, 2001, representing a 7.3% increase and a 6.4%
increase, respectively, over total operating revenues of $143.0 million and net
operating revenues of $121.9 million for the three quarters ended October 1,
2000.
Each property's business can be separated into four operating
departments: casino, food and beverage, rooms (except for Fitzgeralds Black
Hawk) and other. Casino revenues for the properties represented 80.3% and 79.0%
of total operating revenues for the properties for the three quarters ended
September 30, 2001 and October 1, 2000, respectively. Casino operating revenues
for the properties (of which approximately 88.9% and 87.7% were derived from
slot machine revenues for the three quarters ended September 30, 2001 and
October 1, 2000, respectively) increased 9.1% to $123.2 million for the three
quarters ended September 30, 2001 from $112.9 million for the three quarters
ended October 1, 2000. Casino revenues increased 15.5%, 3.3% and 2.8%,
respectively, at Fitzgeralds Tunica, Fitzgeralds Las Vegas and Fitzgeralds Black
Hawk.
Room revenues for the properties (8.0% and 8.7% of total operating
revenues for the properties for the three quarters ended September 30, 2001 and
October 1, 2000, respectively) decreased 1.2% from the three quarters ended
October 1, 2000. Room revenue decreased 1.3% at Fitzgeralds Las Vegas due to a
decrease in the average daily rate of 0.7% offset by an increase in the
occupancy rate to 93.6% for the three quarters ended September 30, 2001, from
91.9% for the three quarters ended October 1, 2000. At Fitzgeralds Tunica, room
revenue decreased 1.1% from the three quarters ended October 1, 2000 due to a
combination of a higher average occupancy rate, which increased 2.3%, offset by
a decrease in the average daily rate of 0.6%.
Food and beverage revenues for the properties (9.8% and 10.5% of total
operating revenues for the properties for the three quarters ended September 30,
2001 and October 1, 2000, respectively) decreased slightly for the three
quarters ended September 30, 2001. Fitzgeralds Tunica food and beverage revenue
increased 4.0% while Fitzgeralds Las Vegas and Fitzgeralds Black Hawk
experienced revenue decreases of 4.1% and 1.1%, respectively.
Promotional allowances for the properties increased $2.6 million or
12.3% for the three quarters ended September 30, 2001. Promotional allowances
represent the retail value of rooms, food and beverages provided to customers
without charge, which amounts are included in the operating revenues described
above. Promotional allowances are deducted from operating revenues in the
determination of net operating revenues. The estimated costs of providing the
complimentary services are charged to the casino department and are included in
casino expenses described below.
36
Operating Costs and Expenses. Total operating costs and expenses for
the properties decreased 3.3% to $105.6 million for the three quarters ended
September 30, 2001 from $109.1 million for the three quarters ended October 1,
2000 primarily due to the discontinuation of recording depreciation and
amortization expense following the filing of the bankruptcy cases in December
2000.
Casino expenses for the properties were $55.2 million for the three
quarters ended September 30, 2001, a 6.7% increase from $51.7 million for the
three quarters ended October 1, 2000, primarily due to increases in payroll
expenses and expenses relating to the leasing and the rental of slot machines.
Food and beverage expenses for the properties increased slightly for the three
quarters ended September 30, 2001 to $8.7 million. Room expenses for the
properties also increased slightly for the three quarters ended September 30,
2001 to $8.1 million. Selling, general and administrative expenses for the
properties increased 7.0% to $32.2 million for the three quarters ended
September 30, 2001 from $30.1 million for the three quarters ended October 1,
2000.
Personnel expenses for the properties increased 2.9% to approximately
$50.4 million for the three quarters ended September 30, 2001 from approximately
$49.0 million for the three quarters ended October 1, 2000. Personnel expenses
increased 2.7%, 2.7% and 3.2%, respectively for Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas.
Marketing expenses for the properties, which include advertising,
promotional material, special events and the operations of the Fitzgeralds
player-tracking card, decreased $0.6 million or 7.7% for the three quarters
ended September 30, 2001 as compared to the three quarters ended October 1,
2000.
There were no depreciation and amortization expenses for the properties
for the three quarters ended September 30, 2001 as compared to $9.3 million for
the three quarters ended October 1, 2000, due to the discontinuation of
recording depreciation and amortization expense for property and equipment
included in net assets held for sale, subsequent to filing the bankruptcy cases
in December 2000.
Corporate expense of $2.3 million for each of the three quarters ended
September 30, 2001 and October 1, 2000 is allocated to the properties as an
operating expense.
Income from Operations. Income from operations for the properties
increased 89.5% to $24.1 million for the three quarters ended September 30, 2001
from $12.7 million for the three quarters ended October 1, 2000. The increase
was primarily due to the discontinuation of recording depreciation and
amortization expense during the three quarters ended September 30, 2001.
Net Interest Expense. Interest expense for the properties (net of
interest income) was approximately zero for the three quarters ended September
30, 2001, compared to $20.9 million for the three quarters ended October 1,
2000, due to the discontinuation of accrual of interest on December 5, 2000 with
the commencement of the bankruptcy cases. Section 506(b) of the Bankruptcy Code
permits the allowance of interest on an allowed secured claim secured by
property, the value of which is greater than the amount of the claim. Inasmuch
as the parties to the restructuring agreement have concluded that the fair
market value of the collateral securing Fitzgerald Gaming Corporation's senior
secured notes is less than the outstanding principal of such notes, concurrently
with the filing of the bankruptcy cases on December 5, 2000, Fitzgerald Gaming
Corporation ceased accruing interest on its senior secured notes.
Net Income. Net income for the properties increased $32.3 million to
$24.1 million in the three quarters ended September 30, 2001 compared to a net
loss of $8.2 million in the three quarters ended October 1, 2000 primarily as a
result of the discontinuation of recording depreciation and amortization expense
for property and equipment included in net assets held for sale, and ceasing to
accrue interest expense on Fitzgeralds Gaming Corporation's senior secured notes
following the filing of the bankruptcy cases.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Operating Revenues. Total operating revenues for the properties were
$188.5 million and net operating revenues were $159.7 million for 2000,
representing increases of 6.4% and 4.6%, respectively, over total revenues for
the properties of $177.2 million and net operating revenues of $152.8 million
for 1999. Such increases were largely the result of the improved
37
performance of Fitzgeralds Tunica, which opened a 411-space covered parking
garage in June 2000. To maintain market share in each of their existing markets,
the properties found it necessary to increase their promotional and
complimentary expenses in 2000, as described below, to meet the challenges of
the intense competition.
Casino revenues (of which approximately 87.8% and 86.7% are derived
from slot machine revenues for 2000 and 1999, respectively) increased 7.1% to
$148.8 million for 2000 from the $138.9 million recorded for 1999.
Room revenues (at 8.8% and 9.2% of total operating revenues for 2000
and 1999, respectively) increased 1.9% from 1999. Fitzgeralds Las Vegas room
revenue decreased 0.2% as its average daily rate decreased 0.8%, while occupancy
rates remained the same at 92.1% for 2000 and 1999. Fitzgeralds Tunica room
revenue increased 4.1% due to a 3.2% increase in the average daily rate while
occupancy rates increased to 92.5% in 2000 from 92.1% in 1999.
Food and beverage operating revenues (at 10.4% and 10.6% of total
revenues for 2000 and 1999, respectively) increased 4.6% from 1999. There were
increases in food revenues of 0.4%, 4.2% and 9.1% at Fitzgeralds Las Vegas,
Fitzgeralds Black Hawk and Fitzgeralds Tunica, respectively. The food revenue
increase at Fitzgeralds Tunica was due primarily to an increase in volumes,
while the food revenue increases at Fitzgeralds Las Vegas and Fitzgeralds Black
Hawk were due to pricing increases.
Other revenues increased 7.5% for 2000, as compared to 1999, primarily
due to an additional $0.2 million of revenue generated from lease income and
management fees paid to Fitzgeralds Las Vegas by e.three Custom Energy
Solutions, LLC, which owns and operates a chilled water plant on land leased
from Fitzgeralds Las Vegas and for which Fitzgeralds Las Vegas provides
maintenance services.
Promotional allowances showed a net increase of $4.3 million or 17.6%
for 2000, as compared to 1999, reflecting the increased level of competition in
all three markets.
Operating Costs and Expenses. Total operating costs and expenses for
the properties increased 2.3%, to $144.3 million for 2000 from $141.1 million
for 1999. The increase is a result of increased competition in the Tunica and
Black Hawk/Central City markets as personnel expenses at Fitzgeralds Tunica and
Fitzgeralds Black Hawk increased 4.9% and 9.0%, respectively, from 1999, due to
increased wages in response to competition. The increase also reflects more
intensive marketing efforts at each property undertaken in response to
increasing competition in each of the markets in which the properties operate,
particularly at Fitzgeralds Tunica, in addition to Fitzgeralds Black Hawk.
Casino expenses were $69.1 million for 2000, a 7.7% increase from $64.1
million for 1999, primarily due to increases in expenses associated directly
with increased casino revenues, particularly personnel expenses and gaming
taxes. Food and beverage expenses decreased 2.4% to $11.5 million for 2000 from
$11.8 million for 1999. Room expenses increased 1.9% for 2000 from $10.7 million
in 1999. Selling, general and administrative expenses decreased 3.5% to $39.4
million for 2000 from $40.8 million for 1999.
Depreciation and amortization expense slightly decreased 0.3% to $11.7
million for 2000, due to the discontinuation of recording depreciation and
amortization expense for property and equipment included in net assets held for
sale subsequent to filing the bankruptcy cases in December 2000.
Corporate expense of $3.0 million for each of 2000 and 1999 is
allocated to the properties as an operating expense.
Income from Operations. As a result of the foregoing, income from
operations for the properties increased 31.3% to $15.4 million for 2000 from
$11.7 million in 1999.
Net Interest Expense. Interest expense (net of interest income)
declined 7.6% to $25.9 million for 2000 from $28.1 million for 1999. Fitzgerald
Gaming Corporation ceased accruing interest on its senior secured notes on
December 5, 2000 with the commencement of the bankruptcy cases.
Net Loss. Net loss for the properties decreased to $10.5 million in
2000 compared to $16.2 million in 1999.
38
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Operating Revenues. Total operating revenues for the properties were
$177.2 million and net operating revenues were $152.8 million for 1999,
representing increases of 5.1% and 2.4%, respectively, over total revenues for
the properties of $168.7 million and net revenues of $149.2 million for 1998.
Casino revenues (of which approximately 86.7% and 85.4% are derived
from slot machine revenues for 1999 and 1998, respectively) increased 6.5% to
$138.9 million for 1999 from the $130.5 million recorded for 1998.
Room revenues (at 9.2% and 9.4% of total operating revenues for 1999
and 1998, respectively) increased 3.0% from 1998. Fitzgeralds Las Vegas room
revenue increased 6.3% due to an increase in occupancy rates to 92.1% in 1999
from 88.8% in 1998, while its average daily rate increased 3.7%. Fitzgeralds
Tunica room revenue decreased 0.4% due to a decrease in occupancy to 92.1% in
1999 from 94.3% in 1998, which was offset by a 1.9% increase in the average
daily rate.
Food and beverage revenues (at 10.6% and 11.4% of total operating
revenues for 1999 and 1998, respectively) decreased 3.0% from 1998. Decreases in
food revenues of 7.4% and 8.1% at Fitzgeralds Las Vegas and Fitzgeralds Black
Hawk, respectively, were offset by an increase of 4.1% at Fitzgeralds Tunica.
The decrease at Fitzgeralds Las Vegas was due to changes in utilization of food
product as a marketing strategy to generate traffic volumes while the decrease
at Fitzgeralds Black Hawk was due to increased gaming competition in the Black
Hawk/Central City market.
Other operating revenues increased $0.2 million, or 5.7% for 1999, to
$3.3 million.
Promotional allowances showed a net increase of $5.0 million or 25.6%
for 1999, as compared to 1998, reflecting the increased level of competition in
all three markets.
Operating Costs and Expenses. Total operating costs and expenses for
the properties increased 1.7%, to $141.1 million for 1999 from $138.7 million
for 1998. The increase is a result of increased competition in the Tunica and
Black Hawk/Central City markets as personnel expenses at Fitzgeralds Tunica and
Fitzgeralds Black Hawk increased 5.8% and 6.8%, respectively, from 1998, due to
increased wages in response to competition. The increase also reflects more
intensive marketing efforts at each property undertaken in response to
increasing competition in each of the markets in which the properties operate,
particularly at Fitzgeralds Tunica in addition to Fitzgeralds Black Hawk.
Casino expenses were $64.1 million for 1999, a 1.9% increase from $63.0
million for 1998, primarily due to increases in promotional expenses associated
with the Fitzgeralds player-tracking card. Food and beverage expenses decreased
19.5% to $11.8 million for 1999 from $14.6 million for 1998, due to improved
cost controls at all of the properties, with Fitzgeralds Las Vegas and
Fitzgeralds Tunica achieving the largest improvement as expenses decreased 22.9%
and 14.7%, respectively, for 1999. Room expenses decreased 0.4% for 1999 from
$10.7 million in 1998. Selling, general and administrative expenses increased
9.2% to $40.8 million for 1999 from $37.4 million for 1998.
Depreciation and amortization expense increased 6.1% to $11.7 million
for 1999 from $11.1 million for 1998, due to the acquisition of additional
property and equipment.
Corporate expense of $3.0 million for each of 1999 and 1998 is
allocated to the properties as an operating expense.
Income from Operations. As a result of the foregoing, income from
operations for the properties increased 11.2% to $11.7 million for 1999 from
$10.5 million in 1998.
Net Interest Expense. Interest expense (net of interest income)
decreased 1.5% to $28.1 million for 1999 from $28.5 million for 1998.
Net Loss. Net loss for the properties decreased to $16.2 million in
1999 compared to $21.3 million in 1998.
39
BUSINESS SEASONALITY
The gaming operations of the properties may be seasonal and, depending
on the location and other circumstances, the effects of such seasonality could
be significant. At Fitzgeralds Las Vegas, business levels are generally weaker
from Thanksgiving through the middle of January (except during the week between
Christmas and New Year's) and throughout the summer, and generally stronger from
mid-January through Easter and from mid-September through Thanksgiving. At
Fitzgeralds Tunica and Fitzgeralds Black Hawk, business levels are typically
weaker from Thanksgiving through the end of the winter and typically stronger
from mid-June to mid-November.
The properties' results are also affected by inclement weather in
relevant markets. For example, the Fitzgeralds Black Hawk site, located in the
Rocky Mountains of Colorado, is subject to snow and icy road conditions during
the winter months. Any such severe weather conditions may discourage potential
customers from visiting the Black Hawk facilities.
RECENTLY ISSUED ACCOUNTING STANDARDS
On June 30, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 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 fiscal year ending December 31, 2001. Adoption of this
statement did not have a material impact on the properties' financial condition
or results of operations.
The properties have 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 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 expensed the cash coupons, players club reward program and other cash
back programs as a casino or marketing expense. Such expenses have been
reclassified to promotional allowances for all periods presented. The total
amount of the reclassification was $12.3 million, $9.6 million and $6.4 million
for the years ended December 31, 2000, 1999 and 1998, respectively.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 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. Management
does not believe that adoption of this standard will have a significant impact
on the properties' financial condition or results of operations.
Also in June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which is effective January 1, 2002. This statement requires
that goodwill and other intangible assets with indefinite useful lives no longer
be amortized, but instead tested for impairment at least annually. Amortization
will still be required for intangible assets with finite lives. Management is
currently assessing but has not yet determined the impact of this standard on
the properties' financial condition and results of operations.
Also in June 2001, the Financial Accounting Standards Board 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. Management is
currently evaluating the impact that this standard will have on the properties'
financial condition and results of operations.
In August 2001, the Financial Accounting Standards Board 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 Assets to Be
40
Disposed Of. Management is currently evaluating the impact that this standard
will have on the properties' financial condition and results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have approximately $152.6 million principal amount of notes
outstanding under our indenture. We have no variable rate debt. Our fixed rate
debt instruments are not generally affected by a change in the market rates of
interest and therefore, such instruments generally do not have an impact on
future earnings. However, as our fixed rate debt matures, future earnings and
cash flows may be impacted by changes in interest rates related to debt incurred
to fund repayments under maturing facilities. 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.
41
BUSINESS
GENERAL
Our operations consist of three casino properties formerly owned and
operated by Fitzgeralds Gaming Corporation in Tunica, Mississippi, Black Hawk,
Colorado, and downtown Las Vegas, Nevada. We acquired these casino properties
from Fitzgeralds Gaming Corporation and certain of its affiliates on December 6,
2001. Our properties collectively contain approximately 2,900 slot machines, 60
table games, and 1,100 hotel rooms. Our properties are well established, each
having been in operation for at least five years, and are located within
significant gaming markets. These markets collectively generated approximately
$2.3 billion in gaming revenue in 2000. We operate our properties under the
Fitzgeralds name in order to continue to benefit from the strong name brand
recognition.
We are indirectly wholly owned subsidiaries of Parent and are
indirectly wholly owned and controlled by Don H. Barden, our Chairman, President
and Chief Executive Officer. Mr. Barden has an established track record of
operating, developing and acquiring properties in the gaming industry and in
other industries. Mr. Barden, through Parent, owns and operates the Majestic
Star Casino, a gaming facility containing 1,434 slot machines and 49 table games
in Gary, Indiana that serves the Chicago metropolitan area.
PROPERTIES
Fitzgeralds Tunica. Fitzgeralds Tunica is located in north Tunica
County, Mississippi, approximately 30 miles from downtown Memphis, Tennessee.
Fitzgeralds Tunica has an Irish castle theme and is the focal point of a heavily
wooded, 121-acre site situated by the Mississippi River. The Fitzgeralds Tunica
casino barge facility opened in June 1994 at a cost of approximately $46.0
million. The facility was expanded to include a hotel and related amenities,
which improvements were substantially completed in October 1996 at a cost of
approximately $34.0 million. Fitzgeralds Tunica is a full-service entertainment
destination and its customer base has been increased and diversified by its
ability to attract, in addition to local customers, independent travelers,
tour-and-travel customers and guests for special events and conventions.
Fitzgeralds Tunica includes a 507-room hotel (including 72 suites), a special
events center, an indoor swimming pool and a casino offering approximately 1,400
slot machines and 34 table games, two bars, three restaurants and a gift shop.
Under Mississippi law, gaming vessels in Tunica County must be located on the
Mississippi River or on navigable waters within counties bordering the
Mississippi River. Fitzgeralds Tunica was constructed on barges situated in a
specially constructed basin. In June 2000, construction was completed on a
411-space 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 covered valet spaces.
Fitzgeralds Tunica has conveyed approximately 71 acres of adjacent land to the
County of Tunica, as part of the County's 168-acre, $20 million river park
project, which will include, among other things, a marina and boat dock
(including space for sight-seeing paddlewheel riverboats) and a nature park. As
consideration for the conveyance, the County granted Fitzgeralds Tunica a
rent-free lease to use and further sublease the boat dock for 15 years, as well
as a perpetual easement allowing ingress and egress between the Fitzgeralds
Tunica property and the boat dock. Fitzgeralds has granted Mississippi Riverboat
Company LLC an exclusive license to operate riverboat excursions along the
Mississippi River from the boat dock in return for monthly license fees.
Construction began on the park in mid October 2001, and we expect the park to
open in phases beginning in July 2002 through March 2003.
Fitzgeralds Black Hawk. Fitzgeralds Black Hawk is located adjacent to
the entrance to the downtown gaming area of Black Hawk, Colorado, next to the
Gilpin Casino and across the street from Bullwhackers. Fitzgeralds Black Hawk
consists of a two-story building, the interior of which features high ceilings
and other architectural details which set it apart visually from many other
Black Hawk casinos. The casino offers 596 slot machines, 6 table games, a
restaurant and a bar. The second floor is mostly unfinished and currently is
partially used for offices and storage space. Fitzgeralds Black Hawk also has a
392-space, all valet parking garage adjacent to the casino. In addition, we
recently authorized and began a $304,000 demolition project on property adjacent
to Fitzgeralds Black Hawk. This property is available for expansion if market
conditions warrant and we are currently evaluating the possibility of such an
expansion to better serve this growing market. Fitzgeralds has obtained some,
but not all, of the permits necessary to undertake the proposed expansion.
42
Fitzgeralds Las Vegas. Fitzgeralds Las Vegas is located on the city
block bounded by Fremont, Carson, Third and Fourth Streets at the Fremont Street
Experience in downtown Las Vegas. The property is accessible via Interstate 15
and U.S. 95 and markets to downtown Las Vegas tourists, numbering approximately
35.8 million in 2000, and, to a lesser extent, to the approximately 1.6 million
residents of the Las Vegas MSA. The 34-story building underwent a refurbishment
of the hotel and remodeling expansion of the casino which was substantially
completed in December 1996 at a cost of approximately $19.4 million. Fitzgeralds
Las Vegas offers 973 slot machines, 23 table games, 638 hotel rooms (including
14 suites), a 42-seat keno lounge and a sports book (operated by a third party).
Fitzgeralds Las Vegas amenities include four restaurants (including a McDonald's
restaurant), three bars, an ice cream parlor (operated by a third party), a
special events center, a gift shop and an entertainment area. The facility
includes a 335-space parking structure and an adjacent surface parking area with
an additional 41 spaces.
MAJESTIC INVESTOR CAPITAL CORP.
Majestic Investor Capital Corp. is a wholly owned subsidiary of
Majestic Investor Holdings, LLC, and was formed specifically to facilitate the
offering of the notes. It does not have any material assets.
MARKETS
FITZGERALDS TUNICA
The Tunica market, which primarily serves the Memphis, Tennessee area,
also attracts drive-in customers from Northern Mississippi and Little Rock,
Arkansas, as well as regional weekend travelers flying into Memphis. The market
draws most of its customers from within a 200-mile radius of the Tunica market.
The population within this 200-mile radius was approximately 7.3 million in
2000. There were approximately 22.0 million visitors to Tunica in 2000.
The following table sets forth certain data for the Tunica gaming
market, based on information reported by the Mississippi Gaming Commission based
on data from the Tunica County Administrator's tax records with respect to the
Tunica gaming market, and for Fitzgeralds Tunica, for the periods indicated.
FOR THE NINE MONTHS FOR THE TWELVE
FOR THE TWELVE MONTHS ENDED DECEMBER ENDED SEPTEMBER MONTHS ENDED
------------------------------------ --------------- SEPTEMBER
1998 1999 2000 2000 2001 2001
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
TUNICA MARKET DATA:(1)
Gaming Revenues ...... $ 966,664 $1,058,231 $1,099,142 $ 836,762 $ 839,810 $1,102,190
Growth Rate(2) ....... 9.5% 3.9% 0.4%
Gaming Positions(3) .. 17,261 18,116 18,282 18,477 18,155 18,041
FITZGERALDS TUNICA
PROPERTY DATA:(4)
Gaming Revenues ...... $ 59,566 $ 65,676 $ 73,507 $ 54,953 $ 63,471 $ 82,025
Growth Rate(2) ....... 10.3% 11.9% 15.5%
Gaming Positions(3) .. 1,379 1,415 1,486 1,472 1,541 1,538
Fair Share(5) ........ 77.1% 79.5% 82.3% 82.4% 89.0% 87.3%
- ----------------
(1) Tunica uses either a 28-day or a 35-day reporting month instead of a
calendar reporting month. As a result: (a) the twelve months ended
December 1998, 1999 and 2000 mean, respectively, the periods from
December 21, 1997 through December 22, 1998; December 23, 1998 through
December 18, 1999; and December 19, 1999 through December 16, 2000; (b)
the nine months ended September 2000 and 2001 mean, respectively, the
periods from December 19, 1999 through September 16, 2000 and December
17, 2000 through September 15, 2001; and (c) the twelve months ended
September 2001 means the period from September 17, 2000 through
September 15, 2001.
(2) % change from comparable prior-year period.
43
(3) Determined by averaging the number of gaming positions for each
reporting month in such period.
(4) Property data is presented: (a) for the years ended December 31, 1998,
1999 and 2000, respectively; (b) for the three quarters ended October
1, 2000 and September 30, 2001, respectively; and (c) for the four
quarters ended September 30, 2001.
(5) Equals property's market share of gaming revenues divided by property's
market share of gaming positions, for such period.
FITZGERALDS BLACK HAWK
The Black Hawk/Central City market, which includes the City of Black
Hawk and Central City, attracts drive-in or "day trip" customers from the
population centers of Denver, Boulder and Fort Collins, Colorado as well as
Cheyenne, Wyoming. These population centers are located within a 100-mile radius
of the Black Hawk/Central City market. The population within this 100-mile
radius has experienced steady growth from a population of approximately 2.8
million in 1990 to approximately 3.7 million in 2000.
The following table sets forth certain data for the Black Hawk/Central
City market, based on information reported by the Colorado Division of Gaming
with respect to the Black Hawk/Central City market, and for Fitzgeralds Black
Hawk, for the periods indicated.
FOR THE NINE MONTHS FOR THE TWELVE
FOR THE YEAR ENDED DECEMBER ENDED SEPTEMBER 30, MONTHS ENDED
--------------------------- ------------------- SEPTEMBER 30,
1998 1999 2000 2000 2001 2001
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
BLACK HAWK/CENTRAL CITY
MARKET DATA:
Gaming Revenues ....... $365,987 $428,708 $497,222 $375,040 $404,430 $526,612
Growth Rate(1) ........ 17.1% 16.0% 7.8%
Gaming Positions(2) ... 9,748 10,663 11,170 11,160 10,930 10,997
FITZGERALD BLACK HAWK
PROPERTY DATA(3):
Gaming Revenues ....... $ 35,086 $ 35,123 $ 36,794 $ 28,403 $ 29,209 $ 37,600
Growth Rate(1) ........ 0.1% 4.8% 2.8%
Gaming Positions(2) ... 612 602 627 626 632 632
Fair Share(4) ......... 152.7% 145.1% 131.8% 135.1% 124.9% 124.2%
- ----------------
(1) % change from comparable prior-year period.
(2) Determined by averaging the number of gaming positions for each
reporting month in such period.
(3) Property data is presented: (a) for the years ended December 31, 1998,
1999 and 2000, respectively; (b) for the three quarters ended October
1, 2000 and September 30, 2001, respectively; and (c) for the four
quarters ended September 30, 2001.
(4) Equals property's market share of gaming revenues divided by property's
market share of gaming positions, for such period.
FITZGERALDS LAS VEGAS
Las Vegas continues to grow rapidly and is one of the world's largest
tourist destinations. The population of the Las Vegas MSA has nearly doubled,
from approximately 0.9 million in 1990 to approximately 1.6 million in 2000,
with casino, hotel and airport facilities growing concomitantly. In the same
time period, the number of visitors to downtown Las Vegas has increased 71.1%,
from approximately 21.0 million in 1990 to approximately 35.8 million in 2000.
44
In order to more fully participate in this growth, the downtown gaming
companies opened the Fremont Street Experience in December 1995 to revitalize
the central core of the downtown Las Vegas gaming district. The Fremont Street
Experience converts five blocks of Fremont Street into a "must see" attraction
that restores and enhances the intimacy and visual excitement of downtown Las
Vegas. The Fremont Street Experience includes a pedestrian mall, shops,
restaurants and entertainment beneath an approximately 1,500-foot long, 90-foot
high Space Frame, which incorporates approximately 2.1 million lights to offer a
number of "Sound and Light Shows" as well as a number of special events and
festivals. A project has been proposed to visually enhance the Fremont Street
Experience "Sound and Light Shows" by replacing the existing light display with
flat panel display screens which have the capability to show televised and other
multimedia events and programming, thereby dramatically enhancing the range of
entertainment programming options. With its appeal to adults, together with its
location on Fremont Street, the Fremont Street Experience is distinguishable
from other Las Vegas attractions and draws both locals and tourists who might
not otherwise visit the downtown area. In addition, the most recent development
in the downtown Las Vegas area is the approximately $100 million Neonopolis
project, a 250,000 square foot retail and entertainment venue with a 14 screen
movie theater that is currently expected to open in April 2002. The project will
also include a $32 million, 600 space underground parking garage. This project
is located at the east end of the Fremont Street Experience and across from our
Fitzgeralds Las Vegas property.
We believe that many gaming patrons choose to stay and play in downtown
Las Vegas because the downtown casinos have traditionally provided a more
comfortable and less intimidating environment and are perceived to offer more
liberal slot payouts and better odds on table games than casinos located on the
Las Vegas Strip.
The following table sets forth certain operating results for the
downtown Las Vegas gaming market, based on information reported by the Nevada
State Gaming Control Board with respect to the downtown Las Vegas gaming market,
and for Fitzgeralds Las Vegas, for the periods indicated.
FOR THE NINE MONTHS FOR THE TWELVE
FOR THE YEAR ENDED DECEMBER ENDED SEPTEMBER 30, MONTHS ENDED
--------------------------- ------------------- SEPTEMBER 30,
1998 1999 2000 2000 2001 2001
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
LAS VEGAS MARKET DATA:
Gaming Revenues ...... $ 678,704 $ 666,918 $ 673,768 $ 506,526 $ 518,085 $ 685,327
Growth Rate(1) ....... (1.7)% 1.0% 2.3%
Gaming Positions(2) .. 21,766 21,159 20,976 20,939 20,683 20,790
FITZGERALD LAS VEGAS
PROPERTY DATA(3):
Gaming Revenues ...... $ 35,813 $ 38,130 $ 38,476 $ 29,578 $ 30,562 $ 39,460
Growth Rate(1) ....... 6.5% 0.9% 3.3%
Gaming Positions(2) .. 1,217 1,183 1,137 1,147 1,103 1,103
Fair Share(4) ........ 94.4% 102.3% 105.4% 106.6% 110.6% 108.5%
- ----------------
(1) % change from comparable prior-year period.
(2) Determined by averaging the number of gaming positions for each
reporting month in such period.
(3) Property data is presented: (a) for the years ended December 31, 1998,
1999 and 2000, respectively; (b) for the three quarters ended October
1, 2000 and September 30, 2001, respectively; and (c) for the four
quarters ended September 30, 2001.
(4) Equals property's market share of gaming revenues divided by property's
market share of gaming positions, for such period.
OUR OPERATING STRATEGY
The principal elements of our operating strategy include:
45
Focus on Quality and Service at an Affordable Price. Our casinos
provide a high-quality casino entertainment experience at an affordable price to
attract middle market guests. We believe these middle market guests constitute
the largest segment of potential gaming customers whom we can then identify,
qualify and target for direct marketing activities. Our approach to business at
our three properties focuses on guest service and includes:
- trained hosts to personally assist guests;
- friendly employees;
- quality food, beverages and lodging (except for Black Hawk,
which does not include a hotel) at a moderate price;
- a mix of gaming machines tailored to our customers; and
- personal attention through direct mail promotions, targeted
incentives and the use of the Fitzgeralds Card as part of a
frequent player recognition program.
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 the Fitzgeralds nationally recognized gaming brand and
our reputation for quality and service at an affordable price.
Capitalize on Fully Integrated Player Tracking and Extensive Guest
Database. Direct marketing to our guests is a key component of our customer
service. Each of our properties contains a fully integrated player tracking
system that permits detailed player tracking at each individual property. The
system uses the Fitzgeralds Card to track individual or combined play at slot
machines, table games and keno, as well as food and beverage and hotel
expenditures at each individual property. This fully integrated system allows us
to identify players and their gaming preferences and practices and to develop a
comprehensive customer database for marketing and guest services purposes. Our
player tracking program allows us to target our marketing programs to categories
of players, including through advertising programs, promotions, tournaments with
substantial cash prizes, special group and tour packages and other events and
incentives designed to promote customer loyalty and increase repeat business.
Our tracking system also allows us to better tailor our pricing, promotions,
gaming machine selection and other guest services to customer preferences. In
the future, we intend to use the tracking system to encourage customers of each
individual property to patronize our other properties. We currently have over
670,000 active players in our database.
Promote Nationally Recognized Gaming Brand. The Fitzgeralds brand has
developed into a nationally recognized gaming brand by using a consistent Irish
Luck theme throughout the casinos, hotels, restaurants and bars at all of its
properties. The Irish Luck theme allows us to capitalize on our belief that
every casino guest wants to feel lucky. The Irish Luck theme incorporates
various aspects of Irish folklore, such as leprechauns, horseshoes, four-leaf
clovers, the Blarney Stone and a pot of gold at the end of a rainbow, as well as
Irish music. We believe that this theme creates an exciting and comfortable
environment together with a distinctive brand identity for customers.
Fitzgeralds customers have come to associate the Irish Luck theme and the
associated trade dress and Fitzgeralds brand trademarks with strong guest
services such as the personal attention and quality product and gaming
experience that we seek to provide at each of our properties.
Leverage Existing Majestic Star Customer Base. Parent has established
the Club M-Star Slot Club to increase the frequency of visits by Parent's
existing customers. This program enables Parent to maintain a comprehensive
database of information on approximately 160,000 of its active gaming patrons,
including their gaming levels, duration of play and preferences. Parent uses
this information to create a comprehensive direct mail marketing program. We
will be able to use this information and the marketing program, to market our
properties to existing customers of Parent.
Capitalize on Market Growth Opportunities. We believe there are
substantial future growth opportunities within each of the markets where our
properties are located, including the following:
- Fitzgeralds Tunica. A 168-acre, $20 million Tunica River Front
Park is under development adjacent to our Fitzgeralds Tunica
Property. The park will include a marina and boat dock
facility along the Mississippi river (including space for
sight-seeing paddlewheel riverboats), a historic Mississippi
river museum, nature trails, retail
46
space, and parking. Construction began on the park in mid
October 2001, and we expect the park to open in phases
beginning in July 2002 through March 2003. Tunica County has
assumed the full obligation to fund this project and will
require no financial contribution from us. Fitzgeralds Tunica
conveyed approximately 71 acres of the river park land to the
County, and as consideration for the conveyance, the County
granted Fitzgeralds Tunica a rent-free lease to use and
further sublease the boat dock for 15 years, as well as a
perpetual easement allowing ingress and egress between the
Fitzgeralds Tunica property and the boat dock. We have
licensed our right to use the boat dock to a riverboat
operator who will provide riverboat excursions along the
Mississippi River from the marina and boat dock. In an effort
to increase customer traffic in the Tunica area, Tunica County
also is expanding its airport into a regional airport, with
the first phase of expansion scheduled for completion in 2003
and the second phase scheduled for completion in 2005.
Although there can be no assurance, we believe that both the
Tunica River Front Park and the regional airport will attract
new customers to our Tunica property.
- Fitzgeralds Black Hawk. The Black Hawk/Central City market
serves the rapidly growing Denver area, of which the
population of the metropolitan statistical area grew 30.0%
from 1990 to 2000. The compounded annual growth rate of gaming
revenues for the Black Hawk/Central City market was 14.1% for
the period from January 1998 through September 2001. The
market continues to experience rapid growth as year-to-date
gaming revenues through September 2001 increased 7.8% over the
same period in the prior year, although our Black Hawk
property experienced a slight decline in year-to-date gaming
revenues due to increased competition. We believe that the
market has potential for future growth as well, in part due to
a proposal to improve access to Black Hawk. The City of Black
Hawk Development Authority is currently pursuing plans to
expand the road leading to Black Hawk and construct a tunnel
leading to the downtown gaming area from I-70, the major
interstate highway from Denver. A referendum is expected to be
held in May 2002 to approve the financing for the proposed
tunnel. We cannot assure you that the financing for the
proposed tunnel will be approved, or if the financing is
approved, when or if the proposed tunnel will be built. Our
Fitzgerald Black Hawk property has available adjacent land for
expansion if market conditions warrant and we are currently
evaluating the possibility of such an expansion to better
serve this growing market.
- Fitzgeralds Las Vegas. The downtown Las Vegas area has long
been the focus of continued efforts to increase tourist
traffic, beginning with the Fremont Street Experience, an
entertainment and retail promenade, which opened in December
1995. The most recent development is the approximately $100
million Neonopolis project, a 250,000 square foot retail and
entertainment venue with a 14 screen movie theater that is
currently expected to open in May 2002. The project will also
include a $32 million, 600 space underground parking garage.
This project is located at the east end of the Fremont Street
Experience and across from our Fitzgeralds Las Vegas property.
We believe that this project will attract more potential
customers to downtown Las Vegas and shift the focus of
downtown traffic along the Fremont Street Experience towards
our Fitzgeralds Las Vegas property. Additionally, a project
has been proposed to visually enhance the Fremont Street
Experience "Sound and Light Shows" by replacing the existing
light display with flat panel display screens which have the
capability to show televised and other multimedia events and
programming, thereby dramatically enhancing the range of
entertainment programming options.
COMPETITION
We face intense competition in each of the markets in which our gaming
facilities are located. Many of our competitors have significantly greater name
recognition and financial, marketing and other resources than we do. Our
properties compete principally with other gaming properties in or near
California, Nevada, Mississippi and Colorado. Our Black Hawk property will face
additional competition from the new Black Hawk Casino by Hyatt, which opened on
December 19, 2001. At this time, we are unable to determine what impact this
casino will have on our operations. In addition to regional competitors, we
compete with gaming facilities nationwide, including land-based casinos in
Nevada and Atlantic City, as well as elsewhere, not only for customers but also
for employees and potential future gaming sites. We also compete, to some
extent, with other forms of gaming on both a local and national level, including
state-sponsored lotteries, Internet gaming, on- and off-track wagering and card
parlors. The expansion of legalized gaming to new jurisdictions throughout the
United States has increased competition faced by us and will continue to do so
in the future. Additionally, if gaming were legalized in jurisdictions near our
properties where gaming currently is not permitted, we would face additional
competition. For example, our casino in Tunica, Mississippi competes for
customers from
47
Memphis, Tennessee and Little Rock, Arkansas, where gaming activity is currently
prohibited. The legalization of gaming in either of those jurisdictions would
likely have an adverse impact on our operations at Fitzgeralds Tunica. Colorado
has experienced recent legislative activity with respect to expanding gaming
venues, but no such legislation has been passed to date. There can be no
assurance that we will be able to continue to compete successfully in our
existing markets or that we will be able to compete successfully against any
such future competition.
EMPLOYEES AND UNIONS
We directly employ approximately 2,533 persons. Approximately 15% of
our workforce is unionized. As of December 31, 2001, Fitzgeralds Las Vegas
employed approximately 906 people, approximately 381 of whom are represented by
the Culinary Workers Union, Local No. 226 and the Bartenders Union, Local 165,
under a five-year contract expiring on May 31, 2002. In addition, four employees
are represented by the United Brotherhood of Carpenters and Joiners of America,
Southern California-Nevada Regional Council of Carpenters and its Affiliated
Local No. 1780, under a three-year contract that expired on July 31, 2001, which
is currently being renegotiated. As of September 30, 2001, Fitzgeralds Tunica
and Fitzgeralds Black Hawk employed approximately 1,240 and 365 people,
respectively, none of whom are represented by a union. Management believes that
it has excellent relations with its employees and unions.
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
Fitzgeralds developed a national gaming brand by using a consistent
Irish Luck theme throughout the casinos, hotels, restaurants and bars at all of
its properties. As part of the Fitzgeralds acquisition, we acquired proprietary
rights in registered and common law trade names, trademarks and service marks
used in connection with the business and created to enhance the Irish Luck
theme, gaming activities and our association with the Fremont Street Experience,
including the marks "Fitzgeralds," "Fitz" and the "Mr. O'Lucky" character
design. In connection with the Fitzgeralds acquisition, we also acquired several
non-exclusive licenses and supply agreements, which permit us to utilize and
offer at our facilities a variety of casino games, gaming devices and related
software and technology which are subject to certain third party patent,
copyright and trademark rights. Under an exclusive license from us, Fitzgeralds
Gaming Corporation retained the right to use the name "Fitzgeralds" in
connection with its operation of its existing casino property in Reno, Nevada
and in connection with any casino properties it may operate in the future in
Northern California, Northern Nevada, Oregon and Washington. We retained all
other rights to the Fitzgeralds name and all Fitzgeralds trademarks, service
marks and trade dress for use in connection with Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas. In connection with any use of the
Fitzgeralds name, the terms of the license require Fitzgeralds Gaming
Corporation to comply with certain requirements, including operating any casino
property using the Fitzgeralds name in accordance with our current operating
standards. See "Risk Factors -- Risks Related to Our Business -- The right of
Fitzgeralds Gaming Corporation to continue to use the name "Fitzgeralds" may
negatively impact our national brand recognition."
LEGAL PROCEEDINGS
Currently we are not involved in any legal proceedings. In the future,
we anticipate we may be involved in routine litigation, including bankruptcies
of debtors, collection efforts, disputes with employees and customers and other
matters in the ordinary course of our business operations.
ENVIRONMENTAL MATTERS
We are subject to certain federal, state and local environmental,
safety and health laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clear Air Act, Clean Water Act, Occupational
Safety and Health Act, Oil Pollution Act, Resource Conservation Recovery Act and
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"). We have not made, and do not anticipate making,
material expenditures with respect to these environmental laws, regulations and
ordinances. In November 2000, independent environmental consultants conducted
Phase Is on all three casino properties and identified no recognized
environmental conditions meriting a Phase II investigation. However, the
coverage and attendant compliance costs associated with environmental laws,
regulations and ordinances may result in future additional costs to our
operations. For example, we may incur material liability if contamination is
discovered on any of our properties, either during the course of future
development or in connection with the properties designated for investigation or
remediation.
48
Specifically, the Black Hawk and Central City gaming districts,
including the Fitzgeralds Black Hawk site, are located within a 400-square mile
area that in 1983 was designated by the EPA as the Clear Creek/Central City
National Priorities List Site Study Area ("Study Area") pursuant to CERCLA. The
Study Area includes numerous specifically identified areas of mine tailings and
other waste piles caused by historical mining activity in the area, which areas
are the subject of ongoing investigation and clean-up by the EPA and the
Colorado Department of Public Health and Environment ("CDPHE"). CERCLA requires
remediation of sites from which there has been a release or threatened release
of hazardous substances and authorizes the EPA to take any necessary response
actions at Superfund sites, including authorizing potentially responsible
parties ("PRPs") to clean up or contribute to the clean up of a Superfund site.
PRPs are broadly defined under CERCLA, and include past and present owners and
operators of a site. CERCLA imposes strict liability on PRPs, and courts have
commonly held PRPs to be jointly and severally liable for all response costs.
Fitzgeralds Black Hawk is not within any of the specific areas of the
Study Area currently identified by the EPA and CDPHE for investigation or
remediation. The property on which the Fitzgeralds Black Hawk casino is situated
was not a historical mining site but rather was the location for a general
store. The parking complex for the casino and an adjacent vacant lot, however,
are situated near a historical milling area. To date no remediation requirements
have been recommended or required with regard to any portion of the property
although test borings would likely be required in connection with any future
construction on the expansion parcel of the property (see "Business --
Property"). Based on the assessments to date, we are not aware of any
environmental problems affecting Fitzgeralds Black Hawk which are likely to
result in material costs to us. No assurance can be given, however, that
environmental problems will not subsequently be discovered. Furthermore, the EPA
or other governmental authorities could broaden their investigations and
identify areas of concern within the site, we could be identified as a PRP, and
any liability related thereto could have a material adverse effect on us.
In addition, under environmental laws and regulations, a beneficiary of
a deed of trust or mortgage on real estate, such as the trustee, may be held
liable, under certain circumstances, for the costs of remediating or preventing
releases or threatened releases of hazardous materials. Under the indenture and
related documents, the trustee is indemnified against its costs, expenses and
liabilities, including environmental clean up costs and liabilities. This could
potentially reduce foreclosure proceeds to the holders of the registered notes.
In addition, in specified circumstances, holders may act directly rather than
through the trustee in order to pursue a remedy under the indenture. If the
holders exercise that right, they could be subject to the risks described above.
49
MANAGEMENT
EXECUTIVE OFFICERS/MANAGERS
Each of Majestic Investor Capital Corp., Barden Colorado Gaming, LLC,
Barden Mississippi Gaming, LLC and Barden Nevada Gaming, LLC are wholly owned
subsidiaries of Majestic Investor Holdings, LLC. The following table sets forth
the names and ages of the executive officers of Majestic Investor Capital Corp.
and of the managers and executive officers of each of Majestic Investor
Holdings, LLC, Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and
Barden Nevada, LLC.
NAME AGE POSITION(S)
---- --- -----------
Don H. Barden...................... 58 Manager of Majestic Investor Holdings, LLC, Barden Colorado Gaming, LLC
and Barden Mississippi Gaming LLC; Chairman, President and Chief
Executive Officer of Majestic Investor Holdings, LLC, Majestic Investor
Capital Corp., Barden Colorado Gaming, LLC, Barden Mississippi Gaming,
LLC and Barden Nevada Gaming, LLC; Director of Majestic Investor
Capital Corp.
Michael E. Kelly................... 40 Manager of Majestic Investor Holdings, LLC and Barden Mississippi
Gaming, LLC; Executive Vice President, Chief Operating and Financial
Officer and Secretary of Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC; Director of Majestic
Investor Capital Corp.
Barden Nevada Gaming, LLC is managed by Majestic Investor Holdings,
LLC, its member.
MANAGEMENT PROFILES
Following is a brief description of the business experience of each of
the executive officers of Majestic Investor Capital Corp. and of the managers
and executive officers of Majestic Investor Holdings, LLC, Barden Colorado
Gaming, LLC, Barden Mississippi Gaming, LLC and Barden Nevada Gaming, LLC listed
in the preceding table:
Don H. Barden, Manager of Majestic Investor Holdings, LLC, Barden
Colorado Gaming, LLC and Barden Mississippi Gaming LLC; Chairman, President and
Chief Executive Officer of Majestic Investor Holdings, LLC, Majestic Investor
Capital Corp., Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and
Barden Nevada Gaming, LLC; Director of Majestic Investor Capital Corp. Mr.
Barden is also the Chairman, President and Chief Executive Officer of our parent
company, Majestic Investor, LLC, and Parent, which is the parent of Majestic
Investor, LLC, and has served as Chairman and President of BDI, Parent's
managing member, since November 16, 1993. Mr. Barden also has served as a
manager of Majestic Investor Holdings, LLC and a director of Majestic Investor
Capital Corp. since their respective formations. Additionally, he is the
President and Chief Executive Officer of a group of other companies he owns
and/or operates. Over the past 30 years, Mr. Barden has successfully developed,
owned and operated many business enterprises in various industries including
real estate development, casino gaming, broadcasting, cable television and
international trade.
Michael E. Kelly, Manager of Majestic Investor Holdings, LLC and Barden
Mississippi Gaming, LLC; Executive Vice President, Chief Operating and Financial
Officer and Secretary of Majestic Investor Holdings, LLC, Majestic Investor
Capital Corp., Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and
Barden Nevada Gaming, LLC; Director of Majestic Investor Capital Corp. Mr. Kelly
is also the Executive Vice President, Chief Operating and Financial Officer of
Majestic Investor, LLC and Parent, and has maintained responsibility for
Parent's daily operations since October 17, 1998. Mr. Kelly also has served as a
manager of Majestic Investor Holdings, LLC and a director of Majestic Investor
Capital Corp. since their respective formations. From April 1996 through
December 31, 1998, Mr. Kelly served as Parent's Vice President and Chief
Financial Officer. Mr. Kelly has also served as a Vice President of BDI since
April, 1996. From June 1994 to April 1996, Mr. Kelly held various positions with
Fitzgeralds Gaming Corporation, including Vice President of Finance. Mr. Kelly
also was the Senior Director of
50
Operations and Chief Financial Officer of Fitzgeralds Tunica from July 1994 to
November 1995. From September 1991 to June 1994, Mr. Kelly was Vice President
and Chief Financial Officer of Empress River Casino Corporation and its
affiliates. From 1982 to 1991, Mr. Kelly was employed in various senior finance
and administrative functions by Harrah's Hotel & Casino in New Jersey and Nevada
and by the Fitzgeralds Group in Reno and Las Vegas, Nevada.
51
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation earned for services
performed for Parent, Majestic Investor, LLC and, following its formation in
September of 2001, Majestic Investor Holdings, LLC and each of its subsidiaries,
during the years shown below by our Chief Executive Officer and our other
executive officer. All compensation is paid by Parent.
ANNUAL COMPENSATION(1)
---------------------- ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION(2)
----------------- ---- ------ ----- ---------------
Don H. Barden....................................... 2001 $ 332,788 $ -- $ 1,271
Chairman, President and Chief 2000 331,250 $ -- $ 920
Executive Officer 1999 289,000 -- 1,139
Michael E. Kelly.................................... 2001 $ 296,635 $ 175,000 $ 19,909
Executive Vice President, Chief 2000 280,000 100,000 18,589
Operating and Financial Officer 1999 275,000 70,000 14,919
and Secretary
- ----------------
(1) The incremental cost to Parent of providing perquisites and other
personal benefits did not exceed, as to any "Named Executive Officer,"
the lesser of $50,000 or 10% of the total salary and bonus paid to such
executive officer for any such year and, accordingly, is omitted from
the table.
(2) Amounts represent contractual payments under individual employment
agreements. In 2001, Parent contributed a 401(k) match of $ 17,530 to
Mr. Kelly, and Mr. Kelly was also reimbursed by Parent $ 4,647 for
non-deductible medical plan expenditures. In 2001, life insurance
premiums of $ 1,271 and $ 2,724 were paid by Parent on behalf of
Messrs. Barden and Kelly, respectively. In 2000, Parent contributed a
401(k) match of $11,520 to Mr. Kelly, and Mr. Kelly was also reimbursed
by Parent $5,045 for non-deductible medical plan expenditures. In 2000,
life insurance premiums of $920 and $2,024 were paid by Parent on
behalf of Messrs. Barden and Kelly, respectively. In 1999, Parent
contributed a 401(k) match of $7,601 to Mr. Kelly, and Mr. Kelly was
also reimbursed $4,904 for non-deductible medical plan expenditures. In
1999, life insurance premiums of $1,139 and $2,414 were paid on behalf
of Messrs. Barden and Kelly, respectively.
CERTAIN AGREEMENTS
Pursuant to an amended and restated management agreement entered into
on December 5, 2001, and effective on December 6, 2001, BDI, a company wholly
owned by Don H. Barden, will receive a management fee for acting as our manager.
In addition, pursuant to an expense sharing agreement entered into on October
22, 2001, we will reimburse Parent for a specified percentage of (i) the costs
and expenses of executives and certain other employees, including, but not
limited to, salaries, bonuses, benefit payments, insurance and supplies, (ii)
rent and (iii) other similar costs and expenses paid by Parent. These executives
and employees will provide services to both Parent and to us and our
subsidiaries. Please refer to the discussion of the management agreement and the
expense sharing agreement set forth under "Material Agreements--Management
Agreement."
EMPLOYMENT AGREEMENTS
Mr. Barden serves as our Chairman, President and Chief Executive
Officer and currently receives annual compensation of $370,000 as an employee,
pursuant to a letter agreement dated October 22, 2001 with Parent.
Mr. Kelly serves as our Executive Vice President, Chief Operating and
Financial Officer and Secretary pursuant to a three-year employment agreement
with Parent dated October 22, 2001. Under this agreement, Mr. Kelly will receive
base compensation of $400,000 per year and can also earn annual incentive
compensation based upon his performance and our performance. In addition to such
compensation, Mr. Kelly is entitled to term life insurance in an amount equal to
$2.5 million and other customary employee benefits, including participation in
our 401(k) plan, together with a $100,000 signing bonus and an interest free
loan in the amount of $200,000 to be repaid in three equal annual installments.
Mr. Kelly is also entitled to additional
52
compensation, upon a change in control, equal to his base salary and incentive
compensation for the remainder of the term of the agreement, plus 12 months
thereafter. Mr. Kelly's employment agreement contains certain non-competition
provisions with a duration of 12 months following termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have no standing Compensation Committees. All compensation decisions
are made by Parent, whose sole manager is BDI.
PRINCIPAL OWNER
We are indirectly wholly owned by Don H. Barden, our Chairman,
President and Chief Executive Officer.
The following table sets forth the beneficial ownership of each of
Majestic Investor Holdings, LLC, Majestic Investor Capital Corp., Barden
Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and Barden Nevada Gaming,
LLC as of the date hereof.
NAME AND ADDRESS OF BENEFICIAL OWNER OF
MAJESTIC INVESTOR HOLDINGS, LLC % OWNERSHIP
------------------------------- -----------
Don H. Barden........................................................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
- ---------------
(1) Includes the membership interests in Majestic Investor Holdings, LLC,
all of which are beneficially owned directly by Majestic Investor, LLC,
which is directly wholly owned by Parent. All of the membership
interests in Parent are directly wholly owned by BDI, which is directly
wholly owned by Mr. Barden.
NAME AND ADDRESS OF BENEFICIAL OWNER OF
MAJESTIC INVESTOR CAPITAL CORP. % OWNERSHIP
------------------------------- -----------
Don H. Barden........................................................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
- ---------------
(1) Includes the common stock of Majestic Investor Capital Corp., all of
which is beneficially owned directly by Majestic Investor Holdings,
LLC, which is directly wholly owned by Majestic Investor, LLC, which is
directly wholly owned by Parent. All of the membership interests in
Parent are directly wholly owned by BDI, which is directly wholly owned
by Mr. Barden.
NAME AND ADDRESS OF BENEFICIAL OWNER OF
BARDEN COLORADO GAMING, LLC % OWNERSHIP
--------------------------- -----------
Don H. Barden........................................................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
- ---------------
(1) Includes the membership interests in Barden Colorado Gaming, LLC, all
of which are beneficially owned directly by Majestic Investor Holdings,
LLC, which is directly wholly owned by Majestic Investor, LLC, which is
directly wholly owned by Parent. All of the membership interests in
Parent are directly wholly owned by BDI, which is directly wholly owned
by Mr. Barden.
53
NAME AND ADDRESS OF BENEFICIAL OWNER OF
BARDEN MISSISSIPPI GAMING, LLC % OWNERSHIP
------------------------------ -----------
Don H. Barden........................................................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
- ---------------
(1) Includes the membership interests in Barden Mississippi Gaming, LLC,
all of which are beneficially owned directly by Majestic Investor
Holdings, LLC, which is directly wholly owned by Majestic Investor,
LLC, which is directly wholly owned by Parent. All of the membership
interests in Parent are directly wholly owned by BDI, which is directly
wholly owned by Mr. Barden.
NAME AND ADDRESS OF BENEFICIAL OWNER OF
BARDEN NEVADA GAMING, LLC % OWNERSHIP
------------------------- -----------
Don H. Barden........................................................................... 100.0%(1)
163 Madison Avenue, Suite 2000
Detroit, MI 48226
- ---------------
(1) Includes the membership interests in Barden Nevada Gaming, LLC, all of
which are beneficially owned directly by Majestic Investor Holdings,
LLC, which is directly wholly owned by Majestic Investor, LLC, which is
directly wholly owned by Parent. All of the membership interests in
Parent are directly wholly owned by BDI, which is directly wholly owned
by Mr. Barden.
Mr. Barden has also invested approximately $24.0 million in Parent to
design, develop, and construct the Majestic Star Casino and the Buffington
Harbor gaming complex and to make related expenditures. See "Management" and
"Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 2000, Majestic Investor, LLC was capitalized by its member
with $9.0 million of capital contributions, including interest earned thereon.
Majestic Investor subsequently contributed this $9.0 million to Majestic
Investor Holdings, LLC in connection with Majestic Investor's assignment of its
rights and obligations under the Fitzgeralds purchase and sale agreement to
Majestic Investor Holdings.
Prior to the consummation of the offering of the unregistered notes,
Majestic Investor Holdings issued a 35.71% membership interest to BDI, a company
wholly owned by Don H. Barden, in exchange for the contribution by BDI of a note
for $5.0 million. BDI subsequently contributed the 35.71% membership interest to
Majestic Investor, as additional paid-in equity. Majestic Investor currently
owns 100% of the membership interests in Majestic Investor Holdings. BDI, upon
the closing of the offering, of the unregistered notes, contributed $5.0 million
to Majestic Investor Holdings in repayment of the promissory note. Mr. Barden,
through BDI and The Majestic Star Casino, LLC, is the indirect, beneficial owner
of 100% of Majestic Investor. See "The Majestic Entities."
Please refer to the discussion of the Majestic Investor Holdings
operating agreement, our management agreement with BDI and our expense sharing
agreement with Parent set forth under "Material Agreements" and the discussion
of our member agreement with Majestic Investor, LLC, Parent and BDI under
"Description of Notes -- Member Agreement."
54
DESCRIPTION OF CREDIT FACILITY AND INTERCREDITOR AGREEMENT
SENIOR CREDIT FACILITY
On December 6, 2001, we entered into a $15.0 million senior secured
credit facility with Foothill Capital Corporation. Currently, we are permitted
to borrow up to $12.0 million under the credit facility, pending the approval by
the Nevada Gaming Authorities of the pledge by Majestic Investor Holdings, LLC
of the membership interests in Barden Nevada Gaming, LLC in connection with the
credit facility. We recently filed an application for the necessary approval by
the Nevada Gaming Authorities and we expect that hearings before the Nevada
Gaming Authorities with regard to our application will be held in March 2002. We
previously received the necessary approvals from the Nevada Gaming Authorities
for the pledge necessary in connection with the notes. The credit facility is
secured by substantially all of our and our subsidiaries' current and future
assets, other than the excluded assets. The lien on the collateral securing our
credit facility is senior to the lien on the collateral securing the registered
notes and the guarantees. Our credit facility contains customary conditions to
borrowing and representations and warranties customary in other gaming-related
financings. Our credit facility also contains certain financial covenants and
restrictions on, among other things, indebtedness, investments, distributions
and mergers.
INTERCREDITOR AGREEMENT
In connection with our entering into our credit facility, the trustee
under the indenture (as collateral agent) entered into an intercreditor
agreement with Foothill Capital Corporation, as the lender under our credit
facility, which, among other things, subordinates the liens securing the
registered notes and the guarantees to the liens securing the indebtedness under
our credit facility. See "Description of Registered Notes--Intercreditor
Agreement."
The intercreditor agreement, among other things, limits the trustee's
rights in an event of default under the registered notes. Under the
intercreditor agreement, if the registered notes become due and payable prior to
the stated maturity or are not paid in full at the stated maturity at a time
during which we have indebtedness outstanding under our credit facility, the
trustee will not have the right to foreclose upon the collateral unless and
until the lenders under our credit facility fail to take steps to exercise
remedies with respect to or in connection with the collateral within 180 days
following notice to such lenders of the occurrence of an event of default under
the indenture. In addition, the intercreditor agreement prevents the trustee and
the holders of the registered notes from pursuing remedies with respect to the
collateral in an insolvency proceeding. The intercreditor agreement also
provides that the net proceeds from the sale of collateral will first be applied
to repay indebtedness outstanding under our credit facility and thereafter to
the holders of the registered notes.
55
THE EXCHANGE OFFER
PURPOSE AND EFFECT
We sold the unregistered notes to the initial purchaser in a private
offering on December 6, 2001. The initial purchaser resold the unregistered
notes to qualified institutional buyers under Rule 144A under the Securities
Act. As of the date of this prospectus, $152,632,000 aggregate principal amount
of unregistered notes are outstanding. In connection with the private offering
of the unregistered notes, we and our subsidiary guarantors entered into a
registration rights agreement in which we and our subsidiary guarantors agreed
to file a registration statement with the SEC relating to an offer to exchange
the unregistered notes and the guarantees under the Securities Act for
registered notes and guarantees.
The registration rights agreement further provides that we must use our
best efforts to:
- cause the registration statement with respect to the exchange offer
to become effective under the Securities Act by April 5, 2002; and
- complete the exchange offer no later than 30 days after the SEC
declares the registration statement with respect to the exchange
offer effective.
Except as provided below, upon the completion of the exchange offer,
our obligations with respect to the registration of the unregistered notes and
the registered notes will terminate. We have filed the registration rights
agreement as an exhibit to the registration statement of which this prospectus
is a part. For additional information regarding our obligations under the
registration rights agreement, see "-- Registration Rights; Liquidity Damages."
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
56
other trading activities may not rely on the SEC staff's interpretations
discussed above or participate in the exchange offer and must comply with the
prospectus delivery requirements of the Securities Act in order to sell the
unregistered notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of unregistered notes who do not exchange their unregistered
notes for registered notes pursuant to the exchange offer will continue to be
subject to the restrictions on transfer of the unregistered notes as described
in the legend on the unregistered notes. Unregistered notes not exchanged
pursuant to the exchange offer will continue to remain outstanding in accordance
with their terms. In general, the unregistered notes may not be offered or sold
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not currently anticipate that we will register the
unregistered notes under the Securities Act.
Participation in the exchange offer is voluntary, and holders of
unregistered notes should carefully consider whether to participate. Holders of
unregistered notes are urged to consult their financial and tax advisors in
making their own decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered unregistered notes pursuant to the terms of, this exchange
offer, we will have fulfilled a covenant contained in the registration rights
agreement.
Holders of unregistered notes who do not tender their unregistered
notes in the exchange offer will continue to hold the unregistered notes and
will be entitled to all the rights and limitations applicable to the
unregistered notes under the indenture, except for any rights under the
registration rights agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of this exchange offer. All
untendered unregistered notes will continue to be subject to the restrictions on
transfer described in the indenture. To the extent that unregistered notes are
tendered and accepted in the exchange offer, the trading market for untendered
unregistered notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
- Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, we will accept any and
all unregistered notes validly tendered and not withdrawn prior to
5:00 p.m., New York City time, on _____________, 2002.
- You should read "--Expiration Date; Extensions; Amendments" below
for an explanation of how the expiration date may be amended.
- We will issue $1,000 principal amount of registered notes in
exchange for each $1,000 principal amount of outstanding
unregistered notes accepted in the exchange offer.
- Holders may exchange some or all of their unregistered notes
pursuant to the exchange offer. However, unregistered notes may be
exchanged only in integral multiples of $1,000 in principal amount.
- The form and terms of the registered notes are substantially the
same as the form and terms of the unregistered notes, except for the
elimination of some transfer restrictions, registration rights and
liquidated damages provisions relating to the unregistered notes.
The registered notes will evidence the same debt as the unregistered
notes and will be issued pursuant to, and entitled to the benefits
of, the indenture pursuant to which the unregistered notes were
issued.
- As of the date of this prospectus, unregistered notes representing
$152,632,000 million in aggregate principal amount were outstanding
and there was one registered holder, a nominee of the Depository
Trust Company. This prospectus, together with the letter of
transmittal, is being sent to that registered holder and to others
believed to have beneficial interests in the unregistered notes.
- We will be deemed to have accepted validly tendered unregistered
notes when, as, and if it has given oral or written notice thereof
to the exchange agent. The exchange agent will act as agent for the
tendering holders for the purpose of
57
receiving the registered notes from us. If any tendered unregistered
notes are not accepted for exchange because of an invalid tender,
the occurrence of other events set forth under the heading "--
Conditions to the Exchange Offer" or otherwise, certificates for any
of these unaccepted unregistered notes will be returned, without
expense, to the tendering holder of those unregistered notes as
promptly as practicable after ________________, 2002, unless the
exchange offer is extended.
- We are not conditioning the exchange offer upon the tender of any
minimum amount of unregistered notes.
- The exchange offer is subject to the condition that the exchange
offer not violate applicable law, rules or regulations, or
applicable interpretations of the staff of the SEC. See "--
Conditions of the Exchange Offer."
- We may accept tendered unregistered notes by giving oral or written
notice to the exchange agent. We must promptly confirm oral notice
in writing. The exchange agent will act as your agent for the
purpose of receiving the registered notes from us and delivering
them to you.
- You will not be required to pay brokerage commissions or fees or,
subject to the instructions in the letter of transmittal, transfer
taxes with respect to the exchange of unregistered notes. We will
pay all charges and expenses applicable to the exchange offer, other
than taxes specified under "-- Transfer Taxes." See "-- Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on
______________, 2002, unless we, in our sole discretion, extend the exchange
offer. We may extend the exchange offer at any time and from time to time by
giving oral or written notice to the exchange agent and by publicly announcing
the extension before 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. We must promptly confirm oral
notice in writing. We may also accept all properly tendered unregistered notes
as of the expiration date and extend the expiration date in respect of the
remaining outstanding unregistered notes. We may, in our sole discretion:
- amend the terms of the exchange offer in any manner;
- delay acceptance of, or refuse to accept, any unregistered notes not
previously accepted;
- extend the exchange offer; or
- terminate the exchange offer.
We will give prompt notice of any amendment to the registered holders
of the unregistered notes. If we materially amend the exchange offer, we will
promptly disclose the amendment in a manner reasonably calculated to inform you
of the amendment and we will extend the exchange offer to the extent required by
law.
In order to keep the registration statement effective for the period
required by the exchange and registration rights agreement, we may file
post-effective amendments to the registration statement.
PROCEDURES FOR TENDERING
Only a holder of unregistered notes may tender them in the exchange
offer. For purposes of the exchange offer, the term "holder" or "registered
holder" includes any participant in The Depository Trust Company whose name
appears on a security position listing as a holder of unregistered notes.
Except as set forth under "-- Book Entry Transfer," to tender in the
exchange offer a holder must complete, sign, and date the letter of transmittal,
or a copy of the letter of transmittal, have the signatures on the letter of
transmittal guaranteed if required by the letter of transmittal, and mail or
otherwise deliver the letter of transmittal or copy to the exchange agent prior
to the expiration date. In addition:
58
- 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 irregularities have been cured or waived. Any unregistered notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the exchange agent to the tendering holders, unless otherwise provided in the
letter of transmittal, as soon as practicable following ______________, 2002,
unless the exchange offer is extended.
In addition, we reserve the right in our sole discretion:
59
- 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.
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
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- 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.
These procedures require that:
- you make the tender through an eligible guarantor institution;
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- 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.
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
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date to which interest has been paid on the unregistered notes or, if no
interest has been paid on the unregistered notes, from December 6, 2001.
Accordingly, registered holders of registered notes on the relevant record date
for the first interest payment date following the completion of the exchange
offer will receive interest accruing from the most recent date to which interest
has been paid or, if no interest has been paid, from December 6, 2001.
Unregistered notes accepted for exchange will cease to accrue interest from and
after the date we accept them for exchange. You will not receive any payment for
accrued interest on the unregistered notes otherwise payable on any interest
payment date if the record date occurs on or after date on which we accept the
unregistered notes for exchange and you will be deemed to have waived your
rights to receive the accrued interest on the unregistered notes.
If we do not accept any tendered unregistered notes for any reason or
if you submit unregistered notes for a greater principal amount than you desire
to exchange, we will return the unaccepted or non-exchanged unregistered notes
at our expense or, if the unregistered notes were tendered by book-entry
transfer, the exchange agent will credit the non-exchanged unregistered notes to
an account maintained with the book-entry transfer facility. In either case,
these unregistered notes will be returned promptly after the expiration or
termination of the exchange offer.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the terms of the registration rights agreement, we agreed
to use our best efforts to complete the exchange offer and issue the registered
notes in exchange for the unregistered notes. The following description is a
summary of the material provisions of the registration rights agreement. It does
not restate that agreement in its entirety. We urge you to read the registration
rights agreement.
Under the terms of the registration rights agreement we agreed, among
other things, to:
- file a registration statement with the SEC relating to the exchange
offer under the Securities Act no later than February 4, 2002;
- use our reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities
Act on or before April 5, 2002;
- use our reasonable best efforts to commence the exchange offer
within 30 days after the exchange offer registration statement is
declared effective by the SEC;
- keep the exchange offer open for acceptance for at least 30 days
after notice of the exchange offer is mailed to holders of the
unregistered notes;
- keep the exchange offer registration statement effective until
consummation of the exchange offer pursuant to its terms;
- cause the exchange offer to be consummated not later than 30
business days following the date of the effectiveness of the
exchange offer registration statement;
- promptly after the close of the exchange offer, accept for exchange
all unregistered notes validly tendered for exchange prior to the
expiration of the exchange offer;
- promptly after the close of the exchange offer, deliver all validly
tendered unregistered notes to The Bank of New York, as trustee, and
cause the trustee to promptly deliver registered notes to each
holder equal in aggregate principal amount to the unregistered notes
tendered for exchange by such holder.
Under the registration rights agreement, we agreed to file a shelf
registration statement if:
- we or the holders of a majority in aggregate principal amount of the
unregistered notes determine, in our or their reasonable judgment,
that they will not receive registered notes that would be tradable
without restriction under the
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Securities Act and the Exchange Act and without material
restrictions under applicable blue sky or state securities laws;
- we are not permitted to effect the exchange offer under applicable
law or applicable interpretations of law by the SEC staff;
- for any reason, the exchange offer is not consummated within 150
days after we issued the unregistered notes;
- the initial purchaser so requests with respect to unregistered notes
held by the initial purchaser; or
- within 20 business days of the consummation of the exchange offer,
any holder of unregistered notes notifies us that it:
(1) is not entitled to participate in the exchange offer by law or
SEC policy;
(2) may not resell the registered notes acquired by it in the
exchange offer to the public without restriction under applicable
state and federal securities laws; or
(3) is a broker-dealer holding unregistered notes acquired directly
from us or any of our respective affiliates.
If we have not yet filed an exchange offer registration statement and
we are required to file a shelf registration statement, we must file the shelf
registration statement 30 days following delivery of the notice triggering our
obligation to file such shelf registration statement. We will use our reasonable
best efforts to cause the shelf registration statement to be declared effective
as promptly as practicable after the filing thereof.
If the shelf registration statement is filed, we will use our best efforts to
keep the shelf registration statement continuously effective, supplemented and
amended until the second anniversary of the effective date of the shelf
registration statement or a shorter period that will terminate when all the
notes covered by the shelf registration statement have been sold pursuant to the
shelf registration statement, a subsequent shelf registration statement covering
all of the notes has been declared effected under the Securities Act. The notes
are eligible for resale pursuant to Rule 144(k) under the Securities Act or
there cease to be any outstanding notes.
A holder who sells unregistered notes pursuant to the shelf
registration statement generally will be required to be named as a selling
securityholder in the prospectus and to deliver a copy of the prospectus to
purchasers. If we are required to file a shelf registration statement, we will
provide to each holder of the unregistered notes copies of the prospectus that
is a part of the shelf registration statement and notify each such holder when
the shelf registration statement becomes effective. Such holder will be subject
to some of the civil liability provisions under the Securities Act in connection
with these sales and will be bound by the provisions of the registration rights
agreement that are applicable to such holder (including certain indemnification
and contribution obligations).
The registration rights agreement requires us to pay the holders of the
notes liquidated damages under certain circumstances. We have agreed to pay
liquidated damages to the holders if:
- we fail to file any of the registration statements required by the
registration rights agreement on or prior to the date specified for
such filing;
- any of such registration statements is not declared effective by the
SEC on or prior to the date specified for such effectiveness;
- we have not exchanged registered notes for all validly tendered
unregistered notes within 30 days after the exchange offer is
declared effective by the SEC; or
- the shelf registration statement is declared effective by the SEC,
but thereafter, during the period for which we are required to
maintain the effectiveness of the shelf registration statement, it
ceases to be effective or usable in
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connection with the resale of the registered notes covered by the
shelf registration statement, and we fail to file and have declared
effective within 30 days a subsequent shelf registration statement.
If any of these events occurs, we will pay liquidated damages to each
holder of registrable notes, during the first 90-day period immediately
following the occurrence of such event in an amount equal to $.05 per week per
$1,000 principal amount of notes held by such Holder. Thereafter, the weekly
liquidated damages amount will increase by $.05 per $1,000 principal amount of
the notes following each subsequent 90-day period following such event up to a
maximum of $.20 per week per $1,000 principal amount of notes, until the event
is cured. All accrued liquidated damages will be paid in the same manner as
interest payments on the notes on semiannual damages payment dates that
correspond to interest payment dates for the notes. Following the cure of an
event, the accrual of liquidated damages will cease.
The exchange offer is intended to satisfy our exchange offer
obligations under the registration rights agreement.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, if the
exchange offer violates applicable law, any applicable interpretation of the
staff of the SEC or any order of any governmental agency or court of competent
jurisdiction, we will not be required to accept for exchange, or to issue
registered notes for, any unregistered notes, and we may terminate or amend the
exchange offer as provided in this prospectus before we accept unregistered
notes. We must also receive approval from the Nevada Gaming Authorities prior to
completing the exchange offer. We have filed an application for this approval,
and anticipate that hearings before the Nevada Gaming Authorities with regard to
such approval will occur in March 2002.
The foregoing conditions are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to any of these conditions or
may be waived by us in whole or in part at any time and from time to time in our
sole discretion. Our failure to exercise any of the foregoing rights at any time
is not a waiver of any of these rights and each of these rights will be an
ongoing right which may be asserted at any time and from time to time.
If we waive or amend the conditions above, we will, if required by law,
extend the exchange offer for a minimum of five business days from the date that
we first give notice, by public announcement or otherwise, of the waiver or
amendment , if the exchange offer would otherwise expire within the five
business-day period. Any determination by us concerning the events described
above will be final and binding upon all parties.
The exchange offer is not conditioned upon any minimum principal amount
of old notes being tendered.
EXCHANGE AGENT
We have appointed The Bank of New York as the exchange agent for the
exchange offer. The Bank of New York also acts as trustee under the indenture.
You should send all executed transmittal letters to the exchange agent and
direct all communications with the exchange agent, including requests for
assistance or for additional copies of this prospectus or of the transmittal
letters as follows:
THE BANK OF NEW YORK, EXCHANGE AGENT
By Registered or Certified Mail: The Bank of New York
Reorganization Unit
15 Broad Street, 16th Floor
New York, NY 10007
Attn: ___________________
By Hand or Overnight Delivery: The Bank of New York
15 Broad Street
Corporate Trust Services Window
New York, NY 10007
Attn: ___________________
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By Facsimile for Eligible Institutions: __________________
For Information: __________________
IF YOU DELIVER THE TRANSMITTAL LETTER TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, YOUR DELIVERY OR INSTRUCTIONS WILL NOT BE EFFECTIVE.
FEES AND EXPENSES
We will bear all expenses of the exchange offer. We are making the
principal solicitation pursuant to the exchange offer by mail. Our officers and
employees and our affiliates may also make solicitations in person, by
telegraph, telephone or facsimile transmission.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse its
reasonable out-of-pocket costs and expenses and will indemnify the exchange
agent for all losses and claims incurred by it as a result of the exchange
offer. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus, letters of transmittal and related documents to the
beneficial owners of the unregistered notes and in handling or forwarding
tenders for exchange.
TRANSFER TAXES
We will pay any transfer taxes applicable to the exchange of
unregistered notes pursuant to the exchange offer. If, however, a transfer tax
is imposed for any reason other than the exchange of unregistered notes pursuant
to the exchange offer, then the amount of any of these transfer taxes - whether
imposed on you or any other person - will be payable by you.
For example, you will pay transfer taxes, if:
- registered notes for principal amounts not tendered, or accepted for
exchange are to be registered or issued in the name of any person
other than the registered holder of the unregistered notes tendered;
or
- tendered unregistered notes are registered in the name of any person
other than the person signing the transmittal letter.
If you do not submit satisfactory evidence of payment of taxes for
which you are liable or exemption from them with your transmittal letter, we
will bill you for the amount of these transfer taxes directly.
ACCOUNTING TREATMENT
For accounting purposes, we will not recognize gain or loss upon the
exchange of the registered notes for unregistered notes. We will amortize
expenses incurred in connection with the issuance of the registered notes over
the term of the registered notes.
APPRAISAL OR DISSENTERS' RIGHTS
You will not have appraisal or dissenters' rights in connection with
the exchange offer.
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DESCRIPTION OF REGISTERED NOTES
You can find the definitions of certain terms used in this description
under the subheading "-- Certain Definitions." In this description, references
to "issuers," "we," "our" and "us" refer only to Majestic Investor Holdings, LLC
and Majestic Investor Capital Corp., and not to our subsidiaries. For purposes
of this section, the term "notes" will refer to the registered notes.
GENERAL
We will issue the registered notes under an existing indenture dated as
of December 6, 2001 among the issuers, the Subsidiary Guarantors and The Bank of
New York, as trustee. The terms of the registered notes include those expressly
stated in the indenture and those made part of the indenture by reference to the
Trust indenture Act of 1939, as amended.
The following describes some general terms and provisions of the
registered notes, which are identical in all material respects to the terms of
the unregistered notes, except that the registration rights and liquidated
damages provisions, and the transfer restrictions that apply to the unregistered
notes, do not apply to the registered notes. The registered notes will be a
separate series of securities under the indenture. This description is a summary
of certain provisions of the indenture and the Security Documents (defined
below). It does not restate those agreements in their entirety, and is qualified
in its entirety by reference to the indenture and the Security Documents,
including the definitions therein of certain terms used below. We urge you to
read the indenture and the Security Documents because they, and not this
description, define your rights as holders of the registered notes. We have
filed copies of the indenture and the Security Documents as exhibits to the
registration statement which includes this prospectus. The definitions of
certain terms used in the following summary are set forth below under " --
Certain Definitions."
The notes will be senior secured obligations of the issuers and will
rank senior in right of payment to all existing and future subordinated
Indebtedness of the issuers and equal in right of payment with all existing and
future senior Indebtedness of the issuers. The notes will be without recourse to
the Members.
Capital is a wholly owned subsidiary of the Company and was
incorporated solely for the purpose of serving as a co-issuer of the notes.
Capital will not have any material operations or assets and will not have any
revenues. As a result, prospective investors should not expect Capital to
participate in servicing the principal, interest, Liquidated Damages, if any,
premium or any other payment obligations on the notes. See " -- Certain
Covenants - Restrictions on Activities of Capital."
The notes will be guaranteed (the "Subsidiary Guarantees") on a senior
secured basis by each of the Company's existing and future Restricted
Subsidiaries. As of the date of the indenture, none of the issuers' Subsidiaries
will be Unrestricted Subsidiaries. However, under certain circumstances, the
Company will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to any of the
restrictive covenants set forth in the indenture.
The notes and the Subsidiary Guarantees will be secured by the
Collateral, as set forth below under "Security."
The Lien on the collateral securing the Credit Facility will be senior
to the Lien on the Collateral securing the notes.
The notes will be issued in the form of one or more global notes,
without coupons, and in denominations of $1,000 and integral multiples thereof.
PRINCIPAL, MATURITY AND INTEREST
The indenture does not limit the aggregate principal amount of notes
that we may issue under the indenture and provides that, subject to the covenant
in the indenture described under " -- Certain Covenants - Limitation on
Incurrence of Indebtedness," additional notes may be issued thereunder from time
to time, without the consent of the Holders of previously issued notes, in an
aggregate principal amount to be determined from time to time by the issuers;
provided, that additional notes may not be issued with original issue discount
as determined under section 1271 et seq. of the Internal Revenue Code of 1986,
as amended (the "Code"). The notes will mature on November 30, 2007. Interest on
the notes will be payable semi-annually on May 31 and November 30 of each year,
commencing on May 31, 2002, to Holders of record on the immediately preceding
May 15 and November 15,
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respectively. The notes will bear interest at 11.653% per annum from the date of
original issuance. Interest on the notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The notes will be payable both as to
principal and interest at the office or agency of the issuers maintained for
such purpose within The City of New York or, at the option of the issuers,
payment of interest may be made by check mailed to the Holders at their
respective addresses set forth in the register of Holders. Until otherwise
designated by the issuers, the issuers' office or agency will be the office of
the Trustee maintained for such purpose. If a payment date is a Legal Holiday,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
REDEMPTION
At the Option of the Company. Except as set forth below, we may not
redeem the notes at our option before November 30, 2005. Thereafter, the notes
will be subject to redemption at our option, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest on the notes and Liquidated Damages, if any, to the applicable date of
redemption, if redeemed during the 12-month period beginning on November 30 of
the years indicated below:
YEAR PERCENTAGE
2005..................................................... 105.827%
2006 and thereafter...................................... 100.000%
Notwithstanding the foregoing, at any time or from time to time prior
to November 30, 2004, we may redeem, at our option, up to 35% of the aggregate
principal amount of the notes then outstanding at a redemption price of 111.653%
of the principal amount of the notes, plus accrued and unpaid interest on the
notes and Liquidated Damages, if any, through the applicable date of redemption,
with the Net Cash Proceeds of one or more Qualified Equity Offerings; provided,
that (i) such redemption shall occur within 60 days of the date of closing of
such Qualified Equity Offerings and (ii) at least 65% of the aggregate principal
amount of notes issued on or after the Issue Date remains outstanding
immediately after giving effect to each such redemption.
The notes will also be redeemable by us, in whole or in part, at any
time upon not less than 20 Business Days nor more than 60 days' notice (or such
earlier date as may be required by any Gaming Authority) at 100% of the
principal amount of the notes plus accrued and unpaid interest on the notes (or,
if required by any Gaming Authority, the fair market value of such notes, or
such other amount as may be required by applicable law or order of such Gaming
Authority) and Liquidated Damages (if permitted by relevant Gaming Authorities),
if any, to the redemption date, pursuant to a Required Regulatory Redemption. In
addition, where such redemption is required because the Holder or beneficial
owner of notes is required to be found suitable or to otherwise qualify under
any gaming laws and is not found suitable or so qualified, we shall have the
right to require any such Holder or beneficial owner to dispose of its notes
upon 30 days' notice (or such earlier date as may be required by the applicable
Gaming Authority).
If less than all of the notes are to be redeemed at any time, selection
of notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee deems to be fair and reasonable; provided,
that notes of $1,000 or less may not be redeemed in part. Except in the case of
a Required Regulatory Redemption requiring less notice, notice of redemption
will be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder to be redeemed at such Holder's registered
address. If any note is to be redeemed in part only, the notice of redemption
that relates to such note will state the portion of the principal amount thereof
to be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder of that note upon cancellation
of the original note. On and after the date of redemption, interest will cease
to accrue on registered notes or portions thereof called for redemption, unless
we default in making such redemption payment.
Mandatory. The notes will not be subject to any mandatory redemption
(except for a Required Regulatory Redemption) or have the benefit of any sinking
fund.
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SUBSIDIARY GUARANTORS
The repayment of the notes will be unconditionally and irrevocably
guaranteed, jointly and severally, by all present and future Restricted
Subsidiaries. The indenture will provide that so long as any notes remain
outstanding, any future Restricted Subsidiary shall enter into a Subsidiary
Guarantee.
If all of the Capital Stock of any Subsidiary Guarantor is sold by the
Company or any of its Subsidiaries to a Person (other than the Company or any of
its Subsidiaries) in a transaction that complies with the terms of the
indenture, and the Net Proceeds from such Asset Sale are used in accordance with
the terms of the covenant described under "--Limitation on Asset Sales," then
such Subsidiary Guarantor shall be released and discharged from all of it
Obligations under its Subsidiary Guarantee and the indenture.
The Obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee will be limited to the maximum amount as will, after giving effect to
all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the Obligations of such other
Subsidiary Guarantor under its Subsidiary Guarantee, result in the Obligations
of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law or
render a Subsidiary Guarantor insolvent.
SECURITY
Pursuant to certain mortgages and security agreements, we have assigned
and pledged to the Trustee, for the benefit of the Trustee and the Holders, as
security for our obligations with respect to the notes, substantially all of our
assets and the assets of the Restricted Subsidiaries, other than the Excluded
Assets. Subject to applicable Gaming Laws, the Collateral includes, among other
things, our Capital Stock and the Capital Stock of the Restricted Subsidiaries,
the assets of each of our and the Restricted Subsidiaries' casinos, all
furniture, fixtures and equipment belonging to us and the Restricted
Subsidiaries, each member's interest in the Company, and our and the Restricted
Subsidiaries' rights to the service mark "Fitzgeralds" and other related
trademarks. The Trustee's security interest in the Collateral is subordinated to
a lien securing up to $15.0 million Indebtedness outstanding under our Credit
Facility. See "--Intercreditor Agreement."
The proceeds of any sale of the Collateral following an Event of
Default may not be sufficient to satisfy payments due on the notes. In addition,
the ability of the Holders to realize upon the Collateral may be limited
pursuant to applicable laws, including gaming, bankruptcy or securities laws.
If an Event of Default occurs and is continuing, the Trustee, on behalf
of the Holders, in addition to any rights or remedies available to it under the
indenture and the Security Documents, may, subject to the intercreditor
agreement and any applicable Gaming Laws, take such action as it deems advisable
and as is permitted under the Security Documents, to protect and enforce its
rights in the Collateral, including the institution of sale or foreclosure
proceedings. The proceeds received by the Trustee from any such sale or
foreclosure will, subject to the intercreditor agreement, be applied by the
Trustee first to pay the expenses of such sale or foreclosure and fees and other
amounts then payable to the Trustee under the indenture, and thereafter to pay
amounts due and payable with respect to the notes.
Certain Gaming Law Limitations. In Mississippi and Nevada, pledges of
membership interests in licensed and registered companies are ineffective unless
approved by the relevant Gaming Authorities. We have received all necessary
approvals from the relevant Gaming Authorities in Mississippi and Nevada in
connection with the pledges of membership interests relating to the notes. The
Trustee's ability to foreclose upon the Collateral also will be limited by
relevant gaming laws, which generally require that persons who own or operate a
casino or own equity securities of a gaming licensee (including capital stock)
or purchase, possess or sell gaming equipment hold a valid gaming license. No
person can hold a license in the State of Nevada, Colorado, Mississippi or
Indiana unless the person is found qualified or suitable by the relevant Gaming
Authorities. The pledge of such an interest in Colorado, while not per se
forbidden, does require regulatory approval before the holder of the pledge may
obtain the interest contemplated. Such Gaming Authorities have discretionary
authority to require the Trustee, any or all of the holders of the notes or any
purchaser of the Collateral to file applications and be investigated in order to
be found qualified or suitable as an owner or operator of gaming establishments.
Such requirements may limit the number of potential bidders in any foreclosure
and may delay
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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 registered notes could be delayed following commencement of a
bankruptcy case, whether or when the Trustee could repossess or dispose of the
Collateral or whether or to what extent Holders would be compensated for any
delay in payment or loss of value of the Collateral through the requirement of
"adequate protection." Furthermore, if a bankruptcy court determines the value
of the Collateral is not sufficient to repay all amounts due on the notes, the
Holders would hold secured claims to the extent of the value of the Collateral
to which the Holders are entitled, and would hold unsecured claims with respect
to any such shortfall. Applicable Federal bankruptcy laws do not permit the
payment and/or accrual of post-petition interest, costs and attorneys' fees
during a debtor's bankruptcy case unless the claims are oversecured or the
debtor is solvent at the time of reorganization. In addition, if either of us
becomes the subject of a bankruptcy case, the bankruptcy court, among other
things, may avoid certain transfers made by the entity that is the subject of
the bankruptcy filing, including, without limitation, transfers held to be
fraudulent conveyances or preferences.
Further, certain limitations exist under the Merchant Marine Act of
1936, as amended, on the ability of non-U.S. citizens to realize upon
collateral, such as the barges at Fitzgeralds Tunica, consisting of vessels
documented under the laws of the United States. If any of the holders of the
notes are non-U.S. citizens, such limitation could adversely affect the ability
of the Trustee to complete foreclosure on the Collateral. Also, the Trustee may
be required to foreclose through a federal court admiralty proceeding. Such a
proceeding would entail compliance with notice and other procedural
requirements, and would require a cash deposit to cover the costs of maintaining
the vessels during the foreclosure proceeding, which costs could be substantial.
In addition, because the barges at Fitzgeralds Tunica will be more or less
permanently moored and will not be used for transportation of cargo or
passengers, it is possible the barges may not be considered vessels for purposes
of the ship mortgage which will be placed on them. In such event, the Holders of
the registered notes would not have the benefit of a Preferred Ship Mortgage on
the barges, although they would have the benefit of other security provided in
the Security Agreement.
INTERCREDITOR AGREEMENT
Concurrently with the execution of the Credit Agreement, the Trustee
and the lenders under the Credit Agreement entered into an intercreditor
agreement. The intercreditor agreement provides that the Liens on the Collateral
securing the registered notes and the Guarantees are subordinated to the Liens
securing up to $15.0 million of Indebtedness outstanding under the Credit
Agreement and related interest, fees, costs and expenses. Under the
intercreditor agreement, if the notes become due and payable prior to the stated
maturity thereof for any reason or are not paid in full at the stated maturity
thereof at a time during which Indebtedness is outstanding under a Credit
Agreement, the Collateral Agent will not have the right to foreclose upon the
collateral that secures the obligations under the Credit Agreement unless and
until the lenders under the Credit Agreement fail to take steps to exercise
remedies with respect to or in connection with the Collateral within 180 days
following notice to such lenders of the occurrence of an Event of Default under
the indenture; provided that the intercreditor agreement will prevent the
Collateral Agent and the Holders from pursuing remedies with respect to the
Collateral in an insolvency proceeding. The intercreditor agreement provides
that the net proceeds from the sale of Collateral will first be applied to repay
Indebtedness outstanding under the Credit Agreement and thereafter to the
holders of the notes.
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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 registered notes delivered for purchase, and a statement
that the Holder is withdrawing his election to have such registered notes
purchased.
We will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations that apply to the repurchase
of notes pursuant to this covenant. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of the indenture, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations under the
"Change of Control" provisions of the indenture by virtue thereof.
On the Change of Control payment date, we will, to the extent lawful;
- accept for payment the notes or portions of notes tendered
pursuant to the Change of Control offer;
- deposit with the paying agent an amount equal to the Change of
Control payment in respect of all notes or portions of notes
so tendered and not withdrawn; and
- deliver or cause to be delivered to the Trustee the notes so
accepted, together with an Officers' Certificate stating that
the notes or portions of notes tendered to us are accepted for
payment.
The paying agent will promptly mail to each Holder of notes so accepted
payment in an amount equal to the purchase price for such notes, and the Trustee
will authenticate and mail (or cause to be transferred by book entry) to each
Holder a new note equal in principal amount to any unpurchased portion of the
notes surrendered, if any; provided, that each such new note will be in the
principal amount of $1,000 or an integral multiple thereof. We will announce the
result of the Change of Control offer on or as soon as practicable after the
Change of Control payment date.
Except as described above with respect to a Change of Control, the
indenture does not contain provisions that permit the Holders to require that we
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar restructuring.
We cannot assure you that sufficient funds will be available at the
time of any Change of Control offer to make required repurchases.
We will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control offer made by us and purchases all
notes validly tendered and not withdrawn under such Change of Control offer.
The term "all or substantially all" as used in the definition of Change
of Control has not been interpreted under New York law (which is the governing
law of the indenture) to represent a specific quantitative test. As a
consequence, in the event the Holders elect to exercise their rights under the
indenture and we elect to contest such election, there could be no assurance as
to how a court would interpret the phrase under New York law, which may have the
effect of preventing the Trustee or the Holders from successfully asserting that
a Change of Control has occurred.
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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 payment to the registered notes or such Subsidiary
Guarantor's Subsidiary Guarantee thereof, as the case may be,
prior to any scheduled principal payment, sinking fund payment
or other payment at the stated maturity thereof; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
are collectively referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing
or would occur as a consequence thereof, and
(b) immediately after giving effect to such Restricted Payment on
a pro forma basis, the Company could incur at least $1.00 of
additional Indebtedness under the Interest Coverage Ratio test
set forth in the covenant described under "--Limitation on
Incurrence of Indebtedness," and
(c) such Restricted Payment (the value of any such payment, if
other than cash, being determined in good faith by the
Managers of the Company and evidenced by a resolution set
forth in an Officers' Certificate delivered to the Trustee),
together with the aggregate of all other Restricted Payments
made on or after the Issue Date (including Restricted Payments
permitted by clauses (i), (v) (to the extent such payments do
not reduce Consolidated Net Income), (vi) (to the extent such
payments do not reduce Consolidated Net Income), (vii),
(viii), (ix), (x) and, to the extent the Company is given
credit for such Net Cash Proceeds pursuant to clause (2) of
this paragraph, (ii) of the next following paragraph and
excluding Restricted Payments permitted by clauses (iii) and
(iv) of the next following paragraph), is less than the sum,
without duplication, of
(1) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing
immediately after the Issue Date to the end of the
Company's most recently ended fiscal quarter for
which internal financial statements are available at
the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit,
100% of such deficit), plus
(2) 100% of the aggregate Net Cash Proceeds received by
the Company from the issuance or sale, other than to
a Subsidiary, of Equity Interests of the Company
(other than Disqualified Capital Stock) after the
Issue Date and on or prior to the time of such
Restricted Payment (other than the first $5,000,000
of Net Cash Proceeds from the issuance or sale of
Equity Interests to Majestic Star, BDI, or any
Affiliate thereof), plus
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(3) 100% of the aggregate Net Cash Proceeds received by
the Company from the issuance or sale, other than to
a Subsidiary, of any convertible or exchangeable debt
security of the Company that has been converted or
exchanged into Equity Interests of the Company (other
than Disqualified Capital Stock) pursuant to the
terms thereof after the Issue Date and on or prior to
the time of such Restricted Payment (including any
additional net cash proceeds received by the Company
upon such conversion or exchange) (other than the
first $5,000,000 of Net Cash Proceeds from the
issuance or sale of any convertible or exchangeable
debt securities to Majestic Star, BDI, or any
Affiliate thereof) plus
(4) the aggregate Return from Unrestricted Subsidiaries
after the Issue Date and on or prior to the time of
such Restricted Payment.
The foregoing provisions will not prohibit the following Restricted
Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such
payment would not have been prohibited by the provisions of
the indenture;
(ii) the redemption, purchase, retirement or other acquisition of
any Equity Interests of the Company or Indebtedness of the
Company or any Restricted Subsidiary in exchange for, or out
of the Net Cash Proceeds of, the substantially concurrent sale
(other than to a Subsidiary) of, other Equity Interests of the
Company (other than Disqualified Capital Stock) (other than
the first $5,000,000 of Net Cash Proceeds from the issuance or
sale of Equity Interests to Majestic Star, BDI, or any
Affiliate thereof);
(iii) so long as clause (a) above is satisfied, with respect to each
taxable year that the Company qualifies as a Flow Through
Entity, the payment of Permitted Tax Distributions; provided,
that (A) prior to any payment of Permitted Tax Distributions
the Company provides an Officers' Certificate and Opinion of
Counsel to the effect that the Company and each Subsidiary in
respect of which such distributions are being made, qualify as
Flow Through Entities for Federal income tax purposes and for
the states in respect of which such distributions are being
made and (B) at the time of such distribution, the most recent
audited financial statements of the Company provided to the
Trustee pursuant to the covenant described under the caption
"--Reports," provide that the Company and each such Subsidiary
were treated as Flow Through Entities for the period of such
financial statements, provided that the requirement set forth
in this subclause (B) shall not apply to the extent that such
Subsidiary that is acquired after the date hereof is not a
Flow Through Entity on the date of such acquisition but
subsequently becomes a Flow Through Entity after any period
covered by such financial statements;
(iv) the redemption, repurchase or payoff of any Indebtedness of
the Company or a Restricted Subsidiary with cash proceeds of
or in exchange for any Refinancing Indebtedness permitted to
be incurred pursuant to clause (g) under the covenant
"--Limitation on Incurrence of Indebtedness";
(v) so long as clause (a) above is satisfied, any employment
agreement entered into, or any compensation or employee
benefits paid to employees, in each case, in the ordinary
course of business, consistent with past practices and not
involving the purchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or
any Affiliate (other than any Restricted Subsidiary of the
Company);
(vi) so long as clause (a) above is satisfied, Overhead
Reimbursements under any of the Management Agreements, in each
case, as in effect on the Issue Date, without giving effect to
any amendment, supplement or modification thereof;
(vii) so long as clause (a) above is satisfied, Cash Flow-Based
Management Fees required under any of the Management
Agreements, in each case, as in effect on the Issue Date,
without giving effect to any amendment, supplement or
modification thereof; provided, that the Interest Coverage
Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available
immediately preceding the date on which such payment is made
would have been not less than 1.50 to 1.0, determined on a pro
forma basis, as if such payment had been made during such
four-quarter period;
73
(viii) so long as clause (a) above is satisfied, Revenue-Based
Management Fees required under any of the Management
Agreements, in each case, as in effect on the Issue Date,
without giving effect to any amendment, supplement or
modification thereof; provided, that the Interest Coverage
Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available
immediately preceding the date on which such payment is made
would have been not less than 1.25 to 1.0, determined on a pro
forma basis, as if such payment had been made during such
four-quarter period;
(ix) the redemption and repurchase of any Equity Interests or
Indebtedness of the Company or any of its Subsidiaries to the
extent required by any Gaming Authority or, if determined in
the good faith judgment of the Managers of the Company as
evidenced by a resolution of the Managers that has been
delivered to the trustee, to prevent the loss, or to secure
the grant or establishment, of any gaming license or other
right to conduct lawful gaming operations; and
(x) any Unreimbursed Tax Distribution Amounts (as defined in the
definition of "Permitted Tax Distributions").
Not later than the date of making any Restricted Payment, the Company
will deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed. These calculations may be
based upon the Company's latest available financial statements. Notwithstanding
the foregoing, the Company shall not be required to deliver an Officers'
Certificate to the Trustee pursuant to this covenant if any action is taken
pursuant to subsection (ii), (iv) or (v) of the immediately preceding paragraph.
Limitation on Incurrence of Indebtedness. The indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, (i) create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable with respect to, contingently or otherwise
(collectively, "incur"), any Indebtedness (including, without limitation,
Acquired Debt) or (ii) issue any Disqualified Capital Stock; provided, that the
Company and the Subsidiary Guarantors may incur Indebtedness (other than
Disqualified Capital Stock) (including, without limitation, Acquired Debt) and
the Company may issue shares of Disqualified Capital Stock if (x) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect on a pro forma basis to such incurrence or issuance,
and (y) the Interest Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Capital Stock is issued would have been not less than 2.0
to 1.0, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Capital Stock had been issued, as the case may be,
at the beginning of such four-quarter period. The foregoing provisions do not
prevent the incurrence of:
(a) Indebtedness under the Credit Facility in an aggregate
principal amount not to exceed at any time outstanding, $15.0
million less the aggregate amount of repayments of such
indebtedness contemplated by clause (iii) under the caption
"--Limitation on Asset Sales";
(b) performance bonds, appeal bonds, surety bonds, insurance
obligations or bonds and other similar bonds or obligations
(including Obligations under letters of credit) incurred in
the ordinary course of business, and any guarantees thereof;
(c) Hedging Obligations incurred to fix the interest rate on any
variable rate Indebtedness otherwise permitted by the
indenture; provided, that the notional principal amount of
each such Hedging Obligation does not exceed the principal
amount of the Indebtedness to which such Hedging Obligation
relates and that such Hedging Obligations shall not have been
incurred for purposes of speculation;
(d) Indebtedness outstanding on the Issue Date (other than
Indebtedness under the Credit Facility which shall not be
deemed to be outstanding pursuant to this clause (d)),
including the registered notes and the Security Documents, to
the extent they constitute Indebtedness outstanding on the
Issue Date;
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(e) Indebtedness incurred by the Company in an aggregate principal
amount not to exceed, at any time outstanding pursuant to this
clause (e), $3.0 million less the aggregate amount of
repayments of such indebtedness contemplated by clause (iii)
under the caption "--Limitation on Asset Sales";
(f) any Subsidiary Guarantee of the registered notes or the
Indebtedness permitted by clause (e) above; and
(g) Indebtedness issued in exchange for, or the proceeds of which
are contemporaneously used to extend, refinance, renew,
replace, or refund (collectively, "Refinance"), Indebtedness
incurred pursuant to the Interest Coverage Ratio test set
forth in the immediately preceding paragraph, clause (d) above
or this clause (g) (the "Refinancing Indebtedness"); provided,
that (i) the principal amount of such Refinancing Indebtedness
does not exceed the principal amount of Indebtedness so
Refinanced (including any required premiums and out-of-pocket
expenses reasonably incurred in connection therewith), (ii)
the Refinancing Indebtedness has a final scheduled maturity
that equals or exceeds the final stated maturity, and a
Weighted Average Life to Maturity that is equal to or greater
than the Weighted Average Life to Maturity, of the
Indebtedness being Refinanced, (iii) the Refinancing
Indebtedness ranks, in right of payment, no more favorable to
the registered notes than the Indebtedness being Refinanced,
and (iv) such Refinancing Indebtedness shall only be used to
refinance outstanding Indebtedness of such Person issuing such
Refinancing indebtedness.
Limitation on Asset Sales. The indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless:
(i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Sale not less than the
fair market value of the assets subject to such Asset Sale;
(ii) at least 75% of the consideration for such Asset Sale is in
the form of (A) cash or Cash Equivalents, (B) liabilities of
the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the
registered notes or the Subsidiary Guarantees) that are
assumed by the transferee of such assets (provided, that
following such Asset Sale there is no further recourse to the
Company or its Restricted Subsidiaries with respect to such
liabilities), or (C) fixed assets or property that, in the
good faith judgment of the Managers, at the time of such Asset
Sale will be used in a Related Business of the Company or its
Restricted Subsidiaries; and
(iii) within 270 days of such Asset Sale (or within 30 days in the
case of an Asset Sale or series of related Asset Sales with
Net Proceeds of $15,000,000 or more), the Net Proceeds thereof
are (A) in the case of an Asset Sale or series of related
Asset Sales with Net Proceeds of less than $15,000,000,
invested in fixed assets or property that, in the good faith
judgment of the Managers, at the time of such Asset Sale will
be used in a Related Business of the Company or its Restricted
Subsidiaries, (B) applied to repay Indebtedness under Purchase
Money Obligations incurred in connection with the asset so
sold, (C) applied to repay Indebtedness under the Credit
Facility and permanently reduce the commitment thereunder in
the amount of the Indebtedness so repaid or (D) to the extent
not used as provided in clauses (A), (B), or (C) applied to
make an offer to purchase registered notes as described below
(an "Excess Proceeds Offer"); provided, that the Company will
not be required to make an Excess Proceeds Offer until the
amount of Excess Proceeds is greater than $5,000,000.
The foregoing provisions in (i) or (ii) above shall not apply to an
Event of Loss.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce Indebtedness under the Credit Facility or temporarily invest
such Net Proceeds in Cash Equivalents.
Net Proceeds not invested or applied as set forth in subclauses (A),
(B) or (C) of clause (iii) above constitute "Excess Proceeds." If the Company
elects, or becomes obligated to make an Excess Proceeds Offer, we will offer to
purchase notes having an aggregate principal amount equal to the Excess Proceeds
(the "Purchase Amount"), at a purchase price equal to 100% of the aggregate
principal amount of the notes, plus accrued and unpaid interest on the notes and
Liquidated Damages, if any, to the purchase date. We must consummate an Excess
Proceeds Offer not later than 30 days after the expiration of the 270-day period
following the Asset Sale that produced such Excess Proceeds. If the aggregate
purchase price for the notes tendered pursuant to the
75
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.
Limitation on Restrictions on Subsidiary Dividends. The indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries (a) on such Restricted
Subsidiary's Capital Stock or (b) with respect to any other
interest or participation in, or measured by, such Restricted
Subsidiary's profits, or
(ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, or
(iii) make loans or advances to the Company or any of its Restricted
Subsidiaries, or
(iv) transfer any of its assets to the Company or any of its
Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(1) any Credit Facility containing dividend or other payment
restrictions that are not more restrictive than those
contained in the documents governing the Credit Facility on
the Issue Date;
(2) the indenture, the Security Documents and the registered
notes;
(3) applicable law;
(4) Acquired Debt; provided, that such encumbrances and
restrictions are not applicable to any Person, or the
properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired;
(5) customary non-assignment and net worth provisions of any
contract, lease or license entered into in the ordinary course
of business;
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(6) customary restrictions on the transfer of assets subject to a
Permitted Lien imposed by the holder of such Lien; and
(7) the agreements governing permitted Refinancing Indebtedness;
provided, that such restrictions contained in any agreement
governing such Refinancing Indebtedness are no more
restrictive than those contained in any agreements governing
the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets. The indenture provides that we
may not consolidate or merge with or into (regardless of whether we are the
surviving corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets (determined on a
consolidated basis for the Company and its Restricted Subsidiaries) in one or
more related transactions to, any other Person, unless:
(i) we are the surviving Person or the Person formed by or
surviving any such consolidation or merger (if other than us)
or to which such sale, assignment, transfer, lease, conveyance
or other disposition has been made is a corporation organized
and existing under the laws of the United States of America,
any state thereof or the District of Columbia;
(ii) the Person formed by or surviving any such consolidation or
merger (if other than us) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition
has been made assumes all of our Obligations, pursuant to a
supplemental indenture and in a form reasonably satisfactory
to the Trustee, under the registered notes, the indenture, the
Security Documents and the Registration Rights Agreement;
(iii) immediately after giving effect to such transaction on a pro
forma basis, no Default or Event of Default exists;
(iv) such transaction would not result in the loss or suspension or
material impairment of any Gaming License unless a comparable
replacement Gaming License is effective prior to or
simultaneously with such loss, suspension or material
impairment; and
(v) we, or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition has been
made, (A) has Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments
resulting from the transaction) equal to or greater than our
Consolidated Net Worth immediately preceding the transaction
and (B) will be permitted, at the time of such transaction and
after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter
period, to incur at least $1.00 of additional Indebtedness
pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "-- Limitation on Incurrence of
Indebtedness."
Notwithstanding the foregoing clause (v), the Company may reorganize as
a corporation or other business entity in accordance with the procedures
established in the indenture, provided that (x) such transaction is solely for
the purpose of such reorganization and not for the purpose of evading this
provision or any other provision of the indenture and not in connection with any
other transaction, and (y) prior to such reorganization, the Company has
delivered to the Trustee an Opinion of Counsel confirming that (i) the Holders
will not recognize income, gain or loss for Federal income tax purposes as a
result of the reorganization and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such reorganization had not occurred, and (ii) the Company will not
recognize income, gain or loss for Federal and state income tax purposes as a
result of the reorganization.
In the event of any transaction (other than a lease or a transfer of
less than all of our assets) described in and complying with the conditions
listed in the immediately preceding paragraph in which we are not the surviving
Person, such surviving Person or transferee shall succeed to, and be substituted
for, and may exercise every right and power of, us under, and we shall be
discharged from our Obligations under, the indenture, the Security Documents,
the registered notes and the Registration Rights Agreement.
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Limitation on Transactions with Affiliates. The indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into, consummate or suffer to exist any Affiliate
Transaction except for:
(i) Affiliate Transactions that, together with all related
Affiliate Transactions, have an aggregate value of not more
than $1,000,000; provided, that (a) such transactions are
conducted in good faith and on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable
transaction at such time by the Company or such Restricted
Subsidiary on an arm's-length basis from a Person that is not
an Affiliate of the Company or such Restricted Subsidiary and
(b) the Company shall have delivered to the Trustee an
Officers' Certificate certifying to such effect;
(ii) Affiliate Transactions that, together with all related
Affiliate Transactions, have an aggregate value of not more
than $5,000,000; provided, that (i) a majority of the
disinterested Managers determine that such transactions are
conducted in good faith and on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable
transaction at such time by the Company or such Restricted
Subsidiary on an arm's-length basis from a Person that is not
an Affiliate of the Company or such Restricted Subsidiary and
(ii) prior to entering into such transaction the Company shall
have delivered to the Trustee an Officers' Certificate
certifying to such effect; or
(iii) Affiliate Transactions for which the Company delivers to the
Trustee an opinion as to the fairness to the Company or such
Restricted Subsidiary from a financial point of view issued by
an accounting, appraisal or investment banking firm of
national standing.
Notwithstanding the foregoing, the following will be deemed not to be
Affiliate Transactions:
(a) Restricted Payments (other than payments permitted under
clause (vi) of the second paragraph of the covenant described
above under the caption "--Limitation on Restricted Payments")
permitted by the provisions of the indenture described above
under "--Limitation on Restricted Payments";
(b) the Management Agreements and the Member Agreement, in each
case, as in effect on the Issue Date, without giving effect to
any amendment, supplement or modification thereof and payment
of the Management Fees thereunder;
(c) the non-exclusive licensing of any service mark or other
trademarks of the Company to an Affiliate or Affiliates of the
Company; and
(d) transactions between or among the Company and any Wholly Owned
Subsidiary of the Company.
Restriction on Sale and Issuance of Subsidiary Stock. The indenture
provides that the Company will not sell, and will not permit any Restricted
Subsidiary to issue or sell, any Equity Interests (other than directors'
qualifying shares) of any Restricted Subsidiary to any Person other than the
Company or a Wholly Owned Subsidiary of the Company; provided, that the Company
and its Restricted Subsidiaries may sell all (but not less than all) of the
Capital Stock of a Restricted Subsidiary owned by the Company and its Restricted
Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance
with the terms of the covenant described under "--Limitation on Asset Sales."
Rule 144A Information Requirement. We and the Subsidiary Guarantors
will furnish to the Holders or beneficial holders of notes, upon their request,
and to prospective purchasers thereof designated by such Holders or beneficial
holders, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act for so long as is required for an offer or sale of the
notes to qualify for an exemption under Rule 144A.
Subsidiary Guarantors. The indenture provides that the Company will
cause each of its present and future Restricted Subsidiaries to:
78
- execute and deliver to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee, pursuant to which
such Restricted Subsidiary shall unconditionally guarantee all
of the Issuers' Obligations under the registered notes and the
indenture on the terms set forth in the indenture; and
- deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and that the indenture
constitutes a legal, valid, binding and enforceable
obligation, of such Restricted Subsidiary, in each case
subject to customary qualifications.
Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for all
purposes of the indenture.
Additional Collateral. The indenture provides that the Company will,
and will cause each of the Subsidiary Guarantors to, grant to the Trustee a
valid security interest in all property and assets of the Company and such
Subsidiary Guarantors, other than Excluded Assets, whether owned on the Issue
Date or thereafter acquired, and to execute and deliver all documents and
opinions and to take all action necessary or desirable to perfect and protect
such a security interest in favor of the Trustee, subject only to Permitted
Liens.
Restrictions on Activities of Capital. The indenture provides that
Capital will not hold any material assets or become liable for any obligations
or engage in any business activities; provided, that Capital may be a co-obligor
of the notes (including any additional notes incurred pursuant to the covenant
described above under the caption "Limitation on Incurrence of Indebtedness")
pursuant to the terms of the indenture and as contemplated by the Purchase
Agreement executed by us, the Subsidiary Guarantors and the Initial Purchaser.
Capital may, as necessary, engage in any activities directly related or
necessary in connection therewith.
Limitation on Lines of Business. The indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, engage to any substantial extent in any line or lines of
business activity other than a Related Business.
Reports. The indenture provides that, whether required by the rules and
regulations of the SEC, so long as any notes are outstanding, we will furnish to
the Trustee and Holders, within 15 days after we are or would have been required
to file such with the SEC, (i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if either of us were required to file such forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by our independent certified public accountants and (ii) all information that
would be required to be contained in a filing with the SEC on Form 8-K if either
of us were required to file such reports. From and after the time either of us
files a registration statement with the SEC with respect to the registered
notes, we will file such information with the SEC so long as the SEC will accept
such filings.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an Event
of Default under the indenture:
(i) default for 30 days in the payment when due of interest on the
notes;
(ii) default in payment of principal (or premium, if any) on the
notes when due at maturity, redemption, by acceleration or
otherwise;
(iii) default in the performance or breach of the covenants in the
indenture described under "--Repurchase Upon Change of
Control," "--Limitation on Asset Sales," or "--Merger,
Consolidation or Sale of Assets";
(iv) failure by us or any Subsidiary Guarantor for 60 days after
notice to comply with any other agreements in the indenture or
the notes;
(v) default under (after giving effect to any applicable grace
periods or any extension of any maturity date) any mortgage,
indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness by
the Issuers or any Restricted Subsidiary (or the payment of
which is guaranteed
79
by the Issuers or any Restricted Subsidiary), whether such
Indebtedness or guaranty now exists or is created after the
Issue Date, if (A) either (1) such default results from the
failure to pay principal of or interest on such Indebtedness
or (2) as a result of such default the maturity of such
Indebtedness has been accelerated, and (B) the principal
amount of such Indebtedness, together with the principal
amount of any other such Indebtedness with respect to which
such a payment default (after the expiration of any
applicable grace period or any extension of the maturity
date) has occurred, or the maturity of which has been so
accelerated, exceeds $5,000,000 in the aggregate;
(vi) failure by us or any Restricted Subsidiary to pay final
judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in
excess of $5,000,000, which judgments are not discharged,
bonded or stayed within 60 days after their entry;
(vii) the cessation of a material portion of the gaming operations
of the Company and its Subsidiaries, taken as a whole, for
more than 60 days, except as a result of an Event of Loss;
(viii) any revocation, suspension, expiration (without previous or
concurrent renewal) or loss of any Gaming License for more
than 60 days other than as a result of any Asset Sale made in
accordance with the provisions of the indenture or any
voluntary relinquishment that is, in the judgment of the
Managers, both desirable in the conduct of the business of the
Company and its Subsidiaries, taken as a whole, and not
disadvantageous to the Holders in any material respect;
(ix) any failure to comply with (after giving effect to any
applicable grace periods) any material agreement or covenant
in, or material provision of, any Security Document;
(x) certain events of bankruptcy or insolvency with respect to the
Issuers or any of the Subsidiary Guarantors; and
(xi) any breach or waiver of any provision of the Member Agreement.
Subject to the terms of the intercreditor agreement, if any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding notes may declare by written notice to
the Company and the Trustee all the notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding notes will become
due and payable without further action or notice. Holders may not enforce the
indenture or the notes except as provided in the indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
notes may direct the Trustee in its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the notes
then outstanding, by written notice to the Trustee, may on behalf of the Holders
of all of the notes (i) waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the notes or a Default or an
Event of Default with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each outstanding note
affected, and/or (ii) rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree if all existing Events
of Default (except nonpayment of principal or interest that has become due
solely because of the acceleration) have been cured or waived.
We are required, upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default and what action we are taking or propose to take with respect
thereto.
NO PERSONAL LIABILITY OF DIRECTORS, MEMBERS, MANAGERS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No director, member, manager, officer, employee, incorporator,
stockholder or controlling person of the issuers or any Subsidiary Grantor, as
such, will have any liability for any of our obligations or the obligations of
any Subsidiary Grantor under the notes, the indenture or the Security Documents
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a note waives and releases all such
liability. The waiver and release will be part of the
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consideration for issuance of the notes and the Subsidiary Guarantees. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
- the rights of Holders of outstanding notes to receive payments
in respect of the principal of, premium, if any, and interest
on such notes and Liquidated Damages, if any, when such
payments are due from the trust referred to below;
- our obligations concerning issuing temporary registered notes,
registration of registered notes, mutilated, destroyed, lost
or stolen registered notes and the maintenance of an office or
agency for payment and money for security payments held in
trust;
- the rights, powers, trusts, duties and immunities of the
Trustee, and our and the Subsidiary Guarantors' obligations in
connection therewith; and
- the Legal Defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain material covenants that are
described herein ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) we must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding
notes on the stated maturity or on the applicable redemption
date, as the case may be, and we must specify whether the
notes are being defeased to maturity or to a particular
redemption date;
(ii) in the case of Legal Defeasance, we shall have delivered to
the Trustee an Opinion of Counsel confirming that (A) we have
received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the Issue Date, there
has been a change in the applicable Federal income tax law, in
either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Holders will not recognize
income, gain or loss for Federal income tax purposes as a
result of such Legal Defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal
Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, we shall have delivered to
the Trustee an Opinion of Counsel confirming that the Holders
will not recognize income, gain or loss for Federal income tax
purposes as a result of such Covenant Defeasance and will be
subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default
or Event of Default resulting from the borrowing of funds to
be applied to such deposit);
(v) such Legal Defeasance or Covenant Defeasance will not result
in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the indenture) to
which we or any of the Subsidiaries is a party or by which we
or any of the Subsidiaries is bound;
81
(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 registered note
for a period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the indenture and
the notes may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the notes then outstanding and
any existing Default or Event of Default or compliance with any provision of the
indenture or the notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding notes.
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any notes held by a non-consenting Holder):
(i) reduce the principal amount of notes whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of, or the premium (including, without
limitation, redemption premium) on, or change the fixed
maturity of, any note; alter the provisions with respect to
the payment on redemption of the notes; or alter the price at
which repurchases of the notes may be made pursuant to an
Excess Proceeds Offer or Change of Control offer after the
Asset Sale or Change of Control, respectively, has occurred;
(iii) reduce the rate of or change the time for payment of interest
on any note;
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the notes
(except a rescission of acceleration of the registered notes
by the Holders of a majority in aggregate principal amount of
the notes and a waiver of the payment default that resulted
from such acceleration);
(v) make any note payable in money other than that stated in the
notes;
(vi) make any change in the provisions of the indenture relating to
waivers of past Defaults with respect to, or the rights of
Holders to receive, payments of principal of or interest on
the notes;
(vii) waive a redemption payment with respect to any note;
(viii) adversely affect the contractual ranking of the notes or
Subsidiary Guarantees; or
(ix) make any change in the foregoing amendment and waiver
provisions.
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Notwithstanding the foregoing, without the consent of the Holders of
not less than two-thirds in aggregate principal amount of the notes at the time
outstanding, the issuers, the Subsidiary Guarantors and the Trustee may not
amend or supplement the Security Documents, or waive or modify the rights of the
Holders thereunder or the provisions of the indenture relating thereto.
Notwithstanding the foregoing, without the consent of the Holders, the
issuers and the Trustee may amend or supplement the indenture, the notes and the
Security Documents to:
- cure any ambiguity, defect or inconsistency;
- provide for uncertificated notes in addition to or in place of
certificated notes;
- provide for the assumption of our or the Subsidiary
Guarantors' obligations to Holders in the case of a merger or
consolidation;
- make any change that would provide any additional rights or
benefits to the Holders or that does not adversely affect the
legal rights of any such Holder under the indenture or the
notes;
- release any Subsidiary Guarantee permitted to be released
under the terms of the indenture;
- comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
indenture Act; or
- comply with the requirements of the Trustee and the Depositary
(including its nominees) with respect to transfers of
beneficial interests in the notes.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the
Trustee, should it become one of our creditors, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, that, if the Trustee acquires any conflicting interest,
it must eliminate such conflict within 90 days, apply to the SEC for permission
to continue, or resign.
The Holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs (and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of his or
her own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any Holder, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
On December 6, 2001, the Company entered into a member agreement with:
(1) Majestic Investor, the sole member of the Company, (2) Majestic Star, the
sole member of Majestic Investor, and (3) BDI, the sole member of Majestic Star.
Under the member agreement, Majestic Star will not, directly or indirectly,
declare or pay any dividends or other similar distributions, other than
management fees and tax distributions, until Majestic Star has contributed $5.0
million in cash to Majestic Investor, less any amounts contributed in cash to
the Company by BDI after December 6, 2001, and Majestic Investor has contributed
such cash to the Company. Under the Member Agreement, BDI (1) will cause
Majestic Star not to, directly or indirectly, declare or pay any dividends or
other similar distributions, other than management fees and tax distributions,
until Majestic Star has contributed an aggregate of $5.0 million in cash to
Majestic Investor, less any amounts contributed in cash to the Company by BDI
after December 6, 2001, and Majestic Investor has contributed such cash to the
Company, (2) will not accept any such dividends or other similar distributions,
other than management fees and tax distributions, from Majestic Star until
Majestic Star has contributed an aggregate of $5.0 million to Majestic Investor,
less any amounts contributed in cash to the Company by BDI after December 6,
2001, and Majestic Investor has contributed such cash to the Company, and (3)
will contribute to the Company, directly or indirectly, the first $5.0 million
of net proceeds from any sales of Equity Interests of Majestic Star (other than
sales of Equity Interests to BDI), less any amounts previously contributed by
BDI and Majestic Star to Majestic Investor, pursuant to clauses (1) and (2) of
this sentence
83
and this clause (3), which have been contributed to the Company, after December
6, 2001. The Member Agreement is not a commitment by BDI or Majestic Star to
make such contributions to the Company or to Majestic Investor. Majestic Star
cannot make any of these dividends or distributions at this time and it is
unclear when, if ever, it will be able to do so.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full definition of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means Indebtedness of a Person existing at the time
such Person is merged with or into the Company or a Restricted Subsidiary or
becomes a Restricted Subsidiary, other than Indebtedness incurred in connection
with, or in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, means (a)
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise or (b) beneficial
ownership of 10% or more of the voting securities of such Person.
"Affiliate Transaction" means, with respect to any Person, (1) the
sale, lease, transfer or other disposition of any of such Person's properties or
assets to, or the purchaser of any property or assets from, any Affiliate, and
(2) the entering into by such Person, or the suffering to exist by such Person,
of any contract, agreement, understanding, loan, advance or guaranty with or for
the benefit of any Affiliate of such Person. Notwithstanding the foregoing,
payments to Majestic Star by the Company and its Restricted Subsidiaries of up
to an aggregate of $1,700,000 of Overhead Reimbursements required under the
Management Agreements in any one fiscal year shall not be deemed "Affiliate
Transactions"; provided, that (1) such transactions are conducted in good faith
and on terms that are no less favorable to the Company or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction at such time by the Company or such Restricted Subsidiary on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Restricted Subsidiary and (2) the Company shall have delivered to the Trustee an
Officers' Certificate certifying to such effect once during each such fiscal
year; provided, further, that, notwithstanding clause (i)(b) under the caption
"Limitation on Transactions with Affiliates," the Company may deliver a single
Officers' Certificate for all Overhead Reimbursements required under the
Management Agreements in any one single fiscal year.
"Applicable Capital Gain Tax Rate" means a rate equal to the sum of (i)
the highest marginal Federal capital gain tax rate applicable to an individual
who is a citizen of the United States plus (ii) an amount equal to the sum of
the highest marginal state and local capital gain tax rates applicable to an
individual who is a resident of the State of New York, multiplied by a factor
equal to 1 minus the rate described in clause (i) above.
"Applicable Income Tax Rate" means a rate equal to the sum of (i) the
highest marginal Federal income tax rate applicable to an individual who is a
citizen of the United States plus (ii) an amount equal to the sum of the highest
marginal state and local income tax rates applicable to an individual who is a
resident of the State of New York, multiplied by a factor equal to 1 minus the
rate described in clause (i) above.
"Asset Sale" means any (i) transfer (as defined), other than in the
ordinary course of business, of any assets of the Company or any Restricted
Subsidiary; (ii) direct or indirect issuance or sale of any Capital Stock of any
Restricted Subsidiary (other than directors' qualifying shares), in each case to
any Person; or (iii) Event of Loss. For purposes of this definition, (a) any
series of transactions that are part of a common plan shall be deemed a single
Asset Sale and (b) the term "Asset Sale" shall not include (1) any series of
transactions that have a fair market value (or result in gross proceeds) of less
than $1 million, until the aggregate fair market value and gross proceeds of the
transactions excluded from the definition of Asset Sale pursuant to this clause
(b)(1) exceed $5 million, (2) any disposition of all or substantially all of the
assets of the Company that is governed under and complies with the terms of the
covenant described under "--Merger, Consolidation or Sale of Assets," (3) the
conveyance, sale, transfer, assignment or other disposition of inventory and
other assets acquired and held for resale in the ordinary course of business, in
each case made in the ordinary course of business, consistent with past
practices of the Company and its Restricted
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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.
"Capital" means Majestic Investor Capital Corp., a Delaware corporation
and a wholly owned subsidiary of the Company.
"Capital Contribution" means any contribution to the equity of the
Company from a direct or indirect parent of the Company for which no
consideration other than the issuance of Qualified Capital Stock is given.
"Capital Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP, and the amount of such obligations at
any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means, (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (ii) with respect to a
limited liability company, any and all membership interests, and (iii) with
respect to any other Person, any and all partnership, joint venture or other
equity interests of such Person.
"Cash Equivalent" means (i) any evidence of Indebtedness issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof); (ii) time deposits
and certificates of deposit and commercial paper or bankers acceptance issued by
the parent corporation of any domestic commercial bank of recognized standing
having combined capital and surplus in excess of $250,000,000 and commercial
paper issued by others rated at least A-2 or the equivalent thereof by Standard
& Poor's Corporation or at least P-2 or the equivalent thereof by Moody's
Investors Service, Inc. and in each case maturing within one year after the date
of acquisition; (iii) investments in money market funds substantially all of
whose assets comprise securities of the type described in clauses (i) and (ii)
above and (iv) repurchase obligations for underlying securities of the types and
with the maturities described above.
"Casino" means a gaming establishment owned by the Company or a
Restricted Subsidiary and containing at least 400 gaming devices and 10,000
square feet of space dedicated to the operation of games of chance.
"Change of Control" means
(i) any merger or consolidation of the Company with or into any
Person or any sale, transfer or other conveyance, whether
direct or indirect, of all or substantially all of the assets
of the Company, on a consolidated basis, in one transaction or
a series of related transactions, if, immediately after giving
effect to such transaction(s), any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d)
of the Exchange Act, whether or not applicable) (other than an
Excluded Person) is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the total voting
power in the aggregate of the Voting Stock of the
transferee(s) or surviving entity or entities,
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(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,
(iii) during any period of 12 consecutive months after the Issue
Date, individuals who at the beginning of any such 12-month
period constituted the Managers of the Company (together with
any new directors whose election by such Managers or whose
nomination for election by the members of the Company was
approved by a vote of a majority of the directors then still
in office who were either directors at the beginning of such
period or whose election or nomination for election was
previously so approved, including new directors designated in
or provided for in an agreement regarding the merger,
consolidation or sale, transfer or other conveyance, of all or
substantially all of the assets of the Company, if such
agreement was approved by a vote of such majority of
directors) cease for any reason to constitute a majority of
the Managers of the Company then in office,
(iv) the Company adopts a plan of liquidation, or
(v) the first day on which the Company fails to own 100% of the
issued and outstanding Equity Interests of Capital.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Majestic Investor Holdings, LLC, a Delaware limited
liability company.
"Consolidated Cash Flow" means, with respect to any Person (the
referent Person) for any period,
(a) consolidated income (loss) from operations of such Person and
its subsidiaries for such period, determined in accordance
with GAAP, plus
(b) to the extent such amounts are deducted in calculating such
income (loss) from operations of such Person for such period,
and without duplication (i) amortization, depreciation and
other non-cash charges (including, without limitation,
amortization of goodwill, deferred financing fees, and other
intangibles but excluding (x) non-cash charges incurred after
the Issue Date that require an accrual of or a reserve for
cash charges for any future period and (y) normally recurring
accruals such as reserves against accounts receivables); (ii)
provision for taxes based on income or profits of such Person
and its subsidiaries and Permitted Tax Distributions; and
(iii) Pre-Opening Expenses;
provided, that (1) the income from operations of any Person that is not a Wholly
Owned Subsidiary of the referent Person or that is accounted for by the equity
method of accounting will be included only to the extent of the amount of
dividends or distributions paid during such period to the referent Person or a
Wholly Owned Subsidiary of the referent Person, (2) the income from operations
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition will be excluded, and (3) the income from
operations of any Restricted Subsidiary will not be included to the extent that
declarations of dividends or similar distributions by that Restricted Subsidiary
are not at the time permitted, directly or indirectly, by operation of the terms
of its organizational documents or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its owners.
"Consolidated Interest Expense" means, with respect to any Person for
any period, (a) the consolidated interest expense of such Person and its
subsidiaries for such period, whether paid or accrued (including amortization of
original issue discount, noncash interest payment, and the interest component of
Capital Lease Obligations), to the extent such expense was deducted in computing
Consolidated Net Income of such Person for such period less (b) write-off of
deferred financing costs, the amortization of original issue discount for
Indebtedness in existence on the Issue Date, and any charge related to any
premium or penalty paid, in each case accrued during such period in connection
with redeeming or retiring any Indebtedness before its stated maturity, as
determined in accordance with GAAP, to the extent such expense, cost or charge
was included in the calculation made pursuant to clause (a) above.
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"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.
"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' (or members') equity of such Person determined on a consolidated
basis in accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (i) the amount of any such stockholders' (or members')
equity attributable to Disqualified Capital Stock or treasury stock of such
Person and its consolidated subsidiaries, (ii) all upward revaluations and other
write-ups in the book value of any asset of such Person or a consolidated
subsidiary of such Person subsequent to the Issue Date, and (iii) all
Investments in subsidiaries of such Person that are not consolidated
subsidiaries and in Persons that are not subsidiaries of such Person.
"Copyright Security Agreement" means that certain Copyright Security
Agreement, dated as of the Issue Date, by and among the Issuers, the Subsidiary
Guarantors and the Trustee.
"Credit Facility" means (a) our credit facility, dated as of December
6, 2001, between the Company and Foothill Capital Corporation (any related
registered notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith) and (b) any amendment, modification,
supplement, refunding, refinancing or replacement thereof that has terms and
conditions (including with respect to applicable interest rates and fees)
customary for similar facilities extended to borrowers comparable to the
Company, in each case, that does not permit the Company and its Restricted
Subsidiaries to incur Indebtedness in an aggregate principal amount at any time
outstanding in excess of $15.0 million.
"Default" means any event that is, or after notice or the passage of
time or both would be, an Event of Default.
"Disqualified Capital Stock" means any Equity Interest that (i) either
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable) is or upon the happening of an event would be
required to be redeemed or repurchased prior to the final stated maturity of the
registered notes or is redeemable at the option of the holder thereof at any
time prior to such final stated maturity, or (ii) is convertible into or
exchangeable at the option of the issuer thereof or any other Person for debt
securities.
"Equity Holder" means (a) with respect to a corporation, each holder of
stock of such corporation, (b) with respect to a limited liability company or
similar entity, each member of such limited liability company or similar entity
(in each case, which is not disregarded for Federal income tax purposes), (c)
with respect to a partnership, each partner of such partnership and (d) with
respect to any entity that is disregarded for Federal income tax purposes, the
owner of such entity.
"Equity Interests" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Event of Loss" means, with respect to any property or asset, any (i)
loss, destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
87
"Excluded Assets" means (i) cash and cash equivalents to the extent a
Lien thereon may not be perfected through the filing of a UCC-1 financing
statement or through the obtaining of "control" (as defined in the Uniform
Commercial Code); (ii) assets securing Purchase Money Obligations or Capital
Lease Obligations permitted to be incurred pursuant to clause (e) under the
covenant described above under the caption "Limitation on Incurrence of
Indebtedness"; (iii) all Gaming Licenses and any license, contract or agreement
to which such debtor is a party, to the extent, but only to the extent, that a
grant of a Lien on such license (other than any Gaming License or license issued
under any Liquor Laws), contract or agreement is prohibited by law, results in
a breach or termination of the terms of, or constitutes a default under or
termination of any such license, contract or agreement (other than to the extent
that any such term would be rendered ineffective pursuant to Section 9-406,
9-407 or 9-408 of the Uniform Commercial Code (or any successor provision or
provisions) of any relevant jurisdiction) and, in any event, immediately upon
the ineffectiveness, lapse or termination of any such terms of or default under
such license, contract or agreement, the Excluded Assets shall not include, and
such debtor shall be deemed to have granted a security interest in, all such
licenses, contracts or agreements as if such terms or defaults had never been in
effect and (iv) the Nevada Leasehold Interests; provided, that Excluded Assets
does not include the proceeds of the assets under clauses (ii) or (iii) or of
any other Collateral to the extent such proceeds do not constitute Excluded
Assets under clause (i) above; without limiting the foregoing, Excluded Assets
shall include gaming equipment subject to such Purchase Money Obligations or
Capital Lease Obligations.
"Excluded Person" means (i) any employee benefit plan of the Company or
any trustee or similar fiduciary holding Capital Stock of the Company for or
pursuant to the terms of any such plan, (ii) BDI, so long as it is controlled by
Don H. Barden or his spouse or an entity controlled by either of them, (iii)
Barden Management, Inc., so long as it is owned by Don H. Barden, (iv) Don H.
Barden or his spouse or an entity controlled by either of them, (v) the estate
of Don H. Barden, (vi) any descendant of Don H. Barden or the spouse of any such
descendant, (vii) the estate of any such descendant or the spouse of any such
descendant, (viii) any trust or other arrangement for the benefit of the spouse
of Don H. Barden or any such descendant or the spouse of any such descendant,
(ix) any charitable organization or trust established by Don H. Barden, (x) The
Majestic Star Casino, LLC, an Indiana limited liability company, as long as it
is controlled by Don H. Barden or his spouse or an entity controlled by either
of them and (xi) Majestic Investor, LLC, a Delaware limited liability company,
as long as it is controlled by Don H. Barden or his spouse or an entity
controlled by either of them.
"FF&E" means furniture, fixture and equipment acquired by the Company
or a Restricted Subsidiary in the ordinary course of business for use in the
operation of a Casino.
"FF&E Financing" means Purchase Money Obligations, Capital Lease
Obligations, or Industrial Revenue Bond Obligations incurred solely to acquire
or lease, respectively, FF&E; provided, that the principal amount of such
Indebtedness does not exceed the cost (including sales and excise taxes,
installation and delivery charges and other direct costs and expenses) of the
FF&E purchased or leased with the proceeds thereof.
"FF&E Lender" means a Person that is not an Affiliate of the Company
and is a lender under FF&E Financing.
"Flow Through Entity" means an entity that (a) for Federal income tax
purposes constitutes (i) an "S corporation" (as defined in Section 1361(a) of
the Code), (ii) a "qualified subchapter S subsidiary" (as defined in Section
136l(b)(3)(B) of the Code), (iii) a "partnership" (within the meaning of Section
7701(a)(2) of the Code) other than a "publicly traded partnership" (as defined
in Section 7704 of the Code), (iv) a business entity that is disregarded as an
entity separate from its owner under the Code, the Treasury Regulations or any
published administrative guidance of the Internal Revenue Service, or (v) any
other substantially similar pass-through entity for Federal income tax purposes
(each of the entities described in the immediately preceding clauses (i), (ii),
(iii), (iv) and (v), a "Federal Flow Through Entity") and (b) for state and
local jurisdictions in respect of which Permitted Tax Distributions are being
made, is subject to treatment on a basis under applicable state or local income
tax law substantially similar to a Federal Flow Through Entity.
"gaap" means generally accepted accounting principles, as in effect
from time to time, set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession, and in the rules and
regulations of the Commission.
"GAAP" means gaap as in effect from time to time.
88
"Gaming Authorities" means the Nevada Gaming Control Board, the Nevada
Gaming Commission, the Mississippi Gaming Commission, the Colorado Gaming
Commission, and any agency, authority, board, bureau, commission, department,
office or instrumentality of any nature whatsoever of the United States or
foreign government, any state, province or any city or other political
subdivision, whether now or hereafter existing, or any officer or official
thereof, including, without limitation, any other agency with authority to
regulate any gaming operation (or proposed gaming operation) owned, managed or
operated by the Company or any of its Subsidiaries.
"Gaming Licenses" means every finding of suitability, registration,
license, franchise or other finding of suitability, registration, approval or
authorization required to own, lease, operate or otherwise conduct or manage
riverboat, dockside or land-based gaming activities in any state or jurisdiction
in which the Company or any of its Subsidiaries conducts business and all
applicable liquor licenses.
"Government Securities" means (i) direct obligations of the United
States of America for the timely payment of which its full faith and credit is
pledged or (ii) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Governmental Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States of America or foreign government, any state, province or any
city or other political subdivision or otherwise and whether now or hereafter in
existence, or any officer or official thereof, and any maritime authority.
"guaranty" or "guarantee," used as a noun, means any guaranty (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner (including, without
limitation, letters of credit and reimbursement agreements in respect thereof),
of all or any part of any Indebtedness or other Obligation. "guarantee," used as
a verb, has a correlative meaning.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means the Person in whose name a note is registered in the
register of the notes.
"Indebtedness" of any Person means (without duplication) (i) all
liabilities and obligations, contingent or otherwise, of such Person (A) in
respect of borrowed money (regardless of whether the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof), (B)
evidenced by bonds, debentures, registered notes or other similar instruments,
(C) representing the deferred purchase price of property or services (other than
trade payables on customary terms incurred in the ordinary course of business),
(D) created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (E) representing
Capital Lease Obligations, (F) under bankers' acceptance and letter of credit
facilities, (G) to purchase, redeem, retire, defease or otherwise acquire for
value any Disqualified Capital Stock, or (H) in respect of Hedging Obligations;
(ii) all Indebtedness of others that is guaranteed by such Person; and (iii) all
Indebtedness of others that is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property (including, without limitation, accounts and contract
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
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amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date. Notwithstanding the
foregoing, the term Indebtedness shall not include obligations arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument drawn against insufficient funds in the ordinary course of business;
provided, that such obligation is extinguished within two business days of its
incurrence. The principal amount outstanding of any Indebtedness issued with
original issue discount is the accreted value of such Indebtedness.
"Industrial Revenue Bond Obligations" means obligations of the Company
or any of its Restricted Subsidiaries in connection with industrial revenue
bonds issued by the Mississippi Business Finance Corporation ("MBFC"), all of
the proceeds of which are loaned by the MBFC to the Company or its Restricted
Subsidiaries for the acquisition, construction or development of hotels or other
improvements at the Company's or its Restricted Subsidiaries' Casino located in
Tunica, Mississippi.
"Interest Coverage Ratio" means, for any period, the ratio of (i)
Consolidated Cash Flow of the Company for such period, to (ii) Consolidated
Interest Expense of the Company for such period. In calculating the Interest
Coverage Ratio for any period, pro forma effect shall be given to the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Subsidiaries of any Indebtedness
subsequent to the commencement of the period for which the Interest Coverage
Ratio is being calculated, as if the same had occurred at the beginning of the
applicable period. For purposes of making the computation referred to above,
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including all mergers and consolidations, subsequent to the
commencement of such period shall be calculated on a pro forma basis, assuming
that all such acquisitions, mergers and consolidations had occurred on the first
day of such period. Without limiting the foregoing, the financial information of
the Company with respect to any portion of such period that falls before the
Issue Date shall be adjusted to give pro forma effect to the issuance of the
registered notes and the application of the proceeds therefrom as if they had
occurred at the beginning of such period.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans,
guarantees and other forms of direct and indirect credit support, advances or
capital contributions (excluding (i) payroll commission, travel and similar
advances to officers and employees of such Person made in the ordinary course of
business and (ii) bona fide accounts receivable arising from the sale of goods
or services in the ordinary course of business consistent with past practice),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Investor" means Majestic Investor, LLC, a Delaware limited liability
company.
"Investor Pledge Agreement" means that certain Pledge Agreement
executed by Investor, providing for a pledge of the entire membership interest
in the Company held by it in favor of the Trustee, for the ratable benefit of
the Holders of the notes, as the same may be amended in accordance with the
terms thereof and the indenture.
"Issue Date" means December 6, 2001, the date the unregistered notes
were issued.
"Issuers" means Capital and the Company.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, regardless of whether filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Liquor Authorities" means the Mississippi Alcoholic Beverage Control
Division of the Mississippi State Tax Commission, and any agency, authority,
board, bureau, commission, department, office or instrumentality of any nature
whatsoever of the United States or foreign government, any state, province or
any city or other political subdivision, whether now or hereafter
90
existing, or any officer or official thereof, including without limitation, any
other agency with authority to regulate the sale or distribution of alcoholic
beverages by the Company or any of its Subsidiaries.
"Liquor Laws" means the statutes regarding the sale and distribution of
alcoholic beverages enforced by the Liquor Authorities and the rules and
regulations of the Liquor Authorities.
"Majestic Investor" means Majestic Investor, LLC, a Delaware limited
liability company.
"Majestic Star" means The Majestic Star Casino, LLC, an Indiana limited
liability company.
"Management Agreements" means, collectively, (1) that certain
Management Agreement, dated as of September 19, 2001, by and between the Company
and BDI, pursuant to which the Company will pay to BDI fees (the "Management
Fees") for acting as the Manager of the Company, which Management Fees, for any
fiscal quarter, shall not exceed 1% of net revenues (such Management Fees, the
"Revenue-Based Management Fees") plus 5% of Consolidated Cash Flow (such
Management Fees, the "Cash Flow-Based Management Fees") for the immediately
preceding fiscal quarter; provided that the payment of such Management Fees
shall be subordinated to the payment in full of principal, interest, premium and
Liquidated Damages, if any, then due on the registered notes, and (2) that
certain Expense Reimbursement/Sharing Agreement, dated as of October 22, 2001,
by and between the Company and Majestic Star, pursuant to which the Company and
its Restricted Subsidiaries will each reimburse (such reimbursements, "Overhead
Reimbursements") Majestic Star for a specified percentage of the documented
out-of-pocket expenses paid by Majestic Star for the Company's corporate
overhead, including (i) the costs and expenses of executives and certain other
employees, including, but not limited to, salaries, bonuses, benefit payments,
insurance, and supplies, (ii) rent and (iii) other similar costs and expenses.
"Managers" means (i) for so long as the Company is a limited liability
company, the Managers appointed pursuant to the Operating Agreement or (ii)
otherwise, the Board of Directors of the Company.
"Member Agreement" means the Member Agreement, dated as of the Issue
Date by and among the Company, Majestic Investor, Majestic Star and BDI.
"Members" means the members of the Company.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale, or Capital
Contribution in respect, of Qualified Capital Stock upon any exercise, exchange
or conversion of securities (including options, warrants, rights and convertible
or exchangeable debt) of the Company that were issued for cash or Cash
Equivalents on or after the Issue Date, the amount of cash or Cash Equivalents
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt) less,
in each case, the sum of all payments, fees, commissions and expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with such sale of
Qualified Capital Stock or Capital Contribution.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP, reduced by the maximum amount of Permitted Tax Distributions for such
period, excluding (to the extent included in calculating such net income) (i)
any gain or loss, together with any related taxes paid or accrued on such gain
or loss, realized in connection with any Asset Sales and dispositions pursuant
to sale-leaseback transactions, and (ii) any extraordinary gain or loss,
together with any related taxes paid or accrued on such gain or loss.
"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
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(i) the reasonable and customary direct out-of-pocket costs
relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees and sales
commissions), other than any such costs payable to an
Affiliate of the Company,
(ii) taxes required to be paid by the Company or any of its
Subsidiaries in connection with such Asset Sale in the taxable
year that such sale is consummated or in the immediately
succeeding taxable year or any Permitted Tax Distributions
during the taxable year within which such Asset Sale is
consummated or in the immediately succeeding taxable year
that would not otherwise be permitted to be distributed but
for such Asset Sale,
(iii) amounts required to be applied to the permanent repayment of
Purchase Money Obligations and Capital Lease Obligations in
connection with such Asset Sale, and
(iv) appropriate amounts provided as a reserve by the Company or
any Restricted Subsidiary, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained
by the Company or such Restricted Subsidiary, as the case may
be, after such Asset Sale (including, without limitation, as
applicable, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification arising from such Asset
Sale).
"Nevada Leasehold Interest" means the leasehold interests of Barden
Nevada Gaming, LLC (as successor to Fitzgeralds Las Vegas, Inc.), as tenant,
under the following leases: (i) Lease, dated March 4, 1976, between A.W. Ham,
Jr., as Trustee, and Nevada Building Company, as heretofore signed and amended;
and (ii) Lease Agreement, dated September 1, 1978, between Jewel French Nolen,
Julie LaMoyne Nolen, David Kramer, Betty Bennett, Richard James Tinkler and M.B.
Dalitz, as heretofore signed and amended.
"Obligation" means any principal, premium, interest, penalty, fee,
indemnification, reimbursement, damage and other obligation and liability
payable under the documentation governing any liability.
"Officers' Certificate" means a certificate signed on behalf of the
Issuers by two Officers of each of the Company and Capital, in each case, one of
whom must be the President, Chief Operating and Financial Officer, Treasurer,
Controller or a Senior Vice President.
"Operating Agreement" means the Limited Liability Company Agreement of
the Company, as amended from time to time.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee. Such counsel may be an employee of or
counsel to the Company or any Subsidiary of the Company.
"Permitted Investments" means
(i) Investments in the Company or in any Wholly Owned Subsidiary;
(ii) Investments in Cash Equivalents;
(iii) Investments in a Person, if, as a result of such Investment,
such Person (A) becomes a Wholly Owned Subsidiary, or (B) is
merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Subsidiary;
(iv) Hedging Obligations;
(v) Investments as a result of consideration received in
connection with an Asset Sale made in compliance with the
covenant described under the caption "--Limitation on Asset
Sales";
(vi) Investments existing on the Issue Date;
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(vii) Investments paid for solely with Capital Stock (other than
Disqualified Capital Stock) of the Company;
(viii) credit extensions to gaming customers in the ordinary course
of business, consistent with industry practice;
(ix) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to
the Company in satisfaction of judgments; and
(x) loans or advances to Affiliates or to employees of the Company
and its Restricted Subsidiaries in an aggregate amount not to
exceed $1.0 million at any one time outstanding pursuant to
this clause (x).
"Permitted Liens" means:
(i) Liens arising by reason of any judgment, decree or order of
any court for an amount and for a period not resulting in an
Event of Default with respect thereto, so long as such Lien is
being contested in good faith and is adequately bonded, and
any appropriate legal proceedings that may have been duly
initiated for the review of such judgment, decree or order
shall not have been finally adversely terminated or the period
within which such proceedings may be initiated shall not have
expired;
(ii) security for the performance of bids, tenders, trade,
contracts (other than contracts for the payment of money) or
leases, surety bonds, performance bonds and other obligations
of a like nature incurred in the ordinary course of business,
consistent with industry practice;
(iii) Liens (other than Liens arising under ERISA) for taxes,
assessments or other governmental charges not yet due or that
are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with
gaap;
(iv) Liens of carriers, warehousemen, mechanics, landlords,
material men, repairmen or other like Liens arising by
operation of law in the ordinary course of business consistent
with industry practices (other than Liens arising under ERISA)
and Liens on deposits made to obtain the release of such Liens
if (a) the underlying obligations are not overdue for a period
of more than 30 days or (b) such Liens are being contested in
good faith and by appropriate proceedings and adequate
reserves with respect thereto are maintained on the books of
the Company in accordance with gaap;
(v) easements, rights of way, zoning and similar restrictions,
covenants, conditions and restrictions and other encumbrances
or title defects incurred in the ordinary course of business,
consistent with industry practices that do not in any case
materially detract from the value of the property subject
thereto (as such property is used by the Company or a
Subsidiary) or interfere with the ordinary conduct of the
business of the Company or any of its Subsidiaries; provided,
that such Liens are not incurred in connection with any
borrowing of money or any commitment to loan any money or to
extend any credit;
(vi) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance
and other types of social security legislation;
(vii) Liens securing Refinancing Indebtedness incurred in compliance
with the indenture to refinance Indebtedness secured by Liens,
provided, (a) such Liens do not extend to any additional
property or assets; (b) if the Liens securing the Indebtedness
being refinanced were subordinated to or pari passu with the
Liens securing the registered notes or any intercompany loan,
as applicable, such new Liens are subordinated to or pari
passu with such Liens to the same extent, and any related
subordination or intercreditor agreement is confirmed; and (c)
such Liens are no more adverse to the interests of Holders
than the Liens replaced or extended thereby;
(viii) Liens that secure Acquired Debt; provided, that such Liens do
not extend to or cover any property or assets other than those
of the Person being acquired and were not put in place in
anticipation of such acquisition;
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(ix) Liens that secure Purchase Money Obligations or Capital Lease
Obligations permitted to be incurred pursuant to clause (e)
under the covenant described above under the caption
"Limitation on Incurrence of Indebtedness"; provided, that
such Liens do not extend to or cover any property or assets
other than those being acquired or developed;
(x) those matters shown as exceptions to title on the title
policies, dated as of the Issue Date, and issued by Fidelity
National Title Insurance Company for the benefit of the
Trustee;
(xi) Liens securing Obligations under the indenture, the notes or
the Security Documents;
(xii) Liens on assets of the Company and the Subsidiaries, and the
proceeds of any or all the foregoing, securing Indebtedness
incurred pursuant to clause (a) under the caption
"--Limitation on Incurrence of Indebtedness";
(xiii) with respect to any vessel included in the Collateral, certain
maritime liens, including liens for crew's wages and salvage;
(xiv) leases or subleases granted in the ordinary course of business
not materially interfering with the conduct of the business of
the Company or any of its Restricted Subsidiaries;
(xv) Liens arising from precautionary Uniform Commercial Code
financing statement filings regarding operating leases entered
into by the Company or any of its Subsidiaries in the ordinary
course of business; and
(xvi) the rights of the lessors under ground leases, as in effect on
the Issue Date, relating to real property in Las Vegas,
Nevada, leased by the Company or its Restricted Subsidiaries
on the Issue Date.
"Permitted Tax Distributions" in respect of the Company and each
Subsidiary that qualifies as a Flow Through Entity shall mean, with respect to
any taxable year, the sum of:
(a) the product of (i) the excess of (A) all items of taxable
income or gain (other than capital gain) of the Company that
is allocated (or otherwise flows through) to Equity Holders
(or the Upper Tier Equity Holders, as the case may be) for
such year over (B) all items of taxable deduction or loss
(other than capital loss) of the Company that is allocated (or
otherwise flows through) to Equity Holders (or the Upper Tier
Equity Holders, as the case may be) for such year and (ii) the
Applicable Income Tax Rate, plus
(b) the product of (i) the net capital gain (i.e., net long-term
capital gain over net short-term capital loss), if any, of the
Company that is allocated (or otherwise flows through) to
Equity Holders (or the Upper Tier Equity Holders, as the case
may be) for such year and (ii) the Applicable Capital Gain Tax
Rate, plus
(c) the product of (i) the net short-term capital gain (i.e., net
short-term capital gain in excess of net long-term capital
loss), if any, of the Company that is allocated (or otherwise
flows through) to Equity Holders (or the Upper Tier Equity
Holders, as the case may be) for such year and (ii) the
Applicable Income Tax Rate, minus
(d) the aggregate Tax Loss Benefit Amount for the Company for such
year;
provided, that in no event shall the Applicable Income Tax Rate or the
Applicable Capital Gain Tax Rate exceed the greater of (1) the highest aggregate
applicable effective marginal rate of Federal, state, and local income to which
a corporation doing business in the State of New York would be subject in the
relevant year of determination (as certified to the Trustee by a nationally
recognized tax accounting firm) plus 5%; and (2) 60%. For purposes of
calculating the amount of the Permitted Tax Distributions, the proportionate
part of the items of taxable income, gain, deduction, or loss (including capital
gain or loss) of any Subsidiary that is a Flow Through Entity shall be included
in determining the taxable income, gain, deduction, or loss (including capital
gain or loss) of the Company.
Estimated tax distributions shall be made within fifteen days following
March 31, May 31, August 31, and December 31 based upon an estimate of the
excess of (x) the tax distributions that would be payable for 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.
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Prior to making any estimated tax distribution, the Company shall
require each Equity Holder and Upper Tier Equity Holder to agree that (a)
promptly after the Company and each Subsidiary file their respective annual tax
return, (i) such Equity Holder and Upper Tier Equity Holder shall be jointly and
severally liable to reimburse the Company to the extent the estimated tax
distributions made to such Equity Holder exceeded the actual Permitted Tax
Distributions, as determined on the basis of such tax returns filed in respect
of such taxable year for that Equity Holder (or Upper Tier Equity Holder, as the
case may be) and (ii) the Company shall make a further payment to such Equity
Holder to the extent such estimated tax distributions were less than the actual
Permitted Tax Distributions, as determined on the basis of such tax returns
filed in respect of such taxable year for that Equity Holder (or Upper Tier
Equity Holder, as the case may be) and (b) if the appropriate Federal or state
taxing authority finally determines that the amount of the items of taxable
income, gain, deduction, or loss (including capital gain or loss) of the Company
or any Subsidiary that is treated as a Flow Through Entity for any taxable year
or the aggregate Tax Loss Benefit Amounts carried forward to such taxable year
should be changed or adjusted (including by reason of a final determination that
the Company or such Subsidiary was not a Flow Through Entity), then (i) such
Equity Holder and Upper Tier Equity Holder shall be jointly and severally liable
to reimburse the Company in an amount (such amount, until reimbursed to the
Company, an "Unreimbursed Tax Distribution Amount") equal to the sum of (A) the
excess of (x) the Permitted Tax Distributions previously made to such Equity
Holder in respect of that taxable year over (y) the Permitted Tax Distributions
with respect to such taxable year, taking into account such change or adjustment
for such Equity Holder, plus (B) interest and penalties imposed on the Company
and its Subsidiaries by a Governmental Authority resulting from a final
determination that the Company or a Subsidiary was not a Flow Through Entity,
and (ii) the Company shall make a further payment to such Equity Holder to the
extent the Permitted Tax Distributions previously made to such Equity Holder in
respect of that taxable year were less than the Permitted Tax Distributions
payable to such Equity Holder with respect to such taxable year taking into
account such change or adjustment.
To the extent that any tax distribution would otherwise be made to any
Equity Holder at a time when an obligation of such Equity Holder to make a
payment to the Company pursuant to the previous paragraph remains outstanding,
the amount of any tax distribution to be made shall be reduced by the amounts
such Equity Holder is obligated to pay the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity.
"Preferred Ship Mortgage" means the preferred ship mortgage on the
Tunica Vessel, dated as of the Issue Date, by and between Barden Mississippi
Gaming, LLC and the Trustee.
"Pre-Opening Expenses" means all costs of start-up activities that are
required to be expensed (and are not capitalized) in accordance with SOP 98-5.
"Purchase Money Obligations" means Indebtedness representing, or
incurred to finance, the cost (i) of acquiring any assets and (ii) of
construction or build-out of facilities (including Purchase Money Obligations of
any other Person at the time such other Person is merged with or into or is
otherwise acquired by the Issuers); provided, that (x) the principal amount of
such Indebtedness does not exceed 80% of such cost, including construction
charges, (y) any Lien securing such Indebtedness does not extend to or cover any
other asset or property other than the asset or property being so acquired,
constructed or built and (z) such Indebtedness is incurred, and any Liens with
respect thereto are granted, within 180 days of the acquisition or commencement
of construction or build-out of such property or asset.
"Qualified Capital Stock" means, with respect to any Person, Capital
Stock of such Person other than Disqualified Capital Stock.
"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
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Qualified Capital Stock of the Company issued pursuant to employee benefit plans
or as compensation to employees, and (2) an unregistered offering of Qualified
Capital Stock of the Company for cash resulting in net proceeds to the Company
in excess of $10.0 million.
"Related Business" means the gaming and hotel businesses conducted by
the Company as of the Issue Date and any and all businesses that in the good
faith judgment of the Managers are materially related businesses.
"Required Regulatory Redemption" means a redemption by the Issuers of
any Holder's notes pursuant to, and in accordance with, any order of any
Governmental Authority with appropriate jurisdiction and authority relating to a
Gaming License, or to the extent necessary in the reasonable, good faith
judgment of the Managers to prevent the loss, failure to obtain or material
impairment or to secure the reinstatement of, any Gaming License, where such
redemption or acquisition is required because the Holder or beneficial owner of
notes is required to be found suitable or to otherwise qualify under any gaming
laws and is not found suitable or so qualified within a reasonable period of
time.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"Return from Unrestricted Subsidiaries" means (a) 50% of the fair
market value of any dividends or distributions received by the Company or a
Restricted Subsidiary from an Unrestricted Subsidiary, to the extent that such
dividends or distributions were not otherwise included in Consolidated Net
Income of the Company, plus (b) to the extent not otherwise included in
Consolidated Net Income of the Company, an amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from (i) repayments of the
principal of loans or advances or other transfers of assets to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the sale or
liquidation of any Unrestricted Subsidiaries, plus (c) to the extent that any
Unrestricted Subsidiary is designated to be a Restricted Subsidiary, the fair
market value of the Company's Investment in such Subsidiary on the date of such
designation.
"Security Agreement" means that certain Security and Pledge Agreement
to encumber substantially all of the assets of the Company in favor of the
Trustee, for the ratable benefit of the Holders of the notes, as the same may be
amended in accordance with the terms thereof and the indenture.
"Security Documents" means, collectively, the Investor Pledge
Agreement, the Preferred Ship Mortgage, the Security Agreement, the Copyright
Security Agreement, the Trademark Security Agreement, and any other agreements,
instruments, financing statements or other documents that evidence, set forth or
limit the Lien of the Trustee in the Collateral.
"subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity (including a limited liability company) of
which more than 50% of the total voting power of shares of Voting Stock thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other subsidiaries of that Person or a combination thereof
and (ii) any partnership in which such Person or any of its subsidiaries is a
general partner.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means any Restricted Subsidiary that has
executed and delivered in accordance with this indenture an unconditional and
irrevocable Subsidiary Guarantee of the Issuers' obligations under the notes and
such Person's successors and assigns.
"Subsidiary Guarantee" means an unconditional and irrevocable guaranty
by a Subsidiary Guarantor of the Obligations of the Issuers under the notes and
the indenture, as set forth in the indenture, as amended from time to time in
accordance with the terms thereof.
"Tax Loss Benefit Amount" means, with respect to any taxable year, the
amount by which the Permitted Tax Distributions would be reduced were a net
operating loss or net capital loss from a prior taxable year of the 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.
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"Trademark Security Agreement" means that certain Trademark Security
Agreement, dated as of the Issue Date, by and among the Issuers, the Subsidiary
Guarantors and the Trustee.
"transfer" means, with respect to any asset, any direct or indirect
sale, assignment, transfer, lease, conveyance, or other disposition (including,
without limitation, by way of merger or consolidation).
"Tunica Vessel" means that certain vessel and appurtenances described
as:
Name: Fitzgeralds Tunica
Official Number: 262757
Type: Barge
"Unrestricted Subsidiary" means any Subsidiary that, at or prior to the
time of determination, shall have been designated by the Managers as an
Unrestricted Subsidiary; provided, that such Subsidiary (a) does not hold any
Indebtedness or Capital Stock of, or any Lien on any assets of, the Company or
any Restricted Subsidiary; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries. If, at any time, any Unrestricted Subsidiary would
fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary as of such date. The Managers may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) such Indebtedness is permitted
under the Interest Coverage Ratio test set forth in the covenant described under
the caption "--Certain Covenants--Limitation on Incurrence of Indebtedness"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (ii) no Default or Event of
Default would be in existence following such designation. The Managers may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary so long as
no Default or Event of Default is in existence at the time of such designation
or would be in existence following such designation. The Company shall be deemed
to make an Investment in each Subsidiary designated as an Unrestricted
Subsidiary immediately following such designation in an amount equal to the
Investment in such Subsidiary and its subsidiaries immediately prior to such
designation. Any such designation by the Managers shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Managers giving effect to such designation and an Officers' Certificate
certifying that such designation complies with the foregoing conditions and is
permitted by the covenant described above under the caption "--Certain
Covenants--Limitation on Incurrence of Indebtedness."
"Upper Tier Equity Holder" means, in the case of any Flow Through
Entity the Equity Holder of which is, in turn, a Flow Through Entity, the person
that is ultimately subject to tax on a net income basis on the items of taxable
income, gain, deduction, and loss of the Company and its Subsidiaries that are
Flow Through Entities.
"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.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (i) the then outstanding principal amount of
such Indebtedness into (ii) the total of the product obtained by multiplying (A)
the amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (B) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" of any Person means a subsidiary of such
Person all the Capital Stock of which (other than directors' qualifying shares)
is owned directly or indirectly by such Person or by a Wholly Owned Subsidiary
of such Person; provided, that with respect to the Company, the term Wholly
Owned Subsidiary shall exclude Unrestricted Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
The notes will be issued in the form of one or more global notes,
without interest coupons. The global notes will be deposited upon issuance with
the Trustee as custodian for The Depository Trust Company ("DTC"), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant as described below.
Except as set forth below, the global notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the global notes may not be exchanged
for notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Notes for Certificated Notes."
The transfer of beneficial interests in the global notes will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. We take no responsibility for these
operations and procedures and urge investors to contact the system or their
participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created
to hold securities for its participating organizations or "participants" and to
facilitate the clearance and settlement of transactions in those securities
between participants through electronic book-entry changes in accounts of
participants. The participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to "indirect participants" such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by or on behalf of DTC
only through the participants or indirect participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the participants and
indirect participants.
DTC has also advised us that pursuant to procedures established by it,
ownership of those interests in the global notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to participants) or by participants and the indirect
participants (with respect to other owners of beneficial interests in the global
notes).
Investors in the global notes may hold their interests therein directly
through DTC, if they are participants in such system or indirectly through
organizations that are participants in such system. All interests in a global
note may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interest in a global note to such persons may be
limited to that extent. Because DTC can act only on behalf of participants which
in turn act on behalf of indirect participants and certain banks, the ability of
a person having a beneficial interest in a global note to pledge such interest
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interest, may be affected by the lack of a
physical certificate evidencing such interest.
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For certain other restrictions on the transferability of the registered notes,
see "--Exchange of Book-Entry Notes for Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE
NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN
CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS
THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal, premium, liquidated damages, if
any, and interest on a global note registered in the name of DTC or its nominee
will be payable by the Trustee to DTC or its nominee in its capacity as the
registered Holder under the indenture. Under the terms of the indenture, we and
the Trustee will treat the persons in whose names the notes, including the
global notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither we nor the Trustee or any of our respective agents has or will have any
responsibility or liability for (i) any aspect of DTC' s records or any
participant's or indirect participant's records relating to or payments made on
account of beneficial ownership interests in the global notes, or for
maintaining, supervising or reviewing any of DTC's records or any participant's
or indirect participant's records relating to the beneficial ownership interests
in the global notes or (ii) any other matter relating to the actions and
practices of DTC or any of its participants or indirect participants.
DTC has advised us that its current practices, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the global notes as shown on the records of DTC. Payments by
participants and the indirect participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or us. Neither we nor the Trustee will
be liable for any delay by DTC or its participants in identifying the beneficial
owners of the notes, and we and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the notes for all purposes.
Interests in the global notes will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. Transfers between participants
in DTC will be effected in accordance with DTC's procedures, and will be settled
in same-day funds.
DTC has advised us that it will take any action permitted to be taken
by a Holder of notes only at the direction of one or more Participants to whose
account DTC interests in the global notes are credited and only in respect of
such portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given direction. However, if there is an
Event of Default under the notes, DTC reserves the right to exchange the global
notes for legended notes in certificated form, and to distribute such notes to
its Participants.
The information in this section concerning DTC and its book-entry
system has been obtained from sources believed to be reliable, but we take no
responsibility for its accuracy.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the global notes among participants in DTC it is under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the Trustee will have
any responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if:
- DTC (x) notifies us that it is unwilling or unable to continue
as depositary for the global note and we fail to appoint a
successor depositary within 90 days or (y) has ceased to be a
clearing agency registered under the Exchange Act; or
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- the Issuers, at their option, notify the Trustee in writing
that we elect to cause the issuance of the notes in
certificated form.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon request but only upon at least 20 days' prior written
notice given to the Trustee by or on behalf of DTC in accordance with customary
procedures. In all cases, certificated notes delivered in exchange for any
global note or beneficial interest therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures).
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest
in a global note may, upon request to the Trustee, exchange such beneficial
interest for a certificated note. Upon any such issuance, the Trustee is
required to register such certificated note in the name of, and cause the same
to be delivered to, such person or persons (or the nominee of any thereof). In
addition, if:
(a) we notify the Trustee in writing that DTC (x) is no longer
willing or able to act as a depositary and we are unable to
locate a qualified successor within 90 days; or (y) has ceased
to be a clearing agency registered under the Exchange Act; or
(b) we, at our option, notify the Trustee in writing that we elect
to cause the issuance of registered notes in the form of
certificated notes under the indenture,
then, upon surrender by the global note holder of its global note, registered
notes in such form will be issued to each person that the global note holder and
DTC identify as being the beneficial owner of the related notes.
Neither we nor the Trustee will be liable for any delay by the global
note holder or DTC in identifying the beneficial owners of notes and the Trustee
may conclusively rely on, and will be protected in relying on, instructions from
the global note holder or DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the notes
represented by a global note (including principal, premium, if any, interest and
liquidated damages, if any, thereon) be made by wire transfer of immediately
available next day funds to the accounts specified by the global note holder.
With respect to certificated notes, we will make all payments of principal,
premium, if any, interest and liquidated damages, if any, thereon by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. We expect that secondary trading in the
certificated notes will also be settled in immediately available funds.
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MATERIAL AGREEMENTS
MAJESTIC INVESTOR HOLDINGS OPERATING AGREEMENT
Majestic Investor Holdings is a limited liability company organized
under Delaware law. Its sole member is Majestic Investor, LLC, which holds 100%
of its membership interests. Don H. Barden, through BDI, is indirectly the
beneficial owner of 100% of The Majestic Star Casino, LLC which holds 100% of
the membership interests in Majestic Investor, LLC.
The operating agreement provides for certain rights and obligations
among Majestic Investor Holdings and its member, including with respect to the
appointment of managers and restrictions on the transfer of membership
interests. Pursuant to the operating agreement, management is vested in the
managers, currently Don H. Barden and Michael E. Kelly. The managers continue to
serve as managers until their resignation, termination at will or death, and
additional or substitute managers may be chosen from time to time by Majestic
Investor. The operating agreement limits the transfer of membership interests.
Any transfer of membership interests and admission of a new member is subject to
the discretionary approval of two of the managers and the holders of a majority
of the membership interests. Additionally, any transfer must comply with all
applicable laws, including federal and state securities law, and is subject to
the approval of the Indiana Gaming Commission, the Nevada Gaming Commission, the
Mississippi Gaming Commission and the Colorado Gaming Commission. In addition,
in connection with our registration as a holding company, the restrictions on
transfer of membership interests received the approval of the Mississippi Gaming
Commission.
CERTAIN AGREEMENTS
Pursuant to an amended and restated management agreement entered into
on December 5, 2001, and effective on December 6, 2001, BDI will receive a
management fee for acting as our manager. The fee for any fiscal quarter will be
equal to 1% of net revenues plus 5% of our Consolidated Cash Flow (as defined in
the indenture governing the notes) for the immediately preceding fiscal quarter
and may not be paid if we are in default under the indenture governing the
notes. In addition, pursuant to an expense sharing agreement entered into on
October 22, 2001, we will reimburse Parent for a specified percentage of (i) the
costs and expenses of executives and certain other employees, including, but not
limited to, salaries, bonuses, benefit payments, insurance and supplies, (ii)
rent and (iii) other similar costs and expenses paid by Parent. These executives
and employees will provide services to both Parent and to us and our
subsidiaries.
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GOVERNMENT REGULATION AND LICENSING
GENERAL
The ownership and operation of our casino gaming facilities are subject
to various state and local regulations in the jurisdictions where they are
located. In Nevada, our gaming operations are subject to the Nevada Gaming
Control Act, and to the licensing and regulatory control of the Nevada Gaming
Commission, the Nevada State Gaming Control Board and various local ordinances
and regulations, including, without limitation, applicable city and county
gaming and liquor licensing authorities. In Mississippi, our gaming operations
are subject to the Mississippi Gaming Control Act, and to the licensing and/or
regulatory control of the Mississippi Gaming Commission, the Mississippi State
Tax Commission and various state and local regulatory agencies, including liquor
licensing authorities. In Colorado, our gaming operations are subject to the
Limited Gaming Act of 1991, which created the Division of Gaming within the
Colorado Department of Revenue and the Colorado Limited Gaming Control
Commission to license, implement, regulate and supervise the conduct of limited
gaming. Our operations are also subject to the Colorado Liquor Code and the
state and local liquor licensing authorities. In addition, Parent does business
in the State of Indiana, we are subject to certain reviews by the Indiana Gaming
Commission.
Our directors, officers, managers and key employees are required to
hold individual licenses, which requirements vary from jurisdiction to
jurisdiction. Licenses and permits for gaming operations and of individual
licensees are subject to revocation or non-renewal for cause. Under certain
circumstances, holders of our securities are required to secure independent
licenses and permits.
NEVADA GAMING REGULATION
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder (the "Nevada Act") and to the licensing and regulatory control of the
Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board") and various local ordinances and regulations,
including, without limitation, applicable city and county gaming and liquor
licensing authorities (collectively, the "Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a
direct or indirect involvement with gaming at any time or in
any capacity;
- the establishment and maintenance of responsible accounting
practices and procedures;
- the maintenance of effective controls over the financial
practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of
assets and revenues, providing reliable record keeping and
filing periodic reports with the Nevada Gaming Authorities;
- the prevention of cheating and fraudulent practices; and
- providing a source of state and local revenues through
taxation and licensing fees.
Changes in such laws, regulations and procedures could have an adverse
effect on our gaming operations.
Our subsidiaries that conduct gaming operations in Nevada are required
to be licensed by the Nevada Gaming Authorities. The gaming licenses will
require the periodic payment of fees and taxes and are not transferable. In
addition, Majestic Investor Holdings, LLC has been registered by the Nevada
Commission as a "registered corporation" and found suitable to own the stock of
Barden Nevada Gaming, LLC. BDI, Parent and Majestic Investor, LLC also have been
registered with the Nevada Commission and found suitable to own the stock of
their direct wholly owned subsidiaries. Barden Nevada Gaming, LLC serves as our
corporate gaming licensee under the terms of the Nevada Act. No person may
become a stockholder of, or receive any
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percentage of profits from, a corporate gaming licensee without first obtaining
licenses and approvals from the Nevada Gaming Authorities. Majestic Investor
Holdings, LLC and Barden Nevada Gaming, LLC have obtained from the Nevada Gaming
Authorities the various registrations, findings of suitability, approvals,
permits and licenses required in order to engage in gaming activities in Nevada.
A registered corporation is required to periodically submit detailed
financial operating reports to the Nevada Commission and furnish any other
information which the Nevada Commission may require. The Nevada Gaming
Authorities may investigate any individual who has a material relationship to or
material involvement with us or Barden Nevada Gaming, LLC in order to determine
whether such individual is suitable or should be licensed as a business
associate of a gaming licensee. Officers, directors, managers, members and
certain key employees of Barden Nevada Gaming, LLC must file applications with
the Nevada Gaming Authorities and may be required to be licensed or found
suitable by the Nevada Gaming Authorities. Officers, directors and key employees
of Majestic Investor Holdings, LLC who are actively and directly involved in
gaming activities of Barden Nevada Gaming, LLC may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and, in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director,
manager, member or key employee unsuitable for licensing or unsuitable to
continue having a relationship with us or Barden Nevada Gaming, LLC, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require us or Barden Nevada Gaming, LLC to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
We and Barden Nevada Gaming, LLC are required to periodically submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information which the Nevada Commission may require. Substantially all
material loans, leases, sales of securities and similar financing transactions
by Barden Nevada Gaming, LLC must be reported to or approved by the Nevada
Commission.
If the Nevada Commission determined that the Nevada Act was violated by
us or Barden Nevada Gaming, LLC, the registration or gaming licenses we or it
holds could be limited, conditioned, suspended or revoked, subject to compliance
with certain statutory and regulatory procedures. In addition, we, Barden Nevada
Gaming, LLC and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission to
operate Fitzgeralds Las Vegas and, under certain circumstances, earnings
generated during the supervisor's appointment (except for reasonable rental
value of the casino) could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of the gaming licenses of Barden Nevada Gaming, LLC
or the appointment of a supervisor could (and revocation of any gaming license
would) have a material adverse effect on our gaming operations.
Any beneficial holder of a registered corporation's voting securities
(or rights to acquire such securities), regardless of the number of shares
owned, may be required to file an application, be investigated and have its
suitability as a beneficial holder of the registered corporation's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. If the beneficial holder of voting securities who must be found
suitable is a corporation, partnership, limited liability company or trust, it
must submit detailed business and financial information, including a list of
beneficial owners. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of a registered corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a registered corporation's voting securities apply to
the Nevada Commission for a finding of suitability within 30 days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of a registered
corporation's voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds the
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voting securities for investment purposes only. An institutional investor is not
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly:
- the election of a majority of the members of the board of
directors or managers of the registered corporation,
- any change in the corporate charter, bylaws, similar
organizational documents, management, policies or operations
of the registered corporation, or any of its gaming
affiliates, or
- any other action which the Nevada Commission finds to be
inconsistent with holding the registered corporation's voting
securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
- voting on all matters voted on by securityholders;
- making financial and other inquiries of management of the type
normally made by securities analysts for informational
purposes and not to cause a change in its management, policies
or operations; and
- such other activities as the Nevada Commission may determine
to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found
suitable is a corporation, partnership, limited partnership, limited liability
company or trust, it must submit detailed business and financial information,
including a list of beneficial owners. The applicant is required to pay all
costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any securityholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the voting securities
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. We will be subject to disciplinary action if,
after we receive notice that a person is unsuitable to be a securityholder or to
have any other relationship with us or Barden Nevada Gaming, LLC, we:
- pay that person any dividend, distribution or interest upon
our voting securities;
- allow that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person;
- pay remuneration in any form to that person for services
rendered or otherwise; or
- fail to pursue all lawful efforts to require such unsuitable
person to relinquish its voting securities including, if
necessary, the immediate purchase of said voting securities
for cash at fair market value.
Additionally, the City of Las Vegas has the authority to approve all
persons owning or controlling the equity interests of any entity controlling a
gaming licensee located in that city.
The Nevada Commission may, in its discretion, require the holder of any
debt or similar security of a registered corporation to file applications, be
investigated and be found suitable to own the debt security of a registered
corporation if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. If the Nevada Commission determines that a person is unsuitable to own
such security, then pursuant to the Nevada Act, the registered corporation can
be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it:
- pays to the unsuitable person any dividend, interest, or any
distribution whatsoever;
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- recognizes any voting right by such unsuitable person in
connection with such securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation, or
similar transaction.
We and Barden Nevada Gaming, LLC will be required to maintain a current
stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at
any time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Nevada Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. We will also be required to
render maximum assistance in determining the identity of the beneficial owner of
any of our voting securities. The Nevada Commission has the power to require our
security certificates to bear a legend indicating that the securities are
subject to the Nevada Act. We do not know whether the Nevada Commission will
impose such a requirement on us.
We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes, unless
the Chairman of the Nevada Board issues a ruling that such approval is not
required. The exchange offer of the unregistered notes for the registered notes
will constitute a public offering, as defined in the Nevada Act, and will
require the prior approval of the Nevada Commission upon the recommendation of
the Nevada Board. We have filed an application for approval of the exchange
offer, and anticipate that hearings before the Nevada Commission and the Nevada
Board with regard to such approval will occur in March 2002. No assurance can be
given that such hearings will occur or that such approval will be granted. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.
Changes in control of a registered corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a registered publicly traded corporation must satisfy the Nevada
Board and Nevada Commission in a variety of stringent standards prior to
assuming control of such registered corporation. The Nevada Commission may also
require controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees, and registered corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to:
- assure the financial stability of corporate gaming licensees
and their affiliates;
- preserve the beneficial aspects of conducting business in the
corporate form; and
- promote a neutral environment for the orderly governance of
corporate affairs.
Approvals are, in certain circumstances, required from the Nevada
Commission before the registered corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the registered
corporation's board of directors or managers in response to a tender offer made
directly to the registered corporation's securityholders for the purposes of
acquiring control of the registered corporation.
105
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise. Nevada licensees that hold a
manufacturer's license or a distributor's license also pay certain fees and
taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who is or proposes to become involved in a
gaming venture outside of Nevada, is required to deposit with the Nevada Board,
and thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board for such Licensee's participation
in such foreign gaming. The revolving fund is subject to increase or decrease in
the discretion of the Nevada Commission. Thereafter, foreign Licensees are
required to comply with certain reporting requirements imposed by the Nevada
Act. Such Licensees are also subject to disciplinary action by the Nevada
Commission if they:
- knowingly violate any laws of the foreign jurisdiction
pertaining to the foreign gaming operation;
- fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada
gaming operations;
- engage in activities or enter into associations that are
harmful to the State of Nevada or its ability to collect
gaming taxes and fees; or
- employ, contract with or associate with a person in the
foreign operation who has been denied a license or finding of
suitability in Nevada on the grounds of unsuitability.
The sale of alcoholic beverages at Fitzgeralds Las Vegas is subject to
licensing, control and regulation by the City of Las Vegas. All licenses are
revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of Fitzgeralds Las Vegas.
MISSISSIPPI GAMING REGULATION
The ownership and operation of casino gaming facilities in Mississippi
are subject to extensive state and local regulations, but primarily the
licensing and/or regulatory control of the Mississippi Gaming Commission (the
"Mississippi Commission") and the Mississippi State Tax Commission. The
Mississippi Gaming Control Act (the "Mississippi Act"), which legalized dockside
casino gaming in Mississippi, is similar to the Nevada Gaming Control Act. The
Mississippi Commission has adopted regulations which are also similar in many
respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of the Mississippi
Commission are based upon declarations of public policy which are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a
direct or indirect involvement with gaming at any time or in
any capacity;
- the establishment and maintenance of responsible accounting
practices and procedures;
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- the maintenance of effective controls over the financial
practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and safeguarding of
assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Mississippi
Commission;
- the prevention of cheating and fraudulent practices;
- providing a source of state and local revenues through
taxation and licensing fees; and
- ensuring that gaming licensees, to the extent practicable,
employ Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Commission. Changes in Mississippi laws or regulations may limit or
otherwise materially affect the types of gaming that may be conducted and such
changes, if enacted, could have an adverse effect on us and our business,
financial condition and results of operations.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the fourteen counties that either border the Gulf Coast or the
Mississippi River, but only if the voters in such counties have not voted to
prohibit gaming in that county. As of October 18, 2001, dockside gaming was
permitted in nine of the fourteen eligible counties in the State of Mississippi
and gaming operations have commenced in Adams, Coahoma, Hancock, Harrison,
Tunica, Warren and Washington counties.
Under Mississippi law, gaming vessels must be located on the
Mississippi River or on navigable waters in counties along the Mississippi
River, or in the waters lying south of the counties along the Mississippi Gulf
Coast. Fitzgeralds Tunica was constructed on barges situated in a specially
constructed basin near the Mississippi River. In the past, whether basins such
as the one in which the Fitzgeralds Tunica casino barges are located constituted
"navigable waters" suitable for gaming under Mississippi law was a controversial
issue. The Mississippi Attorney General issued an opinion in July 1993
addressing legal locations for gaming vessels under the Mississippi Act, and on
May 24, 1993, the Mississippi Commission approved the location of the casino
barges on the Fitzgeralds Tunica site as legal under the Attorney General
opinion. Since 1993, the Mississippi Commission has issued or renewed licenses
to Fitzgeralds Tunica on several separate occasions. Fitzgeralds Tunica believes
that it is in compliance with the Mississippi Act and the Mississippi Attorney
General's "navigable waters" opinion. However, no assurance can be given that a
court would ultimately conclude that the Fitzgeralds Tunica barges are located
on navigable waters within the meaning of Mississippi law. If the basin in which
the Fitzgeralds Tunica casino barges are presently located were not deemed
navigable waters within the meaning of Mississippi law, such a decision would
have a material adverse effect on Fitzgeralds Tunica and our business, financial
condition and results of operations.
The Mississippi Act permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. The Mississippi Act permits substantially all
traditional casino games and gaming devices. Only persons who are 21 years of
age or older may wager on games in Mississippi.
The following statutory and regulatory requirements are applicable to
us in operating Fitzgeralds Tunica. Barden Mississippi Gaming, LLC holds our
gaming license in Mississippi.
We and Majestic Investor, LLC, Parent and BDI have registered as
holding companies under the Mississippi Act. Our operations in Mississippi will
be subject to the licensing and regulatory control of the Mississippi Commission
and various other federal, state and county regulatory agencies. BDI, Parent,
Majestic Investor, LLC and Majestic Investor Holdings, LLC, as registered
holding companies, and Barden Mississippi Gaming, LLC, as a gaming licensee,
will be required to submit detailed financial, operating and other reports to
the Mississippi Commission and furnish any other information which the
Mississippi Commission may require. The Mississippi Commission may condition,
limit or restrict a license or approval to own equity interests in us or Barden
Mississippi Gaming, LLC for any cause deemed reasonable by the Mississippi
Commission. If we are unable to satisfy the registration or licensing
requirements of the Mississippi Act, we and Barden Mississippi Gaming, LLC
cannot own or operate gaming facilities in Mississippi. No assurance can be
given that we will receive approval for the registrations or licenses for which
we have applied or that such licenses, registrations and approvals can be
obtained on terms and conditions that are acceptable to us.
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Barden Mississippi Gaming, LLC has received a gaming license from the
Mississippi Commission to operate a casino in Mississippi. Such licenses are
issued by the Mississippi Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations. There are
no limitations on the number of gaming licenses which may be issued in
Mississippi. Gaming licenses require the payment of periodic fees and taxes, are
not transferable, are issued for a three-year period and may be continued for
two additional three-year periods prior to renewal. There can be no assurance
that any subsequent application for a license will be approved.
No person may become a securityholder of or receive any percentage of
profits from a gaming licensee subsidiary without first obtaining licenses and
approvals from the Mississippi Commission. While we have received such approvals
from the Mississippi Commission, no assurance can be given that we will continue
to receive such approvals in the future.
Certain management personnel of BDI, Parent, Majestic Investor, LLC and
Majestic Investor Holdings, LLC, and certain management personnel and key
employees of Barden Mississippi Gaming, LLC must be found suitable or approved
by the Mississippi Commission. A finding of suitability is comparable to
licensing and requires submission of detailed personal financial information
followed by a thorough investigation. We believe that we have obtained all
necessary findings of suitability with respect to the companies, although the
Mississippi Commission, in its discretion, may require additional persons to
file applications for findings of suitability or other approvals. In addition,
any person having a material relationship or involvement with us may be required
to be found suitable, in which case those persons must pay the costs and fees
associated with such investigation. The Mississippi Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
In addition to its authority to deny an application for a finding of
suitability, a change in any person's corporate position or title must be
reported to the Mississippi Commission and the Mississippi Commission may
disapprove such a change. The Mississippi Commission has the power to require
any registered holding company or licensee to suspend or dismiss officers,
directors, managers, members and other key employees or sever relationships with
other persons who refuse to file appropriate applications or whom the
authorities find unsuitable to act in such capacities. There can be no assurance
that such persons who have filed or will be required to file applications for
findings of suitability will be found suitable by the Mississippi Commission.
The Mississippi Act and the Mississippi regulations give the
Mississippi Commission the discretion, at any time, to require a finding of
suitability with respect to any person or entity who acquires any security of
BDI, Parent, Majestic Investor, LLC, Majestic Investor Holdings, LLC or Barden
Mississippi Gaming, LLC, regardless of the percentage of ownership. The current
practice of the Mississippi Commission is to require a finding of suitability
for any equity owner acquiring 5% or more of any voting securities of a licensee
or a registered holding company with a licensed subsidiary, provided, however,
that certain qualifying institutional investors may acquire up to 15% of such
voting securities without having to be found suitable. If the owner of voting
securities who is required to be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information, including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Mississippi
Commission may be found unsuitable. The same restrictions apply to a record
owner, if the record owner, after request, fails to identify the beneficial
owner. Any person found unsuitable and who holds, directly or indirectly, any
beneficial ownership of such securities beyond such time as the Mississippi
Commission prescribes, may be guilty of a misdemeanor. We may be subject to
disciplinary action if, after receiving notice that a person is unsuitable to be
an owner or to have any other relationship with BDI, Parent, Majestic Investor,
LLC, Majestic Investor Holdings, LLC or Barden Mississippi Gaming, LLC, the
company involved:
- pays the unsuitable person any dividend or other distribution
upon such person's voting securities;
- recognizes the exercise, directly or indirectly, of any voting
rights conferred by securities held by the unsuitable person;
- pays the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and
specific circumstances; or
- fails to pursue all lawful efforts to require the unsuitable
person to divest himself of the securities, including, if
necessary, the immediate purchase of the securities for cash
at fair market value.
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Each of BDI, Parent, Majestic Investor, LLC, Majestic Investor
Holdings, LLC and Barden Mississippi Gaming, LLC is required to maintain in
Mississippi a current ledger with respect to the ownership of its equity
securities which must reflect the record ownership of each outstanding ownership
interest in the company. The ledgers must be available for inspection by the
Mississippi Commission at any time. If any securities are held in trust by an
agent or by a nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Mississippi Commission. A failure to
make such disclosure may be grounds for finding the record holder unsuitable. We
and Barden Mississippi Gaming, LLC must also render maximum assistance in
determining the identity of the beneficial owner of any of our voting
securities.
The Mississippi Act requires that the certificates representing
securities of BDI, Parent, Majestic Investor, LLC, Majestic Investor Holdings,
LLC and Barden Mississippi Gaming, LLC bear a legend indicating that the
securities are subject to the Mississippi Act and the regulations of the
Mississippi Commission. The Mississippi Commission has the power to impose
additional restrictions at any time on the holders of securities of registered
holding companies or gaming licensees.
We may be required to disclose to the Mississippi Commission, upon
request, the identities of the holders of our notes or other debt securities. In
addition, under the Mississippi Act the Mississippi Commission may, in its
discretion, require the holders of our notes or other debt securities to file
applications, be investigated and be found suitable to own the debt security if
it has reason to believe that the ownership would be inconsistent with the
declared policies of the State of Mississippi. If the Mississippi Commission
determines that a person is unsuitable to own a note or other debt security,
then we can be sanctioned, including the loss of any approvals, if without the
prior approval of the Mississippi Commission, we:
- pay to the unsuitable person any dividend, interest, or any
distribution whatsoever;
- recognize any voting right by the unsuitable person in
connection with those securities;
- pay the unsuitable person remuneration in any form; or
- make any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar
transaction.
Although the Mississippi Commission generally does not require the
individual holders of obligations such as the notes to be investigated and found
suitable, the Mississippi Commission retains the discretion to do so for any
reason, including but not limited to a default, or where the holder of the debt
instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Commission in connection with such an investigation.
Substantially all material loans, leases, sales of securities and
similar financing transactions involving a registered holding company or a
gaming licensee must be reported to or approved by the Mississippi Commission.
We have received from the Mississippi Commission all necessary approvals in
connection with our credit facility. While we have received approvals from the
Mississippi Commission with respect to our credit facility, we were required to
file a post-closing loan report within thirty days of closing and the
Mississippi Commission retains discretion to rescind the credit transaction
under certain conditions. A licensed subsidiary of a registered holding company
may not make a public offering of its securities, but may pledge or mortgage
casino facilities. A registered holding company may not make a public offering
of its securities without the prior approval of the Mississippi Commission if
any part of the proceeds of the offering is to be used to finance the
construction, acquisition or operation of gaming facilities in Mississippi or to
retire or extend obligations incurred for one or more such purposes. Such
approval, if given, does not constitute a recommendation or approval of the
investment merits of the securities subject to the offering. We have received
such approvals from the Mississippi Commission subject to the ability of the
Mississippi Commission to issue a stop order.
Under the regulations of the Mississippi Commission, Barden Mississippi
Gaming, LLC may not guarantee a security issued by us or any other affiliated
company pursuant to a public offering, or pledge the assets of Barden
Mississippi Gaming, LLC to secure payment or performance of the obligations
evidenced by the security issued by the affiliated company, without the prior
approval of the Mississippi Commission. A pledge of the equity securities of a
gaming licensee and the foreclosure of such a pledge are ineffective without the
prior approval of the Mississippi Commission. Moreover, restrictions on the
transfer of an equity security
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issued by a Mississippi gaming licensee or a registered holding company and
agreements not to encumber such securities are ineffective without the prior
approval of the Mississippi Commission. We have received from the Mississippi
Commission the requisite approvals necessary to consummate the offering of the
registered notes.
The regulations provide that a change in control of BDI, Parent,
Majestic Investor, LLC, Majestic Investor Holdings, LLC or Barden Mississippi
Gaming, LLC may not occur without the prior approval of the Mississippi
Commission. Entities seeking to acquire control of one or more of these
companies must satisfy the Mississippi Commission in a variety of stringent
standards prior to assuming control of any such company. The Mississippi
Commission may also require controlling stockholders, officers, directors, and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Mississippi legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and other
corporate defense tactics that affect corporate gaming licensees in Mississippi
and registered holding companies, may be injurious to stable and productive
corporate gaming. The Mississippi Commission has established a regulatory scheme
to ameliorate the potentially adverse effects of these business practices upon
Mississippi's gaming industry and to further Mississippi's policy to:
- assure the financial stability of corporate gaming operators
and their affiliates;
- preserve the beneficial aspects of conducting business in the
corporate form; and
- promote a neutral environment for the orderly governance of
corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi
Commission before a registered holding company may make exceptional repurchases
of voting securities (i.e., repurchases which treat holders differently) in
excess of the current market price and before a corporate acquisition opposed by
management can be consummated. Mississippi's gaming regulations also require
prior approval by the Mississippi Commission of a plan of recapitalization
proposed by the registered holding company's board of directors or managers in
response to a tender offer made directly to the company's securityholders for
the purpose of acquiring control of the holding company.
None of BDI, Parent, Majestic Investor, LLC, Majestic Investor
Holdings, LLC or Barden Mississippi Gaming, LLC may engage in gaming activities
in Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Commission. The Mississippi Commission may
require determinations that, among other things, there are means for the
Mississippi Commission to have access to information concerning the out-of-state
gaming operations of us and our affiliates. We have received a waiver of foreign
gaming approval from the Mississippi Commission for the gaming operations of
Parent in Indiana and for our operations in Colorado and Nevada. We will be
required to obtain the approval or a waiver of such approval from the
Mississippi Commission prior to engaging in any additional future gaming
operations outside of Mississippi. There can be no assurance that any such
approvals will be obtained.
If the Mississippi Commission determined that any of BDI, Parent,
Majestic Investor, LLC, Majestic Investor Holdings, LLC or Barden Mississippi
Gaming, LLC violated a gaming law or regulation, the Mississippi Commission
could limit, condition, suspend or revoke our approvals and the license of
Barden Mississippi Gaming, LLC, subject to compliance with certain statutory and
regulatory procedures. In addition, BDI, Parent, Majestic Investor, LLC,
Majestic Investor Holdings, LLC or Barden Mississippi Gaming, LLC and the
persons involved could be subject to substantial fines for each separate
violation. Because of such a violation, the Mississippi Commission could attempt
to appoint a supervisor to operate the casino facilities. Limitation,
conditioning or suspension of any gaming license or approval or the appointment
of a supervisor could (and revocation of any gaming license or approval would)
materially adversely affect us and our business, financial condition and results
of operations.
License fees and taxes, computed in various way depending on the type
of gaming involved, are payable to the State of Mississippi and to Tunica
County, the county in which Fitzgeralds Tunica's operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually. Gaming taxes are based upon:
- a percentage of the gross gaming revenues received by the
casino operation;
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- the number of gaming devices operated by the casino; or
- the number of table games operated by the casino.
The license fee payable to the State of Mississippi is based upon
"gaming receipts" (generally defined as gross receipts less payouts to customers
as winnings) and the current maximum tax rate imposed is 8% of all gaming
receipts in excess of $134,000. The foregoing license fees paid will be allowed
as a credit against Barden Mississippi Gaming, LLC's Mississippi income tax
liability for the year paid. The gross revenue fee imposed by Tunica County
equals approximately 4% of the gaming receipts.
The Mississippi Commission adopted a regulation requiring, as a
condition of licensure or license renewal, that an existing gaming
establishment's plan include a 500-car parking facility in close proximity to
the casino complex and infrastructure facilities which will amount to at least
25% of the casino cost. These requirements were met with the opening of the
Fitzgeralds Tunica Hotel and related facilities in 1996. The Mississippi
Commission later adopted amendments to the regulation that increase the
infrastructure development requirement from 25% to 100% of the casino cost.
However, the regulation amendment increasing the infrastructure requirement
grandfathers existing licensees and applies only to new casino projects and
casinos that are not operating at the time of acquisition or purchase, and
therefore would not apply to Fitzgeralds Tunica.
The sale of alcoholic beverages, including beer and wine, at
Fitzgeralds Tunica is subject to licensing, control and regulation by the
Alcoholic Beverage Control Division (the "ABC") of the Mississippi State Tax
Commission. The ABC requires that all equity owners and managers file personal
record forms and fingerprint forms for their licensing process. In addition,
owners of more than 5% of Barden Mississippi Gaming, LLC's equity and Barden
Mississippi Gaming, LLC's officers, members and managers must submit detailed
financial information to ABC for licensing. All such licenses are revocable and
are non-transferable. The Mississippi State Tax Commission has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of Fitzgeralds Tunica and on our gaming operations.
In Mississippi, in three separate instances, representatives of an
anti-gaming group proposed voter initiatives which, if approved, would have
amended the Mississippi Constitution to ban gaming in Mississippi and would have
required all currently legal gaming entities to cease operations within two
years of the ban. All three of the proposed initiatives were ruled illegal by
Mississippi state trial courts because, among other reasons, each of the
proposed initiatives failed to include required information regarding the
anticipated effect of such a ban on government revenues. The proponents of the
most recent initiative appealed the trial court ruling to the Mississippi
Supreme Court, which affirmed the decision of the trial court prohibiting the
proponents from proceeding with the proposed initiative. Any such initiative
must be approved by the Mississippi Secretary of State and signatures of at
least 91,673 registered voters statewide (with a minimum of 18,335 registered
voters from each of the state's five congressional districts) must be gathered
and certified in order for such a proposal to be included on the statewide
ballot for consideration by the voters. The next election for which the
proponents could attempt to place such a proposal on the ballot would be in
November 2003. It is likely at some point that a revised initiative will be
filed which will adequately address the issues regarding the effect on
government revenues of a prohibition of gaming in Mississippi. However, while we
are unable to predict with certainty whether such an initiative will appear on a
ballot or the likelihood of such an initiative being approved by the voters, if
such an initiative were passed and gaming were prohibited in Mississippi, it
would have a material adverse effect on us and our business, financial condition
and results of operations.
COLORADO GAMING REGULATION
Colorado legalized limited gaming by constitutional amendment approved
by Colorado voters on November 6, 1990. The Colorado legislature thereafter
enacted the Limited Gaming Act of 1991 (the "Colorado Act") to implement the
provisions of the constitutional amendment, and limited gaming commenced in
Colorado on October 1, 1991. The Colorado Act authorizes limited gaming only in
certain designated commercial districts of Central City, Black Hawk and Cripple
Creek, Colorado. Limited gaming consists of poker, blackjack and slot machines,
all with maximum single bets of five dollars. Only persons aged 21 or older may
participate in limited gaming, and limited gaming and the sale of alcoholic
beverages are prohibited between the hours of 2:00 a.m. and 8:00 a.m. Limited
gaming is only allowed on premises licensed for that purpose, and the licensed
premises of any building may
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not exceed 35% of the square footage of the building and no more than 50% of any
floor of such building. There is no limitation on the size of any structure or
total square footage devoted to limited gaming.
The following statutory and regulatory requirements are applicable to
us in consummating the acquisition of the Fitzgeralds assets. Barden Colorado
Gaming, LLC holds our Colorado gaming license.
On October 18, 2001, the Colorado Limited Gaming Control Commission
issued operators and retailers licenses to Barden Colorado Gaming, LLC. The
operators license was effective as of October 18, 2001. The retailers license,
which permits the actual conduct of gaming by Barden Colorado Gaming, LLC,
became effective upon the happening of certain standard conditions for retail
licenses and gaming commenced under Barden Colorado Gaming,LLC's retail license
on December 7, 2001. These conditions apply to all gaming licenses in the State
of Colorado and are as follows:
- Confirmation that a valid certificate of occupancy has been
issued by the appropriate local authorities for the building
in which limited gaming is to be conducted.
- Confirmation by the local historical preservation commission
that the building in which limited gaming is to be conducted
meets the architectural requirements of the Limited Gaming Act
of 1991.
- Certification by the appropriate local official that the
building in which limited gaming is to be conducted meets the
standards for fire safety set forth in the Limited Gaming Act
of 1991.
- Certification by the appropriate local official that access to
the building for the handicapped has been approved, as
required by the Limited Gaming Act of 1991.
- Surrender of any retail license previously issued for the
premises to be occupied by the new retail license.
Pursuant to the Colorado Act and the rules and regulations promulgated
thereunder (collectively, the "rules"), the ownership and operation of limited
gaming facilities in Colorado, however acquired, are subject to extensive
regulation. The Colorado Act created the Division of Gaming (the "Colorado
Division") within the Colorado Department of Revenue and the Colorado Limited
Gaming Control Commission (the "Colorado Gaming Commission") to license,
implement, regulate, and supervise the conduct of limited gaming. The Director
of the Colorado Division (the "Colorado Director"), under the general
supervision of the Colorado Gaming Commission, is granted broad powers to ensure
compliance with the Colorado Act and the rules. The Colorado Act now provides
that the provisions which established the Colorado Division are repealed
effective July 1, 2003, unless continued by act of the General Assembly. This is
a "sunset" provision common in assessing the continuing necessity for the
existence of administrative agencies within Colorado. If the repeal takes
effect, Colorado law provides a procedure for winding up the affairs of the
Colorado Division, public hearings, analysis and evaluation, and for determining
claims by or against the Colorado Division. The potential effect of the possible
repeal upon the regulatory structure governing limited gaming is unknown.
The Colorado Act declares public policy on limited stakes gaming to be
that:
- the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is
conducted honestly and competitively, the rights of the
creditors of licensees are protected and gaming is free from
criminal and corruptive elements;
- public confidence and trust can be maintained only by strict
regulation of all persons, locations, practices, associations
and activities related to the operation of licensed gaming
establishments and the manufacture or distribution of gaming
devices and equipment;
- all establishments where limited stakes gaming is conducted
and where gambling devices are operated and all manufacturers,
sellers and distributors of certain gambling devices and
equipment must therefore be licensed, controlled and assisted
to protect the public health, safety, good order and the
general welfare of the inhabitants
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of the state to foster the stability and success of limited
stakes gaming and to preserve the economy and free competition
in Colorado; and
- no applicant for a license or other approval has any right to
a license or to the granting of the approval sought.
The application for a retailers/operators license was filed on behalf
of Barden Colorado Gaming, LLC with the Colorado Division of Gaming on April 20,
2001. That application was required to be submitted on complete and
comprehensive application forms, required fees were paid, and all information
required by the Colorado Limited Gaming Control Commission and the Colorado
Division of Gaming was provided. Prior to the issuance of the license on October
18, 2001, the applicant was required to satisfy the Colorado Limited Gaming
Control Commission that it was suitable for licensing. The applicant had the
burden of proving its qualification and was responsible for paying the full cost
of background investigation. The Colorado Division of Gaming charged a rate of
$57 per hour, plus travel and out-of-pocket expenses. There was no limit on the
cost or time which Colorado was entitled to expend on the background
investigation of the applicant.
The Colorado Gaming Commission may issue: (1) slot machine or
distributor; (2) operator; (3) retail gaming; (4) support; and (5) key employee
gaming licenses. The first three licenses require annual renewal by the Colorado
Gaming Commission. Support and key employee licenses are issued for two-year
periods and are renewable by the Division Director. The Colorado Gaming
Commission has broad discretion to condition, suspend for up to six months,
revoke, limit or restrict a license at any time and also has the authority to
impose fines.
A retail gaming license is required for all persons conducting limited
stakes gaming on their premises. In addition, an operator license is required
for all persons who engage in the business of placing and operating slot
machines on the premises of a retailer. However, a retailer is not required to
hold an operator license. No person may have an ownership interest in more than
three retail licenses.
The Colorado Act requires that every officer, director, and stockholder
of private corporations or equivalent office or ownership holders for
non-corporate applicants, and every officer, director or stockholder holding
either a 5% or greater interest or controlling interest of a publicly traded
corporation or owners of an applicant or licensee, shall be a person of good
moral character and submit to a full background investigation conducted by the
Colorado Division of Gaming and the Colorado Gaming Commission. The Colorado
Gaming Commission may require any person having an interest in a license or a
licensee to undergo a full background investigation and pay the cost of
investigation in the same manner as an applicant. Limited disclosure forms are
required of those persons holding any equity interest in a non-publicly traded
applicant.
In addition, all persons loaning monies, goods, or real or personal
property to a licensee or applicant, or having any interest in a licensee or
applicant, or entering into any agreement with a licensee or applicant, must
provide any information requested by the Colorado Division or Colorado Gaming
Commission, and in the discretion of the Colorado Division or the Colorado
Gaming Commission, these persons must supply all information relevant to a
determination of any such person's suitability for licensure and must submit to
a full background investigation if ordered by the Colorado Gaming Commission.
Failure to promptly provide all information requested, or to submit to a
suitability or background investigation, may result in the denial of a license
application, suspension or revocation of an existing license, termination of any
lease, note arrangement, or agreement between the applicant or licensee and the
person requested to provide the information, and other sanctions. Investigations
for suitability, background, or any other reason may delay a license application
or the operation under any agreement with a licensee. All agreements, contracts,
leases or arrangements in violation of the Colorado Act or the rules are void
and unenforceable.
Persons found unsuitable by the Colorado Gaming Commission may be
required immediately to terminate any interest in, association or agreement
with, or relationship to a licensee. A finding of unsuitability with respect to
any officer, director, employee, associate, lender or beneficial owner of a
licensee or applicant may also jeopardize the licensee's license or applicant's
license application. Licenses may be conditioned upon termination of any
relationship with unsuitable persons.
The Colorado Act and the rules require licensees to maintain detailed
books and records which accurately account for all monies and business
transactions. Books and records must be furnished upon demand to the Colorado
Gaming Commission, the Colorado Division and other law enforcement authorities.
The rules also establish extensive playing procedures, standards, requirements
and rules of play for poker, blackjack and slot machines.
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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 transferees to apply for a finding of suitability. If found
unsuitable, such persons must terminate their relationship with the entity and
such owners must sell their interest back to the issuer or to a suitable person
approved by the Colorado Gaming Commission.
The State of Colorado has enacted an annual tax on the adjusted gross
proceeds ("AGP") from limited gaming. AGP is generally defined as the amounts
wagered minus payments to players. For poker, AGP means those sums wagered on a
hand retained by the licensee as compensation. Currently, the gaming tax on AGP
ranges between 2% and 20%. The gaming tax is paid monthly, with licensees
required to file returns by the 15th of the following month. Effective July 1 of
each year, the Colorado Gaming Commission establishes the gaming tax rates for
the following 12 months. Under the Colorado Constitution, the Colorado Gaming
Commission may increase the gaming tax rate to as much as 40% of AGP. Since July
1, 1999, the Colorado Commission has set a gaming tax rate of 0.25% on adjusted
gross gaming proceeds of up to and including $2 million, 2% over $2 million up
to and including $4 million, 4% over $4 million up to and including $5 million,
11% over $5 million up to and including $10 million, 16% over $10 million up to
and including $15 million, and 20% over $15 million.
The Colorado Commission also may impose device fees. Effective July 1,
1999, the Colorado Commission eliminated annual device fees. Despite the
elimination of the annual device fee, casinos are still required to obtain
device stamps from the Colorado Division of Gaming and must follow device
tracking procedures. The town of Black Hawk imposes an annual device fee on each
slot machine, black jack and poker table in the current amount of $750.00 per
device. Black Hawk also imposes taxes and
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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.
INDIANA GAMING REGULATION
Because we are an affiliate of Parent, which conducts riverboat gaming
operations in the State of Indiana pursuant to a riverboat license issued by the
Indiana Gaming Commission, we are required to seek certain approvals under the
Indiana Riverboat Gambling Act. The Indiana Riverboat Gambling Act vests the
Indiana Gaming Commission with the power and duties of administering, regulating
and enforcing the system of riverboat gaming in Indiana. Riverboat licensees are
subject to extensive regulation by the Indiana Gaming Commission, including
restrictions on the incurrence of debt by the license holder or its affiliates.
A riverboat licensee and its affiliates may enter into debt transactions that
total one million dollars or more only with the prior approval of the Indiana
Gaming Commission. Such approval is subject to compliance with request
procedures and a showing that each person with whom the riverboat licensee and
its affiliates enters into a debt transaction would be suitable for licensure
under the Indiana Riverboat Gambling Act. We submitted our request for approval
to the Indiana Gaming Commission on October 12, 2001, and we received such
approval in mid-November 2001.
TREASURY DEPARTMENT REGULATIONS
The Internal Revenue Code and Treasury Regulations require operators of
casinos located in the United States to file information returns for U.S.
citizens, including names and addresses of winners, for keno and slot machine
winnings in excess of prescribed amounts. The Internal Revenue Code and Treasury
Regulations also require operators to withhold taxes on some keno, bingo, and
slot machine winnings of nonresident aliens. We are unable to predict the extent
to which these requirements, if extended, might impede or otherwise adversely
affect operations of, and/or income from, the other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in some of the
domestic jurisdictions in which we operate casinos, or in which we have applied
for licensing to operate a casino, require the reporting of currency
transactions in excess of $10,000 occurring within a gaming day, including
identification of the patron by name and social security number. This reporting
obligation began in May 1985 and may have resulted in the loss of gaming
revenues to jurisdictions outside the United States which are exempt from the
ambit of these regulations.
COMPLIANCE WITH OTHER LAWS AND REGULATIONS
Our operations are also subject to extensive state and local
regulations in addition to the regulations described above, and, on a periodic
basis, we must obtain various other licenses and permits, including those
required to sell alcoholic beverages.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes certain United States federal income tax
considerations relating to the exchange of the unregistered notes for registered
notes and the purchase, ownership, and disposition of the notes. This summary is
based on the following materials, all as of the date of this prospectus:
- the Internal Revenue Code of 1986, as amended (the "Code");
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- Treasury Regulations promulgated under the Code;
- current administrative interpretations of the Internal Revenue
Service (the "IRS"); and
- judicial decisions.
Legislation, judicial decisions or administrative changes may be forthcoming
that could affect the accuracy of the statements included in this summary,
possibly on a retroactive basis. There can be no assurance that the IRS will not
challenge one or more of the tax results described herein, and we have not
obtained, nor do we intend to obtain, a ruling from the IRS with respect to the
United States federal tax consequences described below.
This summary assumes that the notes are held as "capital assets"
(generally, property held for investment). For purposes of this summary, U.S.
Holders are beneficial owners of the notes who include the following:
- citizens or residents of the United States, as determined for
United States federal income tax purposes;
- corporations, including entities treated as corporations for
United States federal income tax purposes, organized under the
laws of the United States or any state;
- estates the income of which is subject to United States
federal income taxation regardless of its source; and
- trusts if the administration of the trust is subject to the
primary supervision of a United States court and one or more
United States persons have the authority to control all
substantial decisions of the trust, and certain other trusts
that have validly elected to be treated as United States
persons.
A "Non-U.S. Holder" is a beneficial owner of the notes other than a "U.S.
Holder."
This discussion does not purport to address all tax considerations that
may be important to a particular holder in light of the holder's circumstances.
For example, special rules not discussed here may apply to a holder who is:
- a broker-dealer, a dealer in securities or a financial
institution;
- an insurance company;
- a tax-exempt organization;
- subject to the alternative minimum tax provisions of the Code;
- holding the notes as part of a hedge, conversion or
constructive sale transaction, straddle or other risk
reduction transaction;
- a person with a "functional currency" other than the United
States dollar; or
- a person who has ceased to be a United States citizen or
ceased to be taxed as a resident alien.
If a partnership holds notes, the tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding the notes, you are
urged to consult your own tax advisor regarding the tax consequences of the
ownership and disposition of the notes. Finally, this summary does not describe
any tax considerations arising under the laws of any foreign, state, or local
jurisdiction.
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
116
- 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.
Original Issue Discount
The notes were issued with original issue discount ("OID") for United
States federal income tax purposes, in an amount equal to the excess of a note's
"stated redemption price at maturity" over its "issue price." Generally, the
"stated redemption price at maturity" of a note is the amount payable at
maturity (other than qualified stated interest). The "issue price" is the first
price at which a substantial amount of notes are sold for money (excluding sales
to bond houses, brokers or similar persons or organizations acting as
underwriters, placement agents or wholesalers).
U.S. Holders generally must include OID in gross income for United
States federal income tax purposes on an annual basis under a constant yield
accrual method regardless of their regular method of tax accounting. As a
result, U.S. Holders will include OID in income in advance of the receipt of
cash attributable to such income. However, U.S. Holders of the notes generally
will not be required to include separately in income cash payments received on
such notes, to the extent such payments constitute payments of OID which were
previously accrued and included in income.
The amount of OID includible in income by a U.S. Holder of a note is
the sum of the "daily portions" of OID with respect to the note for each day
during the taxable year or portion thereof in which such U.S. Holder holds such
note. A daily portion is determined by allocating to each day in any "accrual
period" a pro rata portion of the OID that accrued in such period. The "accrual
period" of a note may be of any length and may vary in length over the term of
the note, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs either on the first or last
day of an accrual period. The amount of OID that accrues with respect to any
accrual period is the product of the note's "adjusted issue price" at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of such period) less any qualified stated interest allocable to
the accrual period. The "adjusted issue price" of a note at the start of any
accrual period is equal to its issue price, increased by OID previously
includible in income for each prior accrual period and decreased by any payments
made on such note (other than payments of qualified stated interest).
Market Discount
The market discount rules discussed below apply to any note purchased
after original issue at a price less than its "revised issue price." Generally,
the "revised issue price" of a note is equal to the issue price of the note,
plus the aggregate amount of OID includible in the gross income of all prior
holders of such note for all periods prior to such purchase, less the amount of
any payments made on such note other than payments of qualified stated interest.
If a U.S. Holder purchases a note at a market discount, such holder
generally will be required to treat any principal payments on, or any gain on
the disposition of, such note as ordinary income to the extent of the accrued
market discount (not previously included in income) at the time of such payment
or disposition. In general, subject to a de minimis exception, market discount
is the amount by which the note's revised issue price exceeds the holder's tax
basis in the note immediately after the note is acquired. A note is not treated
as purchased at a market discount, however, if the market discount is less than
0.25 percent of the stated redemption price at maturity of the note multiplied
by the number of complete years to maturity from the date when a holder acquired
the note. Market discount on a note will accrue on a straight-line basis, unless
a holder elects to accrue such discount on a constant yield to maturity basis.
This election is irrevocable. A U.S. Holder may also elect to include market
discount in income currently as it accrues. This election, once made, applies to
all market discount obligations acquired on or after the first day of the
117
first taxable year to which the election applies and may not be revoked without
the consent of the IRS. If a U.S. Holder acquires a note at a market discount
and disposes of such note in any non-taxable transaction (other than a
nonrecognition transaction defined in section 1276(c) of the Code), accrued
market discount will be includible as ordinary income to such holder as if such
holder had sold the note at its fair market value. A U.S. Holder may be required
to defer until the maturity of the note or, in certain circumstances, its
earlier disposition, the deduction of all or a portion of the interest expense
attributable to debt incurred or continued to purchase or carry a note with
market discount, unless an election is made to include the market discount in
income on a current basis.
Amortizable Bond Premium
If a U.S. Holder's initial tax basis in a note exceeds its stated
redemption price at maturity, such holder generally will be considered to have
acquired the note with "amortizable bond premium" and will not have to include
any OID in income with respect to such note. The amount of amortizable bond
premium is computed based on the redemption price on an earlier call date if
such computation results in a smaller amortizable bond premium attributable to
the period of such earlier call date. A U.S. Holder generally may elect to
amortize such premium using the constant yield to maturity method. The amount
amortized in any year generally will be treated as a reduction of a holder's
interest income on the note. If the amortizable bond premium allocable to a year
exceeds the amount of interest allocable to that year, the excess would be
allowed as a deduction for that year but only to the extent that a holder's
prior interest inclusions exceed bond premium deductions on the note. The
election to amortize the premium on a constant yield to maturity method, once
made, generally applies to all bonds held or subsequently acquired by a U.S.
Holder on or after the first day of the first taxable year to which the election
applies. A U.S. Holder may not revoke this election without the consent of the
IRS.
Acquisition Premium
If a U.S. Holder purchases a note for an amount that is in excess of
its adjusted issue price but less than or equal to its stated redemption price
at maturity, such U.S. Holder will generally be considered to have purchased the
note with "acquisition premium" in an amount equal to the excess of the holder's
adjusted basis in the note immediately after it is acquired over the adjusted
issue price of the note. The "daily portion" of OID that would otherwise accrue
with respect to a note will be reduced by an amount equal to such daily portion
of OID multiplied by a fraction, the numerator of which is the excess of the
holder's adjusted basis in the note immediately after it is acquired over the
adjusted issue price of the note, and the denominator of which is the remaining
OID to be accrued on the note. Alternatively, a U.S. Holder purchasing a note
with acquisition premium may elect to compute OID accruals by treating the
purchase as a purchase at original issue and apply the mechanics of the constant
yield method.
Sale or Other Taxable Disposition of Notes
A U.S. Holder will generally recognize capital gain or loss on the
sale, redemption, exchange, retirement or other taxable disposition of a note.
The holder's gain or loss will equal the difference between the holder's
"adjusted tax basis" in the note and the proceeds received by the holder,
excluding any proceeds attributable to accrued interest which will be recognized
as ordinary interest income to the extent that the holder has not previously
included the accrued interest in income. The proceeds received by the holder
will include the amount of any cash and the fair market value of any other
property received for the note. The holder's "adjusted tax basis" in the note
will generally equal the amount the holder paid for the note, plus the amount of
any OID and market discount previously included in income by such holder, less
any previous deductions of amortizable bond premium. The gain or loss will be
long-term capital gain or loss if the holder held the note for more than one
year. The deductibility of capital losses may be subject to limitation. The
excess of net long-term capital gains over net short-term capital losses may be
taxed at a lower rate than ordinary income for individuals, estates and trusts.
Information Reporting and Backup Withholding
Information reporting and backup withholding may apply to payments of
principal and interest (and the accrual of OID) on a note or the proceeds from
the sale or other disposition of a note with respect to certain noncorporate
U.S. Holders. Such U.S. Holders generally will be subject to backup withholding
unless the U.S. Holder provides to us, or our paying agent, a correct taxpayer
identification number and certain other information, certified under penalties
of perjury, or otherwise establishes an
118
exemption. Any amount withheld under the backup withholding rules may be
credited against the U.S. Holder's United States federal income tax liability
and any excess may be refundable to the U.S. Holder if the proper information is
timely provided to the IRS.
NON-U.S. HOLDERS
Interest on Notes
Payments of interest (or OID) on the notes to Non-U.S. Holders will
generally qualify as "portfolio interest" and thus will be exempt from the
withholding of United States federal income tax if the Non-U.S. Holder properly
certifies as to its foreign status as described below. The portfolio interest
exception will not apply to payments of interest (or OID) to a Non-U.S. Holder
that:
- owns, directly or indirectly, at least 10% of BDI's voting
stock; or
- is a "controlled foreign corporation" that is related to BDI.
If the portfolio interest exception does not apply, then payments of interest
(or OID) to a Non-U.S. Holder will generally be subject to United States federal
income tax withholding at a rate of 30%, unless reduced by an applicable tax
treaty.
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, 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.
119
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
- 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.
120
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.
We have agreed to pay all expenses incident to the exchange offer,
other than commissions and concessions of any broker-dealer. We also will
provide indemnification against specified liabilities, including liabilities
that may arise under the Securities Act, to broker-dealers that make a market in
the unregistered notes and exchange unregistered notes in the exchange offer for
registered notes.
By its acceptance of the exchange offer, any broker-dealer that
receives registered notes pursuant to the exchange offer agrees to notify us
before using the prospectus in connection with the sale or transfer of
registered notes. The broker-dealer further acknowledges and agrees that, upon
receipt of notice from us of the happening of any event which:
- makes any statement in the prospectus untrue in any material
respect;
- requires the making of any changes in the prospectus to make
the statements in the prospectus not misleading; or
- may impose upon us disclosure obligations that may have a
material effect on us,
which notice we agree to deliver promptly to the broker-dealer, the
broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
LEGAL MATTERS
The validity of the registered notes offered by this prospectus will be
passed upon for us by Latham & Watkins, Chicago, Illinois, and certain other
matters will be passed on for us by Robinson, Waters & O'Dorisio, P.C., Denver,
Colorado, Schreck Brignone Godfrey, Las Vegas, Nevada, and Watkins Ludlam Winter
& Stennis, P.A., Jackson, Mississippi.
EXPERTS
The combined financial statements for Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company as
of December 31, 2000 and 1999, and for each of the three years in the period
ended December 31, 2000, included in this prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein (which expresses an unqualified opinion and includes an explanatory
paragraph concerning substantial doubt about the entity's ability to continue as
a going concern and an explanatory paragraph that states that such combined
financial statements
121
do not purport to reflect or provide for the consequences of the bankruptcy
proceedings), and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated balance sheet as of September 30, 2001 included in
this prospectus has 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.
122
MAJESTIC INVESTOR HOLDINGS, LLC
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet (Unaudited) at September 30, 2001.......................................... PF-3
Consolidated Statement of Operations (Unaudited) for the Three Quarters Ended September 30, 2001...... PF-4
Consolidated Statement of Operations (Unaudited) for the Year Ended December 31, 2000................. PF-5
Notes to Unaudited Pro Forma Consolidated Financial Statements........................................ PF-6
PF-1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements
present the pro forma financial position at September 30, 2001 and the pro forma
results of operations for the three quarters then ended and for the year ended
December 31, 2000 for Majestic Investor Holdings, LLC and its subsidiaries (the
"Company"). These unaudited pro forma financial statements give effect to the
formation of the Company in September 2001, to the application of the proceeds
from the offering of the unregistered notes and to the acquisition of certain
assets and the assumption of certain liabilities of Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company
using the purchase method of accounting as if such acquisition had occurred on
January 1, 2000 for purposes of the unaudited pro forma consolidated statements
of operations for the year ended December 31, 2000 and for the three quarters
ended September 30, 2001, and as if such acquisition had occurred on September
30, 2001 for purposes of the unaudited pro forma consolidated balance sheet.
Majestic Investor Capital Corp. is a wholly owned subsidiary of the Company and
has no material assets, liabilities or operations.
The pro forma adjustments and resulting unaudited pro forma
consolidated financial statements are based upon currently available information
and certain assumptions described in the notes to the unaudited pro forma
consolidated financial statements. The assumptions underlying the calculation of
the pro forma adjustments are considered appropriate under the circumstances. A
final determination of required purchase accounting adjustments including the
allocation of the purchase price to the assets acquired and liabilities assumed,
has not been made, and the allocation in the unaudited pro forma consolidated
financial statements should be considered preliminary. These unaudited pro forma
consolidated financial statements should be read in conjunction with Fitzgeralds
Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited
Liability Company Historical Combined Financial Statements and the Notes thereto
for the year ended December 31, 2000 and at, and for the three quarters ended,
September 30, 2001, along with Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are included elsewhere in this
prospectus.
The unaudited pro forma consolidated financial statements are provided
for informational purposes only in response to requirements of the Securities
and Exchange Commission and do not purport to represent what the Company's
financial position or results of operations would actually have been if the
transaction had in fact occurred on such dates or to project the Company's
financial position or results of operations for any future date or period.
PF-2
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MAJESTIC INVESTOR HOLDINGS, LLC
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
AT SEPTEMBER 30, 2001
AT SEPTEMBER 30, 2001
---------------------
PRO FORMA
ADJUSTMENTS--
NET ASSETS HELD FOR PRO FORMA
HISTORICAL SALE ADJUSTMENTS PRO FORMA
---------- ---- ----------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $ 2,951,080 $ 9,807,467 $ (1,550,547)(1) $ 11,208,000
Accounts receivable, net............ 180,224 1,147,168 (180,224)(2) 1,147,168
Inventories......................... -- 994,618 994,618
Prepaid expenses:
Gaming taxes..................... 1,000,686 -- 1,000,686
Other............................ 251,745 2,260,803 (251,745)(3) 2,260,803
---------------- --------------- ----------------- ----------------
Total current assets.......... 4,383,735 14,210,056 (1,982,516) 16,611,275
---------------- --------------- ----------------- ----------------
PROPERTY AND EQUIPMENT, net............ -- 125,451,062 -- 125,451,062
---------------- --------------- ----------------- ----------------
OTHER ASSETS:
Net assets held for sale............ 147,017,465 (147,017,465) --
Restricted cash..................... 500,000 500,000 1,000,000
Accounts receivable--related parties 18,255,106 (18,255,106)(4) --
Goodwill............................ -- 13,005,582 981,316(5) 13,986,898
Other assets........................ -- 954,814 8,100,000(6) 9,054,814
---------------- --------------- ----------------- ----------------
Total other assets............ 165,772,571 (132,557,069) (9,173,790) 24,041,712
---------------- --------------- ----------------- ----------------
TOTAL ............................. $ 170,156,306 $ 7,104,049 $ (11,156,306) $ 166,104,409
================ =============== ================= ================
LIABILITIES AND MEMBER'S
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term debt... $ -- $ 130,313 $ 130,313
Accounts payable.................... -- 2,594,841 2,594,841
Accrued and other:
Payroll and related.............. 2,513,241 1,566,133 $ (2,513,241)(7) 1,566,133
Progressive jackpots............. -- 1,219,626 1,219,626
Outstanding chips and tokens..... 120,369 120,369
Other............................ 1,937,704 1,183,073 (1,937,704)(8) 1,183,073
---------------- --------------- ----------------- ----------------
Total current liabilities..... 4,450,945 6,814,355 (4,450,945) 6,814,355
LONG-TERM DEBT, net of current portion. -- 289,694 145,000,000(9) 145,289,694
---------------- --------------- ----------------- ----------------
Total liabilities not
subject to compromise.......... 4,450,945 7,104,049 140,549,055 152,104,049
LIABILITIES SUBJECT TO
COMPROMISE.......................... 220,703,315 (220,703,315)(10) --
---------------- --------------- ----------------- ----------------
Total liabilities................ 225,154,260 7,104,049 (80,154,260) 152,104,049
STOCKHOLDER'S DEFICIENCY/
MEMBER'S EQUITY
Member's equity..................... -- -- 14,000,000 14,000,000
Common stock........................ 80,100 (80,100) --
Additional paid-in capital.......... 7,586,667 (7,586,667) --
Accumulated deficit................. (62,664,721) 62,664,721 --
---------------- --------------- ----------------- ----------------
Total stockholder's
deficiency/member's equity.... (54,997,954) 68,997,954(11) 14,000,000
---------------- --------------- ----------------- ----------------
TOTAL .............................. $ 170,156,306 $ 7,104,049 $ (11,156,306) $ 166,104,049
================ =============== ================= ================
See notes to unaudited pro forma consolidated financial statements.
PF-3
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MAJESTIC INVESTOR HOLDINGS, LLC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE QUARTERS ENDED SEPTEMBER 30, 2001
FOR THE THREE QUARTERS ENDED SEPTEMBER 30, 2001
-----------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
OPERATING REVENUES:
Casino ..................................... $ 123,241,796 $ 123,241,796
Food and beverage .......................... 14,994,449 14,994,449
Rooms ...................................... 12,308,778 12,308,778
Other ...................................... 2,883,185 2,883,185
--------------- --------------- ---------------
Total ................................ 153,428,208 -- 153,428,208
Less promotional allowances ............. 23,736,051 23,736,051
--------------- --------------- ---------------
Net .................................. 129,692,157 -- 129,692,157
--------------- --------------- ---------------
OPERATING COSTS AND EXPENSES:
Casino ..................................... 55,194,374 55,194,374
Food and beverage .......................... 8,713,808 8,713,808
Rooms ...................................... 8,061,053 8,061,053
Other ...................................... 1,309,257 1,309,257
Selling, general and administrative ........ 32,162,066 $ (991,501)(12) 31,170,565
Depreciation and amortization .............. -- 9,562,880(13) 9,562,880
Reorganization items ....................... 108,644 (108,644)(14) --
--------------- --------------- ---------------
Total ................................ 105,549,202 8,462,735 114,011,937
--------------- --------------- ---------------
INCOME FROM OPERATIONS ........................ 24,142,955 (8,462,735) 15,680,220
OTHER INCOME (EXPENSE):
Interest income ............................ 33,837 (33,837)(14) --
Interest expense ........................... (40,401) (15,306,155)(15) (15,346,556)
Other, net ................................. (89,497) (89,497)
--------------- --------------- ---------------
NET INCOME (LOSS) ............................. $ 24,046,894 $ (23,802,727) $ 244,167
=============== =============== ===============
See notes to unaudited pro forma consolidated financial statements.
PF-4
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MAJESTIC INVESTOR HOLDINGS, LLC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2000
FOR THE YEAR ENDED DECEMBER 31, 2000
------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
OPERATING REVENUES:
Casino ........................................ $ 148,776,855 $ 148,776,855
Food and beverage ............................. 19,586,213 19,586,213
Rooms ......................................... 16,600,072 16,600,072
Other ......................................... 3,530,032 3,530,032
--------------- --------------- ---------------
Total ................................... 188,493,172 -- 188,493,172
Less Promotional allowances ................ 28,755,624 28,755,624
--------------- --------------- ---------------
Net ..................................... 159,737,548 -- 159,737,548
--------------- --------------- ---------------
OPERATING COSTS AND EXPENSES:
Casino ........................................ 69,113,279 69,113,279
Food and beverage ............................. 11,508,965 11,508,965
Rooms ......................................... 10,904,351 10,904,351
Other ......................................... 1,717,182 1,717,182
Selling, general and administrative ........... 39,370,958 $ (1,322,002)(12) 38,048,956
Depreciation and amortization ................. 11,687,964 1,062,542(13) 12,750,506
Reorganization items .......................... 38,967 (38,967)(14) --
--------------- --------------- ---------------
Total ................................... 144,341,666 (298,427) 144,043,239
--------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS .................... 15,395,882 298,427 15,694,309
OTHER INCOME (EXPENSE):
Interest income ............................... 167,446 (167,446)(14) --
Interest expense .............................. (71,382) (20,408,207)(15) (20,479,589)
Interest expense--related party ............... (26,031,023) 26,031,023(16) --
Other, net .................................... 4,493 4,493
--------------- --------------- ---------------
NET INCOME (LOSS) ................................ $ (10,534,584) $ 5,753,797 $ (4,780,787)
=============== =============== ===============
See notes to unaudited pro forma consolidated financial statements.
PF-5
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma consolidated financial statements present the
pro forma financial position at September 30, 2001 and the pro forma results of
operations for the three quarters then ended and for the year ended December 31,
2000 for Majestic Investor Holdings, LLC and its subsidiaries (the "Company").
These pro forma financial statements give effect to the application of the
proceeds from the offering of the unregistered notes and to the acquisition of
certain assets and the assumption of certain liabilities of Fitzgeralds Las
Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability
Company using the purchase method of accounting (the "Acquisition"). The
information under the heading "Historical" on the unaudited pro forma
consolidated balance sheet at September 30, 2001 represents the unaudited
historical combined balance sheet at September 30, 2001 of Fitzgeralds Las
Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability
Company. The information under the heading "Historical" on the unaudited pro
forma consolidated statement of operations for the three quarters ended
September 30, 2001 represents the unaudited historical combined statement of
operations for the three quarters ended September 30, 2001 for Fitzgeralds Las
Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability
Company. The information under the heading "Historical" on the unaudited pro
forma consolidated statement of operations for the year ended December 31, 2000
represents the historical combined statement of operations for the year ended
December 31, 2000 for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc.
and 101 Main Street Limited Liability Company. These unaudited pro forma
consolidated financial statements should be read in conjunction with Fitzgeralds
Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited
Liability Company Historical Combined Financial Statements and the Notes thereto
for the year ended December 31, 2000 and at, and for the three quarters, ended
September 30, 2001, along with Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are included elsewhere in this
prospectus.
PRO FORMA ADJUSTMENT DETAIL
BALANCE SHEET
General--Certain transactions included in the historical combined
financial statements of Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi,
Inc. and 101 Main Street Limited Liability Company have been prepared in
accordance with Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." In addition, certain assets and
liabilities have been classified as "Net assets held for sale" due to the
restructuring agreement that Fitzgeralds Gaming Corporation entered into with
its consenting noteholders. On the unaudited pro forma consolidated balance
sheet at September 30, 2001, adjustments included under the heading "Pro Forma
Adjustments--Net Assets Held for Sale" have been made to eliminate the impact of
these balance sheet reclassifications.
(1) Cash and cash equivalents--Cash and cash equivalents have been
adjusted to result in the expected cash position subsequent to the consummation
of the Acquisition, and includes a reduction for the payment of debt issuance
costs.
(2) Accounts receivable, net--Certain accounts receivable which were
not acquired by the Company have been eliminated.
(3) Prepaid expenses, other--Certain prepaid expenses which were not
acquired by the Company have been eliminated.
(4) Accounts receivable--related parties--This receivable balance has
been eliminated as it did not survive the Acquisition.
(5) Goodwill--Historical goodwill of $13,005,582 has been eliminated.
The excess of acquisition cost over the fair value of net assets acquired
(goodwill) in connection with the Acquisition of $13,986,898 is included.
PF-6
(6) Other assets--Debt issuance costs of $8,100,000 relating to fees
and expenses in connection with the issuance of the unregistered notes have been
included.
(7) Accrued payroll--Certain liabilities which were not assumed by the
Company have been eliminated.
(8) Accrued other--Certain liabilities which were not assumed by the
Company have been eliminated.
(9) Long-term debt--Debt associated with the registered notes offered
hereby ($152,632,000 principal, reduced for unamortized 5.0% issuance discount)
has been included.
(10) Liabilities subject to compromise--This liability, which was not
assumed by the Company, has been eliminated.
(11) Member's equity (deficiency)--All historical balances have been
eliminated and have been replaced with the Company's current paid-in capital
balance of $9,000,000 and the additional $5,000,000 of equity that was
contributed by the Company's member and one of its managers concurrent with the
closing of the Acquisition.
STATEMENTS OF OPERATIONS
(12) Selling, general and administrative expenses--Certain expenses
have been eliminated which represent adjustments to previously incurred
corporate charges to more closely approximate those expenses expected to be
incurred under the new ownership. See the items set forth under "Corporate" in
the table below under the heading "Cost reductions."
(13) Depreciation and amortization--Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company
discontinued recording depreciation and amortization of their property and
equipment subsequent to the filing of the bankruptcy cases on December 5, 2000.
This adjustment provides for these amounts.
(14) Non-recurring one-time charges/credits--Charges and credits
included in interest income and reorganization items have been eliminated from
the pro forma statements of operations.
(15) Interest expense--All previous interest expense has been
eliminated and replaced by interest expense relating to the registered notes
offered hereby (based on the 11.653% interest rate and the issuance price of
95.0%), straight-line amortization over six years of the fees and expenses
related to this offering and interest expense relating to capital leases which
were assumed by the Company. Interest expense related to the capital leases is
$40,401 and $71,382 for the three quarters ended September 30, 2001 and the year
ended December 31, 2000, respectively. Interest expense related to the
registered notes offered hereby, excluding amortization of the fees and expenses
related to this offering, is $13,339,655 and $17,786,207 for the three quarters
ended September 30, 2001 and the year ended December 31, 2000, respectively.
Amortization of the fees and expenses related to this offering is $1,012,500 and
$1,350,000 for the three quarters ended September 30, 2001 and the year ended
December 31, 2000, respectively. Amortization of debt discount related to this
offering is $954,000 and $1,272,000 for the three quarters ended September 30,
2001 and the year ended December 31, 2001, respectively.
(16) Interest expense--related party--This interest expense, due to a
related party for 2000, has been eliminated because the related note payable was
not assumed by the Company.
PF-7
Cost reductions--Certain expected cost reductions in connection with
the Acquisition which we have calculated on an annual basis, are as follows:
COMBINED
TUNICA BLACK HAWK LAS VEGAS TOTAL
------ ---------- --------- -----
CORPORATE:
Historical corporate charge ........... $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 3,000,000
Revised corporate change .............. 559,332 559,333 559,333 1,677,998
----------- ----------- ----------- -----------
Total cost reductions ................. (440,668) (440,667) (440,667) (1,322,002)
=========== =========== =========== ===========
Cost reductions at the property level, which are primarily attributable
to employment terminations and cancellations of certain leases and marketing
agreements, totaling an estimated $2,420,000 annually, have been excluded from
pro forma adjustments as these cost reductions may not fall within the SEC's
Regulation S-X definition of "pro forma adjustments."
The cost reductions for the three quarters ended September 30, 2001 are
assumed to be three quarters of each of the above amounts.
RECENT ACCOUNTING PRONOUNCEMENTS
The pro forma consolidated balance sheet at September 30, 2001 and the
pro forma statement of operations for the three quarters ended September 30,
2001 reflect the adoption of Statement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting, and
broadens the criteria for recording intangible assets separate from goodwill.
Recorded goodwill and intangibles will be evaluated against this new criteria
and may result in certain intangibles being subsumed into goodwill, or
alternatively, amounts initially recorded as goodwill may be separately
identified and recognized apart from goodwill. SFAS No. 142 requires the use of
a nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The provisions of each statement which apply to goodwill
and intangible assets acquired subsequent to June 30, 2001 will be adopted by
Majestic Investor Holdings, LLC on January 1, 2002.
The full impact of the application of the provisions of each statement
on Majestic Investor Holdings, LLC's financial position or results of operations
upon adoption are not fully known at this time.
PF-8
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
INDEX TO HISTORICAL COMBINED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITORS' REPORT................................................................... F-2
COMBINED FINANCIAL STATEMENTS:
Balance Sheets at December 31, 1999 and 2000 and at September 30, 2001 (Unaudited).......... F-3
Statements of Operations for the Years Ended December 31, 1998, 1999 and 2000,
and for the Three Quarters ended October 1, 2000 and September 30, 2001 (Unaudited)...... F-4
Statements of Stockholder's Deficiency for the Years Ended December 31, 1998, 1999
and 2000, and for the Three Quarters ended September 30, 2001 (Unaudited)................ F-5
Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000,
and for the Three Quarters ended October 1, 2000 and September 30, 2001 (Unaudited)...... F-6
Notes to Combined Financial Statements...................................................... F-7
SUPPLEMENTAL COMBINING SCHEDULES:
Statement of Operations Information for the Year Ended December 31, 1998.................... F-22
Statement of Cash Flows Information for the Year Ended December 31, 1998.................... F-23
Balance Sheet Information at December 31, 1999.............................................. F-24
Statement of Operations Information for the Year Ended December 31, 1999.................... F-25
Statement of Cash Flows Information for the Year Ended December 31, 1999.................... F-26
Balance Sheet Information at December 31, 2000.............................................. F-27
Statement of Operations Information for the Year Ended December 31, 2000.................... F-28
Statement of Cash Flows Information for the Year Ended December 31, 2000.................... F-29
F-1
INDEPENDENT AUDITORS' REPORT
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 31, 2000 and 1999, and the related combined statements of operations,
stockholder's deficiency, and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Properties' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Properties as of December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 2, the Properties have filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code. The accompanying combined financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such combined financial statements do not
purport to show (a) as to assets, their realizable value on a liquidation basis
or their availability to satisfy liabilities; (b) as to prepetition liabilities,
the amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Properties; or (d) as to operations,
the effect of any changes that may be made in their business.
The accompanying combined financial statements have been prepared assuming
that the Properties will continue as a going concern. As discussed in Note 1 to
the combined financial statements, the Parent's event of default on its senior
secured registered notes, which are guaranteed by the Properties, along with the
Properties' recurring losses and stockholder's deficiency raise substantial
doubt about the Properties' ability to continue as a going concern. Parent
management's plans concerning these matters are discussed in Note 2. The
combined financial statements do not include adjustments that might result from
the outcome of this uncertainty.
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-22 through F-29 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
March 19, 2001
(October 26, 2001 as to Note 16)
F-2
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED BALANCE SHEETS
AT DECEMBER 31,
--------------- AT SEPTEMBER 30,
1999 2000 2001
---- ---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 10,278,025 $ 2,840,011 $ 2,951,080
Accounts receivable, net of allowance for
doubtful accounts of $356,396, $0 and $0 ....... 1,057,625 -- 180,224
Accounts receivable--related parties .............. 13,164 --
Inventories ....................................... 1,143,027 -- --
Prepaid expenses:
Gaming taxes ................................... 853,859 265,381 1,000,686
Other .......................................... 1,882,591 366,312 251,745
------------- ------------- -------------
Total current assets ........................ 15,228,291 3,471,704 4,383,735
------------- ------------- -------------
PROPERTY AND EQUIPMENT, net .......................... 126,682,452 -- --
------------- ------------- -------------
OTHER ASSETS:
Net assets held for sale .......................... -- 143,342,890 147,017,465
Restricted cash ................................... 1,000,000 500,000 500,000
Goodwill, net of accumulated amortization of
$843,796, $0 and $0 ............................ 13,335,365 -- --
Accounts receivable--related parties .............. 3,208 5,309 18,255,106
Other assets ...................................... 783,947 -- --
------------- ------------- -------------
Total other assets .......................... 15,122,520 143,848,199 165,772,571
------------- ------------- -------------
TOTAL ................................................ $ 157,033,263 $ 147,319,903 $ 170,156,306
============= ============= =============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Current portion of long-term debt ................. $ 422,030 $ -- $ --
Accounts payable .................................. 2,959,639 -- --
Accrued and other:
Payroll and related ............................ 3,752,613 491,255 2,513,241
Progressive jackpots ........................... 1,168,026 -- --
Outstanding chips and tokens ................... 656,662 -- --
Interest ....................................... 11,116 -- --
Other .......................................... 5,632,370 -- 1,937,704
------------- ------------- -------------
Total current liabilities ................... 14,602,456 491,255 4,450,945
LONG-TERM DEBT, net of current portion ............... 297,462 -- --
NOTES PAYABLE, related parties, net of current portion 210,643,609 -- --
------------- ------------- -------------
Total liabilities not subject to compromise . 225,543,527 491,255 4,450,945
LIABILITIES SUBJECT TO COMPROMISE .................... -- 225,873,496 220,703,315
------------- ------------- -------------
Total liabilities ........................... 225,543,527 226,364,751 225,154,260
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 8, 13 and 16)
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 80,000
Common stock--Fitzgeralds Las Vegas, Inc.,
$.01 par value; 25,000 shares authorized;
10,000 shares issued and outstanding ........... 100 100 100
Additional paid-in-capital ........................ 7,586,667 7,586,667 7,586,667
Accumulated deficit ............................... (76,177,031) (86,711,615) (62,664,721)
------------- ------------- -------------
Total stockholder's deficiency ................. (68,510,264) (79,044,848) (54,997,954)
------------- ------------- -------------
TOTAL ................................................ $ 157,033,263 $ 147,319,903 $ 170,156,306
============= ============= =============
See notes to historical combined financial statements.
F-3
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, FOR THE THREE QUARTERS ENDED
-------------------------------- ----------------------------
1998 1999 2000 OCTOBER 1, 2000 SEPTEMBER 30, 2001
---- ---- ---- --------------- ------------------
(UNAUDITED)
OPERATING REVENUES:
Casino ............. $ 130,465,348 $ 138,928,815 $ 148,776,855 112,933,844 $ 123,241,796
Food and beverage .. 19,300,024 18,729,064 19,586,213 15,022,762 14,994,449
Rooms .............. 15,822,013 16,293,618 16,600,072 12,456,389 12,308,778
Other .............. 3,108,856 3,285,207 3,530,032 2,614,635 2,883,185
------------- ------------- ------------- ------------- -------------
Total ........ 168,696,241 177,236,704 188,493,172 143,027,630 153,428,208
Less promotional
allowances ... 19,474,126 24,460,048 28,755,624 21,145,222 23,736,051
------------- ------------- ------------- ------------- -------------
Net .......... 149,222,115 152,776,656 159,737,548 121,882,408 129,692,157
------------- ------------- ------------- ------------- -------------
OPERATING COSTS AND
EXPENSES:
Casino ............. 62,958,294 64,146,974 69,113,279 51,741,605 55,194,374
Food and beverage .. 14,647,725 11,793,071 11,508,965 8,686,687 8,713,808
Rooms .............. 10,747,449 10,701,241 10,904,351 8,039,061 8,061,053
Other .............. 1,911,115 1,877,030 1,717,182 1,331,463 1,309,257
Selling, general and
administrative .. 37,363,204 40,808,792 39,370,958 30,050,713 32,162,066
Depreciation and
amortization .... 11,051,550 11,726,085 11,687,964 9,295,083 --
Reorganization items -- -- 38,967 -- 108,644
------------- ------------- ------------- ------------- -------------
Total ........ 138,679,337 141,053,193 144,341,666 109,144,612 105,549,202
------------- ------------- ------------- ------------- -------------
INCOME FROM
OPERATIONS ......... 10,542,778 11,723,463 15,395,882 12,737,796 24,142,955
OTHER INCOME (EXPENSE):
Interest income .... 180,132 129,654 167,446 132,937 33,837
Interest income--
related party ... 10,675 -- -- -- --
Interest expense ... (391,302) (210,314) (71,382) (50,851) (40,401)
Interest expense--
related party ... (28,303,791) (27,989,851) (26,031,023) (21,053,959) --
Equity in net loss
of unconsolidated
affiliates ...... (1,352,693) -- -- -- --
Impairment loss .... (798,607) -- -- -- --
Other, net ......... (1,156,367) 99,012 4,493 (6,752) (89,497)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) ..... $ (21,269,175) $ (16,248,036) $ (10,534,584) $ (8,240,829) $ 24,046,894
============= ============= ============= ============= =============
See notes to historical combined financial statements.
F-4
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
COMMON STOCK ADDITIONAL TOTAL
------------ PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
------ ------ ------- ------- ----------
BALANCE, JANUARY 1, 1998 .. 8,010,000 $80,100 $7,586,667 $(38,659,820) $(30,993,053)
Net loss ............... -- -- -- (21,269,175) (21,269,175)
--------- ------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1998 8,010,000 80,100 7,586,667 (59,928,995) (52,262,228)
Net loss ............... -- -- -- (16,248,036) (16,248,036)
--------- ------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1999 8,010,000 80,100 7,586,667 (76,177,031) (68,510,264)
Net loss ............... -- -- -- (10,534,584) (10,534,584)
BALANCE, DECEMBER 31, 2000 8,010,000 80,100 7,586,667 (86,711,615) (79,044,848)
--------- ------- ---------- ------------ ------------
Net income (unaudited) .... -- -- -- 24,046,894 24,046,894
--------- ------- ---------- ------------ ------------
BALANCE, SEPTEMBER 30, 2001
(unaudited) ............... 8,010,000 $80,100 $7,586,667 $(62,664,721) $(54,997,954)
========= ======= ========== ============ ============
See notes to historical combined financial statements.
F-5
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE QUARTERS ENDED
FOR THE YEARS ENDED DECEMBER 31, ----------------------------
-------------------------------- OCTOBER 1, SEPTEMBER 30,
1998 1999 2000 2000 2001
---- ---- ---- ---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................... $(21,269,175) $(16,248,036) $(10,534,584) $ (8,240,829) $ 24,046,894
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization .......... 11,051,550 11,726,085 11,687,964 9,295,083 --
Impairment loss ........................ 798,607 -- -- -- --
Equity in net loss of unconsolidated
affiliates .......................... 1,352,693 -- -- -- --
Reorganization items incurred in
connection with Chapter 11 and
related legal proceedings ........... -- -- 38,967 -- 108,644
Other .................................. (25,153) (58,032) 36,487 37,488 120,221
(Increase) decrease in accounts
receivable, net ..................... 153,968 136,090 (233,359) 110,059 (36,408)
(Increase) decrease in inventories ..... (101,481) (135,666) 98,529 75,867 49,880
Increase in prepaid expenses ........... (547,542) (401,108) (492,966) (190,128) (283,818)
Increase in other assets ............... (25,690) (130,091) (139,028) (119,048) (31,839)
Increase (decrease) in accounts payable 787,069 (2,511,838) (1,408,119) (191,087) 1,043,073
Increase (decrease) in accrued and
other liabilities ................... 1,032,835 450,505 (2,124,978) (2,448,395) (839,759)
Increase (decrease) in amounts due
to related parties, net ............. 14,595,841 15,945,345 15,134,274 10,377,728 (23,597,192)
Increase in liabilities subject
to compromise ....................... -- -- 106,677 -- 461,559
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities before reorganization items . 7,803,522 8,773,254 12,169,864 8,706,738 1,041,255
Reorganization items incurred in
connection with Chapter 11 and
related legal proceedings .............. -- -- (38,967) -- (108,644)
Net cash provided by operating
activities ....................... 7,803,522 8,773,254 12,130,897 8,706,738 932,611
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets .............. 40,028 77,726 8,463 28,387 31,963
Acquisition of property and equipment ..... (3,401,056) (4,345,588) (9,011,942) (8,635,611) (943,565)
Decrease in restricted cash ............... 38,415 -- -- -- --
Advances to unconsolidated affiliates .... (803,488) -- -- -- --
Other ..................................... -- -- -- (141,363) --
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (4,126,101) (4,267,862) (9,003,479) (8,748,587) (911,602)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term debt ............... (3,874,758) (2,975,622) (453,560) (371,115) (214,345)
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities ..... (3,874,758) (2,975,622) (453,560) (371,115) (214,345)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ...................... (197,337) 1,529,770 2,673,858 (412,964) (193,336)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD ....................... 8,945,592 8,748,255 10,278,025 10,278,025 2,840,011
(INCREASE) DECREASE IN CASH AND CASH
EQUIVALENTS INCLUDED IN NET ASSETS
HELD FOR SALE ............................. -- -- (10,111,872) -- 304,405
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS END OF
PERIOD .................................... $ 8,748,255 $ 10,278,025 $ 2,840,011 $ 9,865,061 $ 2,951,080
============ ============ ============ ============ ============
See notes to historical combined financial statements.
F-6
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). The Properties own and operate the Fitzgeralds-brand
casino-hotels in downtown Las Vegas, Nevada ("Fitzgeralds Las Vegas"), Tunica,
Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds Black
Hawk"). The Properties are marketed primarily to middle-market customers,
emphasizing their Fitzgeralds brand and their "Fitzgeralds Irish Luck" theme.
Other wholly owned subsidiaries of Fitzgeralds Gaming Corporation, which
are not included in the combined financial statements herein, are Fitzgeralds
Reno, Inc., Nevada Club, Inc., Fitzgeralds, Inc., Fitzgeralds Blackhawk, Inc.
and Fitzgeralds Black Hawk, Inc.--II.
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 has experienced net
losses during 1998, 1999 and 2000, is highly leveraged, and has a stockholders'
deficiency at the end of both 1999 and 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"). 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. The Properties incurred net losses of $21.3 million, $16.2
million and $10.5 million in 1998, 1999 and 2000, respectively. At December 31,
2000, stockholder's deficiency was $79.0 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 and stockholder's deficiency, raise
substantial doubt about their ability to continue as a going concern.
The accompanying combined financial statements as of September 30, 2001
and for the two quarters ended September 30, 2001 and October 1, 2000 have been
prepared without audit. Accordingly, certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. All adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
interim combined financial statements have been included.
F-7
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.
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 (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. In accordance
with the Restructuring Agreement and as approved by the Bankruptcy Court, the
Parent has been authorized and directed to make additional Excess Cash
distributions during the Bankruptcy Cases. As part of the Restructuring
Agreement, the Consenting Noteholders and the indenture Trustee agreed 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.
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
F-8
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. Majestic has deposited in escrow $2.0 million of the
cash portion of the purchase price as an earnest money deposit. The Purchase
Agreement contains customary representations, warranties, conditions and
covenants and provides for (i) a dollar-for-dollar purchase price adjustment
based on changes in each of the Properties' working capital and long-term debt,
excluding debt related to the Notes, at closing, (ii) adjustment if the
Properties' earnings before interest, income taxes, depreciation and
amortization for the 12-month period prior to closing vary by 5% or more from a
target earnings amount for such period and (iii) adjustments as may apply in the
event that the Parent fails to obtain certain consents. The closing is
contingent upon, among other things, Majestic obtaining financing of up to
$137.0 million and approval of gaming authorities in Colorado, Mississippi and
Nevada.
REORGANIZATION ITEMS
The Properties incurred pre-petition expenses of $38,967 in 2000 that were
recorded post-petition and are classified as reorganization items on the
statement of operations.
LIABILITIES SUBJECT TO COMPROMISE
At December 31, 2000, liabilities subject to compromise consisted of the
following:
Liabilities subject to compromise:
Due to related parties........................... $225,774,418
Unsecured creditors.............................. 99,078
------------
$225,873,496
============
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.
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 is 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. The Properties discontinued recording depreciation and amortization
of their property and equipment subsequent to the filing of the Bankruptcy
Cases.
Restricted Cash--At December 31, 1999 and 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
subsequent to the filing of the Bankruptcy Cases.
F-9
Casino Revenue--Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses.
Promotional Allowances--Operating revenues include the retail value of
rooms, food and beverage provided to customers without charge; corresponding
charges have been deducted from revenue in the accompanying combined statements
of operations as promotional allowances in the determination of net operating
revenues. The estimated costs of providing the complimentary services are
charged to the casino department and are as follows:
1998 1999 2000
---- ---- ----
Hotel ..................... $ 1,971,386 $ 2,441,182 $ 2,528,282
Food and beverage ......... 9,079,439 10,141,593 10,935,259
Other ..................... 283,482 280,998 524,426
----------- ----------- -----------
$11,334,307 $12,863,773 $13,987,967
=========== =========== ===========
Advertising Costs--Advertising expenditures are expensed in the period the
advertising initially takes place. Direct response advertising costs are
amortized over the period during which the benefits are expected.
Federal Income Taxes--The Properties account for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes, which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Deferred income taxes
reflect the net tax effects of (a) temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating loss and tax credit
carry forwards.
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.
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 Properties' fiscal year ending December 31,
2001. Adoption of this statement will not have a material impact on their
financial condition or results of operation.
The Properties have 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 expensed the cash coupons, players club reward program and other cash
back programs as
F-10
a casino or marketing expense. Such expenses have been reclassified to
promotional allowances for all periods presented. The total amount of the
reclassification was $6,370,126, $9,602,909 and $12,303,861 for 1998, 1999 and
2000, respectively.
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 disclose expenses related to the Bankruptcy Cases under
"Reorganization Items." The Properties will continue to present their Combined
Statements of Cash Flows using the indirect method.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities at the date of the financial statements. These estimates also affect
the disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of certain revenues and expenses during the reporting
period. Actual results could differ from those estimates.
4. STATEMENTS OF CASH FLOWS INFORMATION
The following supplemental disclosure is provided as part of the Combined
Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000:
Cash paid for interest, net of amounts capitalized, during the years ended
December 31, 1998, 1999 and 2000 was $410,191, $225,072 and $67,600,
respectively.
Certain non-cash operating, investing and financing activities were as
follows:
Long-term contracts payable of $2,643,074 in 1998, $368,888 in 1999 and
$368,420 in 2000 were incurred with the acquisition of new equipment for all
years presented.
See Note 2 and Note 6, respectively, 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,
ESTIMATED
1999 2000 SERVICE LIFE
---- ---- ------------
Land used in casino operations ............... $ 10,281,006 $ 10,748,949 --
Buildings and improvements ................... 94,060,222 94,646,085 7-40 years
Site improvements ............................ 15,270,443 20,930,897 20 years
Barge and improvements ....................... 12,896,235 12,896,235 15 years
Furniture, fixtures and equipment ............ 53,837,543 55,288,988 3-12 years
------------- -------------
186,345,449 194,511,154
Less accumulated depreciation and amortization (60,417,017) (70,612,350)
------------- -------------
125,928,432 123,898,804
Construction in progress ..................... 754,020 760,878
------------- -------------
126,682,452 124,659,682
Less net assets held for sale ................ -- (124,659,682)
------------- -------------
Total ........................................ $ 126,682,452 $ --
============= =============
Substantially all property and equipment is pledged as collateral on the
Parent's long-term debt.
F-11
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. Assets of the Properties of $4.0 million not included in Net Assets
Held for Sale consist mainly of cash not transferable upon the close of a sale
with Majestic. On March 19, 2001, the Parent received Bankruptcy Court approval
to sell substantially all of its Assets to Majestic pursuant to the Purchase
Agreement for $149.0 million in cash, subject to certain holdbacks and
adjustments, plus the assumption of certain liabilities relating to the Assets.
The closing is contingent upon, among other things, Majestic obtaining financing
of up to $137.0 million and approval of gaming authorities in Colorado,
Mississippi and Nevada. The components of Net Assets Held for Sale are subject
to change at the closing of the sale upon mutual agreement between Majestic and
the Properties.
The components of the Net Assets Held for Sale as of December 31, 2000 are
as follows:
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) (387,602) (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
============ ============ ============ ============
F-12
7. LONG-TERM DEBT
Long-term debt outstanding at December 31,
1999 2000
---- ----
Contracts payable secured by certain equipment due in
maximum aggregate monthly installments of $51,673 and
$32,842, with varying maturity dates through 2005 and
2003, respectively, and bearing interest at an average
rate of 9 percent and 12 percent, respectively ....... $ 719,492 $ 634,352
--------- ---------
Total debt ............................................. 719,492 634,352
Less net assets held for sale .......................... -- (634,352)
Less current portion ................................... (422,030) --
--------- ---------
Long-term debt ......................................... $ 297,462 $ --
========= =========
The scheduled maturities of long-term debt are as follows for the year
ending December 31,
2001................................................. $ 240,288
2002................................................. 133,174
2003................................................. 133,501
2004................................................. 84,346
2005................................................. 37,460
Thereafter........................................... 5,583
---------
Total.............................................. $ 634,352
=========
8. COMMITMENTS
Future minimum rental payments under operating leases with non-cancelable
lease terms in excess of one year are as follows:
Year Ending December 31,
2001 ............................................... $1,133,297
2002 ............................................... 922,238
2003 ............................................... 878,548
2004 ............................................... 766,395
2005 ............................................... 702,556
Thereafter.......................................... 6,951
----------
Total.......................................... $4,409,985
==========
Such operating lease commitments primarily relate to equipment, signs,
warehouses and ground leases on which the Properties' buildings and equipment
reside. Rent expense for the years ended December 31, 1998, 1999 and 2000 was
$1,537,961, $2,183,428 and $1,732,028, respectively.
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.
F-13
9. 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 $195,935,
$218,912 and $221,140 for the years ended December 31, 1998, 1999 and 2000.
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 $430,071, $537,998 and $351,847 for the
years ended December 31, 1998, 1999 and 2000.
10. IMPAIRMENT LOSS
In 1998, the Properties recorded an impairment loss of $798,607 related to
their 17.76% ownership interest in the Fremont Street Experience, Limited
Liability Company ("FSE"). This impairment loss was principally due to
significant levels of operating losses by FSE. Management expects this trend to
continue and, therefore, does not expect to recover its investment in this
entity.
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 deficiency of $1,947,928 and $2,331,468 for 101 Main Street Limited
Liability Company for 1999 and 2000, respectively.
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 loss before
taxes is as follows:
1998 1999 2000
---- ---- ----
Tax benefit at U.S. statutory rate $ 7,340,658 $ 5,524,332 $ 3,687,104
Increase in valuation allowance .. (7,419,796) (5,489,867) (3,553,559)
Other ............................ 79,138 (34,465) (133,545)
----------- ----------- -----------
Total ............................ $ -- $ -- $ --
=========== =========== ===========
F-14
The following summarizes the effect of deferred income tax items and the
impact of "temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. The tax
items comprising the Properties' net deferred tax asset as of December 31, 2000
are as follows:
CURRENT NONCURRENT TOTAL
------- ---------- -----
Deferred tax assets:
Accrued and other liabilities ................... $ 535,104 $ -- $ 535,104
Bad debt reserve ................................ 31,285 -- 31,285
FICA credits not utilized ....................... -- 400,836 400,836
NOL carryforward ................................ -- 24,786,490 24,786,490
Other ........................................... 6,464 25,794 32,258
------------ ------------ ------------
572,853 25,213,120 25,785,973
------------ ------------ ------------
Deferred tax liabilities:
Prepaid expenses ................................ (681,523) -- (681,523)
Difference between book and tax basis of property -- (4,649,715) (4,649,715)
Intangibles ..................................... -- (710,827) (710,827)
Differences from flow through entity ............ -- (98,482) (98,482)
------------ ------------ ------------
(681,523) (5,459,024) (6,140,547)
(108,670) 19,754,096 19,645,426
Less: valuation allowance ............................. 108,670 (19,754,096) (19,645,426)
------------ ------------ ------------
Net ................................................... $ -- $ -- $ --
============ ============ ============
The tax items comprising the Properties' net deferred tax asset as of
December 31, 1999 are as follows:
CURRENT NONCURRENT TOTAL
------- ---------- -----
Deferred tax assets:
Accrued and other liabilities ................... $ 675,497 $ -- $ 675,497
Bad debt reserve ................................ 67,292 -- 67,292
FICA credits not utilized ....................... -- 326,800 326,800
NOL carryforward ................................ -- 19,929,636 19,929,636
Differences from flow through entity ............ -- 122,889 122,889
Other ........................................... -- 116,513 116,513
------------ ------------ ------------
742,789 20,495,838 21,238,627
------------ ------------ ------------
Deferred tax liabilities:
Prepaid expenses ................................ (517,570) -- (517,570)
Difference between book and tax basis of property -- (4,968,026) (4,968,026)
Intangibles ..................................... -- (468,489) (468,489)
------------ ------------ ------------
(517,570) (5,436,515) (5,954,085)
------------ ------------ ------------
225,219 15,059,323 15,284,542
Less: valuation allowance ............................. (225,219) (15,059,323) (15,284,542)
------------ ------------ ------------
Net ................................................... $ -- $ -- $ --
============ ============ ============
Due to the uncertainty of the realization of certain tax carry forward
items, a valuation allowance has been established in the amount of $19.6 million
at December 31, 2000. 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 31, 2000, the Properties had a combined net operating loss
carryforward of approximately $70.8 million and a tax credit carry forward of
$0.4 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.
F-15
13. CONTINGENCIES
GUARANTEE--The Properties are guarantors under various credit agreements,
including the Parent's Notes totaling $205,000,000 in outstanding principal
amount. In addition, substantially all of the Properties' assets serve as
collateral under such agreements.
LEGAL MATTERS--The Properties are a party to various legal actions
relating to routine matters incidental to its business. The Properties do not
believe that the outcome of such actions, individually or in the aggregate, will
have a material adverse effect on their financial condition. See Note 16.
14. RELATED PARTY TRANSACTIONS
Amounts due to/from the Parent and other wholly owned subsidiaries of the
Parent at December 31, 1999 include receivables for $16,372 and registered notes
payable of $210,643,609. 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 1999 and 2000
and are due December 15, 2004, the due date of the Notes.
During the years ended December 31, 1998, 1999 and 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.
Prior to August 17, 1997, 101 Main Street Limited Liability Company had a
management agreement with Fitzgeralds Black Hawk, Inc. ("FBHI"), a wholly owned
subsidiary of the Parent, requiring a monthly fee of 8 percent of earnings
before interest, depreciation and amortization. Effective August 17, 1997
through December 31, 1998, a new agreement for management services was entered
into with Fitzgeralds Black Hawk, Inc.--II, a wholly owned subsidiary of FBHI,
requiring an annual management fee of $1,000,000, payable in monthly
installments. 101 Main Street Limited Liability Company incurred approximately
$1,000,000 for management services for the year ended December 31, 1998, under
the management agreement referred to above.
15. SEGMENT INFORMATION
The Properties own and operate 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 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.
F-16
A summary of the Properties' operations by business segment for 1998, 1999
and 2000 is presented below:
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
---- ---- ----
(IN THOUSANDS)
Net operating revenues:
Fitzgeralds Las Vegas .......................... $ 50,987 $ 50,910 $ 52,139
Fitzgeralds Tunica ............................. 64,012 69,582 75,062
Fitzgeralds Black Hawk ......................... 34,223 32,284 32,537
--------- --------- ---------
Total ....................................... $ 149,222 $ 152,776 $ 159,738
========= ========= =========
Income (loss) from operations:
Fitzgeralds Las Vegas .......................... $ (594) $ (1,115) $ (7)
Fitzgeralds Tunica ............................. 2,063 5,321 9,018
Fitzgeralds Black Hawk ......................... 9,074 7,517 6,385
--------- --------- ---------
Total ....................................... $ 10,543 $ 11,723 $ 15,396
========= ========= =========
Reconciliation of total business segment operating
income to combined net loss before income tax
and extraordinary item:
Total segment operating income ................. $ 10,543 $ 11,724 $ 15,396
Interest income ................................ 180 129 167
Interest income--related party ................. 11 -- --
Interest expense ............................... (391) (210) (71)
Interest expense--related party ................ (28,304) (27,990) (26,031)
Other expense .................................. (3,308) 99 4
--------- --------- ---------
Net loss before income tax .................. $ (21,269) $ (16,248) $ (10,535)
========= ========= =========
EBITDA(1):
Fitzgeralds Las Vegas(2) ....................... $ 2,682 $ 2,594 $ 3,692
Fitzgeralds Tunica ............................. 8,051 11,553 15,253
Fitzgeralds Black Hawk ......................... 10,863 9,303 8,138
--------- --------- ---------
Total ....................................... $ 21,596 $ 23,450 $ 27,083
========= ========= =========
Segment depreciation and amortization:
Fitzgeralds Las Vegas .......................... $ 3,276 $ 3,709 $ 3,698
Fitzgeralds Tunica ............................. 5,987 6,231 6,235
Fitzgeralds Black Hawk ......................... 1,789 1,786 1,755
--------- --------- ---------
Total ....................................... $ 11,052 $ 11,726 $ 11,688
========= ========= =========
Expenditures for additions to long-lived assets:
Fitzgeralds Las Vegas .......................... $ 1,832 $ 1,635 $ 1,619
Fitzgeralds Tunica ............................. 2,903 2,393 6,199
Fitzgeralds Black Hawk ......................... 1,312 687 1,518
--------- --------- ---------
Total ....................................... $ 6,047 $ 4,715 $ 9,336
========= ========= =========
AS OF DECEMBER 31,
------------------
1999 2000
---- ----
(IN THOUSANDS)
Segment assets:
Fitzgeralds Las Vegas ....................... $ 46,788 $ 42,657
Fitzgeralds Tunica .......................... 69,869 65,943
Fitzgeralds Black Hawk ...................... 40,383 38,728
Total .................................... 157,040 147,328
Less: inter-company ........................... (7) (8)
--------- ---------
Total .................................... $ 157,033 $ 147,320
========= =========
F-17
(1) EBITDA is a supplemental financial measurement used by the Properties 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 of the Parent. 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.
(2) Fitzgeralds Las Vegas invested $800,000, $900,000 and $900,000 for 1998,
1999 and 2000, respectively, in the Fremont Street Experience, Limited
Liability Company. Prior to 1999, such investments were reported under the
equity method with no impact on earnings. The 1999 and 2000 investment was
charged against earnings. See Note 10.
16. SUBSEQUENT EVENTS
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 ("Blackhawk"), certain
companies alleged to do business in or about Blackhawk, and various individuals.
101 Main Street Limited Liability Company, a wholly owned subsidiary of
Fitzgeralds Black Hawk, Inc.--II, is a named defendant in the action. The claims
against all defendants, including 101 Main Street Limited Liability Company, 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, tortious 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 Street Limited
Liability Company 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 Blackhawk.
The complaint was filed after the commencement of the Bankruptcy Cases,
and 101 Main Street Limited Liability Company 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. The District Court then stayed the action
against the Properties.
Subsequently, the plaintiffs filed a First Amended Complaint and Demand
for July Trial in the action. Thus, the Properties are no longer named as a
defendant. On October 8, 2001, plaintiff's attorneys also filed a motion in the
Nevada bankruptcy proceedings to seek formal relief from the bankruptcy stay.
The Properties will object to plaintiff's efforts to obtain relief from the stay
in the bankruptcy proceeding. If plaintiffs are successful in obtaining relief
from the bankruptcy stay, the plaintiffs plan to file a further amended
complaint in the District Court again naming 101 Main Street Limited Liability
Company as a defendant. The Properties believe that the claims asserted against
101 Main Street Limited Liability Company are without merit.
F-18
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, Reliance was declared insolvent
and placed under an order of liquidation by the Pennsylvania Commonwealth Court
at the request of the Pennsylvania Insurance Department. 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. Assuming the Purchase Agreement is
consummated, the Parent believes Inns will assert an unsecured claim in the
Bankruptcy Cases based upon the liquidated damages provision of the franchise
agreement with Inns which refers to a lump sum early termination payment equal
to the last 36 months of fees paid pursuant to the franchise agreement
(approximately $1.6 million as of the date hereof). 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.
F-19
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, 1998
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- ------------- ------- -----
OPERATING REVENUES:
Casino .............................. $ 35,813,027 $ 59,566,068 $ 35,086,253 $ -- $ 130,465,348
Food and beverage ................... 9,180,899 7,628,290 2,490,835 -- 19,300,024
Rooms ............................... 7,965,104 7,856,909 -- -- 15,822,013
Other ............................... 1,597,751 1,256,489 254,616 -- 3,108,856
------------ ------------ ------------ --------- -------------
Total ......................... 54,556,781 76,307,756 37,831,704 -- 168,696,241
Less promotional allowances ...... 3,569,658 12,295,798 3,608,670 -- 19,474,126
------------ ------------ ------------ --------- -------------
Net ........................... 50,987,123 64,011,958 34,223,034 -- 149,222,115
------------ ------------ ------------ --------- -------------
OPERATING COSTS AND EXPENSES:
Casino .............................. 18,826,087 30,166,579 13,965,628 -- 62,958,294
Food and beverage ................... 9,987,583 3,432,984 1,227,158 -- 14,647,725
Rooms ............................... 6,313,816 4,433,633 -- -- 10,747,449
Other ............................... 891,608 364,850 654,657 -- 1,911,115
Selling, general and administrative . 12,286,403 17,563,696 7,513,105 -- 37,363,204
Depreciation and amortization ....... 3,275,894 5,987,026 1,788,630 -- 11,051,550
------------ ------------ ------------ --------- -------------
Total ......................... 51,581,391 61,948,768 25,149,178 -- 138,679,337
------------ ------------ ------------ --------- -------------
INCOME (LOSS) FROM OPERATIONS .......... (594,268) 2,063,190 9,073,856 -- 10,542,778
OTHER INCOME (EXPENSE):
Interest income ..................... 53,253 74,320 52,559 -- 180,132
Interest income--related party ...... 10,675 -- -- -- 10,675
Interest expense .................... (238,155) (92,032) (61,115) -- (391,302)
Interest expense--related party ..... (7,756,759) (12,410,814) (8,136,218) -- (28,303,791)
Equity in net loss of unconsolidated
affiliate ........................ (1,352,693) -- -- -- (1,352,693)
Impairment loss ..................... (798,607) -- -- -- (798,607)
Other, net .......................... (156,342) 10,000 (1,010,025) -- (1,156,367)
------------ ------------ ------------ --------- -------------
LOSS BEFORE INCOME TAXES ............... (10,832,896) (10,355,336) (80,943) -- (21,269,175)
INCOME TAX (PROVISION) BENEFIT ......... -- -- -- -- --
------------ ------------ ------------ --------- -------------
NET LOSS ............................... $(10,832,896) $(10,355,336) $ (80,943) $ -- $ (21,269,175)
============ ============ ============ ========= =============
F-20
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, 1998
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- ------------- ------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................... $(10,832,896) $(10,355,336) $ (80,943) $ -- $(21,269,175)
Adjustments to reconcile net loss to net
cash provided by operating activities,
net of effects of acquisition:
Depreciation and amortization .............. 3,275,894 5,987,026 1,788,630 -- 11,051,550
Impairment loss ............................ 798,607 -- -- -- 798,607
Equity in net loss of unconsolidated
affiliate ............................... 1,352,693 -- -- -- 1,352,693
Other ...................................... (25,178) (10,000) 10,025 -- (25,153)
Decrease in accounts receivable, net ....... 8,744 100,858 44,366 -- 153,968
(Increase) decrease in inventories ......... (33,519) (73,901) 5,939 -- (101,481)
Increase in prepaid expenses ............... (436,755) (89,009) (21,778) -- (547,542)
(Increase) decrease in other assets ........ (17,814) 1,989 (9,865) -- (25,690)
Increase in accounts payable ............... 117,045 629,280 40,744 -- 787,069
Increase (decrease) in accrued and other
liabilities ............................. 461,715 (40,972) 612,092 -- 1,032,835
Increase (decrease) in amounts due to
related parties, net .................... 8,966,576 7,251,437 (1,622,172) -- 14,595,841
------------ ------------ ----------- -------- ------------
Net cash provided by operating activities 3,635,112 3,401,372 767,038 -- 7,803,522
------------ ------------ ----------- -------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets .................. 25,179 9,997 4,852 -- 40,028
Acquisition of property and equipment ......... (728,422) (2,036,865) (635,769) -- (3,401,056)
Decrease in restricted cash ................... 13,640 24,775 -- -- 38,415
Other ......................................... (803,488) -- -- -- (803,488)
------------ ------------ ----------- -------- ------------
Net cash used in investing activities ... (1,493,091) (2,002,093) (630,917) -- (4,126,101)
------------ ------------ ----------- -------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ................... (1,548,296) (1,242,549) (1,083,913) -- (3,874,758)
------------ ------------ ----------- -------- ------------
Net cash used in financing activities ... (1,548,296) (1,242,549) (1,083,913) -- (3,874,758)
------------ ------------ ----------- -------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .............................. 593,725 156,730 (947,792) -- (197,337)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..... 2,520,113 3,947,343 2,478,136 -- 8,945,592
------------ ------------ ----------- -------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR ........... $ 3,113,838 $ 4,104,073 $ 1,530,344 $ -- $ 8,748,255
============ ============ =========== ======== ============
F-21
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, 1999
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- ------------- ------- -----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........... $ 3,126,602 $ 5,186,475 $ 1,964,948 $ -- $ 10,278,025
Accounts receivable, net ............ 400,705 525,830 131,090 -- 1,057,625
Accounts receivable--related parties -- -- 13,164 -- 13,164
Inventories ......................... 592,342 388,299 162,386 -- 1,143,027
Prepaid expenses:
Gaming taxes ..................... 823,922 28,295 1,642 -- 853,859
Other ............................ 1,254,297 549,266 79,028 -- 1,882,591
------------ ------------ ------------ ------------- -------------
Total current assets .......... 6,197,868 6,678,165 2,352,258 -- 15,228,291
------------ ------------ ------------ ------------- -------------
PROPERTY AND EQUIPMENT, net ............ 39,242,446 62,744,015 24,695,991 126,682,452
------------ ------------ ------------ ------------- -------------
OTHER ASSETS:
Restricted cash ..................... 1,000,000 -- -- -- 1,000,000
Goodwill, net ....................... -- -- 13,335,365 -- 13,335,365
Long-term accounts receivable--
related parties .................. 9,870 -- -- (6,662)(a) 3,208
Other assets ........................ 337,536 446,411 -- -- 783,947
------------ ------------ ------------ ------------- -------------
Total other assets ............... 1,347,406 446,411 13,335,365 (6,662) 15,122,520
------------ ------------ ------------ ------------- -------------
TOTAL .................................. $ 46,787,720 $ 69,868,591 $ 40,383,614 $ (6,662) $ 157,033,263
============ ============ ============ ============= =============
LIABILITIES AND STOCKHOLDER'S
DEFICIENCY
CURRENT LIABILITIES
Current portion of long-term debt ...... $ 197,972 $ 224,058 $ -- $ -- $ 422,030
Accounts payable .................... 1,261,740 1,238,708 459,191 -- 2,959,639
Accrued and other:
Payroll and related............... 1,270,382 1,917,766 564,465 -- 3,752,613
Progressive jackpots ............. 333,852 287,452 546,722 -- 1,168,026
Outstanding chips and tokens ..... 159,630 423,999 73,033 -- 656,662
Interest ......................... 11,116 -- -- 11,116
Other ............................ 1,074,916 3,400,052 1,157,402 -- 5,632,370
------------ ------------ ------------ ------------- -------------
Total current liabilities ..... 4,309,608 7,492,035 2,800,813 14,602,456
LONG-TERM DEBT, net of current portion . 227,817 69,645 -- -- 297,462
NOTES PAYABLE--RELATED PARTIES,
net of current portion............... 80,760,541 90,359,001 39,530,729 (6,662)(b) 210,643,609
------------ ------------ ------------ ------------- -------------
Total liabilities.............. 85,297,966 97,920,681 42,331,542 (6,662) 225,543,527
------------ ------------ ------------ ------------- -------------
STOCKHOLDER'S DEFICIENCY ............... (38,510,246) (28,052,090) (1,947,928) -- (68,510,264)
------------ ------------ ------------ ------------- -------------
TOTAL .................................. $ 46,787,720 $ 69,868,591 $ 40,383,614 $ (6,662) $ 157,033,263
============ ============ ============ ============= =============
- ----------
(a) To eliminate intercompany accounts and notes receivable
(b) To eliminate intercompany accounts and notes payable
F-22
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- ------------- ------- -----
OPERATING REVENUES:
Casino ............................ $ 38,129,610 $ 65,676,465 $ 35,122,740 $ -- $ 138,928,815
Food and beverage ................. 8,502,928 7,936,527 2,289,609 -- 18,729,064
Rooms ............................. 8,465,897 7,827,721 -- -- 16,293,618
Other ............................. 1,808,135 1,195,908 281,164 -- 3,285,207
------------ ------------ ------------ ----------- -------------
Total ....................... 56,906,570 82,636,621 37,693,513 -- 177,236,704
Less promotional allowances ....... 5,996,339 13,054,629 5,409,080 -- 24,460,048
------------ ------------ ------------ ----------- -------------
Net ......................... 50,910,231 69,581,992 32,284,433 -- 152,776,656
------------ ------------ ------------ ----------- -------------
OPERATING COSTS AND EXPENSES:
Casino ............................ 19,583,057 31,027,932 13,535,985 -- 64,146,974
Food and beverage ................. 7,695,608 2,929,046 1,168,417 -- 11,793,071
Rooms ............................. 6,101,345 4,599,896 -- -- 10,701,241
Other ............................. 906,070 386,663 584,297 -- 1,877,030
Selling, general and administrative 14,029,853 19,085,794 7,693,145 40,808,792
Depreciation and amortization ..... 3,709,225 6,231,109 1,785,751 -- 11,726,085
------------ ------------ ------------ ----------- -------------
Total ....................... 52,025,158 64,260,440 24,767,595 -- 141,053,193
------------ ------------ ------------ ----------- -------------
INCOME (LOSS) FROM OPERATIONS ........ (1,114,927) 5,321,552 7,516,838 11,723,463
OTHER INCOME (EXPENSE):
Interest income ................... 43,422 67,221 19,011 -- 129,654
Interest expense .................. (120,596) (65,291) (24,427) -- (210,314)
Interest expense--related party ... (7,951,662) (12,722,660) (7,315,529) -- (27,989,851)
Other, net ........................ 100,606 -- (1,594) -- 99,012
------------ ------------ ------------ ----------- -------------
INCOME (LOSS) BEFORE INCOME TAXES .... (9,043,157) (7,399,178) 194,299 -- (16,248,036)
INCOME TAX (PROVISION) BENEFIT ....... -- -- -- -- --
------------ ------------ ------------ ----------- -------------
NET INCOME (LOSS) .................... $ (9,043,157) $ (7,399,178) $ 194,299 $ -- $ (16,248,036)
============ ============ ============ =========== =============
F-23
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999
101 MAIN
STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- ------------- ------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................ $ (9,043,157) $(7,399,178) $ 194,299 $ $(16,248,036)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization ................. 3,709,225 6,231,109 1,785,751 -- 11,726,085
Other ......................................... (59,626) -- 1,594 -- (58,032)
(Increase) decrease in accounts receivable, net 100,735 113,972 (78,617) -- 136,090
Increase in inventories ....................... (80,012) (23,278) (32,376) -- (135,666)
(Increase) decrease in prepaid expenses ....... (380,727) (54,012) 33,631 -- (401,108)
(Increase) decrease in other assets ........... 41,423 (190,879) 19,365 -- (130,091)
Increase (decrease) in accounts payable ....... (1,096,585) (1,453,520) 38,267 -- (2,511,838)
Increase (decrease) in accrued and other
liabilities ................................ (355,418) 1,031,932 (226,009) -- 450,505
Increase (decrease) in amounts due to
related parties, net ....................... 10,196,712 5,808,510 (59,877) -- 15,945,345
------------ ----------- ----------- ----- ------------
Net cash provided by operating activities .. 3,032,570 4,064,656 1,676,028 -- 8,773,254
------------ ----------- ----------- ----- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets ..................... 59,626 -- 18,100 -- 77,726
Acquisition of property and equipment ............ (1,568,093) (2,090,648) (686,847) -- (4,345,588)
------------ ----------- ----------- ----- ------------
Net cash used in investing activities ...... (1,508,467) (2,090,648) (668,747) -- (4,267,862)
------------ ----------- ----------- ----- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ...................... (1,511,339) (891,606) (572,677) -- (2,975,622)
------------ ----------- ----------- ----- ------------
Net cash used in financing activities ...... (1,511,339) (891,606) (572,677) -- (2,975,622)
------------ ----------- ----------- ----- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS ...................................... 12,764 1,082,402 434,604 -- 1,529,770
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR ................................ 3,113,838 4,104,073 1,530,344 -- 8,748,255
------------ ----------- ----------- ----- ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR ...................................... $ 3,126,602 $ 5,186,475 $ 1,964,948 $ -- $ 10,278,025
============ =========== =========== ===== ============
F-24
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--BALANCE SHEET INFORMATION
AT DECEMBER 31, 2000
101 MAIN
STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- ------------- ------- -----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 1,068,324 $ 684,394 $ 1,087,293 $ $ 2,840,011
Prepaid expenses: ............................ --
Gaming taxes .............................. 237,196 28,185 -- -- 265,381
Other ..................................... 133,269 176,266 56,777 -- 366,312
------------ ------------ ------------ ------- -------------
Total current assets ................... 1,438,789 888,845 1,144,070 -- 3,471,704
------------ ------------ ------------ ------- -------------
OTHER ASSETS:
Net assets held for sale ..................... 40,704,997 65,054,132 37,583,761 -- 143,342,890
Restricted cash .............................. 500,000 -- -- -- 500,000
Long-term accounts receivable--related parties 13,033 -- -- (7,724)(a) 5,309
------------ ------------ ------------ ------- -------------
Total other assets ..................... 41,218,030 65,054,132 37,583,761 (7,724) 143,848,199
------------ ------------ ------------ ------- -------------
TOTAL ........................................... $ 42,656,819 $ 65,942,977 $ 38,727,831 $(7,724) $ 147,319,903
============ ============ ============ ======= =============
LIABILITIES AND STOCKHOLDER'S
DEFICIENCY
CURRENT LIABILITIES:
Payroll and related .......................... $ 118,409 $ 305,652 $ 67,194 $ -- $ 491,255
------------ ------------ ------------ ------- -------------
Total current liabilities .............. 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
============ ============ ============ ======= =============
- ----------
(a) To eliminate intercompany accounts and notes receivable
(b) To eliminate intercompany accounts and notes payable.
F-25
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2000
101 MAIN
STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- ------------- ------- -----
OPERATING REVENUES:
Casino ............................ $ 38,476,427 $ 73,506,899 $ 36,793,529 $ -- $ 148,776,855
Food and beverage ................. 8,541,003 8,658,645 2,386,565 -- 19,586,213
Rooms ............................. 8,452,168 8,147,904 -- -- 16,600,072
Other ............................. 2,246,343 977,444 306,245 -- 3,530,032
------------ ------------ ------------ ------------ -------------
Total ....................... 57,715,941 91,290,892 39,486,339 -- 188,493,172
Less promotional allowances .... 5,576,597 16,229,247 6,949,780 -- 28,755,624
------------ ------------ ------------ ------------ -------------
Net ......................... 52,139,344 75,061,645 32,536,559 -- 159,737,548
------------ ------------ ------------ ------------ -------------
OPERATING COSTS AND EXPENSES:
Casino ............................ 19,945,222 34,163,968 15,004,089 -- 69,113,279
Food and beverage ................. 7,487,388 3,241,141 780,436 -- 11,508,965
Rooms ............................. 6,672,465 4,231,886 -- -- 10,904,351
Other ............................. 756,129 377,204 583,849 -- 1,717,182
Selling, general and administrative 13,586,618 17,757,582 8,026,758 -- 39,370,958
Depreciation and amortization ..... 3,698,468 6,234,911 1,754,585 -- 11,687,964
Reorganization items .............. -- 37,015 1,952 -- 38,967
------------ ------------ ------------ ------------ -------------
Total ....................... 52,146,290 66,043,707 26,151,669 -- 144,341,666
------------ ------------ ------------ ------------ -------------
INCOME (LOSS) FROM OPERATIONS ........ (6,946) 9,017,938 6,384,890 -- 15,395,882
OTHER INCOME (EXPENSE):
Interest income ................... 49,433 88,699 29,314 -- 167,446
Interest expense .................. (52,923) (16,561) (1,898) -- (71,382)
Interest expense--related party ... (7,386,790) (11,848,387) (6,795,846) -- (26,031,023)
Other, net ........................ 48,943 (44,450) -- -- 4,493
------------ ------------ ------------ ------------ -------------
NET LOSS ............................. $ (7,348,283) $ (2,802,761) $ (383,540) $ -- $ (10,534,584)
============ ============ ============ ============ =============
F-26
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2000
101 MAIN
FITZGERALDS STREET
LAS VEGAS, FITZGERALDS LIMITED ELIMINATING COMBINED
INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
----------- ----------------- ------------- ------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $(7,348,283) $(2,802,761) $ (383,540) $ $(10,534,584)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization .................. 3,698,468 6,234,911 1,754,585 -- 11,687,964
Reorganization items incurred in
connection with Chapter 11 and related
legal proceedings ........................... -- 37,015 1,952 -- 38,967
Other .......................................... (7,963) 44,450 -- -- 36,487
(Increase) decrease in accounts receivable, net (295,349) (13,680) 75,670 -- (233,359)
(Increase) decrease in inventories ............. 146,770 (57,423) 9,182 -- 98,529
(Increase) decrease in prepaid expenses ........ (365,739) 6,734 (133,961) -- (492,966)
(Increase) decrease in other assets ............ 17,285 (14,950) (141,363) -- (139,028)
Decrease in accounts payable ................... (746,909) (429,695) (231,515) -- (1,408,119)
Decrease in accrued and other liabilities ...... (232,349) (1,864,197) (28,432) -- (2,124,978)
Increase in amounts due to related parties, net 7,599,558 6,067,908 1,466,808 -- 15,134,274
Increase in liabilities subject to compromise .. 33,677 65,267 7,733 -- 106,677
----------- ----------- ----------- ----------- ------------
Net cash provided by operating activities
before reorganization items ................. 2,499,166 7,273,579 2,397,119 -- 12,169,864
Reorganization items incurred in connection
with Chapter 11 and related legal proceedings -- (37,015) (1,952) -- (38,967)
----------- ----------- ----------- ----------- ------------
Net cash provided by operating activities ... 2,499,166 7,236,564 2,395,167 -- 12,130,897
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets ...................... 7,963 -- 500 -- 8,463
Acquisition of property and equipment ............. (1,250,139) (6,243,359) (1,518,444) -- (9,011,942)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities ....... (1,242,176) (6,243,359) (1,517,944) -- (9,003,479)
----------- ----------- ----------- ----------- ------------
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
=========== =========== =========== =========== ============
F-27
MAJESTIC INVESTOR HOLDINGS, LLC
INDEX TO AUDITED BALANCE SHEET
REPORT OF INDEPENDENT ACCOUNTANTS....................................... MF-2
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2001........................ MF-3
NOTE TO BALANCE SHEET................................................... MF-4
MF-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of Majestic Investor Holdings, LLC
In our opinion, the accompanying consolidated balance sheet presents fairly, in
all material respects, the financial position of Majestic Investor Holdings, LLC
and subsidiaries at September 30, 2001 in conformity with accounting principles
generally accepted in the United States of America. This financial statement is
the responsibility of the Company's management; our responsibility is to express
an opinion on this financial statement based on our audit. We conducted our
audit of this statement 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 balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall balance sheet presentation. We believe that our audit of
the balance sheet provides a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
November 30, 2001
MF-2
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001
Total Assets ............................................ $ --
=====
Liabilities ............................................. $ --
Members' Equity ......................................... --
-----
Total Liabilities and Members' Equity ................... $ --
=====
The accompanying note is an integral part of this financial statement.
MF-3
MAJESTIC INVESTOR HOLDINGS, LLC
NOTE TO BALANCE SHEET
SEPTEMBER 30, 2001
1. ORGANIZATION AND BUSINESS PURPOSE
Majestic Investor Holdings, LLC (the "Company"), is a wholly-owned subsidiary of
Majestic Investor, LLC and an indirect wholly-owned subsidiary of The Majestic
Star Casino, LLC, owner and operator of The Majestic Star Casino, a riverboat
casino located at Buffington Harbor in Gary, Indiana. The Company is indirectly
wholly-owned and controlled by Don H. Barden, the Company's Chairman, President
and Chief Executive Officer. To date, the Company has had no significant
activities.
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 casino assets of three of
its subsidiaries for $149 million in cash, subject to adjustment in certain
circumstances, plus the assumption of certain liabilities. Majestic Investor,
LLC assigned all of its rights and obligations under the purchase and sale
agreement to the Company following the formation of the Company.
The Company is a Delaware limited liability company formed in September 2001
solely for the purpose of acquiring substantially all of the assets of
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street
Limited Liability Company (hereinafter referred to as the Fitzgeralds assets).
The Company is a holding company and its only material assets will be its
membership interests of Barden Mississippi Gaming, LLC, Barden Colorado Gaming,
LLC and Barden Nevada Gaming, LLC, the three newly formed subsidiaries that will
hold the Fitzgeralds assets.
The proceeds from a proposed offering of senior secured notes, together with the
contribution of an aggregate of $14 million of equity, will be used to acquire
the Fitzgeralds assets and pay related fees and expenses. The Company expects to
close the acquisition of the Fitzgeralds assets concurrently with the closing of
the proposed offering.
MF-4
MAJESTIC INVESTOR
HOLDINGS, LLC
MAJESTIC INVESTOR
CAPITAL CORP.
OFFER TO EXCHANGE
11.653% SENIOR SECURED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
11.653% SENIOR SECURED NOTES 2007
______________________________
PROSPECTUS
______________________________
___________________, 2002
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
MAJESTIC INVESTOR HOLDINGS, LLC
Majestic Investor Holdings, LLC is a limited liability company
organized under the laws of the State of Delaware. We are empowered by Section
18-108 of the Delaware Limited Liability Company Act (the "Act"), subject to the
procedures and limitations set forth in our limited liability company agreement,
to indemnify and hold harmless any member or manager or other person from and
against any an all claims and demands whatsoever.
Section 10 of our limited liability company agreement provides that we
shall indemnify any manager, and may indemnify any of our employees or agents
and any employees or agents of any manager, who was or is a party, or is
threatened to be made a party to a threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal (other than an action by us or in our right), by
reason that he is or was a manager, employee or agent of us or any manager,
against expenses (including attorneys' fees), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding, but only if he acted in good faith, without
gross negligence, and in a manner that such person reasonably believed to be in
our best interests, and, with respect to a criminal action or proceeding, if he
had no reasonable cause to believe his conduct was unlawful. To the extent that
a manager, employee or agent of us (or of the manager) is successful in
defending an action, suit or proceeding discussed above, or in defending any
claim, issue or other matter in the action, suit or proceeding, he shall be
indemnified against actual and reasonable expenses (including attorneys' fees)
incurred in connection with the action, suit or proceeding and any action, suit
or proceeding brought to enforce the mandatory indemnification described above.
We will make such mandatory indemnification only upon a determination that the
person to be indemnified has met the applicable standard of conduct and upon an
evaluation of the reasonableness of expenses and amount paid in settlement,
which shall be made in good faith by our member. Notwithstanding the foregoing,
we will not provide indemnification to any person for, or in connection with,
(a) the receipt of a financial benefit to which such person is not entitled, (b)
voting for or asserting to a distribution to members in violation of our limited
liability company agreement or the Act, (c) certain proscribed actions set forth
in our limited liability company agreement, or (d) a knowing violation of law.
MAJESTIC INVESTOR CAPITAL CORP.
Majestic Investor Capital Corp. is a corporation organized under the
laws of the State of Delaware. We are empowered by Section 145 of the Delaware
General Corporation Law (the "DGCL"), subject to the procedures and limitations
stated therein, to indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding by reason of the fact that such person is or was a director, officer,
employee or agent of the company, or is or was serving at the request of the
company as a director, officer, employee or agent of another corporation or
other enterprise, against reasonable expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually incurred by him in
connection with such action, suit or proceeding, if such director, officer,
employee or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. We are required by Section 145 to indemnify any person
against reasonable expenses (including attorneys' fees) actually incurred by him
in connection with an action, suit or proceeding in which he is a party because
he is or was a director, officer, employee or agent of the company or is or was
serving at the request of the company as a director, officer, employee or agent
of another corporation or other enterprise, if he has been successful, on the
merits or otherwise, in the defense of the action, suit or proceeding. Section
145 also allows a corporation to purchase and maintain insurance on behalf of
any such person against any liability asserted against him in any such capacity,
or arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of
II-1
Section 145. In addition, Section 145 provides that indemnification pursuant to
its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
Article Eight of our charter provides that we shall indemnify and hold
harmless all of our officers and directors and advance expenses reasonably
incurred by such officers and directors in defending any civil, criminal,
administrative or investigative action, suit or proceeding, in accordance with
and to the fullest extent permitted by Section 145 of the DGCL. We maintain
directors and officers insurance covering them for certain liabilities,
including liabilities under the securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
1.1 Purchase Agreement, dated as of November 30, 2001, by and among
Majestic Investor, LLC, Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Nevada Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Jefferies
& Company, Inc.
3.1 Certificate of Formation of Majestic Investor Holdings, LLC
3.2 Limited Liability Company Agreement of Majestic Investor
Holdings, LLC dated September 25, 2001
3.3 Certificate of Incorporation of Majestic Investor Capital
Corp.
3.4 By-laws of Majestic Investor Capital Corp.
3.5 Amended and Restated Articles of Organization of Barden
Colorado Gaming, LLC
3.6 Operating Agreement of Barden Colorado Gaming, LLC
3.7 Certificate of Formation of Barden Mississippi Gaming, LLC
3.8 Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed October 17, 2001
3.9 Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed September 25, 2001
3.10 Amended and Restated Operating Agreement of Barden
Mississippi Gaming, LLC
3.11 Articles of Organization of Barden Nevada Gaming, LLC
3.12 Certificate of Amendment of the Articles of Organization of
Barden Nevada Gaming, LLC
3.13 Operating Agreement of Barden Nevada Gaming, LLC
4.1 Indenture, dated as of December 6, 2001, between Majestic
Investor Holdings, LLC and Majestic Investor Capital Corp., as
issuers, Barden Colorado Gaming, LLC, Barden Mississippi Gaming,
LLC and Barden Nevada Gaming, LLC, as subsidiary guarantors, and
The Bank of New York, as Trustee.
4.2 Registration Rights Agreement dated as of December 6, 2001, among
Majestic Investor Holdings, LLC, Majestic Investor Capital Corp.,
Barden Colorado Gaming, LLC, Barden Mississippi, LLC and Barden
Nevada Gaming, LLC, as guarantors, and Jefferies & Company, Inc.
4.3 Guarantee, dated as of December 6, 2001 of Barden Mississippi
Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming,
LLC.
4.4 Pledge and Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC, and The
Bank of New York
4.5 Pledge Agreement dated as of December 6, 2001, by and
between Majestic Investor, LLC and The Bank of New York
4.6 Trademark Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC and The
Bank of New York
4.7 First Preferred Vessel Mortgage, dated as of December 6, 2001, by
and between Barden Mississippi, LLC and The Bank of New York
4.8 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Mississippi Gaming, LLC as Trustor, Jim B. Tohill as
Trustee and The Bank of
II-2
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
New York as Beneficiary, dated as of December 6, 2001
4.9 Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by and among Barden Nevada Gaming, LLC
as Trustor, Fidelity National Title Agency of Nevada, Inc.
as Trustee, and The Bank of New York as Beneficiary, dated
as of December 6, 2001
4.10 Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by and among Barden Colorado Gaming, LLC as
Trustor, The Public Trustee of the County of Gilpin, State of
Colorado as Trustee, and The Bank of New York as Beneficiary, dated
as of December 6, 2001
4.11 Intercreditor Agreement, dated as of December 6, 2001,
between The Bank of New York and Foothill Capital Corporation
4.12 Loan and Security Agreement dated as of December 6, 2001, by and
among Majestic Investor Holdings, LLC, Barden Colorado Gaming, LLC,
Barden Mississippi Gaming, LLC, Barden Nevada Gaming, LLC and
Foothill Capital Corporation
4.13 General Continuing Guaranty dated as of December 6, 2001, by
Majestic Investor Holdings, LLC, Majestic Investor Capital
Corp., Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC, in favor of
Foothill Capital Corporation
4.14 Guarantor Security Agreement dated as of December 6, 2001 by
Majestic Investor Holdings, LLC and Majestic Investor
Capital Corp. in favor of Foothill Capital Corporation
4.15 First Preferred Vessel Mortgage, dated as of December 6, 2001, by
Barden Mississippi Gaming, LLC in favor of Foothill Capital
Corporation
4.16 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Mississippi Gaming, LLC as Trustor, Jim B. Tohill as
Trustee and Foothill Capital Corporation as Beneficiary,
dated as of December 6, 2001
4.17 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Nevada Gaming, LLC as Trustor, Fidelity National
Title Agency of Nevada, Inc. as Trustee, and Foothill
Capital Corporation as Beneficiary, dated as of December 6,
2001
4.18 Deed of Trust, Security Agreement and Fixture Filing with Financing
Statement and Assignment of Rents by and among Barden Colorado
Gaming, LLC as Trustor, The Public Trustee of the County of Gilpin,
State of Colorado as Trustee, and Foothill Capital Corporation as
Beneficiary, dated as of December 6, 2001
4.19 Stock Pledge Agreement dated as of December 6, 2001 between
Majestic Investor Holdings, LLC and Foothill Capital
Corporation
4.20 Guarantor Trademark Security Agreement dated as of December
6, 2001 between Majestic Investor Holdings, LLC and Foothill
Capital Corporation
4.21 Subordination of First Referred Vessel Mortgage Upon
Fitzgeralds Tunica (Official No. 262757)
4.22 Subordination Agreement dated as of December 6, 2001 by Barden
Mississippi Gaming, LLC and The Bank of New York, in favor of
Foothill Capital Corporation
4.23 Subordination Agreement dated as of December 6, 2001 by Barden
Colorado Gaming, LLC and The Bank of New York, in favor of Foothill
Capital Corporation
4.24 Subordination Agreement dated as of December 6, 2001 by Barden
Nevada Gaming, LLC and The Bank of New York, in favor of Foothill
Capital Corporation
5.1 Opinion of Latham & Watkins
5.2 Opinion of Schreck Brignone Godfrey
5.3 Opinion of Watkins Ludlam Winter & Stennis, P.A.
5.4 Opinion of Robinson Waters & O'Dorisio
10.1 Employment Agreement dated October 22, 2001 between Don H.
Barden and The Majestic Star Casino, LLC
10.2 Employment Agreement dated October 22, 2001 between Michael
E. Kelly and The Majestic Star Casino, LLC
10.3 Amended and Restated Management Agreement dated as of
December 6, 2001, between Majestic Investor Holdings, LLC
and Barden Development, Inc.
10.4 Expense Reimbursement Agreement dated as of October 22, 2001
between Majestic Investor Holdings, LLC and The Majestic
Star Casino, LLC
10.5 Member Agreement dated as of December 6, 2001 by and among Majestic
Investor, LLC, Majestic Investor Holdings, LLC, The Majestic Star
Casino, LLC and Barden Development, Inc.
II-3
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
10.6 Assignment of Membership Interest by and between Don H.
Barden and Majestic Investor, LLC dated as of August 18,
2001
10.7 Contribution and Assignment Agreement by and between
Majestic Investor, LLC and Majestic Investor Holdings, LLC
dated as of September 27, 2001
10.8 Lease Agreement dated September 5, 1995 by and between John
A. Kramer, Sr., Trustee, Helen M. Kramer, Elizabeth Thatcher
Brooks and Betty Bennett, Executrix of the estate of John
David Kramer, as Lessor, and Fitzgeralds Las Vegas, Inc., as
Lessee.
10.8.1 Assignment of Ground Lease, dated December 6, 2001, by and
between Fitzgeralds Las Vegas, Inc., as Assignor, and Barden
Nevada Gaming, LLC, as Assignee.
10.9 Lease Agreement, dated September 1, 1978, between Jewel F.
Nolen and Julie L. Nolen, David Kramer and Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.
10.9.1 Amendment to Kramer Ground Lease, dated December 20, 1982,
between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.
10.9.2 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.
10.9.3 Second Amendment to the Kramer Ground Lease, dated as of November
1998, by and between Fitzgeralds Las Vegas, Inc, as Lessee, and
John A. Kramer, as Trustee, and Julie LaMoyne Nolen, Betty Bennett
and Richard James Tinkler, as Lessors.
10.9.4 Assignment of Ground Lease, dated December 6, 2001, by
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee.
10.10 Lease Agreement, dated July 21, 1954, between Las Vegas
Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John
Gluskin, as Lessee.
10.10.1 Amendment to Lease Agreement, dated July 26, 1954, between
Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor,
and H. John Gluskin, as Lessee.
10.10.2 Assignment, dated July 27, 1954.
10.10.3 Supplemental Agreement of October 14, 1954, between Las
Vegas Lodge No. 32, Free & Accepted Masons and H. John
Gluskin.
10.10.4 Assignment, dated February 2, 1955.
10.10.5 Assignment, dated August 7, 1972.
10.10.6 Articles of Amendment, dated June 7, 1973, between Las Vegas
Lodge No. 32, Free & Accepted Masons, as Lessor, and
Frederic N. Richman and The Pullman Company, d/b/a Nevada
Building Company.
10.10.7 Assignment dated September 1, 1973.
10.10.8 Amendment to Masonic Lodge Ground Lease, dated December 20,
1982.
10.10.9 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 23, 1987, to the named recipients
and between Las Vegas Lodge No. 32, Free & Accepted Masons,
as Lessor, and H. John Gluskin, as Lessee.
10.10.10 Second Amendment to Masonic Ground Lease, dated November 23,
1998, by and between Fitzgeralds Las Vegas, Inc, as Lessee,
and Las Vegas Lodge No. 32, Free and Accepted Masons of Las
Vegas, as Lessor.
10.10.11 Lease Amendment and Estoppel Certificates, dated December 6,
2001 by and among Las Vegas Lodge No. 32, Free and Accepted
Masons, as Lessor, Fitzgeralds Las Vegas, Inc., as Lessee,
and Barden Nevada Gaming, LLC, as Successor Lessee.
10.10.12 Assignment of Ground Lease, dated December 6, 2001, by
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee.
10.11 Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee,
under the wills of A.W. Ham and Alta M. Ham, as Lessor, and
Nevada Building Company, as Lessee.
10.11.1 Amendments to Ham Ground Lease, dated December 20, 1982 and
December 30, 1982, between A.W. Ham, Jr., Trustee, as
Lessor, and M.B. Dalitz, as Lessee.
10.11.2 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between A.W. Ham, Jr., Trustee, and M.B. Dalitz.
10.11.3 Second Amendment to Ham Ground Lease, dated November 22,
1998, by and between Fitzgeralds Las Vegas, Inc., as Lessee
and Gary R. Dokter, Jacquelin Trahan-Weber, Georgia Makeever
and Carolyn
II-4
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
Pressman, as Lessors.
10.11.4 Assignment of Ground Lease, dated December 6, 2001, by and
between Fitzgeralds Las Vegas, Inc., as Assignor, and Barden
Nevada Gaming, LLC, as Assignee.
10.12 Agreement Regarding Ground Leases by and between Barden
Nevada Gaming, LLC and The Bank of New York dated as of
December 6, 2001
10.13 Agreement Regarding Ground Leases by and between Barden
Nevada Gaming, LLC and Foothill Capital Corporation, dated
as of December 6, 2001
12.1 Computation of Ratio of Earnings to Fixed Charges for
Majestic Investor Holdings, LLC.
21.1 List of Subsidiaries of Majestic Investor Holdings, LLC.
23.1 Consent of Latham & Watkins (included as part of its opinion
filed as Exhibit 5.1)
23.2 Consent of Schreck Brignone Godfrey (included as part of its
opinion filed as Exhibit 5.2)
23.3 Consent of Watkins Ludlam Winter & Stennis, P.A. (included
as part of its opinion filed as Exhibit 5.3)
23.4 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
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 11.653% Senior Secured
Notes due 2007
99.2 Form of Notice of Guaranteed Delivery of 11.653% Senior
Secured Notes due 2007
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to Beneficial Owners
99.5 Guidelines for Certification of Taxpayer Identification
Number on Form W-9
99.6 Form of Exchange Agent Agreement
(b) Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof; and
II-5
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, 13, or 19(c) of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(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 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 January 29, 2002.
Majestic Investor Holdings, LLC
By: /s/ Don H. Barden
---------------------------------------
Don H. Barden
President and Chief Executive Officer
Majestic Investor Capital Corp.
By: /s/ Don H. Barden
---------------------------------------
Don H. Barden
President and Chief Executive Officer
Barden Colorado Gaming, LLC
By: /s/ Don H. Barden
---------------------------------------
Don H. Barden
President and Chief Executive Officer
Barden Mississippi Gaming, LLC
By: /s/ Don H. Barden
---------------------------------------
Don H. Barden
President and Chief Executive Officer
Barden Nevada Gaming, LLC
By: /s/ Don H. Barden
---------------------------------------
Don H. Barden
President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint Don H. Barden and Michael E.
Kelly 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, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES INDICATED ON THE 29th DAY OF JANUARY, 2002.
Signature Title
--------- -----
/s/ Don H. Barden President and Chief Executive Officer of
------------------------ Majestic Investor Holdings, LLC, Barden
Don H. Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC
(Principal Executive Officer) and
President and Chief Executive Officer and
Director of Majestic Investor Capital
Corp. (Principal Executive Officer)
/s/ Michael E. Kelly Executive Vice President, Chief Operating
------------------------ and Financial Officer and Secretary of
Michael E. Kelly Majestic Investor Holdings, LLC, Barden
Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC
(Principal Financial and Accounting
Officer) and Executive Vice President,
Chief Operating and Financial Officer,
Secretary and Director of Majestic
Investor Capital Corp. (Principal
Financial and Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
1.1 Purchase Agreement, dated as of November 30, 2001, by and among
Majestic Investor, LLC, Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Nevada Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Jefferies
& Company, Inc.
3.1 Certificate of Formation of Majestic Investor Holdings, LLC
3.2 Limited Liability Company Agreement of Majestic Investor
Holdings, LLC dated September 25, 2001
3.3 Certificate of Incorporation of Majestic Investor Capital
Corp.
3.4 By-laws of Majestic Investor Capital Corp.
3.5 Amended and Restated Articles of Organization of Barden
Colorado Gaming, LLC
3.6 Operating Agreement of Barden Colorado Gaming, LLC
3.7 Certificate of Formation of Barden Mississippi Gaming, LLC
3.8 Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed October 17, 2001
3.9 Certificate of Amendment to Certificate of Formation of
Barden Mississippi Gaming, LLC, filed September 25, 2001
3.10 Amended and Restated Operating Agreement of Barden
Mississippi Gaming, LLC
3.11 Articles of Organization of Barden Nevada Gaming, LLC
3.12 Certificate of Amendment of the Articles of Organization of
Barden Nevada Gaming, LLC
3.13 Operating Agreement of Barden Nevada Gaming, LLC
4.1 Indenture, dated as of December 6, 2001, between Majestic
Investor Holdings, LLC and Majestic Investor Capital Corp., as
issuers, Barden Colorado Gaming, LLC, Barden Mississippi Gaming,
LLC and Barden Nevada Gaming, LLC, as subsidiary guarantors, and
The Bank of New York, as Trustee.
4.2 Registration Rights Agreement dated as of December 6, 2001, among
Majestic Investor Holdings, LLC, Majestic Investor Capital Corp.,
Barden Colorado Gaming, LLC, Barden Mississippi, LLC and Barden
Nevada Gaming, LLC, as guarantors, and Jefferies & Company, Inc.
4.3 Guarantee, dated as of December 6, 2001 of Barden Mississippi
Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming,
LLC.
4.4 Pledge and Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC, and The
Bank of New York
4.5 Pledge Agreement dated as of December 6, 2001, by and
between Majestic Investor, LLC and The Bank of New York
4.6 Trademark Security Agreement dated as of December 6, 2001,
by and among Majestic Investor Holdings, LLC, Majestic
Investor Capital Corp., Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC and The
Bank of New York
4.7 First Preferred Vessel Mortgage, dated as of December 6, 2001, by
and between Barden Mississippi, LLC and The Bank of New York
4.8 Deed of Trust, Security Agreement and Fixture Filing with Financing
Statement and Assignment of Rents by and among Barden Mississippi
Gaming, LLC as Trustor, Jim B. Tohill as Trustee and The Bank of
New York as Beneficiary, dated as of December 6, 2001
4.9 Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by and among Barden Nevada Gaming, LLC
as Trustor, Fidelity National Title Agency of Nevada, Inc.
as Trustee, and The Bank of New York as Beneficiary, dated
as of December 6, 2001
4.10 Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents by and among Barden Colorado Gaming, LLC as
Trustor, The Public Trustee of the County of Gilpin, State of
Colorado as Trustee, and The Bank of New York as Beneficiary, dated
as of December 6, 2001
4.11 Intercreditor Agreement, dated as of December 6, 2001,
between The Bank of New York and Foothill Capital Corporation
4.12 Loan and Security Agreement dated as of December 6, 2001, by and
among Majestic Investor Holdings, LLC, Barden Colorado Gaming, LLC,
Barden Mississippi Gaming, LLC, Barden Nevada Gaming, LLC and
Foothill Capital Corporation
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
4.13 General Continuing Guaranty dated as of December 6, 2001, by
Majestic Investor Holdings, LLC, Majestic Investor Capital
Corp., Barden Colorado Gaming, LLC, Barden Mississippi
Gaming, LLC and Barden Nevada Gaming, LLC, in favor of
Foothill Capital Corporation
4.14 Guarantor Security Agreement dated as of December 6, 2001 by
Majestic Investor Holdings, LLC and Majestic Investor
Capital Corp. in favor of Foothill Capital Corporation
4.15 First Preferred Vessel Mortgage, dated as of December 6, 2001, by
Barden Mississippi Gaming, LLC in favor of Foothill Capital
Corporation
4.16 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Mississippi Gaming, LLC as Trustor, Jim B. Tohill as
Trustee and Foothill Capital Corporation as Beneficiary,
dated as of December 6, 2001
4.17 Deed of Trust, Security Agreement and Fixture Filing with
Financing Statement and Assignment of Rents by and among
Barden Nevada Gaming, LLC as Trustor, Fidelity National
Title Agency of Nevada, Inc. as Trustee, and Foothill
Capital Corporation as Beneficiary, dated as of December 6,
2001
4.18 Deed of Trust, Security Agreement and Fixture Filing with Financing
Statement and Assignment of Rents by and among Barden Colorado
Gaming, LLC as Trustor, The Public Trustee of the County of Gilpin,
State of Colorado as Trustee, and Foothill Capital Corporation as
Beneficiary, dated as of December 6, 2001
4.19 Stock Pledge Agreement dated as of December 6, 2001 between
Majestic Investor Holdings, LLC and Foothill Capital
Corporation
4.20 Guarantor Trademark Security Agreement dated as of December
6, 2001 between Majestic Investor Holdings, LLC and Foothill
Capital Corporation
4.21 Subordination of First Referred Vessel Mortgage Upon
Fitzgeralds Tunica (Official No. 262757)
4.22 Subordination Agreement dated as of December 6, 2001 by Barden
Mississippi Gaming, LLC and The Bank of New York, in favor of
Foothill Capital Corporation
4.23 Subordination Agreement dated as of December 6, 2001 by Barden
Colorado Gaming, LLC and The Bank of New York, in favor of Foothill
Capital Corporation
4.24 Subordination Agreement dated as of December 6, 2001 by Barden
Nevada Gaming, LLC and The Bank of New York, in favor of Foothill
Capital Corporation
5.1 Opinion of Latham & Watkins
5.2 Opinion of Schreck Brignone Godfrey
5.3 Opinion of Watkins Ludlam Winter & Stennis, P.A.
5.4 Opinion of Robinson Waters & O'Dorisio
10.1 Employment Agreement dated October 22, 2001 between Don H.
Barden and The Majestic Star Casino, LLC
10.2 Employment Agreement dated October 22, 2001 between Michael
E. Kelly and The Majestic Star Casino, LLC
10.3 Amended and Restated Management Agreement dated as of
December 6, 2001, between Majestic Investor Holdings, LLC
and Barden Development, Inc.
10.4 Expense Reimbursement Agreement dated as of October 22, 2001
between Majestic Investor Holdings, LLC and The Majestic
Star Casino, LLC
10.5 Member Agreement dated as of December 6, 2001 by and among Majestic
Investor, LLC, Majestic Investor Holdings, LLC, The Majestic Star
Casino, LLC and Barden Development, Inc.
10.6 Assignment of Membership Interest by and between Don H.
Barden and Majestic Investor, LLC dated as of August 18,
2001
10.7 Contribution and Assignment Agreement by and between
Majestic Investor, LLC and Majestic Investor Holdings, LLC
dated as of September 27, 2001
10.8 Lease Agreement dated September 5, 1995 by and between John
A. Kramer, Sr., Trustee, Helen M. Kramer, Elizabeth Thatcher
Brooks and Betty Bennett, Executrix of the estate of John
David Kramer, as Lessor, and Fitzgeralds Las Vegas, Inc., as
Lessee.
10.8.1 Assignment of Ground Lease, dated December 6, 2001, by and
between Fitzgeralds Las Vegas, Inc., as Assignor, and Barden
Nevada Gaming, LLC, as Assignee.
10.9 Lease Agreement, dated September 1, 1978, between Jewel F.
Nolen and Julie L. Nolen, David Kramer and Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
10.9.1 Amendment to Kramer Ground Lease, dated December 20, 1982,
between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.
10.9.2 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between Julie L. Nolen, David Kramer, Betty Bennett and
Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.
10.9.3 Second Amendment to the Kramer Ground Lease, dated as of November
1998, by and between Fitzgeralds Las Vegas, Inc, as Lessee, and
John A. Kramer, as Trustee, and Julie LaMoyne Nolen, Betty Bennett
and Richard James Tinkler, as Lessors.
10.9.4 Assignment of Ground Lease, dated December 6, 2001, by
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee.
10.10 Lease Agreement, dated July 21, 1954, between Las Vegas
Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John
Gluskin, as Lessee.
10.10.1 Amendment to Lease Agreement, dated July 26, 1954, between
Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor,
and H. John Gluskin, as Lessee.
10.10.2 Assignment, dated July 27, 1954.
10.10.3 Supplemental Agreement of October 14, 1954, between Las
Vegas Lodge No. 32, Free & Accepted Masons and H. John
Gluskin.
10.10.4 Assignment, dated February 2, 1955.
10.10.5 Assignment, dated August 7, 1972.
10.10.6 Articles of Amendment, dated June 7, 1973, between Las Vegas
Lodge No. 32, Free & Accepted Masons, as Lessor, and
Frederic N. Richman and The Pullman Company, d/b/a Nevada
Building Company.
10.10.7 Assignment dated September 1, 1973.
10.10.8 Amendment to Masonic Lodge Ground Lease, dated December 20,
1982.
10.10.9 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 23, 1987, to the named recipients
and between Las Vegas Lodge No. 32, Free & Accepted Masons,
as Lessor, and H. John Gluskin, as Lessee.
10.10.10 Second Amendment to Masonic Ground Lease, dated November 23,
1998, by and between Fitzgeralds Las Vegas, Inc, as Lessee,
and Las Vegas Lodge No. 32, Free and Accepted Masons of Las
Vegas, as Lessor.
10.10.11 Lease Amendment and Estoppel Certificates, dated December 6,
2001 by and among Las Vegas Lodge No. 32, Free and Accepted
Masons, as Lessor, Fitzgeralds Las Vegas, Inc., as Lessee,
and Barden Nevada Gaming, LLC, as Successor Lessee.
10.10.12 Assignment of Ground Lease, dated December 6, 2001, by
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee.
10.11 Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee,
under the wills of A.W. Ham and Alta M. Ham, as Lessor, and
Nevada Building Company, as Lessee.
10.11.1 Amendments to Ham Ground Lease, dated December 20, 1982 and
December 30, 1982, between A.W. Ham, Jr., Trustee, as
Lessor, and M.B. Dalitz, as Lessee.
10.11.2 Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients
and between A.W. Ham, Jr., Trustee, and M.B. Dalitz.
10.11.3 Second Amendment to Ham Ground Lease, dated November 22,
1998, by and between Fitzgeralds Las Vegas, Inc., as Lessee
and Gary R. Dokter, Jacquelin Trahan-Weber, Georgia Makeever
and Carolyn Pressman, as Lessors.
10.11.4 Assignment of Ground Lease, dated December 6, 2001, by and
between Fitzgeralds Las Vegas, Inc., as Assignor, and Barden
Nevada Gaming, LLC, as Assignee.
10.12 Agreement Regarding Ground Leases by and between Barden
Nevada Gaming, LLC and The Bank of New York dated as of
December 6, 2001
10.13 Agreement Regarding Ground Leases by and between Barden
Nevada Gaming, LLC and Foothill Capital Corporation, dated
as of December 6, 2001
12.1 Computation of Ratio of Earnings to Fixed Charges for
Majestic Investor Holdings, LLC.
21.1 List of Subsidiaries of Majestic Investor Holdings, LLC.
23.1 Consent of Latham & Watkins (included as part of its opinion
filed as Exhibit 5.1)
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
23.2 Consent of Schreck Brignone Godfrey (included as part of its
opinion filed as Exhibit 5.2)
23.3 Consent of Watkins Ludlam Winter & Stennis, P.A. (included
as part of its opinion filed as Exhibit 5.3)
23.4 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
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 11.653% Senior Secured
Notes due 2007
99.2 Form of Notice of Guaranteed Delivery of 11.653% Senior
Secured Notes due 2007
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to Beneficial Owners
99.5 Guidelines for Certification of Taxpayer Identification
Number on Form W-9
99.6 Form of Exchange Agent Agreement