UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period from inception (September 14, 2001)
through December 31, 2001
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 333-81584
Delaware MAJESTIC INVESTOR HOLDINGS, LLC 36-4468392
Delaware MAJESTIC INVESTOR CAPITAL CORP. 36-4471622
(State or other (Exact name of registrant as specified (I.R.S. Employer
jurisdiction of in its charter) Identification No.)
incorporation or
organization)
One Buffington Harbor Drive
Gary, Indiana
46406-3000
(219) 977-7823
(Registrant's address and telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes ______ No X
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant: Not Applicable. The Company has no publicly traded equity
securities.
The number of shares of Common Stock issued and outstanding: Not Applicable.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
OMITTED ITEMS - The Registrant completed the acquisition of the assets of three
subsidiaries of Fitzgeralds Gaming Corporation on December 6, 2001. Financial
statements for the acquired businesses are not yet available in order to comply
with Rule 3-02 of Regulation S-X. Accordingly, reference to such financial data
in Item 6 and Item 7 is omitted from this Report, and such financial statements
are omitted from Item 8. Such information will be filed by amendment of this
Report.
MAJESTIC INVESTOR HOLDINGS, LLC
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business ....................................................................... 1
Item 2. Properties ..................................................................... 23
Item 3. Legal Proceedings .............................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders ............................ 24
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .......... 24
Item 6. Selected Consolidated Financial Data ........................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..................... 40
Item 8. Consolidated Financial Statements and Supplementary Data ....................... 40
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................... 40
PART III
Item 10 Directors and Executive Officers of Registrant ................................. 40
Item 11. Executive Compensation ......................................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ................................................ 42
Item 13. Certain Relationships and Related Transactions ................................. 44
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............... 44
i
PART I
ITEM 1. BUSINESS
GENERAL
Majestic Investor Holdings, LLC (the "Company" or the "Registrant," which
may also be referred to as "Investor Holdings," "we," "us" or "our") was formed
on September 14, 2001, as a Delaware limited liability company. The Company is a
multi-jurisdictional gaming company that owns and operates three
Fitzgeralds-brand casino-hotels located in Tunica County, Mississippi
("Fitzgeralds Tunica"), Black Hawk, Colorado ("Fitzgeralds Black Hawk") and
downtown Las Vegas, Nevada ("Fitzgeralds Las Vegas"). As of April 1, 2002, the
Fitzgeralds properties collectively contain approximately 2,903 slot machines,
63 table games and 1,145 hotel rooms.
The Company has four wholly-owned subsidiaries. Barden Mississippi Gaming,
LLC, organized on March 29, 2001 as a Mississippi limited liability company
("Barden Mississippi"), was formed to hold the Fitzgeralds Tunica assets. Barden
Colorado Gaming, LLC, organized on March 26, 2001 as a Colorado limited
liability company ("Barden Colorado"), was formed to hold the Fitzgeralds Black
Hawk assets. Barden Nevada Gaming, LLC, organized on November 22, 1999 as a
Nevada limited liability company ("Barden Nevada"), was formed to hold the
Fitzgeralds Las Vegas assets. Majestic Investor Capital Corp., incorporated on
August 24, 2001 as a Delaware corporation ("Majestic Investor Capital"), was
formed solely for the purpose of serving as a co-issuer to facilitate the
offering of the Company's 11.653% Senior Secured Notes (the "Investor Holdings
Senior Secured Notes") and has no assets or operations. Barden Mississippi,
Barden Colorado and Barden Nevada have unconditionally and irrevocably, jointly
and severally, guaranteed the Investor Holdings Senior Secured Notes.
We are wholly-owned by Majestic Investor, LLC, which was formed on
September 12, 2000 as a Delaware limited liability company ("Investor").
Investor is owned by The Majestic Star Casino, LLC, which was formed on December
8, 1993, as an Indiana limited liability company ("Majestic Star"). Majestic
Star is the owner and operator of a riverboat casino located at Buffington
Harbor in Gary, Indiana. Majestic Star is wholly-owned by Barden Development,
Inc., an Indiana corporation and Manager of Majestic Star ("BDI"). BDI is
wholly-owned by Don H. Barden, our Manager, Chairman, President and Chief
Executive Officer.
On November 22, 2000, Investor entered into a definitive agreement (the
"Purchase Agreement") to purchase substantially all of the assets of Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas owned by Fitzgeralds
Gaming Corporation ("Fitzgeralds") for approximately $149.0 million in cash,
subject to adjustments, plus the assumption of certain liabilities. On October
16, 2001, Investor assigned all of its rights and obligations under the Purchase
Agreement to the Company as well as all of its assets and liabilities. On
December 6, 2001, the transaction contemplated by the Purchase Agreement was
consummated.
On December 6, 2001, we (i) issued the Investor Holdings Senior Secured
Notes to fund the acquisition of the Fitzgeralds properties and (ii) entered
into a $15.0 million credit facility with Foothill Capital Corporation (the
"Investor Holdings Credit Facility"). The Investor Holdings Senior Secured Notes
and the lender under the Investor Holdings Credit Facility are collateralized by
substantially all of the Fitzgeralds assets other than certain excluded assets.
Because each of Investor, the Company, Barden Colorado, Barden Nevada and Barden
Mississippi are "unrestricted subsidiaries" under the indenture (the "Majestic
Star Indenture") governing Majestic Star's 10 7/8% Senior Secured Notes (the
"Majestic Star Senior Secured Notes") and Majestic Star's $20.0 million credit
facility (the "Majestic Star Credit
1
Facility"), their assets are excluded from the collateral securing the Majestic
Star Senior Secured Notes and the Majestic Star Credit Facility. As such, none
of the Fitzgeralds assets serve as collateral for the Majestic Star Senior
Secured Notes or the Majestic Star Credit Facility. Similarly, none of the
Majestic Star Casino assets serve as collateral for the Investor Holdings Senior
Secured Notes or the Investor Holdings Credit Facility. Accordingly, Majestic
Star's noteholders and the lender under the Majestic Star Credit Facility are
collateralized primarily by the assets of the riverboat casino and gaming
facility in Gary, Indiana and Majestic Star's noteholders and lender have no
recourse to the Fitzgeralds assets. Similarly, the Investor Holdings'
noteholders and the lender under the Investor Holdings Credit Facility are
secured primarily by the Fitzgeralds assets and Investor Holdings' noteholders
and lender have no recourse to the Majestic Star assets. In addition, Majestic
Star and certain of its subsidiaries are prohibited from providing cash or
credit support to Investor Holdings or its subsidiaries or to Investor. Investor
Holdings and its subsidiaries and Investor also are prohibited from engaging in
transactions with Majestic Star and certain of its subsidiaries other than on an
arm's length basis and in accordance with certain other prescribed conditions.
The executive offices of the Company are located at One Buffington Harbor
Drive, Gary, Indiana 46406-3000, and the Company's telephone number is (219)
977-7823.
OPERATING STRATEGY
The principle elements of our operating strategy include:
Focus on Quality and Service at an Affordable Price. The Company's casinos
provide a high-quality casino entertainment experience at an affordable price to
attract middle income guests. We believe these middle income guests constitute
the largest segment of potential gaming customers whom we can then identify,
qualify and target for direct marketing activities. The Company's approach to
business focuses on guest service and includes trained hosts to personally
assist guests; friendly employees; quality food, beverages and lodging at a
moderate price (except for Fitzgeralds Black Hawk, which does not include a
hotel); a mix of gaming machines tailored to its customers; and personal
attention through direct mail promotions and targeted incentives.
Management recognizes that consistent quality and a comfortable atmosphere
stem from the collective care and friendliness of each team member. Toward this
end, management takes a hands-on approach through active and direct involvement
with team members at all levels.
The Company believes 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 Company's gaming brand and
its reputation for quality and service at an affordable price.
Promote Gaming Brand. The Company believes it is important to promote its
gaming brand to attract and retain customers. The Fitzgeralds brand developed
into what the Company believes to be 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 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. The Company believes that this theme creates an exciting and comfortable
environment together with a distinctive brand identity for customers.
Capitalize on Player Tracking and Extensive Guest Database. Direct
marketing to our guests is a key component of the Company's operating strategy.
Each of the Company's properties contains a player
2
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 player tracking 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. The Company's 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. The Company's tracking system also allows
us to better tailor its pricing, promotions, gaming machine selection and other
guest services to customer preferences. In the future, the Company intends to
fully integrate its tracking system data in order for each related property to
share our data with other related properties and thereby encourage customers of
each individual property to patronize our other properties. The Company and
Majestic Star currently have over 670,000 active players in its Majestic and
Fitzgeralds database.
The Company also has an established strategy for recruiting and retaining
higher activity casino customers through the reward of certain promotional
allowances, such as direct mail cash back offers for slot customers, and
complimentary food, beverage and entertainment when gaming play warrants.
Promotional allowances are a relatively small percentage of the potential casino
revenue obtainable from these tracked high limit customers.
Leverage Existing Majestic Star Customer Base. Majestic Star has
established the Club Majestic and Club Majestic Premier Slot Clubs to increase
the frequency of visits by Majestic Star's existing customers. This program
enables Majestic Star to maintain a comprehensive database of information on
approximately 118,000 of its active gaming patrons, including their gaming
levels, duration of play and preferences. Majestic Star uses this information to
create a comprehensive direct mail marketing program. The Company intends to use
this information and its marketing program to market its properties to existing
customers of Majestic Star.
GROWTH STRATEGY
The Company believes that there are substantial future growth opportunities
within each of the markets where its properties are located, including the
following:
Fitzgeralds Tunica
- ------------------
A 168-acre, $20 million Tunica River Front Park is under development
adjacent to the Fitzgeralds Tunica property. The park will include a marina and
boat dock facility along the Mississippi River (including space for sight-seeing
paddlewheel riverboats), a historic Mississippi River museum, nature trails,
retail space, and parking. Construction began on the park in mid October 2001,
and the Company expects 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 the Company. Fitzgeralds
Tunica conveyed approximately 71 acres of the river park land to Tunica County.
As consideration for the conveyance, Tunica County granted the Company certain
rights, easements and licenses to operate a daily excursion boat from the marina
and visitors center or to lease or license its rights hereunder to a third
party. The rights, leases and licenses will expire 15 years from the date of
substantial completion of the marina. The Company has licensed its 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, the Company believes that both
3
the Tunica River Front Park and the regional airport will attract new customers
to the Company's Tunica property.
Fitzgeralds Black Hawk
- ----------------------
The Company believes that the Black Hawk/Central City market has potential
for future growth, 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 anticipated to be held in 2002 to approve the financing for the
proposed tunnel. We cannot be certain that a referendum will be held or, if
held, 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. During
2001, we authorized and began a $304,000 partial demolition project on property
adjacent to and owned by Fitzgeralds Black Hawk. The property is available for
expansion if market conditions warrant and the Company is currently evaluating
the feasibility of such an expansion to better serve this growing market. One of
the issues concerning such expansion is the issue of whether there is adequate
infrastructure in the Black Hawk 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 the
Company's Fitzgeralds Las Vegas property. The Company believes 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.
We regularly evaluate possible expansion and acquisition opportunities. We
may undertake these opportunities either alone or with joint venture partners.
The Company's ability to expand will depend upon a number of factors including,
but not limited to: (i) the identification and availability of suitable
locations, and the negotiation of acceptable purchase, lease, joint venture or
other terms; (ii) the securing of required state and local licenses, permits and
approvals, which in some jurisdictions may be limited in number, (iii) political
factors; (iv) the risks typically associated with any new construction; and (v)
the availability of adequate financing or acceptable terms, particularly in
light of restrictive covenants contained in the instruments relating to the
Investor Holdings Senior Secured Notes and the Investor Holdings Credit
Facility, which limit the Company's ability to obtain such financing. As a
result, there can be no assurance that the Company will be able to expand either
its current properties or to add any other additional locations or, if such
expansion occurs, that it will be successful.
COMPETITION
There is intense competition among companies in the gaming industry, many
of which have greater name recognition and financial and marketing resources
than the Company. In addition to the regional competitors described below
(including gaming operations on Native American lands), the Company competes
with gaming facilities nationwide, including land-based casinos in Nevada and
Atlantic City, not only for customers but also for employees and potential
future gaming sites. The
4
Company also competes, to some extent, with other forms of gaming on both a
local and a national level, including state-sponsored lotteries, on and
off-track wagering and card parlors. The recent and continuing expansion of
legalized casino gaming to new jurisdictions throughout the United States has
affected competitive conditions faced by the Company and will continue to do so
in the future. To maintain its competitive position, the Company regularly
evaluates the need to incur capital expenditures to increase the attractiveness
of its properties.
Fitzgeralds Tunica
- ------------------
Fitzgeralds Tunica competes primarily with nine other dockside gaming
facilities in the Tunica, Mississippi area, five of which are approximately one
mile north of Fitzgeralds Tunica and four of which are approximately four miles
south of Fitzgeralds Tunica. In addition to the substantial competition in the
immediate vicinity of Fitzgeralds Tunica, the Company competes for customers in
Memphis, Tennessee and Little Rock, Arkansas, jurisdictions where gaming is
currently prohibited. The legalization of gaming in either of those
jurisdictions would likely have an adverse impact on our operations at
Fitzgeralds Tunica. There can be no assurance that the State of Tennessee or the
State of Arkansas will not legalize casino gaming in the future.
Fitzgeralds Black Hawk
- ----------------------
Competition has intensified in Black Hawk with the opening of the Lodge
and the Isle of Capri in 1998 and the Riviera and the Mardi Gras in the first
quarter of 2000. In addition, a casino developed by Windsor Woodmont Black Hawk
Resort Corporation and Hyatt Gaming opened on December 19, 2001. All of these
properties are larger than Fitzgeralds Black Hawk, are operated by companies
with greater resources and are located at the eastern end (closest to Denver) of
Black Hawk at the first major intersection off State Highway 119, which may give
them a competitive advantage over Fitzgeralds Black Hawk since they have the
initial opportunity to capture visitors to Black Hawk and Central City from the
Denver metropolitan area. The increased competition may have a material adverse
effect on Fitzgeralds Black Hawk operations. Also, the concentration of these
properties on the south end of the street has shifted the center of gaming
activity away from Fitzgeralds Black Hawk, which is located at the north end of
the street.
Moreover, there is a fundamental issue concerning the size of the Black
Hawk market and the ability to expand the market because of its mountain
location and the availability of adequate roads and other infrastructure.
Although initiatives to expand gaming venues in Colorado have thus far been
unsuccessful, initiatives, legislation or regulations could be introduced in the
future. The enactment of any new initiative, legislation or regulation
legalizing gaming elsewhere in Colorado could and, if such legalized gaming was
closer to Denver, would have a material adverse effect on Fitzgeralds Black
Hawk.
Fitzgeralds Las Vegas
- ---------------------
Fitzgeralds Las Vegas competes primarily with other downtown casino
properties, casino properties located near the Nevada/California state line and
certain facilities located on the Las Vegas Strip. The Company also believes
that it competes, to a lesser extent, with the local neighborhood casinos and
casino-hotels on the Boulder Strip and in the Laughlin market.
The Las Vegas market is highly competitive. The Company has experienced
competition from new and existing Las Vegas casino-hotels which have sought to
attract some of the same "middle-income" players, and tour and travel visitors
targeted by Fitzgeralds Las Vegas. The Company anticipates continuing increased
competition for these customers. Moreover, on the Las Vegas Strip, Bellagio with
3,000 rooms opened in 1998; Mandalay Bay, Venetian and Paris with an aggregate
of approximately 9,200 rooms all opened in 1999; and the Aladdin resort with
approximately 2,600 rooms opened in August of
5
2000. In addition, casinos catering to local residents also compete for business
from the Company's targeted segment including the Suncoast Casino, which opened
in September 2000, Terrible Herbst, which opened in December 2000 and the Palms,
which opened in December 2001. These new properties, as well as any other major
additions, expansions or enhancements to existing properties by the Company's
competitors, could have a material adverse effect on the Company's business.
FINANCIAL INFORMATION ABOUT SEGMENTS
For financial information regarding the Company's business segments,
see Note 9 of the Notes to Consolidated Financial Statements.
EMPLOYEES AND UNIONS
At December 31, 2001, on a consolidated basis, the Company employed
approximately 2,517 persons and had collective bargaining contracts with unions
covering approximately 16% of its employees. The Company believes that its
overall relations with its employees are good.
At December 31, 2001 Fitzgeralds Tunica and Fitzgeralds Black Hawk
employed approximately 1,230 and 363 people, respectively, none of whom are
represented by a union. At December 31, 2001, Fitzgeralds Las Vegas employed
approximately 924 people, approximately 389 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.
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
We believe Fitzgeralds developed a national gaming brand by using a
consistent Irish Luck theme throughout the casinos, hotels, restaurants and bars
at all of its properties. As part of the Fitzgeralds acquisition, the Company
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 the Company's association with the
Fremont Street Experience, including the marks "Fitzgeralds," "Fitz" and the
"Mr. O'Lucky" character design. In connection with the Fitzgeralds acquisition,
the Company also acquired several non-exclusive licenses and supply agreements,
which permit the Company to utilize and offer at its 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 the Company, Fitzgeralds 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. The Company 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 to comply with certain requirements, including operating any
casino property using the Fitzgeralds name in accordance with the Company's
current operating standards. The right of Fitzgeralds to continue to use the
name "Fitzgeralds" may negatively impact the Company's national brand
recognition.
6
SEASONALITY
The gaming operations of the Company's properties may be seasonal and,
depending on the location and other circumstances, the effects of such
seasonality could be significant. The properties' results are affected by
inclement weather in relevant markets. For example, 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. Also, 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. Accordingly, the Company's results of operations are expected
to fluctuate from quarter to quarter and the results for any fiscal quarter may
not be indicative of results for future fiscal quarters.
ENVIRONMENTAL MATTERS
The Company is subject to certain federal, state and local
environmental, safety and health laws, regulations and ordinances including the
Clear Air Act, Clean Water Act, Occupational Safety and Health Act, Oil
Pollution Act, Resource Conservation Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"). In November 2000, independent environmental consultants conducted
Phase Is on all three casino properties and identified no recognized
environmental conditions meriting a Phase II investigation. The Company may
incur material liability if contamination is discovered on any of its
properties, either during the course of future development or in connection with
the properties designated for investigation or remediation, as discussed below.
Specifically, the Black Hawk and Central City gaming districts,
including the Fitzgeralds Black Hawk site, are located within a 400-square mile
area that in 1983 was designated by the EPA as the Clear Creek/Central City
National Priorities List Site Study Area ("Study Area") pursuant to CERCLA. The
Study Area includes numerous specifically identified areas of mine tailings and
other waste piles caused by historical mining activity in the area, which areas
are the subject of ongoing investigation and clean-up by the EPA and the
Colorado Department of Public Health and Environment ("CDPHE"). CERCLA requires
remediation of sites from which there has been a release or threatened release
of hazardous substances and authorizes the EPA to take any necessary response
actions at Superfund sites, including authorizing potentially responsible
parties ("PRPs") to clean up or contribute to the clean up of a Superfund site.
PRPs are broadly defined under CERCLA, and include past and present owners and
operators of a site. CERCLA imposes strict liability on PRPs, and courts have
commonly held PRPs to be jointly and severally liable for all response costs.
Fitzgeralds Black Hawk is not within any of the specific areas of the
Study Area currently identified by the EPA and CDPHE for investigation or
remediation. The property on which the Fitzgeralds Black Hawk casino is situated
was not a historical mining site but rather was the location for a general
store. The parking complex for the casino and an adjacent vacant lot, however,
are situated near a historical milling area. To date no remediation requirements
have been recommended or required with regard to any portion of the property
although test borings would likely be required in connection with any future
construction on the expansion parcel of the property. Based on the assessments
to date, we are not aware of any environmental problems affecting Fitzgeralds
Black Hawk which are likely to result in material costs to us. No assurance can
be given, however, that environmental problems will not subsequently be
discovered. Furthermore, the EPA or other governmental authorities could broaden
their
7
investigations and identify areas of concern within the site, the Company could
be identified as a PRP, and any liability related thereto could have a material
adverse effect on the Company.
GOVERNMENTAL REGULATION
General
The ownership and operation of the Company's gaming facilities are subject
to various state and local laws and regulations in the jurisdictions where they
are located. The following is a summary of the provisions of the laws and
regulations applicable to the Company's gaming facilities.
Mississippi Gaming Regulation
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulations, but primarily the licensing
and/or regulatory control of the Mississippi Gaming Commission (the "Mississippi
Commission"). The Mississippi Gaming Control Act (the "Mississippi Act"), which
legalized dockside casino gaming in Mississippi, is similar to the Nevada Gaming
Control Act. The Mississippi Commission has adopted regulations which are also
similar in many respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of the Mississippi
Commission are based upon declarations of public policy that are concerned with,
among other things:
. the prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in any capacity;
. the establishment and maintenance of responsible accounting practices
and procedures;
. the maintenance of effective controls over the financial practices of
licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues,
providing for reliable record keeping and requiring the filing of
periodic reports with the Mississippi Commission;
. the prevention of cheating and fraudulent practices;
. providing a source of state and local revenues through taxation and
licensing fees; and
. ensuring that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Commission. 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 Mississippi counties that border the Gulf Coast or
the Mississippi River, but only if the voters in the applicable county have not
voted to prohibit gaming in that county. In recent years, certain anti-gaming
groups proposed for adoption through the initiative and referendum process
certain amendments to the Mississippi Constitution which would prohibit gaming
in the state. The proposals were declared illegal by Mississippi courts on
constitutional and procedural grounds. The latest ruling was appealed to the
Mississippi Supreme Court, which affirmed the decision of the lower court. If
another such proposal were
8
to be offered and if a sufficient number of signatures were to be gathered to
place a legal initiative on the ballot, it is possible for the voters of
Mississippi to consider such a proposal in November of 2003. While we are unable
to predict whether such an initiative will appear on a ballot or the likelihood
of such an initiative being approved by the voters, if such an initiative were
passed and gaming were prohibited in Mississippi it would have a significant
adverse effect on us and our business, financial condition and results of
operations.
As of April 1, 2002, dockside gaming was permissible in nine of the
fourteen eligible counties in the State of Mississippi and gaming operations had
commenced in seven counties. Under Mississippi law, gaming vessels must be
located on the Mississippi River or on navigable waters in eligible counties
along the Mississippi River, or in the waters lying south of the counties along
the Mississippi Gulf Coast. Our Fitzgeralds Tunica casino is located on barges
situated in a specially constructed basin near the Mississippi River. In the
past, whether basins such as the one in which the Fitzgeralds Tunica casino
barges are located constituted "navigable waters" suitable for gaming under
Mississippi law was a controversial issue. The Mississippi Attorney General
issued an opinion in July 1993 addressing legal locations for gaming vessels
under the Mississippi Act, and on May 24, 1993, the Mississippi Commission
approved the location of the casino barges on the Fitzgeralds Tunica site as
legal under the opinion of the Mississippi Attorney General. Since 1993, the
Mississippi Commission has issued or renewed licenses to Fitzgeralds Tunica on
several separate occasions. We believe that Fitzgeralds Tunica is in compliance
with the Mississippi Act and the Mississippi Attorney General's "navigable
waters" opinion. However, no assurance can be given that a court would
ultimately conclude that our Fitzgeralds Tunica barges are located on navigable
waters within the meaning of Mississippi law. If the basin in which our
Fitzgeralds Tunica casino barges are presently located were not deemed navigable
waters within the meaning of Mississippi law, such a decision would have a
material adverse effect on us and our business, financial condition and results
of operations.
The Mississippi Act permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. The Mississippi Act permits substantially all
traditional casino games and gaming devices. Only persons who are 21 years of
age or older may wager on games in the state of Mississippi.
We and any subsidiary of ours that operates a casino in Mississippi (a
"Gaming Subsidiary") are subject to the licensing and regulatory control of the
Mississippi Commission. Each of the Company, Investor, Majestic Star and BDI
have registered under the Mississippi Act as either a publicly traded
corporation (a "Registered Corporation") or a holding company of Barden
Mississippi, the owner and operator of Fitzgeralds Tunica, a licensee of the
Mississippi Commission. BDI, Majestic Star, Investor and the Company, as
registered holding companies or publicly traded corporations, and Barden
Mississippi, as a gaming licensee, are required to submit detailed financial,
operating and other reports to the Mississippi Commission and furnish any other
information which the Mississippi Commission may require. If we are unable to
continue to satisfy the registration requirements of the Mississippi Act, we,
any of our related registered holding companies or publicly traded corporations
and Barden Mississippi cannot own or operate gaming facilities in Mississippi.
No person may become a stockholder of or receive any percentage of profits from
a licensed subsidiary of a registered holding company or publicly traded
corporation without first obtaining licenses and approvals from the Mississippi
Commission. While we have received such approvals in connection with the
licensing of Barden Mississippi, no assurance can be given that we will continue
to receive such approvals in the future.
A Gaming Subsidiary must maintain a gaming license from the Mississippi
Commission to operate a casino in Mississippi. Such licenses are issued by the
Mississippi Commission, subject to certain conditions, including continued
compliance with all applicable state laws and regulations. There are no
limitations on the number of gaming licenses which may be issued in Mississippi.
Gaming licenses require
9
the payment of periodic fees and taxes, are not transferable, are issued for a
three-year period (and may be continued for two additional three-year periods)
and must be renewed periodically thereafter. Barden Mississippi's current gaming
license expires in December of 2004. There can be no assurance that any
subsequent application for a license will be approved.
Certain management personnel of BDI, Majestic Star, Investor and the
Company, and certain management personnel and key employees of Barden
Mississippi must be found suitable or approved by the Mississippi Commission. We
believe that we have obtained, applied for or are in the process of applying for
all necessary findings of suitability with respect to the companies, although
the Mississippi Commission, in its discretion, may require additional persons to
file applications for findings of suitability. In addition, any person having a
material relationship or involvement with us may be required to be found
suitable, in which case those persons must pay the costs and fees associated
with such investigation. The Mississippi Commission may deny an application for
a finding of suitability for any cause that it deems reasonable. Changes in
certain licensed positions must be reported to the Mississippi Commission. In
addition to its authority to deny an application for a finding of suitability,
the Mississippi Commission has jurisdiction to disapprove a change in any
person's corporate position or title and such changes must be reported to the
Mississippi Commission. The Mississippi Commission has the power to require us,
BDI, Majestic Star, Investor and Barden Mississippi to suspend or dismiss
officers, directors, managers, members and other key employees or sever
relationships with other persons who refuse to file appropriate applications or
whom the authorities find unsuitable to act in such capacities. There can be no
assurance that such persons who have filed or will be required to file
applications for findings of suitability will be found suitable by the
Mississippi Commission. Determinations of suitability and questions pertaining
to licensing are not subject to judicial review under the Mississippi Act.
At any time, the Mississippi Commission has the power to investigate
and require the finding of suitability of any person who becomes the record or
beneficial owner of any security of BDI, Majestic Star, Investor, the Company or
Barden Mississippi, regardless of the percentage of ownership. The Mississippi
Act requires any person who acquires more than five percent of any class of
voting securities of a Registered Corporation, as reported to the Securities and
Exchange Commission ("SEC"), to report the acquisition to the Mississippi
Commission, and such person may be required to be found suitable. Also, any
person who becomes a beneficial owner of more than ten percent of any class of
voting securities of a Registered Corporation must apply for a finding of
suitability by the Mississippi Commission and must pay the costs and fees that
the Mississippi Commission incurs in conducting the investigation. The
Mississippi Commission generally has exercised its discretion to require a
finding of suitability of any beneficial owner of more than five percent of any
class of voting securities of a Registered Corporation, a holding company or a
Gaming Subsidiary. However, the Mississippi Commission has adopted a policy that
permits certain institutional investors to own beneficially up to fifteen
percent of a class of voting securities of a Registered Corporation without a
finding of suitability. If a stockholder who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability
or a license within 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 believe that our
compliance with the licensing procedures and regulatory requirements of the
Mississippi Commission will not affect the marketability of our securities. 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,
Majestic Star, Investor, the Company or Barden Mississippi, the company
involved:
10
. pays the unsuitable person any dividend or other distribution upon
such person's voting securities;
. recognizes the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person;
. pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific
circumstances; or
. fails to pursue all lawful efforts to require the unsuitable person to
divest himself of the securities, including, if necessary, the
immediate purchase of the securities for cash at a fair market value.
We may be required to disclose to the Mississippi Commission, upon request,
the identities of the holders of any of our debt or other securities. In
addition, under the Mississippi Act, the Mississippi Commission may in its
discretion require the holder of any debt security of a Registered Corporation
or a registered holding company to file an application, be investigated and be
found suitable to own the debt security if it has reason to believe that the
ownership would be inconsistent with the declared policies of the State.
Although the Mississippi Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Commission retains the discretion to do so for any
reason, including but not limited to, a default, or where the holder of the debt
instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Commission in connection with the investigation.
If the Mississippi Commission determines that a person is unsuitable to own
a debt security, then the Registered Corporation can be sanctioned, including
the loss of its approvals, if without the prior approval of the Mississippi
Commission, it:
. pays to the unsuitable person any dividend, interest, or any
distribution whatsoever;
. recognizes any voting right by the unsuitable person in connection
with those securities;
. pays the unsuitable person remuneration in any form; or
. makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar transaction.
Each of BDI, Majestic Star, Investor, the Company and Barden Mississippi 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 must also render maximum
assistance in determining the identity of the beneficial owner of any of the
voting securities of us or our affiliates.
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The Mississippi Act requires that the certificates representing
securities of a Registered Corporation bear a legend indicating that the
securities are subject to the Mississippi Act and the regulations of the
Mississippi Commission. The Mississippi Commission has the power to impose
additional restrictions on the holders of our securities at any time.
Substantially all material loans, leases, sales of securities and
similar financing transactions by a Registered Corporation or a Gaming
Subsidiary must be reported to or approved by the Mississippi Commission. A
Gaming Subsidiary may not make a public offering of its securities, but may
pledge or mortgage casino facilities. A Registered Corporation may not make a
public offering of its securities without the prior approval of the Mississippi
Commission if any part of the proceeds of the offering is to be used to finance
the construction, acquisition or operation of gaming facilities in Mississippi
or to retire or extend obligations incurred for those purposes. Such approval,
if given, does not constitute a recommendation or approval of the investment
merits of the securities subject to the offering.
Under the regulations of the Mississippi Commission, Barden Mississippi
may not guarantee a security issued by us or any other affiliated company
pursuant to a public offering, or pledge the assets of Barden Mississippi to
secure payment or performance of the obligations evidenced by the security
issued by the affiliated company, without the prior approval of the Mississippi
Commission. A pledge of the equity securities of a gaming licensee and the
foreclosure of such a pledge are ineffective without the prior approval of the
Mississippi Commission. Moreover, restrictions on the transfer of an equity
security issued by a Mississippi gaming licensee or a registered holding company
and agreements not to encumber such securities are ineffective without the prior
approval of the Mississippi Commission.
Changes in control of BDI, Majestic Star, Investor, the Company or
Barden Mississippi, whether through merger, consolidation, acquisition of
assets, management or consulting agreements or any act or conduct by a person by
which he or she obtains control, may not occur without the prior approval of the
Mississippi Commission. Entities seeking to acquire control of one or more of
these companies must satisfy the Mississippi Commission in a variety of
stringent standards prior to assuming control of any such company. The
Mississippi Commission may also require controlling stockholders, officers,
directors, and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Mississippi legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and other
corporate defense tactics that affect corporate gaming licensees in Mississippi
and Registered Corporations, may be injurious to stable and productive corporate
gaming. The Mississippi Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Mississippi's gaming industry and to further Mississippi's policy to:
. assure the financial stability of corporate gaming operators and
their affiliates;
. preserve the beneficial aspects of conducting business in the
corporate form; and
. promote a neutral environment for the orderly governance of
corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi
Commission before a Registered Corporation may make exceptional repurchases of
voting securities (such as repurchases which treat holders differently) in
excess of the current market price and before a corporate acquisition opposed by
management can be consummated. Mississippi's gaming regulations also require
prior approval by the Mississippi Commission of a plan of recapitalization
proposed by the Registered Corporation's board of
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directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.
None of BDI, Majestic Star Casino, Investor, the Company or Barden
Mississippi may engage in gaming activities in Mississippi while also conducting
gaming operations outside of Mississippi without approval of the Mississippi
Commission. The Mississippi Commission may require determinations that, among
other things, there are means for the Mississippi Commission to have access to
information concerning the out-of-state gaming operations of us and our
affiliates. We have received a waiver of foreign gaming approval from the
Mississippi Commission for the gaming operations of Majestic Star 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 we, BDI, Majestic Star,
Investor or Barden Mississippi violated a gaming law or regulation, the
Mississippi Commission could limit, condition, suspend or revoke the approvals
of any such company and the license of Barden Mississippi, subject to compliance
with certain statutory and regulatory procedures. In addition, we, BDI, Majestic
Star, Investor, Barden Mississippi and the persons involved could be subject to
substantial fines for each separate violation. Because of such a violation, the
Mississippi Commission could attempt to appoint a supervisor to operate the
casino facilities. Limitation, conditioning or suspension of any gaming license
or approval or the appointment of a supervisor could (and revocation of any
gaming license or approval would) materially adversely affect us and our
business, financial condition and results of operations.
License fees and taxes, computed in various way depending on the type
of gaming involved, are payable to the State of Mississippi and to the counties
and cities in which a Gaming Subsidiary's operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually. Gaming taxes are based upon:
. a percentage of the gross gaming revenues received by the casino
operation;
. the number of gaming devices operated by the casino; or
. the number of table games operated by the casino.
The license fee payable to the State of Mississippi is based upon
"gaming receipts" (generally defined as gross receipts less payouts to customers
as winnings) and the current maximum tax rate imposed is eight percent of all
gaming receipts in excess of $134,000. The foregoing license fees paid by Barden
Mississippi are allowed as a credit against Barden Mississippi's Mississippi
income tax liability for the year paid. The gross revenue fee imposed by Tunica
County equals approximately four percent of the gaming receipts.
The Mississippi Commission 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
twenty-five percent of the casino cost. These requirements were met with the
opening of the Fitzgeralds Tunica Hotel and related facilities in 1996. The
Mississippi Commission later adopted amendments to the regulation that would
increase the infrastructure development requirement from twenty-five to one
hundred percent. However, the regulation amendment increasing the infrastructure
requirement grandfathers existing licensees and
13
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 both the
local jurisdiction and the Alcoholic Beverage Control Division (the "ABC") of
the Mississippi State Tax Commission. Fitzgeralds Tunica is in an area
designated as a special resort area, which allows Fitzgeralds Tunica to serve
alcoholic beverages on a 24-hour basis. The ABC requires that all equity owners
and managers file personal record forms and fingerprint forms for their
licensing process. In addition, owners of more than 5% of Barden Mississippi's
equity and Barden Mississippi's officers, members and 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 us and Barden Mississippi's operations at Fitzgeralds Tunica.
Colorado Gaming Regulation
Colorado legalized limited gaming by constitutional amendment approved
by Colorado voters on November 6, 1990. The Colorado legislature thereafter
enacted the Limited Gaming Act of 1991 (the "Colorado Act") to implement the
provisions of the constitutional amendment, and limited gaming commenced in
Colorado on October 1, 1991. The Colorado Act authorizes limited gaming only in
certain designated commercial districts of Central City, Black Hawk and Cripple
Creek, Colorado. Limited gaming consists of poker, blackjack and slot machines,
all with maximum single bets of five dollars. Only persons aged 21 or older may
participate in limited gaming, and limited gaming and the sale of alcoholic
beverages are prohibited between the hours of 2:00 a.m. and 8:00 a.m. Limited
gaming is only allowed on premises licensed for that purpose, and the licensed
premises of any building may not exceed 35% of the square footage of the
building and no more than 50% of any floor of such building. There is no
limitation on the size of any structure or total square footage devoted to
limited gaming.
The following statutory and regulatory requirements are applicable to
the Company since its acquisition of the Fitzgeralds assets. Barden Colorado
holds the Company's Colorado gaming license.
On October 18, 2001, the Colorado Limited Gaming Control Commission
issued operators and retailers licenses to Barden Colorado. The operators
license was effective as of October 18, 2001. The retailers license, which
permits the actual conduct of gaming by Barden Colorado, became effective upon
the happening of certain standard conditions for retail licenses and gaming
commenced under Barden Colorado'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;
14
. 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; and
. 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 "Colorado Gaming Regulations"), the ownership and
operation of limited gaming facilities in Colorado, however acquired, are
subject to extensive regulation. The Colorado Act created the Division of Gaming
(the "Colorado Division") within the Colorado Department of Revenue and the
Colorado Limited Gaming Control Commission (the "Colorado Gaming Commission") to
license, implement, regulate, and supervise the conduct of limited gaming. The
Director of the Colorado Division (the "Colorado Director"), under the general
supervision of the Colorado Gaming Commission, is granted broad powers to ensure
compliance with the Colorado Act and the rules. The Colorado Act now provides
that the provisions which established the Colorado Division are repealed
effective July 1, 2003, unless continued by act of the General Assembly. This is
a "sunset" provision common in assessing the continuing necessity for the
existence of administrative agencies within Colorado. If the repeal takes
effect, Colorado law provides a procedure for winding up the affairs of the
Colorado Division, public hearings, analysis and evaluation, and for determining
claims by or against the Colorado Division. The potential effect of the possible
repeal upon the regulatory structure governing limited gaming is unknown.
The Colorado Act declares public policy on limited stakes gaming to be
that:
. the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is
conducted honestly and competitively, the rights of the creditors
of licensees are protected and gaming is free from criminal and
corruptive elements;
. public confidence and trust can be maintained only by strict
regulation of all persons, locations, practices, associations and
activities related to the operation of licensed gaming
establishments and the manufacture or distribution of gaming
devices and equipment;
. all establishments where limited stakes gaming is conducted and
where gambling devices are operated and all manufacturers, sellers
and distributors of certain gambling devices and equipment must
therefore be licensed, controlled and assisted to protect the
public health, safety, good order and the general welfare of the
inhabitants of the state to foster the stability and success of
limited stakes gaming and to preserve the economy and free
competition in Colorado; and
. no applicant for a license or other approval has any right to a
license or to the granting of the approval sought.
The 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
15
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 and the Colorado Gaming Commission. The Colorado Gaming
Commission may require any person having an interest in a license or a licensee
to undergo a full background investigation and pay the cost of investigation in
the same manner as an applicant. Limited disclosure forms are required of those
persons holding any equity interest in a non-publicly traded applicant.
In addition, all persons loaning monies, goods, or real or personal
property to a licensee or applicant, or having any interest in a licensee or
applicant, or entering into any agreement with a licensee or applicant, must
provide any information requested by the Colorado Division or Colorado Gaming
Commission, and in the discretion of the Colorado Division or the Colorado
Gaming Commission, these persons must supply all information relevant to a
determination of any such person's suitability for licensure and must submit to
a full background investigation if ordered by the Colorado Gaming Commission.
Failure to promptly provide all information requested, or to submit to a
suitability or background investigation, may result in the denial of a license
application, suspension or revocation of an existing license, termination of any
lease, note arrangement, or agreement between the applicant or licensee and the
person requested to provide the information, and other sanctions. Investigations
for suitability, background, or any other reason may delay a license application
or the operation under any agreement with a licensee. All agreements, contracts,
leases or arrangements in violation of the Colorado Act or the rules are void
and unenforceable.
Persons found unsuitable by the Colorado Gaming Commission may be
required immediately to terminate any interest in, association or agreement
with, or relationship to a licensee. A finding of unsuitability with respect to
any officer, director, employee, associate, lender or beneficial owner of a
licensee or applicant may also jeopardize the licensee's license or applicant's
license application. Licenses may be conditioned upon termination of any
relationship with unsuitable persons.
The Colorado Act and the rules require licensees to maintain detailed
books and records which accurately account for all monies and business
transactions. Books and records must be furnished upon demand to the Colorado
Gaming Commission, the Colorado Division and other law enforcement authorities.
The rules also establish extensive playing procedures, standards, requirements
and rules of play for poker, blackjack and slot machines.
Retail gaming licensees must, in addition, adopt comprehensive internal
control procedures governing their limited gaming operations. Such procedures
include the areas of accounting, internal fiscal control, surveillance,
security, cashier operations, key control, reporting procedures, personnel
procedures and fill and drop procedures, among others. Such procedures must be
approved in advance by the Colorado Division. 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.
16
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 0.25% and 20%. The gaming tax is paid monthly, with licensees
required to file returns by the 15th of the following month. Effective July 1 of
each year, the Colorado Gaming Commission establishes the gaming tax rates for
the following 12 months. Under the Constitution of the State of Colorado, the
Colorado Gaming Commission may increase the gaming tax rate to as much as 40% of
AGP. Since July 1, 1999, the Colorado Commission has set a gaming tax rate of
0.25% on adjusted gross gaming proceeds of up to and including $2 million, 2%
over $2 million up to and including $4 million, 4% over $4 million up to and
including $5 million, 11% over $5 million up to and including $10 million, 16%
over $10 million up to and including $15 million, and 20% over $15 million.
The Colorado Commission also may impose device fees. Effective July 1,
1999, the Colorado Commission eliminated annual device fees. Despite the
elimination of the annual device fee, casinos are still required to obtain
device stamps from the Colorado Division of Gaming and must follow device
tracking procedures. The town of Black Hawk imposes an annual device fee on each
slot machine, black jack and poker table in the current amount of $750.00 per
device. Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, liquor license and other
municipal taxes and fees. It is not unreasonable to expect substantial increases
in these fees or the imposition of new taxes and fees.
17
Violations of the Colorado Act, or any of the rules, is a criminal
offense. Persons violating the Colorado Act or the rules may, in addition to any
gaming license suspension or revocation, or administrative fine be subject to
criminal prosecution resulting in incarceration, fines or both.
The sale of alcoholic beverages in gaming establishments is subject to
strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and non-transferable. State and local
licensing authorities have full power to limit, condition, suspend or revoke any
such licenses. Violation of these state alcoholic beverage laws is a criminal
offense, and violators are subject to criminal prosecution, incarceration and
fines.
Nevada Gaming Regulation
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder (the "Nevada Act") and to the licensing and regulatory control of the
Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board") and various local ordinances and regulations,
including, without limitation, applicable city and county gaming and liquor
licensing authorities (collectively, the "Nevada Gaming Authorities").
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.
The Company and Barden Nevada are required to be licensed by the Nevada
Gaming Authorities. The gaming licenses require the periodic payment of fees and
taxes and are not transferable. In addition, the Company has been registered by
the Nevada Commission as a "registered corporation" and found suitable to own
the stock of Barden Nevada. BDI, Majestic Star and Investor also have been
registered with the Nevada Commission and found suitable to own the stock of
their direct wholly-owned subsidiaries. Barden Nevada serves as the Company's
corporate gaming licensee under the terms of the Nevada Act. No person may
become a stockholder of, or receive any percentage of profits from, a corporate
gaming licensee without first obtaining licenses and approvals from the Nevada
Gaming Authorities. The Company and Barden Nevada have obtained from the Nevada
Gaming Authorities the various registrations, findings of suitability,
approvals, permits and licenses required in order to engage in gaming activities
in Nevada.
18
A registered corporation is required to periodically submit detailed
financial operating reports to the Nevada Commission and furnish any other
information which the Nevada Commission may require. The Nevada Gaming
Authorities may investigate any individual who has a material relationship to or
material involvement with the Company or Barden Nevada in order to determine
whether such individual is suitable or should be licensed as a business
associate of a gaming licensee. Officers, directors, managers, members and
certain key employees of Barden Nevada must file applications with the Nevada
Gaming Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. Officers, directors and key employees of the Company
who are actively and directly involved in gaming activities of Barden Nevada may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any
cause which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director,
manager, member or key employee unsuitable for licensing or unsuitable to
continue having a relationship with the Company or Barden Nevada, the companies
involved would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company or Barden Nevada to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
If the Nevada Commission determined that the Nevada Act was violated by
the Company or Barden Nevada, the registration or gaming licenses that the
Company or Barden Nevada holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company, Barden Nevada and the persons involved could be
subject to substantial fines for each separate violation of the Nevada Act at
the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate Fitzgeralds Las Vegas and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for reasonable rental value of the casino) could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of the gaming licenses
of Barden Nevada or the appointment of a supervisor could (and revocation of any
gaming license would) have a material adverse effect on the Company's gaming
operations.
The Company and Barden Nevada are required to periodically submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information which the Nevada Commission may require. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the Company and Barden Nevada must be reported to or approved by the Nevada
Commission. In addition, all "registered corporations" would also be required to
report or receive approval by the Nevada Commission for such similar financing
transactions if such transactions involve restrictions or liens on such
corporation's equity securities.
Any beneficial holder of a registered corporation's voting securities
(or rights to acquire such securities), regardless of the number of shares
owned, may be required to file an application, be investigated and have its
suitability as a beneficial holder of the registered corporation's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. If the beneficial holder of voting securities who must be found
suitable is a corporation, partnership, limited liability company or trust, it
must submit
19
detailed business and financial information, including a list of beneficial
owners. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of a registered corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a registered corporation's voting securities apply to
the Nevada Commission for a finding of suitability within 30 days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of a registered
corporation's voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor is not deemed
to hold voting securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly:
. the election of a majority of the members of the board of directors or
managers of the registered corporation;
. any change in the corporate charter, bylaws, similar organizational
documents, management, policies or operations of the registered
corporation, or any of its gaming affiliates; or
. any other action which the Nevada Commission finds to be inconsistent
with holding the registered corporation's voting securities for
investment purposes only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
. voting on all matters voted on by securityholders;
. making financial and other inquiries of management of the type
normally made by securities analysts for informational purposes and
not to cause a change in its management, policies or operations; and
. such other activities as the Nevada Commission may determine to be
consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is
a corporation, partnership, limited partnership, limited liability company or
trust, it must submit detailed business and financial information, including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any securityholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the voting securities beyond
such period of time as may be prescribed by the Nevada Commission may be guilty
of a criminal offense. The Company will be subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a securityholder or
to have any other relationship with the Company or Barden Nevada, it:
20
. pays that person any dividend, distribution or interest upon its
voting securities;
. allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person;
. pays remuneration in any form to that person for services rendered or
otherwise; or
. fails to pursue all lawful efforts to require such unsuitable person
to relinquish its voting securities including, if necessary, the
immediate purchase of said voting securities for cash at fair market
value.
Additionally, the City of Las Vegas has the authority to approve all
persons owning or controlling the equity interests of any entity controlling a
gaming licensee located in that city.
The Nevada Commission may, in its discretion, require the holder of any
debt or similar security of a registered corporation to file applications, be
investigated and be found suitable to own the debt security of a registered
corporation if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. If the Nevada Commission determines that a person is unsuitable to own
such security, then pursuant to the Nevada Act, the registered corporation can
be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it:
. pays to the unsuitable person any dividend, interest, or any
distribution whatsoever;
. recognizes any voting right by such unsuitable person in connection
with such securities;
. pays the unsuitable person remuneration in any form; or
. makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar transaction.
The Company and Barden Nevada 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. The Company 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 the Company's security certificates to bear a legend indicating
that the securities are subject to the Nevada Act. The Company does not know
whether the Nevada Commission will impose such a requirement on it.
The Company may not make a public offering of its 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.
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
21
Commission may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon:
. a percentage of the gross revenues received;
. the number of gaming devices operated; or
. the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise. Nevada licensees that hold a
manufacturer's license or a distributor's license also pay certain fees and
taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons, and who is or
proposes to become involved in a gaming venture outside of Nevada, is required
to deposit with the Nevada Board, and thereafter maintain, a revolving fund in
the amount of $10,000 to pay the expenses of investigation by the Nevada Board
for such licensee's participation in such foreign gaming. The revolving fund is
subject to increase or decrease in the discretion of the Nevada Commission.
Thereafter, foreign licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Such licensees are also subject to
disciplinary action by the Nevada Commission if they:
. knowingly violate any laws of the foreign jurisdiction pertaining to
the foreign gaming operation;
. fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming
operations;
. engage in activities or enter into associations that are harmful to
the State of Nevada or its ability to collect gaming taxes and fees;
or
. employ, contract with or associate with a person in the foreign
operation who has been denied a license or finding of suitability in
Nevada on the grounds of unsuitability.
The sale of alcoholic beverages at Fitzgeralds Las Vegas is subject to
licensing, control and regulation by the City of Las Vegas. All licenses are
revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of Fitzgeralds Las Vegas.
22
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.
ITEM 2. PROPERTIES
The Company currently owns and operates Fitzgeralds Tunica in Tunica,
Mississippi, Fitzgeralds Black Hawk in Black Hawk, Colorado and Fitzgeralds Las
Vegas in Las Vegas, Nevada.
Fitzgeralds Tunica
- ------------------
Fitzgeralds Tunica is located in north Tunica County, Mississippi,
approximately 30 miles from downtown Memphis, Tennessee. Fitzgeralds Tunica has
an Irish castle theme and is the focal point of a heavily wooded, 50-acre site
situated by the Mississippi River. The facility was expanded to include a hotel
and related amenities, which improvements were substantially completed in
October 1996. Fitzgeralds Tunica is a full-service entertainment destination and
its customer base has been increased and diversified by its ability to attract,
in addition to local customers, independent travelers, tour-and-travel customers
and guests for special events and conventions. Fitzgeralds Tunica includes a
507-room hotel (including 72 suites), a special events center, an indoor
swimming pool and a casino offering 1,375 slot machines and 34 table games, two
bars, three restaurants, and a gift shop. Under Mississippi law, gaming vessels
in Tunica County must be located on the Mississippi River or on navigable waters
within counties bordering the Mississippi River. Fitzgeralds Tunica was
constructed on barges situated in a specially constructed basin. The facility
includes a 411 space parking garage, 1,264 surface parking spaces and 120 valet
spaces. Fitzgeralds Tunica has conveyed approximately 71 acres of adjacent land
to Tunica County, as part of the County's 168-acre, $20.0 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, Tunica County granted Fitzgeralds Tunica a
rent-free lease to use and further sublease the boat dock for 15 years, from the
date of substantial completion of the marina, as well as a perpetual easement
allowing ingress and egress between the Fitzgeralds Tunica property and the boat
dock. Fitzgeralds has granted Mississippi Riverboat Company LLC, an unrelated
third-party operator, an exclusive license to operate riverboat excursions along
the Mississippi River from the boat dock in return for monthly license fees.
Fitzgeralds Black Hawk
- ----------------------
Fitzgeralds Black Hawk is located adjacent to the entrance to the
downtown gaming area of Black Hawk, Colorado, next to the Gilpin Casino and
across the street from Bullwhackers. Fitzgeralds Black Hawk consists of a
two-story building, the interior of which features high ceilings and other
architectural details which set it apart visually from many other Black Hawk
casinos. The casino offers 594 slot
23
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, during 2001, we authorized and began a $304,000
partial demolition project on property adjacent to and owned by Fitzgeralds
Black Hawk. This property is available for expansion if market conditions
warrant and we are currently evaluating the feasibility of such an expansion to
better serve this growing market. One of the issues concerning such expansion is
the issue of whether there is adequate infrastructure in the Black Hawk market.
We have obtained some, but not all, of the permits necessary to undertake any
proposed expansion.
Fitzgeralds Las Vegas
- ---------------------
Fitzgeralds Las Vegas is located on the city block bounded by Fremont,
Carson, Third and Fourth Streets at the Fremont Street Experience in downtown
Las Vegas. The property is accessible via Interstate 15 and U. S. 95. The hotel
was refurbished and the casino was remodeled in December 1996. Fitzgeralds Las
Vegas offers 934 slot machines, 23 table games, 638 hotel rooms (including 14
suites), a 42-seat keno lounge and a sports book (operated by a third party).
Fitzgeralds Las Vegas amenities include five restaurants (including a McDonald's
restaurant), three bars, a special events center, a gift shop and an
entertainment area. The facility includes a 335-space parking structure and an
adjacent surface parking area with an additional 41 spaces.
All of the Company's assets related to the Fitzgeralds properties are
subject to a lien in favor of the holders of the Investor Holdings Senior
Secured Notes and the lender under the Investor Holdings Credit Facility.
ITEM 3. LEGAL PROCEEDINGS
Currently the Company is not involved in any legal proceedings. In the
future, it is anticipated that the Company may be involved in routine
administrative proceedings and litigation, including bankruptcies of debtors,
collection efforts, disputes with employees and customers and other matters in
the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is a privately owned Delaware limited liability company and,
as such, there is no public market for the registrant's equity securities.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data for the period of inception
(September 14, 2001) through December 31, 2001 and the balance sheet data at
December 31, 2001 are derived from and should be read in conjunction with the
audited consolidated financial statements of the Company included elsewhere
herein. See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included herein.
24
For the period from inception
(September 14, 2001)
through December 31, 2001(1)
----------------------------
STATEMENT OF OPERATIONS DATA: (2) (in thousands)
Net Operating Revenues (3) $ 10,521
Operating Expenses (4) 9,781
Pre-opening Expenses 1,018
Loss from operations (278)
Interest Expense, Net 993
Net Loss (1,271)
OTHER DATA:
Adjusted EBITDA (5) 1,661
At
December 31, 2001 (1)
---------------------
BALANCE SHEET DATA: (2) (in thousands)
Cash and Cash Equivalents $ 17,705
Restricted Cash 1,000
Total Assets 183,429
Current Liabilities 24,378
Long-Term Debt (excluding current maturities) 145,340
Total Liabilities 170,896
Members' Equity 12,532
NOTES:
- -----
1. Investor Holdings is an unrestricted subsidiary, formed on September 14,
2001, that acquired three Fitzgeralds brand casinos on December 6, 2001.
The statement of operations data includes operations of Investor Holdings
from inception and twenty-five days of operations for the acquired casinos.
2. The aforementioned financial data is consolidated and includes Investor
Holdings, Barden Mississippi, Barden Colorado and Barden Nevada.
3. Net operating revenue is defined as gross revenues less promotional
allowances.
4. Operating expenses excludes $1,018,000 of pre-opening costs associated with
the acquisition of Fitzgeralds.
5. Adjusted EBITDA represents earnings before interest, income taxes,
depreciation and amortization and excludes pre-opening costs of $1,018,000
associated with the acquisition of Fitzgeralds. Adjusted EBITDA is a
supplemental financial measurement used by the Company in the evaluation of
its gaming business and by many gaming industry analysts. Adjusted EBITDA
should only be read in conjunction with all of the Company's 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
Company's operating performance or to cash flows from operating activities
(as determined in accordance with GAAP) as a measure of liquidity. The
Company believes that an analysis of Adjusted EBITDA enhances the
understanding of the financial performance of companies with substantial
depreciation and amortization.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statement on Forward-Looking Information
- ----------------------------------------
This report includes statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbor provisions of those sections and the Private
Securities Litigation Reform Act of 1995. Words such as "believes,"
"anticipates," "estimates" or "expects" used in the Company's press releases and
reports filed with the Securities and Exchange Commission are intended to
identify forward-looking statements. All forward-looking statements involve
risks and uncertainties. Although the Company believes its expectations are
based upon reasonable assumptions within the bounds of its current knowledge of
its business and operations, there can be no assurances that actual results will
not materially differ from expected results. The Company cautions that these and
similar statements included in this report and in previously filed periodic
reports are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements. Such
factors include, without limitation: the ability to fund planned development
needs and to service debt from existing operations; the ability to successfully
integrate the three Fitzgeralds casinos; increased competition in existing
markets or the opening of new gaming jurisdictions; a decline in the public
acceptance of gaming; the limitation, conditioning or suspension of our gaming
licenses; increases in or new taxes imposed on gaming revenues, taxes on gaming
devices; a finding of unsuitability by regulatory authorities with respect to
the Company or its officers or key employees; loss and/or retirement of key
executives; significant increase in fuel or transportation prices; adverse
economic conditions in the Company's markets; severe and unusual weather in our
markets; non-renewal of the Company's gaming licenses from the appropriate
governmental authorities in Nevada, Mississippi and Colorado; and continuing
effects of recent terrorist attacks and any future occurrences of terrorist
attacks or other destabilizing events.
For more information on these and other factors, see "Factors that May
Affect Future Results." We caution readers not to place undue reliance on
forward-looking statements, which speak only as of the date hereof. All
subsequent written and oral forward-looking statements attributable to us are
expressly qualified in their entirety by the cautionary statements and factors
that may affect future results contained throughout this report. The Company
undertakes no obligation to publicly release any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto listed in Item 14(a).
Overview
- --------
The Company was formed on September 14, 2001 and commenced operations of
the Fitzgeralds casinos on December 7, 2001, and accordingly has a limited
operating history. Therefore, the discussion of operations herein will focus on
events and the Company's revenues and expenses during the period from inception
(September 14, 2001) through December 31, 2001.
26
Results of Operations
- ---------------------
The following table sets forth information derived from the Company's
statement of operations expressed as a percentage of gross revenues.
Consolidated Statement of Operations - Percentage of Gross Revenues
For the Period from Inception
(September 14, 2001)
through December 31, 2001
-------------------------
Revenues:
- ---------
Casino 80.7%
Food and beverage 9.3
Rooms 8.4
Other 1.6
------
100.0
Less promotional allowances (18.0)
------
Net revenues 82.0
------
Costs and Expenses:
- -------------------
Casino 32.1
Food and beverage 5.5
Rooms 4.9
Other 0.9
Gaming taxes 6.3
Advertising and promotions 7.2
General and administrative 12.2
Depreciation and amortization 7.2
Pre-opening expenses 7.9
------
Total costs and expenses 84.2
------
Loss from operations (2.2)
------
Other Income (Expense):
- -----------------------
Interest income 1.7
Interest expense (9.4)
------
Total other income (expense) (7.7)
------
Net loss (9.9)%
======
Adjusted EBITDA: (in millions) (1) $ 1.66
- ---------------- ======
NOTES:
- ------
1. For a definition of Adjusted EBITDA, see Note 5 of Notes to Selected
Consolidated Financial Data contained in Item 6.
Inception through December 31, 2001
- -----------------------------------
Consolidated gross revenues were $12,832,000 for the period from inception
(September 14, 2001) through December 31, 2001. Revenues for Fitzgeralds Tunica
accounted for $6,708,000, or 52.3% of total revenues, Fitzgeralds Las Vegas
accounted for $3,445,000, or 26.8% of total revenues, and Fitzgeralds Black Hawk
accounted for $2,679,000, or 20.9% of total revenues.
27
The Company's business can be separated into four operating
departments: casino, rooms (except Fitzgeralds Black Hawk), food and beverage
and other. Consolidated casino revenues were $10,359,000, of which $9,011,000,
or 87.0% were derived from slot machine revenues, and $1,348,000, or 13.0%, were
derived from table game revenues for the period from inception through December
31, 2001.
Casino revenues attributed to Fitzgeralds Tunica were $5,494,000, of
which $4,800,000, or 87.4% were derived from slot machine revenues, and
$694,000, or 12.6% were derived from table games revenues for the period from
inception through December 31, 2001. Casino revenues attributed to Fitzgeralds
Las Vegas were $2,355,000, of which $1,764,000, or 74.9% were derived from slot
machine revenues, and $591,000, or 25.1% were derived from table game revenues
for the period from inception through December 31, 2001. Casino revenues
attributed to Fitzgeralds Black Hawk were $2,510,000, of which $2,446,000, or
97.5% were derived from slot machine revenues, and $64,000, or 2.5% were derived
from table game revenues for the period from inception through December 31,
2001.
The consolidated average number of slot machines in operation was 2,935
during the period from inception through December 31, 2001, of which Fitzgeralds
Tunica accounted for 1,388, or 47.3%, Fitzgeralds Las Vegas accounted for 951 or
32.4%, and Fitzgeralds Black Hawk accounted for 596 or 20.3%. The consolidated
average win per slot machine per day was approximately $123 for the period from
inception through December 31, 2001, with an average of approximately $138, $74
and $164 at Fitzgeralds Tunica, Fitzgeralds Las Vegas and Fitzgeralds Black
Hawk, respectively. The consolidated average number of table games in operation
during the period from inception through December 31, 2001, was 64, of which
Tunica accounted for 34, or 53.1%, Fitzgeralds Las Vegas accounted for 24, or
37.5%, and Fitzgeralds Black Hawk accounted for 6, or 9.4%. The average win per
table game per day during the period from inception through December 31, 2001,
was approximately $843, with an average of approximately $839, $947, and $424 at
Fitzgeralds Tunica, Fitzgeralds Las Vegas and Fitzgeralds Black Hawk,
respectively.
Consolidated room revenues for the period from inception through December
31, 2001 was $1,079,000, or 8.41% of the total revenue. Of this amount,
Fitzgeralds Tunica accounted for $544,000 or 50.4% with 507 rooms and
Fitzgeralds Las Vegas accounted for $535,000 or 49.6% with 638 rooms. At
Fitzgeralds Tunica during this period the average daily rate was $50 and the
occupancy rate was 86.5%. At Fitzgeralds Las Vegas during this period the
average daily rate was $42 and the occupancy rate was 79.8%.
Consolidated food and beverage revenues for the period from inception
through December 31, 2001, amounted to $1,190,000, or 9.3% of the total revenue.
Of this amount, Fitzgeralds Tunica accounted for $586,000, or 49.3%, Fitzgeralds
Las Vegas accounted for $448,000, or 37.6% and Fitzgeralds Black Hawk accounted
for $156,000 or 13.1%.
Other consolidated revenues consisted primarily of commission and retail
income and totaled approximately $204,000, or 1.6% of total revenue. Of this
amount, Fitzgeralds Tunica accounted for $84,000 or 41.2%, Fitzgeralds Las
Vegas accounted for approximately $107,000 or 52.4%, and Fitzgeralds Black Hawk
accounted for $13,000 or 6.4%.
Promotional allowances included in the consolidated gross revenues for
the period from inception through December 31, 2001 were $2,311,000, or 18.0% of
gross revenues. Of this amount, Fitzgeralds Tunica accounted for $1,340,000, or
58.0%, Fitzgeralds Las Vegas accounted for $365,000, or 15.8%, and Fitzgeralds
Black Hawk accounted for $606,000, or 26.2%.
Consolidated casino operating expenses for the period from inception
through December 31, 2001 were $4,112,000 or 32.0% of gross revenues and 39.7%
of casino revenues. These expenses were
28
primarily comprised of salaries, wages and benefits, and operating expenses of
the casinos. Of the consolidated casino operating expenses, Fitzgeralds Tunica
accounted for $2,076,000, or 50.5%, Fitzgeralds Las Vegas accounted for
$1,344,000 or 32.7%, and Fitzgeralds Black Hawk accounted for $692,000 or 16.8%.
Gaming taxes are levied on adjusted gross receipts (as defined in each of
the applicable state's gaming laws). Gaming taxes were $808,000 or 6.3% of the
gross revenues for the period from inception through December 31, 2001. Of this
amount, Fitzgeralds Tunica accounted for $654,000, or 80.9%, Fitzgeralds Las
Vegas accounted for $139,000, or 17.2%, and Fitzgeralds Black Hawk accounted for
$15,000, or 1.9%.
Consolidated advertising and promotion expenses included salaries, wages
and benefits of the marketing and casino service departments, as well as
promotions, advertising and special events. Advertising and promotion expenses
for the period from inception through December 31, 2001, totaled $926,000, or
7.2% of gross revenues. Of this amount, Fitzgeralds Tunica accounted for
$423,000, or 45.7%, Fitzgeralds Las Vegas accounted for $322,000, or 34.8%, and
Fitzgeralds Black Hawk accounted for $181,000 or 19.5%.
Consolidated general and administrative expenses for the period from
inception through December 31, 2001 were $1,570,000, or 12.2% of gross revenues,
of which Fitzgeralds Tunica accounted for $642,000, or 40.9%, Fitzgeralds Las
Vegas accounted for $599,000, or 38.2%, and Fitzgeralds Black Hawk accounted for
$302,000, or 19.2%. Corporate expenses accounted for $27,000, or 1.7%.
Consolidated depreciation and amortization for the period from inception
through December 31, 2001, was approximately $921,000, or 7.2% of gross
revenues, of which Fitzgeralds Tunica accounted for $485,000, or 52.7%,
Fitzgeralds Las Vegas accounted for $167,000, or 18.1%, and Fitzgeralds Black
Hawk accounted for $100,000 or 10.9%. Corporate amortization of deferred
financing costs and the discount on the Investor Holdings Senior Secured Notes
accounted for $169,000, or 18.3% of consolidated depreciation and amortization
expense. Of the consolidated depreciation and amortization expense,
approximately $642,000, or 69.7%, is depreciation expense, and $279,000, or
30.3%, is amortization expense.
Consolidated pre-opening costs of approximately $1,018,000 were expenses
incurred prior to the acquisition of the Fitzgeralds properties. These costs
include salaries and wages, professional fees and other administrative expenses.
Consolidated operating loss for the period from inception through
December 31, 2001, was $278,000, or 2.2% of gross revenues, of which Fitzgeralds
Tunica accounted for operating income of $654,000, or 235.3%, Fitzgeralds Las
Vegas accounted for an operating loss of $393,000, or (141.4)% and Fitzgeralds
Black Hawk accounted for operating income of $674,000, or 242.4%.
Consolidated net interest expense for the period from inception through
December 31, 2001, was $993,000, or approximately 7.7% of gross revenues, of
which the Company accounted for net interest expense of $993,000, Fitzgeralds
Tunica accounted for interest income of $1,500, Fitzgeralds Las Vegas accounted
for interest expense of $2,100 and Fitzgeralds Black Hawk accounted for interest
income of $900.
29
As a result of the foregoing, the Company realized a net loss of
$1,271,000 for the period from inception through December 31, 2001.
Adjusted EBITDA for the period from inception through December 31, 2001
was $1,661,000, of which Fitzgeralds Tunica accounted for $1,138,000,
Fitzgeralds Las Vegas accounted for $(225,000) and Fitzgeralds Black Hawk
accounted for $774,000. The Company accounted for $(26,000). Adjusted EBITDA
should be viewed only in conjunction with all of the Company's financial data
and statements, and should not be construed as an alternative either to income
from operations (as an indicator of the Company's operating performance) or to
cash flows from operating activities as a measure of liquidity.
Liquidity and Capital Resources
At December 31, 2001, the Company had cash and cash equivalents of
approximately $17.7 million. Cash and cash equivalents included $498,000 at the
Company, $8.5 million at Barden Mississippi, $3.8 million at Barden Colorado and
$5.0 million at Barden Nevada.
The Company has met its capital requirements to date through net cash
from operations, capital contributions and equipment loans. For the period from
inception through December 31, 2001, net cash provided by operating activities
totaled approximately $2.6 million. For the period from inception through
December 31, 2001, cash used by investing activities totaled approximately
$143.9 million. Approximately $152.7 million was invested by the Company to
acquire the three Fitzgeralds brand casinos. For the period from inception
through December 31, 2001, cash provided by financing activities totaled
approximately $159.0 million primarily resulting from the Company's offering of
$152.6 million of Senior Secured Notes. As of April 1, 2002, the outstanding
borrowings under the credit facility were approximately $1.7 million.
Management believes that the Company's cash flow from operations and
its current lines of credit will be adequate to meet the Company's anticipated
future requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on the Investor Holdings Senior Secured Notes
and other permitted indebtedness for the year 2002. No assurance can be given,
however, that such proceeds and operating cash flow, in light of increased
competition will be sufficient for such purposes. If necessary and to the extent
permitted under the Investor Holdings Indenture, the Company will seek
additional financing through borrowings and debt or equity financing. There can
be no assurance that additional financing, if needed, will be available to the
Company, or that, if available, the financing will be on terms favorable to the
Company. In addition, there is no assurance that the Company's estimate of its
reasonably anticipated liquidity needs is accurate or that unforeseen events
will not occur, resulting in the need to raise additional funds.
New Accounting Principles
We have adopted Emerging Issues Task Force ("EITF") No. 00-14,
"Accounting for Certain Sales Incentives," EITF 00-22, "Accounting for `Points'
and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers
for Free Products or Services to Be Delivered in the Future," and EITF 00-25,
"Accounting for Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products," which required the cash-back
component of the Company's Slot Club reward program, including promotional
coupons, be classified as a reduction of revenues.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 141
30
requires all business combinations to be accounted for using the purchase method
of accounting. SFAS No. 141 is required to be implemented for all acquisitions
initiated after June 30, 2001, and all business combinations accounted for using
the purchase method for which the date of acquisition is July 1, 2001, or later.
We applied SFAS No. 141 for our acquisition of the Fitzgeralds assets.
Under SFAS No. 142, goodwill and other indefinite lived intangible
assets are no longer subject to amortization over their useful lives, rather,
they are subject to assessments for impairment at least annually. Also, under
SFAS No. 142, an intangible asset should be recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights or if the
intangible asset can be sold, transferred, licensed, rented or exchanged. Such
intangibles will be amortized over their useful lives. Under SFAS No. 142, our
acquisition of the Fitzgeralds assets was immediately subject to the provisions
of SFAS No. 142. We will test these assets for impairment at least annually.
Under SFAS No. 143, the fair value of a liability for an asset
retirement obligation is required to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 will be implemented by us on January 1, 2002.
Adoption of SFAS No. 143 is not anticipated to have a material impact on our
consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and amends Accounting Principles Board ("APB") Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effect of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. Adoption of SFAS No. 144 will not have a material impact on
our consolidated financial statements.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
requires management to make estimates and assumptions about the effects of
matters that are inherently uncertain. We have summarized our significant
accounting policies in Note 2 to our consolidated financial statements. Of our
accounting policies, we believe the following may involve a higher degree of
judgment and complexity.
Revenue Recognition. Casino revenue is the net win from gaming
activities, which is the difference between gaming wins and losses. Hotel and
other revenue is recognized at the time the related service is performed.
Goodwill. We have approximately $10.6 million of goodwill recorded on
our balance sheet at December 31, 2001 related to the acquisition of the
Fitzgeralds properties. We regularly evaluate our acquired businesses for
potential impairment indicators. Additionally, we adopted the provisions of SFAS
No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002, that
require us to perform impairment testing at least annually. Our judgments
regarding the existence of impairment indicators are based on, among other
things, the regulatory and market status and operational performance of each of
our acquired businesses. Future events could significantly impact our judgments
and any resulting impairment loss could have a material adverse impact on our
financial condition and results of operations.
31
Property and Equipment. At December 31, 2001 we have approximately
$122.4 million of net property and equipment recorded on our balance sheet.
Third-party valuations have been obtained for property and equipment and
intangible assets. We depreciate our assets on a straight-line basis over their
estimated useful lives. The estimate of the useful lives is based on the nature
of the asset as well as our current operating strategy. Future events, such as
property expansions, new competition and new regulations, could result in a
change in the manner in which we are using certain assets requiring a change in
the estimated useful lives of such assets. In assessing the recoverability of
the carrying value of property and equipment, we must make assumptions regarding
estimated future cash flows and other factors. If these estimates or the related
assumptions change in the future, we may be required to record impairment
charges for these assets.
Slot Club Liability. The Company offers a program whereby participants
can accumulate points for casino wagering that can currently be redeemed for
cash, lodging, food and beverages and merchandise. A liability is recorded for
the estimate of unredeemed points based upon the Company's redemption history.
This liability can be impacted by changes in the program, increases in
membership and changes in the redemption patterns of the participants.
Contractual Commitments.
The following table summarizes our obligations and commitments to make
future payments under certain contracts, including long-term debt obligations,
capitalized leases and operating leases at December 31, 2001.
Payments Due By Year
Contractual Obligations 2002 2003 2004 2005 2006 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Long-Tern Debt $ - $ - $ - $ - $ - $145,085,432 $145,085,432
Capital Leases 156,574 133,066 84,346 37,460 - - 411,446
Operating Leases 1,374,495 1,206,426 925,036 774,092 774,092 774,092 5,828,233
---------- ---------- ---------- --------- -------- ------------ ------------
Total $1,531,069 $1,339,492 $1,009,382 $ 811,552 $774,092 $145,859,524 $151,325,111
Amount of Commitment Expiration Per Period
Total Amounts Less than 1-3 4-5 Over 5
Other Commercial Commitments Committed 1 year Years Years Years
--------- ------ ----- ----- -----
Lines of Credit $6,500,000 $6,500,000 $- $- $-
---------- ---------- -- -- --
Total $6,500,000 $6,500,000 $- $- $-
FACTORS THAT MAY AFFECT FUTURE RESULTS
Risks Related to Our Substantial Debt
Our significant indebtedness could adversely affect our financial health.
We have a significant amount of debt. We currently have outstanding
$152.6 million of long-term debt represented by the Investor Holdings Senior
Secured Notes. At December 31, 2001 we also had $6.5 million outstanding under
the $15.0 million Investor Holdings Credit Facility. In addition, the Investor
Holdings Indenture and Investor Holdings Credit Facility 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 significant effects on our business.
For example, it could, among other things:
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. make it more difficult for us to satisfy our obligations with
respect to the Investor Holdings Senior Secured Notes and our
other outstanding indebtedness;
. increase our vulnerability to adverse economic and industry
conditions or a downturn in our business;
. result in an event of default if we fail to comply with the
financial and other restrictive covenants contained in the
Investor Holdings Indenture or in the Investor Holdings 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 and
prospects.
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 Investor Holdings Senior Secured 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 Investor Holdings Senior Secured Notes when
due with cash from operations. 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
Investor Holdings Senior Secured 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, and
may be difficult because of governmental restrictions on ownership. In the event
that we are left without sufficient liquidity to meet our debt service
requirements, an event of default would occur under the Investor Holdings
Indenture and the Investor Holdings Credit Facility. The Investor Holdings
Senior Secured Notes and the Investor Holdings Credit Facility are secured by
substantially all of our current and future assets.
We are required to pay weekly liquidated damages under our senior secured notes.
We have not registered Majestic Investor Holdings Senior Secured Notes and
accordingly we are obligated to pay liquidated damages amounts until such notes
are registered. Under the registration rights agreement related to the Majestic
Investor Holdings Senior Secured Notes, we are required to pay an amount per
week per $1,000 principal amount of Registrable Securities equal to $0.05 for
the first 90-day period
33
following April 5, 2002, increasing by an additional $0.05 per week with respect
to each subsequent 90-day period, up to a maximum amount of $0.20 per week.
We are a holding company and therefore our ability to make payments on the
Investor Holdings Senior Secured 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 Investor Holdings Senior Secured 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 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.
The Investor Holdings Indenture and the Investor Holdings Credit Facility
contain covenants that significantly restrict our operations.
The Investor Holdings Indenture and the Investor Holdings Credit
Facility do, and any other future debt agreement will, contain numerous
covenants imposing financial and operating restrictions on our business. These
restrictions may affect our ability to operate our business, limit our ability
to take advantage of potential business opportunities as they arise and
adversely affect the conduct of our current business. These covenants will place
restrictions on our ability and the ability of our subsidiaries to, among other
things:
. incur more debt;
. pay dividends 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
34
. extend credit.
The Investor Holdings 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.
Risks Related to Our Business
We may be unable to successfully integrate the three Fitzgeralds casinos, 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 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 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, certain of our executives provide management services to
Majestic Star, us and our subsidiaries. Accordingly, such executives will not be
able to devote all of their time to us and our subsidiaries.
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. In addition, we compete with gaming facilities
nationwide, including casinos located on Indian reservations and other
land-based casinos in Nevada and Atlantic City, as well as elsewhere, not only
for customers but also for employees and potential future gaming sites. We also
compete, to some extent, with other forms of gaming on both a local and national
level, including state-sponsored lotteries, Internet gaming, on-and off-track
wagering and card parlors. The expansion of legalized gaming to new
jurisdictions throughout the United States also has increased competition faced
by us and will continue to do so in the future. Additionally, if gaming 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
35
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.
Government regulations require us to:
. pay gaming fees and taxes in each state where we operate a
casino;
. obtain a gaming license in each state where we operate a
casino, which we must have renewed periodically and which may
be suspended or revoked if we do not meet detailed regulatory
requirements;
. receive and maintain federal and state environmental
approvals; and
. receive and maintain local licenses to sell alcoholic
beverages in our casinos.
No assurances can be given that any new gaming licenses, liquor
licenses, registrations, findings of suitability, permits and approvals,
particularly those related to any proposed expansion, will be given or that
existing ones will be renewed when they expire. We know of no reason why our
existing gaming licenses would not be renewed or maintained, or why new licenses
would not be granted to us; however, any failure to renew or maintain our
licenses or receive new licenses when necessary would have a material adverse
effect on us.
The compliance costs associated with these laws, regulations and
licenses are significant. A change in the laws, regulations and licenses
applicable to our business or a violation of any current or future laws or
regulations or our gaming licenses could require us to make material
expenditures or could otherwise materially adversely affect our business or
financial results.
Legislation or local referenda on gaming may restrict or adversely impact our
operations.
The casino entertainment industry is subject to political and
regulatory uncertainty. In some of the jurisdictions in which we currently
operate or from which we attract customers, or in which we may expand, gaming is
subject to local referenda. If the results of a referendum held in a
jurisdiction in which we operate were to restrict gaming in whole or in part or
if the results of a referendum in a nearby non-gaming jurisdiction were to
permit gaming, our results of operations could be negatively impacted.
36
The right of Fitzgeralds to continue to use the name "Fitzgeralds" may
negatively impact our national brand recognition.
Under an exclusive license from us, Fitzgeralds 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. Because Fitzgeralds
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 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 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, 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.
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 16% of our workforce is unionized. At December 31, 2001,
Fitzgeralds Las Vegas employed approximately 924 people, approximately 389 of
whom are represented by the Culinary Workers Union, Local No. 226 and the
Bartenders Union, Local 165, under a five-year contract expiring on May 31,
2002. In addition, four employees are represented by the United Brotherhood of
Carpenters and Joiners of America, Southern California-Nevada Regional Council
of Carpenters and its Affiliated Local No. 1780, under a three-year contract
that expired on July 31, 2001. This contract is currently being renegotiated and
we can give no assurances that such contract will be renegotiated without a
significant increase in wages, or the imposition of other adverse terms. At
December 31, 2001, Fitzgeralds Tunica and Fitzgeralds Black Hawk employed
approximately 1,230 and 363 people, respectively. Any labor disruptions or work
stoppages could have a material adverse effect on our operations.
37
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. Fitzgeralds Black Hawk is
subject to snow and icy road conditions during the winter months. 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 CERCLA. 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 the Fitzgeralds Purchase
Agreement, we are entitled to indemnification for environmental matters relating
to the properties only in very limited circumstances.
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 on a number of factors that are
beyond our control.
The economic health of the casino industry is affected by a number of
factors that are beyond our control, including: (i) general economic conditions;
(ii) levels of disposable income of casino patrons; (iii) increased
transportation costs resulting in decreased travel by patrons; (iv) local
conditions in key gaming markets, including seasonal and weather-related
factors; (v) increase in gaming taxes or fees; (vi) competitive
conditions in the gaming industry and in particular gaming markets, including
the effect of such conditions on the pricing of our games and products; and
(vii) the relative popularity of entertainment alternatives to casino
38
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.
We and Investor are prohibited by the Majestic Star Indenture from engaging in
certain transactions with Majestic Star.
We and Investor have been designated as "unrestricted subsidiaries" by
Majestic Star under the Majestic Star Indenture. As a result, Majestic Star and
certain of its other subsidiaries are prohibited from providing cash or credit
support to us or our subsidiaries or to Investor. We and our subsidiaries and
Investor also are prohibited from engaging in transactions with Majestic Star
and certain of its subsidiaries other than on an arm's length basis and, if a
proposed transaction exceeds $2.0 million in value, Majestic Star and certain of
its subsidiaries may only participate in such transaction with the approval of a
majority of the disinterested members of Majestic Star'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 Majestic Star
from a financial point of view. Such restrictions could have an adverse effect
on us by limiting our ability and the ability of Investor to engage in
transactions with Majestic Star and its other subsidiaries, which could
potentially impact any synergies we realize from the Fitzgeralds acquisition.
On the other hand, Majestic Star may redesignate us or Investor as a
restricted subsidiary under the Majestic Star Indenture. In such a case, our
business and operations and the business and operations of Investor,
respectively, would become subject to, and would be required to comply with, the
restrictions set forth in such indenture. These restrictions, many of which are
similar to those contained in the indenture governing the notes, could impair
our ability to raise capital, enter into certain transactions and conduct our
business, which could have a material effect on our business, growth, financial
condition and results of operations and our ability to make payments on the
notes and our other outstanding indebtedness.
We no longer operate the hotel located at our Las Vegas property as a Holiday
Inn, which may impact our ability to attract customers.
Prior to our acquisition of the Fitzgeralds properties on December 6,
2001, the hotel located at the Las Vegas property was operated as a Holiday Inn,
pursuant to a franchise agreement. We did not assume
this agreement from Fitzgeralds as a part of the acquisition. Although the
failure to assume this contract and continue to operate this hotel as a Holiday
Inn may adversely impact our ability to attract customers, and
39
therefore our revenues, we believe any potential revenue loss will be offset by
the cost savings we will realize from the elimination of the franchise fee
payment and the cross-marketing of Fitzgeralds Las Vegas with the Company's
other properties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any financial instruments held for
traditional purposes, such as trading or other speculative purposes, and does
not hedge any of its market risks with derivative instruments.
The Company's primary market risk exposure relates to interest risk
exposure through its borrowings and third party financing, including the
Investor Holdings Credit Facility, under which interest accrues on a floating
rate basis. These sources of credit, along with cash flow from operations, are
used to maintain liquidity and fund business operations. The Company typically
replaces borrowings under its third party vendor financing, as necessary, with
shorter termed variable rate financing generally secured by the assets being
acquired. The nature and amount of the Company's debt may vary as a result of
future business requirements, market conditions and other factors.
The Investor Holdings Credit Facility has a maximum credit line of
$15.0 million. Assuming we have borrowed against the maximum available under the
Investor Holdings Credit Facility, a one-half percentage point change in the
underlying variable rate would result in a change in related interest expense of
$75,000. Additionally, should we assume variable rate debt in the future, we
will be subject to market risk, which is the risk of loss from changes in market
prices and interest rates.
In addition, we have approximately $152.6 million principal amount of
notes outstanding under the Investor Holdings Indenture. Our fixed rate debt
instruments are not generally affected by a change in the market rates of
interest and therefore, such instruments generally do not have an impact on
future earnings. However, as our fixed rate debt matures, future earnings and
cash flows may be impacted by changes in interest rates related to debt incurred
to fund repayments under maturing facilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company as of December 31, 2001. The Company does not
have directors since it is a limited liability company.
Name and Age Position(s) Held
------------ ----------------
Don H. Barden, 58 Manager, Chairman, President and Chief
Executive Officer
Michael E. Kelly, 40 Manager, Executive Vice President, Chief
Operating and Financial Officer and Secretary
Don H. Barden, is the Manager, Chairman, President and Chief Executive
Officer of the Company since its formation, with responsibility for key policy
making functions. Since their formation, Mr. Barden is also President and Chief
Executive Officer of Investor and Manager of Barden Colorado and Barden
Mississippi; Chairman, President and Chief Executive Officer of Majestic Star,
Majestic Investor Capital,
40
Barden Colorado, Barden Mississippi and Barden Nevada; Chairman and President of
BDI. Mr. Barden also has served as a director of Majestic Investor Capital since
its formation. Additionally, he is the President and Chief Executive Officer of
a group of other companies he owns and/or operates. Over the past 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, is the Manager, Executive Vice President, Chief
Operating and Financial Officer and Secretary of the Company since its
formation, with overall responsibility for the daily operations. Mr. Kelly also
is Executive Vice President, Chief Operating Officer and Financial Officer of
Majestic Star since January 1, 1999, and served as its General Manager up to
October 22, 2001. From April 1996 through December 31, 1998, Mr. Kelly was the
Vice President and Chief Financial Officer of Majestic Star with overall
responsibility for the Company's financial reporting and investor relations
functions. Mr. Kelly assumed the responsibility for management of daily
operations and related activities of Majestic Star effective October 17, 1998.
Mr. Kelly is a Vice President of BDI since April, 1996 and director of Majestic
Investor Capital since its formation. Since their formation, Mr. Kelly is also
Executive Vice President, Chief Operating and Financial Officer of Investor;
Manager of Barden Mississippi; Executive Vice President, Chief Operating and
Financial Officer and Secretary of Majestic Investor Capital, Barden Colorado,
Barden Mississippi and Barden Nevada; Director of Majestic Investor Capital.
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 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.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation earned for services
performed for the Company during the fiscal year ended December 31, 2001 by the
Company's Chief Executive Officer and its other executive officers
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation earned for services
performed for Majestic Star, Investor and, following its formation in September
of 2001, the Company and each of its subsidiaries, during the fiscal year ended
December 31, 2001 by our Chief Executive Officer and our other executive
officer. All compensation is paid by Majestic Star.
Annual Compensation(1) All Other
----------------------
Name and Position Year Salary Bonus Compensation(2)
- ----------------- ---- ------ ----- ---------------
Don H. Barden (3) ..................................... 2001 $ 332,788 $ -- $ 1,271
Manager, Chairman, President and Chief ................
Executive Officer .....................................
Michael E. Kelly (3) .................................. 2001 $ 296,635 $175,000 $ 24,901
Manager, Executive Vice President, Chief ..............
Operating and Financial Officer .......................
and Secretary
_______________
41
(1) The incremental cost to Majestic Star 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, Majestic Star contributed a 401(k) match of
$17,530 to Mr. Kelly, and Mr. Kelly was also reimbursed by Majestic
Star $4,647 for non-deductible medical plan expenditures. In 2001, life
insurance premiums of $ 1,271 and $ 2,724 were paid by Majestic Star on
behalf of Messrs. Barden and Kelly, respectively.
(3) All of Mr. Barden's and Mr. Kelly's compensation is paid by Majestic
Star, but fifty percent of such compensation is reimbursed by the
Company through an expense sharing agreement. See Item 13 - "Certain
Relationships and Related Transactions."
Employment Agreements
Mr. Barden serves as our Manager, Chairman, President and Chief
Executive Officer and currently receives annual compensation of $370,000 as an
employee, pursuant to a letter agreement dated October 22, 2001 with Majestic
Star.
Mr. Kelly serves as our Manager, Executive Vice President, Chief
Operating and Financial Officer and Secretary pursuant to a three-year
employment agreement with Majestic Star dated October 22, 2001. Under this
agreement, Mr. Kelly will receive base compensation of $400,000 per year and can
also earn annual incentive compensation based upon his performance and the
performance of Majestic Star and the three Fitzgeralds casinos. In addition to
such compensation, Mr. Kelly is entitled to term life insurance in an amount
equal to $2.5 million and other customary employee benefits, including
participation in Majestic Star's 401(k) plan, together with a $100,000 signing
bonus and an interest free loan in the amount of $200,000 to be repaid in three
equal annual installments. Mr. Kelly is also entitled to additional
compensation, upon a change in control, equal to his base salary and incentive
compensation for the remainder of the term of the agreement, plus 12 months
thereafter. Mr. Kelly's employment agreement contains certain non-competition
provisions with a duration of 12 months following termination of his employment.
Compensation Committee Interlocks and Insider Participation
We have no standing Compensation Committees. All compensation decisions
are made by Majestic Star, whose sole manager is BDI.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We are indirectly wholly-owned by Don H. Barden, our Manager, Chairman,
President and Chief Executive Officer.
The following table sets forth the beneficial ownership of each of the
Company, Majestic Investor Capital, Barden Colorado, Barden Mississippi and
Barden Nevada 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
42
_______________
(1) Includes the membership interests in the Company, all of which are
beneficially owned directly by Investor, which is directly wholly owned
by Majestic Star. All of the membership interests in Majestic Star 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, all of which is
beneficially owned directly by the Company, which is directly wholly
owned by Investor, which is directly wholly owned by Majestic Star. All
of the membership interests in Majestic Star 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, all of
which are beneficially owned directly by the Company, which is directly
wholly owned by Investor, which is directly wholly owned by Majestic
Star. All of the membership interests in Majestic Star are directly
wholly owned by BDI, which is directly wholly owned by Mr. Barden.
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, all of which
are beneficially owned directly by the Company, which is directly
wholly owned by Investor, which is directly wholly owned by Majestic
Star. All of the membership interests in Majestic Star 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, all of which are
beneficially owned directly by the Company, which is directly wholly
owned by Investor, which is directly wholly owned by Majestic Star.
All of the membership interests in Majestic Star are directly wholly
owned by BDI, which is directly wholly owned by Mr. Barden.
43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 2000, Investor was capitalized by Majestic Star with $9.0
million of capital contributions, including interest earned thereon. Investor
subsequently contributed this $9.0 million to the Company in connection with
Investor's assignment of its rights and obligations under the Fitzgeralds
purchase and sale agreement to the Company.
Prior to the consummation of the offering of the Investor Holdings
Senior Secured Notes, the Company issued a 35.71% membership interest to BDI in
exchange for the contribution by BDI of a promissory note for $5.0 million. BDI
subsequently contributed the 35.71% membership interest to Investor, as
additional paid-in equity. Investor currently owns 100% of the membership
interests in the Company. BDI, upon the closing of the offering of the Investor
Holdings Senior Secured Notes, contributed $5.0 million to the Company in
repayment of the promissory note.
Interest of $185,750 remains outstanding at December 31, 2001 on a $2.0
million note made by Investor to BDI. The note was later assigned to the Company
from Investor. BDI paid the principal of the note in conjunction with the
closing of the Fitzgeralds acquisition on December 6, 2001.
During 2001, Investor Holdings made a $700,000 loan to BDI. This loan
accrues interest at 7% per annum and is due on December 12, 2002.
Management Agreement
Pursuant to an amended and restated management agreement entered into
on December 5, 2001, and effective December 6, 2001, BDI will receive a
management fee for acting as our manager. The fee for each fiscal quarter will
be equal to 1% of net revenues plus 5% of our Consolidated Cash Flow (as defined
in the Investor Holdings Indenture) for the immediately preceding fiscal quarter
and may not be paid if we are in default under the Investor Holdings Indenture.
We pay the management fee to BDI as a return on the investment capital
contributed to us by BDI for corporate oversight and governance services and as
an inducement for Mr. Barden, the sole stockholder of BDI, to continue using his
visibility in the gaming industry to promote us. The payment of such management
fees is subordinated to the payment in full of principal, interest, and
liquidated damages, if any, then due on the Investor Holdings Senior Secured
Notes.
Expense Sharing Agreement
Pursuant to an expense sharing agreement entered into on October 22,
2001, Investor Holdings will reimburse Majestic Star for sixty percent (60%) of
(i) the costs and expenses of executives and certain other employees, including,
but not limited to, salaries, bonuses, benefit payments, insurance and supplies,
(ii) rent and (iii) other similar costs and expenses paid by Majestic Star.
These executives and employees will provide services to both Majestic Star and
to us and our subsidiaries. Currently, due to restrictions set forth in the
Investor Holdings Indenture, the reimbursement percentage is capped at fifty
percent (50%) up to an aggregate of $1.7 million.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements as listed on Page F-1.
2. Financial Statement Schedule as listed on Page F-1.
44
3. Exhibits: The exhibits included as part of this report are listed in
the attached Exhibit Index on Page E-1, which is incorporated herein
by reference.
(b) Reports on Form 8-K:
None.
INDEX OF FINANCIAL STATEMENTS
MAJESTIC INVESTOR HOLDINGS, LLC
Report of Independent Accountants F-2
Consolidated Balance Sheet as of December 31, 2001 F-3
Consolidated Statement of Operations for the period from inception
(September 14, 2001) through December 31, 2001 F-4
Consolidated Statement of Changes in Members' Equity for the Period
from inception (September 14, 2001) through December 31, 2001 F-5
Consolidated Statement of Cash Flows for the period from inception
(September 14, 2001) through December 31, 2001 F-6
Notes to the Consolidated Financial Statements F-7
Schedule:
Schedule II - Valuation and Qualifying Accounts F-24
Consolidating Balance Sheets as of December 31, 2001 F-25
Consolidating Statements of Operations for the period from inception
(September 14, 2001) through December 31, 2001 F-26
Consolidating Statements of Cash Flows for the period from
inception (September 14, 2001) through December 31, 2001 F-27
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Majestic Investor Holdings, LLC:
In our opinion, the financial statements listed in the index appearing
under Item 14a(1) on page F-1 present fairly, in all material respects, the
financial position of Majestic Investor Holdings, LLC and its subsidiaries at
December 31, 2001, and the results of their operations and their cash flows for
the period from inception (September 14, 2001) through December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page F-1 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. We conducted our
audit of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
Our audit was conducted for the purpose of forming an opinion on the
consolidated financial statements and financial statement schedule taken as a
whole. The consolidating information on pages F-25 through F-27 is presented for
purposes of additional analysis of the consolidated financial statements rather
than to present the financial position, results of operations and cash flows of
the individual companies. Accordingly, we do not express an opinion on the
financial position, results of operations and cash flows of the individual
companies. However, the consolidating information has been subjected to the
auditing procedures applied in the audit of the consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the consolidated financial statements taken as a whole.
PricewaterhouseCoopers LLP
Chicago, Illinois
April 5, 2002
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001
ASSETS
Current Assets:
Cash and cash equivalents ............................................ $ 17,704,815
Accounts receivable, less allowance for
doubtful accounts of $248,042 .................................... 1,464,834
Inventories .......................................................... 957,564
Prepaid expenses ..................................................... 1,212,653
Due from Seller ...................................................... 82,832
Note receivable from related party ................................... 700,000
Other 15,552
------------
Total current assets 22,138,250
------------
Property, equipment and barge improvements, net ........................... 122,427,962
Intangible assets, net .................................................... 19,290,753
Goodwill .................................................................. 10,602,250
Other Assets:
Deferred financing costs, net of accumulated amortization
of $83,897 ....................................................... 7,023,706
Restricted cash ...................................................... 1,000,000
Other assets and deposits ............................................ 945,618
------------
Total other assets ............................................... 8,969,324
------------
Total Assets ..................................................... $183,428,539
============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ................................. $ 6,656,574
Accounts payable ..................................................... 1,946,730
Other accrued liabilities:
Payroll and related .............................................. 5,006,114
Interest ......................................................... 1,208,779
Progressive Jackpots ............................................. 2,274,050
Slot club liability .............................................. 2,241,876
Other accrued liabilities ............................................ 5,043,988
------------
Total current liabilities ........................................ 24,378,111
------------
Due to related parties .................................................... 1,177,829
Long-term debt, net of current maturities ................................. 145,340,304
------------
Total Liabilities ................................................ $170,896,244
------------
Commitments and contingencies
Members' Equity:
Members' contributions ............................................... $ 13,803,192
Accumulated deficit .................................................. (1,270,897)
------------
Total members' equity ................................................ 12,532,295
------------
Total Liabilities and Members' Equity ............................ $183,428,539
============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
Revenues:
Casino ........................................ $ 10,358,799
Rooms ......................................... 1,079,456
Food and beverage ............................. 1,189,804
Other ......................................... 203,858
------------
12,831,917
Less promotional allowances ............... (2,310,848)
------------
Net revenues .............................. 10,521,069
Costs and expenses:
Casino ........................................ 4,111,503
Rooms ......................................... 628,910
Food and beverage ............................. 706,947
Other ......................................... 108,732
Gaming taxes .................................. 808,464
Advertising and promotion ..................... 926,226
General and administrative .................... 1,569,643
Depreciation and amortization ................. 920,648
Pre-opening expenses .......................... 1,018,234
------------
10,799,307
------------
Loss from operations ...................... (278,238)
Other income (expense):
Interest income ........................... 218,201
Interest expense .......................... (1,210,860)
------------
(992,659)
------------
Net loss ...................................... $ (1,270,897)
============
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
Capital Total
Contributions Accumulated Deficit Members' Equity
------------- ------------------- ---------------
Contribution from Majestic Investor $ 8,803,192 $ - $ 8,803,192
Members' contribution 5,000,000 - 5,000,000
Net loss - (1,270,897) (1,270,897)
------------- ------------------- ---------------
Balance, December 31, 2001 $13,803,192 $ (1,270,897) $12,532,295
============= =================== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
Cash Flows From Operating Activities:
Net loss .............................................................................. $ (1,270,897)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization .................................................... 920,648
Increase in accounts receivable, net ............................................. (532,843)
Decrease in related party payables ............................................... (8,665)
Decrease in inventories .......................................................... 20,886
Increase in prepaid expenses ..................................................... (296,365)
Increase in other assets ......................................................... (24,503)
Increase in accounts payable ..................................................... 394,988
Increase in accrued interest ..................................................... 1,208,779
Increase in accrued and other liabilities ........................................ 2,222,443
--------------
Net cash provided by operating activities .................................... 2,634,471
--------------
Cash Flows From Investing Activities
Payment for purchase of Fitzgeralds, net of cash acquired ............................. (143,758,152)
Acquisition of property and equipment ................................................. (122,696)
--------------
Net cash used in investing activities ............................................ (143,880,848)
--------------
Cash Flows From Financing Activities
Proceeds from issuance of 11.653% Senior Secured Notes ................................ 145,000,400
Payment of Senior Secured Notes issuance costs ........................................ (6,815,090)
Member's equity contribution .......................................................... 5,000,000
Contribution from Majestic Investor. .................................................. 8,803,191
Cash advances from related parties .................................................... 1,168,273
Issuance of loan to Barden Development, Inc. .......................................... (700,000)
Line of credit ........................................................................ 6,500,000
Cash paid to reduce long-term debt .................................................... (5,582)
--------------
Net cash provided by financing activities ........................................ 158,951,192
--------------
Net increase in cash and cash equivalents ............................................. 17,704,815
Cash and cash equivalents, beginning of period ........................................ -
--------------
Cash and cash equivalents, end of period .............................................. $ 17,704,815
==============
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
Majestic Investor Holdings, LLC (the "Company"), is a wholly-owned
subsidiary of Majestic Investor, LLC and an indirect wholly-owned subsidiary of
The Majestic Star Casino, LLC ("Majestic Star"), owner and operator of the
Majestic Star Casino, a riverboat casino located at Buffington Harbor in Gary,
Indiana. The Company is indirectly wholly-owned and controlled by Don H. Barden,
the Company's Manager Chairman, President and Chief Executive Officer.
On November 22, 2000, Majestic Investor, LLC entered into a definitive
purchase and sale agreement, as amended, with Fitzgeralds Gaming Corporation and
certain of its affiliates (the "Seller") to purchase substantially all of the
assets of three of its subsidiaries for $149.0 million in cash, subject to
adjustment in certain circumstances, plus the assumption of certain liabilities.
Majestic Investor, LLC assigned all of its rights and obligations under the
purchase and sale agreement to the Company following the formation of the
Company. At the date of assignment, Majestic Investor, LLC had approximately
$8.8 million of assets, no liabilities and $8.8 million of members' equity. The
assignment and contribution has been reflected in the consolidated financial
statements of Majestic Investors Holdings, LLC as though it occurred as of the
beginning of the period.
The Company is a Delaware limited liability company formed on September
14, 2001 solely for the purpose of acquiring substantially all of the assets of
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street
Limited Liability Company (hereinafter referred to as the Fitzgeralds assets).
The three newly formed subsidiaries that hold the Fitzgeralds assets and provide
gaming and related entertainment to the public include Barden Mississippi
Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming, LLC. Majestic
Investor Capital Corp. ("MICC"), a wholly-owned subsidiary of the Company, was
formed specifically to facilitate the offering of the senior secured notes, the
proceeds of which were used to purchase the Fitzgeralds assets. MICC does not
have any material assets or operations. The Company completed the purchase of
the Fitzgeralds assets on December 6, 2001. The three Fitzgeralds brand casinos
are "restricted subsidiaries" of the Company under the Indenture relating to the
Company's 11.653% Senior Secured Notes.
Except where otherwise noted, the words "we," "us," "our" and similar
terms, as well as the "Company," refer to Majestic Investor Holdings, LLC and
all of its subsidiaries.
2. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers cash equivalents to include
short-term investments with original maturities of ninety days or less. Cash
equivalents are carried at cost plus accrued interest which approximates fair
value. The Company places its cash primarily in checking and money market
accounts with high credit quality financial institutions which, at times, have
exceeded federally insured limits.
F-7
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
RESTRICTED CASH - At December 31, 2001, restricted cash represents U.S. Treasury
Notes held in an escrow account for the benefit of certain owners of land leased
to Barden Nevada Gaming, LLC.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of casino
accounts receivable. The Company extends credit to approved casino customers
following background checks and investigations of creditworthiness. An estimated
allowance for doubtful accounts is maintained to reduce the Company's
receivables to their carrying amount, which approximate fair value. Management
believes that as of December 31, 2001, no significant concentrations of credit
risk existed for which an allowance had not already been determined and
recorded.
INVENTORIES - Inventories, consisting principally of food, beverage, and gift
shop items are stated at the lower of cost or market value. Cost is determined
by the first-in, first-out method.
OTHER ASSETS - The estimated cost of normal operating quantities (base stock) of
china, silverware, glassware, linen, uniforms and utensils has been recorded as
an asset and is not being depreciated. Costs of base stock replacements are
expensed as incurred. Other assets in the accompanying consolidated balance
sheet include $627,473 of base stock inventories at December 31, 2001.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
expense is computed utilizing the straight-line method over the estimated useful
lives of the depreciable assets. Certain equipment held under capital leases are
classified as property and equipment and amortized using the straight-line
method over the lease terms and the related obligations are recorded as
liabilities. Costs of major improvements are capitalized; costs of normal
repairs and maintenance are charged to expense as incurred. Gains or losses on
dispositions of property and equipment are recognized in the consolidated
statement of operations when incurred.
DEFERRED FINANCING COSTS - Deferred financing costs represent agent's
commission, closing costs and professional fees incurred in connection with the
issuance of the 11.653% Senior Secured Notes and the $15.0 million line of
credit. Such costs are being amortized over the six year term of the notes and
over the four year term of the line of credit, respectively, using the effective
interest method.
GOODWILL - Goodwill represents the cost of net assets acquired in excess of
their fair value. Goodwill for acquisitions after June 30, 2001 is not subject
to amortization but is subject to impairment testing at least annually.
INTANGIBLE ASSETS - Intangible assets are amortized over their estimated useful
lives, generally eight to ten years.
CASINO REVENUE - Casino revenue is the net win from gaming activities, which is
the difference between gaming wins and losses. Hotel and other revenue is
recognized at the time the related service is performed.
F-8
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
PROMOTIONAL ALLOWANCES - Revenues include the retail value of hotel rooms, food
and beverage and other services which were provided to customers without charge.
The corresponding charges have been deducted from revenue in the accompanying
consolidated statement of operations as promotional allowances in the
determination of net revenues. The estimated direct cost of providing
promotional allowances has been included in costs and expenses as follows:
For the Period from Inception (September 14,
2001) through December 31, 2001
-------------------------------
Hotel rooms $ 254,918
Food and beverage 837,469
Other 50,543
Promotional allowances also include cash-back incentives in our Slot Club and
other gaming programs.
PRE-OPENING COSTS - Pre-opening costs are expensed as incurred.
FEDERAL INCOME TAXES - The Company is a limited liability corporation which
results in the tax attributes of the Company passing through to its Members.
Accordingly, federal and state income taxes have not been provided for in the
Company's financial statements.
ADVERTISING COSTS - Advertising expenditures are expenses as incurred.
Advertising costs included in advertising and promotion expenses were $199,337
for the period from inception (September 14, 2001) through December 31, 2001.
LONG-LIVED ASSETS - Long-lived assets and certain identifiable intangibles held
and used by the Company are reviewed for impairment when events or changes in
circumstances warrant such a review. The carrying value of a long-lived or
intangible asset is considered impaired when the anticipated undiscounted cash
flow from such asset is less than its carrying value. In that event, an
impairment loss is recognized. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the cost
of disposition.
SLOT CLUB LIABILITY - The Company has accrued for the liability of points earned
but not redeemed by its Slot Club members, less inactive players and expired
points. The liability is calculated based on an average historical redemption
rate. Expenses incurred from actual cash redemptions and the change in reserve
for slot club redemptions is included in promotional allowances on the
consolidated statement of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based upon current
information, that the carrying value of the Company's cash and cash equivalents,
restricted cash, accounts receivable and accounts payable approximates fair
value. The Company estimates the fair value of its long-term debt approximates
its carrying value based on quoted market prices for the same or similar issues.
F-9
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - We adopted Emerging Issues Task
Force ("EITF") No. 00-14, "Accounting for Certain Sales Incentives," EITF 00-22,
"Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to Be Delivered in
the Future," and EITF 00-25, "Accounting for Consideration from a Vendor to a
Retailer in Connection with the Purchase or Promotion of the Vendor's Products,"
which requires the cash-back component of the Company's Slot Club reward
program, including promotional coupons, be classified as a reduction of
revenues.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 143,
"Accounting for Asset Retirement Obligations." SFAS No. 141 requires all
business combinations to be accounted for using the purchase method of
accounting. SFAS No. 141 is required to be implemented for all acquisitions
initiated after June 30, 2001, and all business combinations accounted for using
the purchase method for which the date of acquisition is July 1, 2001, or later.
We applied SFAS No. 141 for our acquisition of the Fitzgeralds assets.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets are no
longer subject to amortization over their useful lives, rather, they are subject
to assessments for impairment at least annually. Also, under SFAS No. 142, an
intangible asset should be recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights or if the intangible asset
can be sold, transferred, licensed, rented or exchanged. Such intangibles will
be amortized over their useful lives. Under SFAS No. 142, our acquisition of the
Fitzgeralds assets was immediately subject to the provisions of SFAS No. 142. We
will test these assets for impairment at least annually.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 will be implemented by us on January 1, 2002. Adoption of SFAS No.
143 is not anticipated to have a material impact on our consolidated financial
statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
and amends Accounting Principles Board ("APB") Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effect of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. Adoption of SFAS No. 144 will not have a material impact on our
consolidated financial statements.
F-10
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions
On December 6, 2001, we completed the acquisition of substantially all of the
assets and assumed certain liabilities of Fitzgeralds Las Vegas, Inc.
("Fitzgeralds Las Vegas"), Fitzgeralds Mississippi, Inc. ("Fitzgeralds Tunica")
and 101 Main Street Limited Liability Company ("Fitzgeralds Black Hawk") (the
"Fitzgeralds assets") for approximately $152.7 million. We are accounting for
the acquisition under the purchase method. Accordingly, the purchase price is
allocated to the underlying assets acquired and liabilities assumed based upon
their estimated fair values at the date of acquisition. We determined the
estimated fair value of property and equipment and intangible assets based upon
third-party valuations.
The purchase price was determined based upon estimates of future cash flows and
the net worth of the assets acquired. We funded the acquisition through the
issuance of 11.653% Senior Secured Notes (see Note 6). The results of operations
for the twenty-five days ended December 31, 2001, since the acquisition on
December 6, 2001, are included in our consolidated statement of operations. The
following table summarizes the estimated fair value of the assets acquired and
the liabilities assumed at the acquisition date.
(In millions) At December 6, 2001
-------------------
Current assets $ 12.2
Property and equipment 122.9
Intangible assets 19.4
Goodwill 10.6
Other noncurrent assets 2.0
-------
Total assets acquired 167.1
-------
Current liabilities 14.0
Other noncurrent liabilities 0.4
-------
Total liabilities assumed 14.4
Net $ 152.7
=======
Intangible assets primarily include $9.8 million for customer relationships,
$3.7 million for tradename and $5.2 million for gaming licenses. Intangible
assets for customer relationships and tradename are being amortized over a
period of 8-10 years. In accordance with SFAS 142, goodwill, and other
indefinite lived intangible assets such as the Company's gaming license, are not
amortized but instead are subject to impairment tests at least annually.
F-11
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions (Continued)
The following unaudited pro forma consolidated financial information has been
prepared assuming our acquisition occurred on January 1, 2001.
For the year ended
December 31, 2001
-----------------
(Unaudited in thousands)
Net revenues $172,042
Income from operations $ 19,422
Net income $ 447
These unaudited pro forma results are presented for comparative purposes only.
The pro forma results are not necessarily indicative of what our actual results
would have been had the acquisition been completed as of the beginning of the
year, or of future results.
4. Property and Equipment
Property and equipment at December 31, 2001 consists of the following:
Estimated Service
2001 Life (Years)
---- -----------------
Land $ 6,403,375
Buildings and improvements 69,287,364 25
Site improvements 15,870,892 9
Barge and improvements 14,655,000 13
Furniture, fixtures and equipment 16,157,574 4
Construction in progress 696,229
------------
123,070,434
Less accumulated depreciation
and amortization (642,472)
------------
Property and equipment, net $122,427,962
============
Depreciation and amortization of property and equipment was $642,472 for the
period from inception (September 14, 2001) through December 31, 2001.
Substantially all property and equipment are pledged as collateral on long-term
debt. See Note 6.
F-12
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Other Intangible Assets
The gross carrying amount and accumulated amortization of the Company's
intangible assets, other than goodwill, as of December 31, 2001 are as follows:
Gross Carrying Accumulated
Amount Amortization
--------------------------------
(in thousands)
Amortized intangible assets:
Customer relationships $ 9,800 $ (84)
Tradename 3,700 (25)
Riverboat excursion license 700 -
-------------------------------
Total $14,200 $ (109)
===============================
Unamortized intangible assets:
Gaming license $ 5,200
-------------
Total $ 5,200
=============
The amortization expense recorded on the intangible assets for the period from
inception (September 14, 2001) through December 31, 2001 was $0.1 million. The
estimated amortization expense for each of the five succeeding fiscal years is
as follows:
For the year ending December 31,
- --------------------------------
2002 $1,595
2003 1,642
2004 1,642
2005 1,642
2006 1,642
F-13
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long - Term Debt
Long-term debt at December 31, 2001 is as follows:
$152,632,000 senior secured notes payable, net of unamortized discount of
$7,546,568, collateralized by a first priority lien on substantially all of the
assets of the Company, due in semi-annual installments of interest at 11.653% on
May 31 and November 30, with a final payment of principal and interest due on
November 30, 2007. $ 145,085,432
$15.0 million four-year credit facility established on December 6, 2001,
expiring on December 5, 2005; collateralized by substantially all current and
future assets, other than excluded assets; interest rate at the borrowers choice
of LIBOR plus 2% or the base rate which approximates the prime rate. 6,500,000
Equipment and software financing payable including related use taxes;
collateralized by gaming equipment; interest rates from 7.5% to 12.0%; due in
aggregate monthly installments (principal and interest) of approximately
$13,526, with varying maturity dates through September 2005. 411,446
--------------
151,996,878
Less current maturities (6,656,574)
--------------
Long-term debt, net of current maturities $ 145,340,304
==============
The scheduled maturities of long-term debt are as follows:
Year Ending December 31, Maturities
2002 $ 6,656,574
2003 133,066
2004 84,346
2005 37,460
2006 -
Thereafter 145,085,432
--------------
$ 151,996,878
==============
Senior Secured Notes
On December 6, 2001, the Company issued $152.6 million of 11.653% Senior Secured
Notes due 2007. The net proceeds of $145,000,400 from the offering, together
with an equity contribution from our member and one of our managers, were
utilized to purchase substantially all of the assets of Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas and to pay related fees and
expenses.
F-14
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long - Term Debt (Continued)
The Senior Secured Notes bear interest at a fixed rate of 11.653% per annum
payable May 31 and November 30 each year, commencing May 31, 2002. Substantially
all of the Company's current and future assets other than certain excluded
assets are pledged as collateral. The notes rank senior in right of payment to
any of the Company's subordinated indebtedness and equally with any of the
Company's senior indebtedness.
On or after November 30, 2005, the Company has the right to redeem notes from
time to time at a price that will decrease over time from 105.827% of the
principal amount in 2005 to 100% of the principal amount in 2006, plus, in each
case, accrued and unpaid interest. Prior to November 30, 2004, the Company may,
at its option, apply part of the net proceeds from certain equity offerings, as
defined, to redeem up to 35% of the principal amount of the notes at 111.653% of
their face amount, plus accrued and unpaid interest.
The Indenture contains covenants, which among other things, restrict the
Company's ability to (i) make certain distributions and payments, (ii) incur
additional indebtedness, (iii) enter into transactions with affiliates, (iv)
sell assets or stock, and (v) merge, consolidate or transfer substantially all
of its assets.
Credit Facility
On December 6, 2001, the Company established a $15.0 million four-year credit
facility. The Company is permitted to borrow up to $12.0 million under the
credit facility, pending the approval by the Nevada Gaming Authorities of the
pledge by Majestic Investor Holdings, LLC of the membership interests in Barden
Nevada Gaming, LLC in connection with the credit facility. The Company recently
filed an application for the necessary approval by the Nevada Gaming Authorities
for the pledge necessary in connection with the credit facility. The credit
facility is collateralized by substantially all of the Company's current and
future assets, other than the excluded assets. The lien on the collateral
securing the Company's credit facility is senior to the lien on the collateral
securing the senior secured notes. The credit facility also contains financial
covenants and restrictions on, among other things, indebtedness, investments,
distributions and mergers.
Intercreditor Agreement
In connection with the Company entering into its credit facility, the trustee
under the indenture (as collateral agent) entered into an intercreditor
agreement with Foothill Capital Corporation, as the lender under the Company's
credit facility, which, among other things, subordinates the liens securing the
senior secured notes to the liens securing the indebtedness under the Company's
credit facility.
F-15
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long - Term Debt (Continued)
The intercreditor agreement, among other things, limits the trustee's rights in
an event of default under the senior secured notes. Under the intercreditor
agreement, if the senior secured notes become due and payable prior to the
stated maturity or are not paid in full at the stated maturity at a time during
which we have indebtedness outstanding under the Company's credit facility, the
trustee will not have the right to foreclose upon the collateral unless and
until the lenders under the Company's credit facility fail to take steps to
exercise remedies with respect to or in connection with the collateral within
180 days following notice to such lenders of the occurrence of an event of
default under the indenture. In addition, the intercreditor agreement prevents
the trustee and the holders of the senior secured notes from pursuing remedies
with respect to the collateral in an insolvency proceeding. The intercreditor
agreement also provides that the net proceeds from the sale of collateral will
first be applied to repay indebtedness outstanding under our credit facility and
thereafter to the holders of the senior secured notes.
7. Commitments and Contingencies
Leases
The Company has operating leases that cover various office and gaming equipment.
Future minimum lease payments for operating leases with initial terms in excess
of one year as of December 31, 2001 are as follows:
Year ending December 31,
2002 $1,374,495
2003 1,206,426
2004 925,036
2005 774,092
2006 774,092
Thereafter 774,092
----------
$5,828,233
==========
Rent expense for the period from inception (September 14, 2001) through December
31, 2001 was $363,925.
Employment Agreements
Mr. Don H. Barden serves as the Company's Manager, Chairman, President and Chief
Executive Officer and currently receives annual compensation of $370,000 as an
employee, pursuant to a letter agreement dated October 22, 2001 with The
Majestic Star Casino, LLC.
F-16
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Commitments and Contingencies (Continued)
Mr. Michael E. Kelly serves as the Company's Manager, Executive Vice President,
Chief Operating and Financial Officer and Secretary pursuant to a three-year
employment agreement with The Majestic Star Casino, LLC dated October 22, 2001.
Under this agreement, Mr. Kelly will receive base compensation of $400,000 per
year and can also earn annual incentive compensation based upon his performance
and Majestic Star's performance. In addition to such compensation, Mr. Kelly is
entitled to term life insurance in an amount equal to $2.5 million and other
customary employee benefits, including participation in The Majestic Star
Casino, LLC's 401(k) plan, together with a $100,000 signing bonus and an
interest free loan in the amount of $200,000 to be repaid in three equal annual
installments. Mr. Kelly is also entitled to additional compensation, upon a
change in control, equal to his base salary and incentive compensation for the
remainder of the term of the agreement, plus 12 months thereafter. Mr. Kelly's
employment agreement contains certain non-competition provisions with a duration
of 12 months following termination of his employment.
The amounts payable pursuant to the agreements with Messrs. Barden and Kelly are
the responsibility of Majestic Star. As indicated in Note 8, the Company entered
into an Expense Reimbursement/Sharing Agreement with Majestic Star whereby the
Company will reimburse Majestic Star for a specified percentage of expenses paid
by Majestic Star for the Company's corporate overhead.
Gaming Regulations
The ownership and operation of our casino gaming facilities are subject to
various state and local regulations in the jurisdictions where they are located.
In Nevada, our gaming operations are subject to the Nevada Gaming Control Act,
and to the licensing and regulatory control of the Nevada Gaming Commission, the
Nevada State Gaming Control Board and various local ordinances and regulations,
including, without limitation, applicable city and county gaming and liquor
licensing authorities. In Mississippi, our gaming operations are subject to the
Mississippi Gaming Control Act, and to the licensing and/or regulatory control
of the Mississippi Gaming Commission, the Mississippi State Tax Commission and
various state and local regulatory agencies, including liquor licensing
authorities. In Colorado, our gaming operations are subject to the Limited
Gaming Act of 1991, which created the Division of Gaming within the Colorado
Department of Revenue and the Colorado Limited Gaming Control Commission to
license, implement, regulate and supervise the conduct of limited gaming. Our
operations are also subject to the Colorado Liquor Code and the state and local
liquor licensing authorities. In addition, as The Majestic Star Casino, LLC does
business in the State of Indiana, the Company is subject to certain reviews by
the Indiana Gaming Commission.
The Company's directors, officers, managers and key employees are required to
hold individual licenses, which requirements vary from jurisdiction to
jurisdiction. Licenses and permits for gaming operations and of individual
licensees are subject to revocation or non-renewal for cause. Under certain
circumstances, holders of our securities are required to secure independent
licenses and permits.
F-17
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Related Party Transactions
In September 2000, Majestic Investor, LLC was capitalized by Majestic Star with
$9.0 million of capital contributions, including interest thereon. Majestic
Investor, LLC subsequently contributed this $9.0 million to the Company in
connection with the assignment of its rights and obligations under the
Fitzgeralds purchase and sale agreement to the Company.
On November 22, 2000, Majestic Investor, LLC entered into a definitive purchase
and sale agreement, as amended, with Fitzgeralds Gaming Corporation and certain
of its affiliates to purchase substantially all of the assets of three of its
subsidiaries for $149 million in cash, subject to adjustment in certain
circumstances, plus the assumption of certain liabilities. Majestic Investor,
LLC assigned all of its rights and obligations under the purchase and sale
agreement to the Company following formation of the Company.
Prior to the consummation of the offering of the 11.653% Senior Secured Notes,
the Company issued a 35.71% membership interest to Barden Development, Inc. (a
company wholly-owned by Mr. Barden and a member of Majestic Star Casino, LLC)
("BDI") in exchange for the contribution by BDI of a note for $5.0 million. BDI
subsequently contributed the 35.71% membership interest to Majestic Investor,
LLC as additional paid-in-equity. Majestic Investor, LLC currently owns 100% of
the membership interests of the Company. BDI, upon closing of the offering of
the Senior Secured Notes, contributed $5.0 million to the Company in repayment
of the promissory note.
On September 19, 2001, the Company entered into a Management Agreement with BDI,
which was amended and restated on December 5, 2001 effective December 6, 2001,
pursuant to which the Company will pay to BDI fees for acting as the Manager of
the Company, which Management Fees, for any fiscal quarter, shall not exceed 1%
of net revenues plus 5% of consolidated cash flow for the immediately preceding
fiscal quarter, provided that the payment of such Management Fees shall be
subordinated to the payment in full of principal, interest, premium and
liquidated damages, as defined, if any, then due on the Senior Secured Notes.
On October 22, 2001, the Company entered into an Expense Reimbursement/Sharing
Agreement with Majestic Star, pursuant to which the Company and its restricted
subsidiaries will each reimburse Majestic Star for a specified percentage of the
documented out-of-pocket expenses paid by Majestic Star for the Company's
corporate overhead, including (i) the costs and expenses of executives and
certain other employees, including, but not limited to, salaries, bonuses,
benefit payments, insurance, and supplies, (ii) rent and (iii) other similar
costs and expenses.
Interest of $185,750 on a $2.0 million note made by Majestic Investor, LLC to
BDI which was later assigned to Majestic Investor Holdings, LLC remains
outstanding at December 31, 2001. BDI paid the principal of the note in
conjunction with the closing of the acquisition on December 6, 2001.
In December 2001, the Company issued a $700,000 note to BDI. The note bears
interest at a rate of 7% per annum. The principal and accrued but unpaid
interest are due and payable in full on December 12, 2002.
F-18
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Segment Information
The Company owns and operates three properties as follows: a casino and hotel
located in downtown Las Vegas, Nevada; a casino and hotel located in Tunica,
Mississippi; and a casino located in Black Hawk, Colorado (collectively, the
"Properties"). The Company identifies its business in three segments based on
geographic location. The Properties market in each of their segments primarily
to middle-income guests, emphasizing their Fitzgeralds brand and their
"Fitzgerald Irish Luck" theme. The major products offered in each segment are as
follows: casino, hotel (except for Fitzgeralds Black Hawk) and food and
beverage.
The accounting policies of each business segment are the same as those described
in the summary of significant accounting policies. There are minimal
inter-segment sales. Corporate costs are allocated to the business segment
through management fees.
A summary of the Properties' operations by business segment for the period from
Inception (September 14, 2001) through December 31, 2001 is presented below:
(in thousands)
Net revenues:
Fitzgeralds Las Vegas ...................................... $ 3,081
Fitzgeralds Tunica ......................................... 5,368
Fitzgeralds Black Hawk ..................................... 2,072
Unallocated and other(1) ................................... -
-----------
Total .................................................. $ 10,521
===========
Income (loss) from operations:
Fitzgeralds Las Vegas ...................................... $ (393)
Fitzgeralds Tunica ......................................... 654
Fitzgeralds Black Hawk ..................................... 674
Unallocated and other(1) ................................... (1,213)
-----------
Total .................................................. $ (278)
===========
Segment depreciation and amortization:
Fitzgeralds Las Vegas ...................................... $ 167
Fitzgeralds Tunica ......................................... 485
Fitzgeralds Black Hawk ..................................... 100
Unallocated and other(1) ................................... 169
-----------
Total .................................................. $ 921
===========
F-19
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Segment Information (Continued)
Expenditures for additions to long-lived assets:
Fitzgeralds Las Vegas ............................. $ -
Fitzgeralds Tunica ................................ 100
Fitzgeralds Black Hawk ............................ 23
Unallocated and other(1) .......................... -
-----------
Total ......................................... $ 123
-----------
As of December 31, 2001
-----------------------
(In thousands)
Segment assets:
Fitzgeralds Las Vegas ............................. $ 45,157
Fitzgeralds Tunica ................................ 91,338
Fitzgeralds Black Hawk ............................ 30,913
Unallocated and other(1) .......................... 16,021
-----------
$ 183,429
===========
(1) Unallocated and other include certain corporate items and eliminations that
are not allocated to the operating segments.
10. Supplemental Guarantor Financial Information
The Company's $152.6 million, 11.653% Senior Secured Notes (See Note 6) are
unconditionally and irrevocably guaranteed, jointly and severally, by all of the
restricted subsidiaries of the Company. The guarantees rank senior in right of
payment to all existing and future subordinated indebtedness of these restricted
subsidiaries and equal in right of payment with all existing and future senior
indebtedness of these restricted subsidiaries.
The following condensed consolidating information presents condensed
consolidating financial statements as of December 31, 2001 and for the period of
inception (September 14, 2001) through December 31, 2001, of Majestic Investor
Holdings, LLC - the parent Company, the guarantor subsidiaries (on a combined
basis) and the elimination entries necessary to combine such entities on a
consolidated basis. Majestic Investor Capital Corp. ("MICC"), a wholly-owned
subsidiary of the Company, is a non-guarantor subsidiary. However, MICC does not
have any material assets, obligations or operations. Therefore, no non-guarantor
subsidiary has been presented below.
F-20
Condensed consolidating balance sheets as of December 31, 2001
Majestic Investor Guarantor Eliminating Consolidated
Holdings, LLC Subsidiaries Entries Total
------------- ------------ ------- -----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 498,363 $ 17,206,452 $ - $ 17,704,815
Accounts receivable, net 269,501 1,196,044 (711) (a) 1,464,834
Inventories - 957,564 - 957,564
Prepaid and other current assets 707,467 1,303,570 - 2,011,037
------------ ------------ -------------- --------------
Total current assets 1,475,331 20,663,630 (711) 22,138,250
------------ ------------ -------------- --------------
PROPERTY AND EQUIPMENT, NET - 122,427,962 - 122,427,962
INTANGIBLE ASSETS, NET - 19,290,753 - 19,290,753
DUE FROM RELATED PARTIES 150,855,685 - (150,855,685) (b) -
OTHER ASSETS 14,545,956 5,025,618 - 19,571,574
------------ ------------ -------------- --------------
TOTAL $166,876,972 $167,407,963 $(150,856,396) $ 183,428,539
============ ============ ============== ==============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,500,000 $ 156,574 $ - $ 6,656,574
Accounts payable, accrued and other 2,526,703 15,195,545 (711) (a) 17,721,537
------------ ------------ -------------- --------------
Total current liabilities 9,026,703 15,352,119 (711) 24,378,111
------------ ------------ -------------- --------------
DUE TO RELATED PARTIES 1,168,273 150,865,241 (150,855,685) (b) 1,177,829
LONG-TERM DEBT, net of current maturities 145,085,432 254,872 - 145,340,304
------------ ------------ -------------- --------------
Total Liabilities 155,280,408 166,472,232 (150,856,396) 170,896,244
------------ ------------ -------------- --------------
MEMBERS' EQUITY 11,596,564 935,731 - 12,532,295
------------ ------------ -------------- --------------
TOTAL $166,876,972 $167,407,963 $ (150,856,396) $ 183,428,539
============ ============ ============== ==============
(a) To eliminate intercompany accounts receivable and payable.
(b) To eliminate intercompany accounts and investment in subsidiaries.
F-21
Condensed consolidating statement of operations for the period from Inception
(September 14, 2001) through December 31, 2001
Majestic Investor Guarantor Eliminating Consolidated
Holdings, LLC Subsidiaries Entries Total
------------- ------------ ------- -----
OPERATING REVENUES:
Casino $ - $ 10,358,799 $ - $ 10,358,799
Rooms - 1,079,456 - 1,079,456
Food and beverage - 1,189,804 - 1,189,804
Other - 203,858 - 203,858
------------- ------------ ------------
Total - 12,831,917 - 12,831,917
Less promotional allowances - (2,310,848) - (2,310,848)
Net revenue - 10,521,069 - 10,521,069
------------ ------------
COSTS AND EXPENSES:
Casino - 4,111,503 - 4,111,503
Rooms - 628,910 - 628,910
Food and beverage - 706,947 - 706,947
Other - 108,732 - 108,732
Gaming taxes - 808,464 - 808,464
Advertising and promotion - 926,226 - 926,226
General and administration 26,476 1,543,167 - 1,569,643
Depreciation and amortization 168,930 751,718 - 920,648
Pre-opening costs 1,018,234 - - 1,018,234
------------- ------------ ------------
Total 1,213,640 9,585,667 - 10,799,307
------------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 215,791 2,410 - 218,201
Interest expense (1,208,779) (2,081) - (1,210,860)
------------- ------------ ------------ ------------
NET INCOME (LOSS) $ (2,206,628) $ 935,731 $ - $ (1,270,897)
============= ============ ============ ============
F-22
Condensed consolidating statement of cash flows for the period from Inception
(September 14, 2001) through December 31, 2001
Majestic Investor Guarantor Eliminating Consolidated
Holdings, LLC Subsidiaries Entries Total
------------- ------------ ------- -----
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (14,700,259) $17,334,730 $ - $ 2,634,471
-------------- ----------- ---------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired,
net of cash acquired (143,758,152) - - (143,758,152)
Acquisition of property and equipment - (122,696) - (122,696)
-------------- ----------- ---------- --------------
Net cash used in investing activities (143,758,152) (122,696) - (143,880,848)
-------------- ----------- ---------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 11.653% Senior
Secured Notes 145,000,400 - - 145,000,400
Payment of Senior Secured Notes issuance
costs (6,815,090) - - (6,815,090)
Member's equity contribution 5,000,000 - - 5,000,000
Contribution from Majestic Investor 8,803,191 - - 8,803,191
Cash advances from related parties 1,168,273 - - 1,168,273
Issuance of loan to Barden Development, Inc. (700,000) - - (700,000)
Line of credit, net 6,500,000 - - 6,500,000
Cash paid to reduce long-term debt - (5,582) - (5,582)
-------------- ----------- ---------- --------------
Net cash provided by (used in) financing
activities 158,956,774 (5,582) - 158,951,192
-------------- ----------- ---------- --------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 498,363 17,206,452 - 17,704,815
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR - - - -
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 498,363 $17,206,452 $ - $ 17,704,815
============== =========== ========== ==============
F-23
SCHEDULE II
MAJESTIC INVESTOR HOLDINGS, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
Balance at Balance at
Beginning of Period Additions Deductions End of Period
Charged to Charged to
Description Costs and Expenses Other Accounts
- -------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
Period from Inception
(September 14, 2001) through
December 31, 2001 $ - $15,463 $232,579 (a) $ - $248,042
(a) Related to acquisition of Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc. and 101 Main Street Limited Liability Company.
F-24
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001
Barden Barden Barden
Mississippi Colorado Nevada
Parent Gaming Gaming Gaming Elimination Consolidated
------ ------ ------ ------ ----------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 498,363 $ 8,452,344 $ 3,795,722 $ 4,958,386 $ - $ 17,704,815
Accounts receivable, net 269,501 494,320 59,442 642,282 (711) 1,464,834
Inventories - 368,147 213,863 375,554 - 957,564
Prepaid expenses 7,467 333,363 89,135 782,688 - 1,212,653
Due from Seller - 98,913 (2,022) (14,059) - 82,832
Note receivable from related party 700,000 - - - - 700,000
Other - 15,552 - - 15,552
------------------------------------------------------------------------------------
Total current assets 1,475,331 9,747,087 4,171,692 6,744,851 (711) 22,138,250
------------------------------------------------------------------------------------
Property, equipment, and barge improvements,
net - 71,642,807 21,978,718 28,806,437 - 122,427,962
Intangible assets, net - 7,776,654 4,122,592 7,391,507 - 19,290,753
Goodwill 7,522,250 1,696,000 499,000 885,000 - 10,602,250
Other Assets:
Deferred financing costs, net 7,023,706 - - - - 7,023,706
Restricted cash - - - 1,000,000 - 1,000,000
Investment in subsidiaries 150,855,685 - - - (150,855,685) -
Other assets, prepaid lease and deposits - 475,480 141,363 328,775 - 945,618
------------------------------------------------------------------------------------
Total other assets 157,879,391 475,480 141,363 1,328,775 (150,855,685) 8,969,324
Total Assets $166,876,972 $91,338,028 $30,913,365 $45,156,570 $(150,856,396) $183,428,539
====================================================================================
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 6,500,000 $ - $ 22,965 $ 133,609 $ - $ 6,656,574
Accounts payable - 699,529 269,253 977,948 - 1,946,730
Other accrued liabilities:
Payroll and related - 2,312,087 721,843 1,972,184 - 5,006,114
Accrued interest 1,208,779 - - - - 1,208,779
Progressive jackpots - 919,253 1,143,567 211,230 - 2,274,050
Slot club liability - 131,375 377,132 1,733,369 - 2,241,876
Other accrued liabilities 1,317,924 2,288,218 589,101 849,456 (711) 5,043,988
------------------------------------------------------------------------------------
Total current liabilities 9,026,703 6,350,462 3,123,861 5,877,796 (711) 24,378,111
Due to related parties 1,168,273 84,332,230 27,114,152 39,418,859 (150,855,685) 1,177,829
Long-term debt, net of current maturities 145,085,432 - - 254,872 - 145,340,304
------------------------------------------------------------------------------------
Total Liabilities 155,280,408 90,682,692 30,238,013 45,551,527 (150,856,396) 170,896,244
------------------------------------------------------------------------------------
Commitments and contingencies
Members' Equity:
Contribution from Majestic Investor 8,803,192 8,803,192
Members' contributions 5,000,000 - - - - 5,000,000
Accumulated income (deficit) (2,206,628) 655,336 675,352 (394,957) - (1,270,897)
------------------------------------------------------------------------------------
Total members' equity (deficit) 11,596,564 655,336 675,352 (394,957) - 12,532,295
------------------------------------------------------------------------------------
Total Liabilities and Members' Equity $166,876,972 $91,338,028 $30,913,365 $45,156,570 $(150,856,396) $183,428,539
====================================================================================
F-25
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE PERIOD
FROM INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
Barden Barden Barden
Mississippi Colorado Nevada
Parent Gaming Gaming Gaming Elimination Consolidated
------ ------ ------ ------ ----------- ------------
Revenues
Casino $ - $ 5,493,663 $ 2,509,689 $ 2,355,447 $ - $ 10,358,799
Rooms - 544,249 - 535,207 - 1,079,456
Food and beverage - 586,412 155,939 447,453 - 1,189,804
Other - 83,591 13,237 107,030 - 203,858
----------------------------------------------------------------------------------------
Gross revenues - 6,707,915 2,678,865 3,445,137 - 12,831,917
less promotional allowances - (1,339,618) (606,670) (364,560) - (2,310,848)
----------------------------------------------------------------------------------------
Net revenues - 5,368,297 2,072,195 3,080,577 - 10,521,069
----------------------------------------------------------------------------------------
Costs and Expenses:
Casino - 2,076,018 691,795 1,343,690 - 4,111,503
Rooms - 187,507 - 441,403 - 628,910
Food and beverage - 221,755 64,647 420,545 - 706,947
Other - 25,936 42,587 40,209 - 108,732
Gaming taxes - 654,003 15,200 139,261 - 808,464
Advertising and promotion - 422,856 181,592 321,778 - 926,226
General and administrative 26,476 641,728 302,270 599,169 - 1,569,643
Depreciation and amortization 168,930 484,685 99,635 167,398 - 920,648
Pre-opening expenses 1,018,234 - - - - 1,018,234
----------------------------------------------------------------------------------------
Total costs and expenses 1,213,640 4,714,488 1,397,726 3,473,453 - 10,799,307
----------------------------------------------------------------------------------------
Loss from operations (1,213,640) 653,809 674,469 (392,876) - (278,238)
----------------------------------------------------------------------------------------
Other income (expense):
Interest income 215,791 1,527 883 - - 218,201
Interest expense (1,208,779) - - (2,081) - (1,210,860)
----------------------------------------------------------------------------------------
Total other income (expense) (992,988) 1,527 883 (2,081) - (992,659)
----------------------------------------------------------------------------------------
Net income (loss) $ (2,206,628) $ 655,336 $ 675,352 $ (394,957) $ - $ (1,270,897)
========================================================================================
F-26
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 14, 2001) THROUGH DECEMBER 31, 2001
Majestic Barden Barden Barden
Investor Mississippi Colorado Nevada Eliminating Total
Holdings Gaming Gaming Gaming Entries Consolidated
-------- ------ ------ ------ ------- ------------
Cash Flows From Operating Activities:
Net income (loss) $ (2,206,628) $ 655,336 $ 675,352 $ (394,957) $ - $ (1,270,897)
Adjustment to reconcile net income (loss)
to net cash provided by
(used in) operating activities:
Depreciation and amortization 168,930 484,685 99,635 167,398 - 920,648
Increase in accounts receivable, net (269,502) (225,106) (25,511) (12,724) - (532,843)
(Increase) decrease in related party (14,912,296) 6,665,673 3,101,010 5,136,948 - (8,665)
(Increase) decrease in inventories - 48,615 (31,048) 3,319 - 20,886
Increase in prepaid expenses (7,467) (39,130) (807) (248,961) - (296,365)
(Increase) decrease in other assets - (32,031) 1,721 5,807 - (24,503)
Increase (decrease) in accounts payable - 341,532 229,962 (176,506) - 394,988
Increase in accrued interest 1,208,779 - - - - 1,208,779
Increase (decrease) in accrued and other
liabilities 1,317,925 652,524 (254,592) 506,586 - 2,222,443
------------ ---------- ---------- ------------ -------- -------------
Net cash provided by (used in) operating
activities (14,700,259) 8,552,098 3,795,722 4,986,910 - 2,634,471
------------ ---------- ---------- ------------ -------- -------------
Cash Flows From Investing Activities:
Payment for businesses acquired, net of cash
acquired (143,758,152) - - - - (143,758,152)
Acquisition of property and equipment - (99,754) - (22,942) - (122,696)
------------ ---------- ---------- ------------ -------- -------------
Net cash used in investing activities (143,758,152) (99,754) - (22,942) - (143,880,848)
------------ ---------- ---------- ------------ -------- -------------
Cash Flows From Financing Activities:
Proceeds from issuance of 11.653% Senior
Secured Notes 145,000,400 - - - - 145,000,400
Payment of Senior Secured Notes issuance costs (6,815,090) - - - - (6,815,090)
Member's equity contribution 5,000,000 - - - - 5,000,000
Contribution from Majestic Investor 8,803,191 - - - - 8,803,191
Cash advances from related parties 1,168,273 - - - - 1,168,273
Issuance of loan to Barden Development, Inc. (700,000) - - - - (700,000)
Line of credit, net 6,500,000 - - - - 6,500,000
Cash paid to reduce long-term debt - - - (5,582) - (5,582)
------------ ---------- ---------- ------------ -------- -------------
Net cash provided by (used in) financing
activities 158,956,774 - - (5,582) - 158,951,192
------------ ---------- ---------- ------------ -------- -------------
Net increase in cash and cash equivalents 498,363 8,452,344 3,795,722 4,958,386 - 17,704,815
Cash and cash equivalents, beginning of year - - - - - -
------------ ---------- ---------- ------------ -------- -------------
Cash and cash equivalents, end of year $ 498,363 $8,452,344 $3,795,722 $ 4,958,386 $ - $ 17,704,815
============ ========== ========== ============ ======== =============
F-27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized, on April 15, 2002.
MAJESTIC INVESTOR HOLDINGS, LLC
By: Barden Development Inc., Manager
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
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrants and
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Don H. Barden President and Chief Executive Officer April 15, 2002
- ---------------------- of the Manager, the Company and Majestic
Don H. Barden Investor Capital Corp., and the Sole
Director of Majestic Investor Capital
Corp. (Principal Executive Officer)
/s/ Michael E. Kelly Vice President, Chief Operating and April 15, 2002
- ---------------------- Financial Officer of the Company
Michael E. Kelly and Majestic Investor Capital Corp.
(Principal Financial and Accounting
Officer)
EXHIBIT INDEX
-------------
Certain of the following exhibits have been previously filed with the Securities
and Exchange Commission pursuant to the requirements of the Securities Act of
1933 and the Securities Exchange Act of 1934. Such exhibits are identified by
the parenthetical references following the listing of each such exhibit and are
incorporated herein by reference. The Company's Commission file number is
333-81584.
Exhibit No. Description of Document
- ----------- -----------------------
2.1 Purchase and Sale Agreement dated as of November 22, 2000 by and among
Majestic Investor, LLC, Fitzgerald's Las Vegas, Inc., 101 Main Street
Limited Liability Company, Fitzgerald's Mississippi, Inc., Fitzgerald's
Gaming Corporation and certain affiliates of the foregoing parties, as
amended by the First Amendment thereto, dated as of December 4, 2000
(Registration Statement No. 333-81584)
2.2 First Amendment to Purchase and Sale Agreement dated as of December 4, 2000
by and among Majestic Investor, LLC, Fitzgeralds Las Vegas, Inc., 100 Main
Street Limited Liability Company, Fitzgeralds Mississippi, Inc.,
Fitzgeralds Gaming Corporation and certain affiliates of the foregoing
parties (Registration Statement 333-81584)
2.3 Second Amendment to Purchase and Sale Agreement dated as of November 1,
2001 by and among Majestic Investor Holdings, LLC, Majestic Investor, LLC,
Barden Nevada Gaming, LLC, Barden Mississippi Gaming, LLC, Barden Colorado
Gaming, LLC, Fitzgeralds Las Vegas, Inc., 101 Main Street Limited Liability
Company, Fitzgeralds Mississippi, Inc. and Fitzgeralds Gaming Corporation
(Registration Statement No. 333-81584)
3.1 Certificate of Formation of Majestic Investor Holdings, LLC (Registration
Statement No. 333-81584)
3.2 Limited Liability Company Agreement of Majestic Investor Holdings, LLC
dated September 25, 2001 (Registration Statement No. 333-81584)
3.3 Certificate of Incorporation of Majestic Investor Capital Corp.
(Registration Statement No. 333-81584)
3.4 By-laws of Majestic Investor Capital Corp. (Registration Statement No.
333-81584)
4.1 Indenture dated as of December 6, 2001 between Majestic Investor Holdings,
LLC, Majestic Investor Capital Corp., as issuers, Barden Colorado Gaming,
LLC, Barden Mississippi Gaming, LLC and Barden Nevada Gaming, LLC, as
subsidiary guarantors, and the Bank of New York, as Trustee (Registration
Statement No. 333-81584)
4.2 Registration Rights Agreement dated as of December 6, 2001 among Majestic
Investor Holdings, LLC, Majestic Investor Capital Corp., Barden Colorado
Gaming, LLC, Barden Mississippi Gaming, LLC and Barden Nevada Gaming, LLC,
as guarantors, and Jefferies & Company, Inc. (Registration Statement No.
333-81584)
4.3 Guarantee dated as of December 6, 2001 of Barden Mississippi Gaming LLC,
Barden
E-1
Colorado Gaming, LLC and Barden Nevada Gaming, LLC(Registration Statement
No. 333-81584)
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 (Registration Statement No. 333-81584)
4.5 Pledge Agreement dated as of December 6, 2001 by and between Majestic
Investor, LLC and The Bank of New York (Registration Statement No.
333-81584)
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 (Registration Statement No. 333-81584)
4.7 First Preferred Vessel Mortgage, dated as of December 6 2001 by and between
Barden Mississippi, LLC and The Bank of New York (Registration Statement
No. 333-81584)
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 (Registration Statement No.
333-81584)
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 (Registration Statement No.
333-81584)
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 (Registration
Statement No. 333-81584)
4.11 Intercreditor Agreement, dated as of December 6, 2001 between The Bank of
New York and Foothill Capital Corporation (Registration Statement No.
333-81584)
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 (Registration Statement No. 333-81584)
4.13 Loan and Security Agreement dated as of December 6, 2001, by Majestic
Investor, LLC, Fitzgeralds Las Vegas, Inc., 101 Main Street Limited
Liability Company, Fitzgeralds Mississippi, Inc., Fitzgeralds Gaming
Corporation and certain affiliates of the foregoing parties dated as
November 22, 2000 (Registration Statement No. 333-81584)
4.14 General Continuing Guaranty dated as of December 6, 2001, by Majestic
Investor Holdings, LLC, Majestic Investor Capital Corp., Barden Colorado
Gaming, LLC, Barden
E-2
Mississippi Gaming, LLC and Barden Nevada Gaming, LLC, in favor of
Foothill Capital Corporation (Registration Statement No. 333-81584)
4.15 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 (Registration Statement No. 333-81584)
4.16 First Preferred Vessel Mortgage, dated as of December 6, 2001 by Barden
Mississippi Gaming, LLC in favor of Foothill Capital Corporation
(Registration Statement No. 333-81584)
4.17 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 (Registration Statement No.
333-81584)
4.18 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 (Registration Statement No. 333-81584)
4.19 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 (Registration Statement No. 333-81584)
4.20 Stock Pledge Agreement dated as of December 6, 2001 between Majestic
Investor Holdings, LLC and Foothill Capital Corporation (Registration
Statement No. 333-81584)
4.21 Guarantor Trademark Security Agreement dated as of December 6, 2001
between Majestic Investor Holdings, LLC and Foothill Capital Corporation
(Registration Statement No. 333-81584)
4.22 Subordination of First Preferred Vessel Mortgage Upon Fitzgeralds Tunica
(Official No. 262757) (Registration Statement No. 333-81584)
4.23 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 (Registration Statement No. 333-81584)
4.24 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 (Registration Statement No. 333-81584)
4.25 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 (Registration Statement No. 333-81584)
10.1* Employment Agreement dated October 22, 2001 between Don H. Barden and The
E-3
Majestic Star Casino, LLC (Registration Statement No. 333-81584)
10.2* Employment Agreement dated October 22, 2001 between Michael E. Kelly
and The Majestic Star Casino, LLC (Registration Statement
No. 333-81584)
10.3 Expense Reimbursement Agreement dated as of October 22, 2001 between
Majestic Investor Holdings, LLC and The Majestic Star Casino, LLC
(Registration Statement No. 333-81584)
10.4 Amended and Restated Management Agreement dated as of December 6,
2001, between Majestic Investor Holdings, LLC and Barden Development,
Inc. (Registration Statement No. 333-81584)
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. (Registration Statement No.
333-81584)
10.6 Assignment of Membership Interest by and between Don H. Barden and
Majestic Investor, LLC dated as of August 18, 2001 (Registration
Statement No. 333-81584)
10.7 Contribution and Assignment Agreement by and between Majestic
Investor, LLC and Majestic Investor Holdings, LLC dated as of
September 27, 2001 (Registration Statement No. 333-81584)
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 (Registration
Statement No. 333-81584)
10.9 Assignment of Ground Lease dated December 6, 2001 by and between
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada Gaming,
LLC, as Assignee (Registration Statement No. 333-81584)
10.10 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 (Registration
Statement No. 333-81584)
10.11 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 (Registration Statement No.
333-81584)
10.12 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 (Registration Statement No. 333-81584)
10.13 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 (Registration Statement No.
333-81584)
E-4
10.14 Assignment of Ground Lease dated December 6, 2001 by Fitzgeralds Las
Vegas, Inc., as Assignor, and Barden Nevada Gaming, LLC, as Assignee
(Registration Statement No. 333-81584)
10.15 Lease Agreement dated July 21, 1954 between Las Vegas Lodge No. 32,
Free & Accepted Masons, as Lessor, and H. John Gluskin, as Lessee
(Registration Statement No. 333-81584)
10.16 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 (Registration Statement No. 333-81584)
10.17 Assignment, dated July 27, 1954(Registration Statement No. 333-81584)
10.18 Supplemental Agreement of October 14, 1954 between Las Vegas Lodge
No. 32, Free & Accepted Masons and H. John Gluskin (Registration
Statement No. 333-81584)
10.19 Assignment dated February 2, 1955 (Registration Statement
No. 333-81584)
10.20 Assignment dated August 7, 1972 (Registration Statement
No. 333-81584)
10.21 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 (Registration
Statement No. 333-81584)
10.22 Assignment dated September 1, 1973 (Registration Statement
No. 333-81584)
10.23 Amendment to Masonic Lodge Ground Lease dated December 20, 1989
(Registration Statement No. 333-81584)
10.24 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 (Registration Statement No. 333-81584)
10.25 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 (Registration Statement No. 333-81584)
10.26 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
(Registration Statement No. 333-81584)
10.27 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 (Registration Statement
No. 333-81584)
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10.28 Assignment of Ground Lease dated December 6, 2001 by Fitzgeralds
Las Vegas, Inc., as Assignor, and Barden Nevada Gaming, LLC, as
Assignee (Registration Statement No. 333-81584)
10.29 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 (Registration Statement No. 333-81584)
10.30 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 (Registration Statement No. 333-81584)
(Registration Statement No. 333-81584)
10.31 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 (Registration Statement No. 333-81584)
10.32 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 (Registration Statement No. 333-81584)
10.33 Assignment of Ground Lease dated December 6, 2001 by and between
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada Gaming,
LLC, as Assignee (Registration Statement No. 333-81584)
10.34 Agreement Regarding Ground Leases by and between Barden Nevada
Gaming, LLC and The Bank of New York dated as of December 6, 2001
(Registration Statement No. 333-81584)
10.35 Agreement Regarding Ground Leases by and between Barden Nevada
Gaming, LLC and Foothill Capital Corporation, dated as of December 6,
2001 (Registration Statement No. 333-81584)
21.1 List of Subsidiaries of Majestic Investor Holdings, LLC (Registration
Statement No. 333-81584)
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* Identifies current management contracts or compensatory plans or arrangements.
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