Back to GetFilings.com
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______ to _______
Commission file number: 0-26518
FITZGERALDS GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0329170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 FREMONT STREET, LAS VEGAS NV 89101
(Address of principal executive offices)(Zip Code)
(702) 388 - 2400
(REGISTRANT'S 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:
Cumulative Redeemable Preferred Stock, $.01 par value
Common Stock, $.01 par value
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 than the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
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 the 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. [ ]
As of March 15, 2001, the number of outstanding shares of the Registrant's
Common Stock was 5,508,082. As of March 15, 2001, approximately 1,395,048 shares
of the Registrant's Common Stock were held by non-affiliates of the Registrant.
The Registrant's Common Stock is not listed or traded on any exchange. For
purposes of determining the number of shares held by non-affiliates, all
directors, officers, employees and five percent or greater owners of the
Registrant are deemed to be affiliates. Such determination should not be deemed
to be an admission that such persons are, in fact, affiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index located on Page E-1
2
FITZGERALDS GAMING CORPORATION
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I ............................................................................... 1
ITEM 1. BUSINESS ................................................................. 1
General ......................................................................... 1
Bankruptcy ...................................................................... 1
Restructuring Agreement ......................................................... 2
Purchase Agreement .............................................................. 3
Operating Strategy .............................................................. 3
Operating Properties ............................................................ 4
Other Operations ................................................................ 7
Competition ..................................................................... 7
Employees ....................................................................... 10
Trade Names, Trademarks and Service Marks ....................................... 10
Governmental Regulation ......................................................... 10
ITEM 2. PROPERTIES ............................................................... 22
ITEM 3. LEGAL PROCEEDINGS ........................................................ 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...................... 23
PART II .............................................................................. 24
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .... 24
ITEM 6. SELECTED FINANCIAL DATA .................................................. 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................................... 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............... 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .............................. 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE ............................................................... 37
PART III ............................................................................. 38
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF REGISTRANT .... 38
ITEM 11. EXECUTIVE COMPENSATION ................................................... 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........... 46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........................... 47
PART IV .............................................................................. 48
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .......... 48
SIGNATURES ........................................................................... 49
POWER OF ATTORNEY .................................................................... 50
3
PART I
ITEM 1. BUSINESS
GENERAL
Fitzgeralds Gaming Corporation (the "Company") is a diversified
multi-jurisdictional gaming holding company that owns and operates four
Fitzgeralds-brand casino-hotels, located in downtown Las Vegas, Nevada
("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica,
Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds Black
Hawk"). The Company markets its properties primarily to middle-market customers,
emphasizing its Fitzgeralds brand and its "Fitzgeralds Irish Luck" theme. As of
December 31, 2000, the Company operated a total of 3,772 slot machines, 88 table
games and approximately 1,500 hotel rooms.
The Company currently conducts substantially all of its business through wholly
owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds South, Inc.
("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly owns and operates
Fitzgeralds Reno; FSI owns and operates Fitzgeralds Las Vegas ("FLVI") and
Fitzgeralds Tunica ("FMI") through wholly owned subsidiaries; and FI owns and
operates Fitzgeralds Black Hawk through wholly-owned subsidiaries, including 101
Main Street Limited Liability Company ("101 Main").
Unless the context otherwise requires, the "Company" refers to Fitzgeralds
Gaming Corporation and its subsidiaries. The Company was incorporated in Nevada
in 1994 to serve as a holding company. The executive office of the Company is
located at 301 Fremont Street, Las Vegas, Nevada 89101; telephone (702)
388-2400; facsimile (702) 382-5562.
BANKRUPTCY
On December 5, 2000, the Company commenced cases under Chapter 11 of the
Bankruptcy Code (collectively, the "Bankruptcy Cases") in the United States
Bankruptcy Court for the Northern District of Nevada (the "Bankruptcy Court").
The Bankruptcy Cases are jointly administered and coordinated under Case No.
BK-N-00-33467 GWZ. The Bankruptcy Cases were commenced in accordance with an
Agreement Regarding Pre-Negotiated Restructuring, dated as of December 1, 2000
(the "Restructuring Agreement") with the holders (the "Consenting Noteholders")
of a majority in interest of the Company's 12.25% Senior Secured Notes (the
"Notes") issued under an indenture dated December 30, 1997 (the "Indenture").
The Restructuring Agreement contemplates an expeditious and orderly sale of all
of the Company's operating assets and properties as going concerns.
As part of the restructuring contemplated in the Restructuring Agreement, the
Company, as debtor in possession, sought Bankruptcy Court approval to: (i) sell
free and clear of liens pursuant to Section 363 of the Bankruptcy Code
substantially all of its assets including Fitzgeralds Las Vegas, Fitzgeralds
Black Hawk and Fitzgeralds Tunica; and (ii) assume and assign pursuant to
Section 365 of the Bankruptcy Code contracts used in its operations in Las
Vegas, Nevada, Black Hawk, Colorado and Tunica, Mississippi to an affiliate of
The Majestic Star Casino, LLC, an Indiana limited liability company
("Majestic"), pursuant to a Purchase and Sale Agreement, dated as of November
22, 2000, as amended on December 4, 2000 (the "Purchase Agreement"). On March
19, 2001, the Bankruptcy Court approved the Purchase Agreement with Majestic.
-1-
4
RESTRUCTURING AGREEMENT
The Restructuring Agreement provides a vehicle for liquidating the assets of the
Company in the Bankruptcy Court through Chapter 11 of the Bankruptcy Code. Upon
execution of the Restructuring Agreement and before commencement of the
Bankruptcy Cases, the Company distributed $13.0 million in Excess Cash (as that
term is defined in the Restructuring Agreement) to the trustee under the
Indenture (the "Indenture Trustee") to be applied to unpaid and accrued
Indenture Trustee's fees and expenses incurred and as partial payment of accrued
and unpaid interest and principal as provided in the Indenture. In accordance
with the Restructuring Agreement and as approved by the Bankruptcy Court, the
Company has been authorized and directed to make additional Excess Cash
distributions ("Post-petition Distributions") during the Bankruptcy Cases. As
part of the Restructuring Agreement, the Consenting Noteholders and Indenture
Trustee agree to forbear from exercising certain of their rights otherwise
allowable under the Notes and the Indenture.
The parties to the Restructuring Agreement have each concluded that the fair
market value of the Company's real and personal property given as collateral for
the Notes is less than the total outstanding principal and interest due under
the Notes, and that the fair market value of the real and personal property not
securing the Notes is less than the amount of the unsecured deficiency claim of
the holders of the Notes. As a result, it is not expected that any distribution
will be made to holders of the existing capital stock of the Company. The
Restructuring Agreement requires that as part of the liquidation process, all of
the existing common stock and preferred stock of the Company is to be canceled
and extinguished without payment therefor.
Under the terms of the Restructuring Agreement, the Company is required to seek
buyers for each of its operating businesses. In order to effectuate this
liquidation, the Company commenced the Bankruptcy Cases and has received
approval from the Bankruptcy Court to sell its operating businesses through
negotiated sales agreements either by way of motion to sell free and clear of
liens under Section 363 of the Bankruptcy Code, or under one or more plans of
reorganization. In accordance with the Restructuring Agreement, the Bankruptcy
Court has authorized an auction tentatively scheduled for June 2001 in the
Bankruptcy Court with respect to those assets not sold pursuant to negotiated
sales agreements such as the Purchase Agreement.
Under the terms of the Restructuring Agreement, upon the closing of each sale of
the Company's assets, the net proceeds of the collateral for the Notes, less
certain reserves for management incentives and other liabilities, must be
distributed to the Indenture Trustee for the benefit of and distribution to the
holders of the Notes in accordance with the Indenture. All of the Company's
assets remaining after such sales, including any notes received as part of the
consideration for the sales of the Company's assets and payment of remaining
liabilities of the Company, will be transferred to a liquidating trust created
for the benefit of the holders of the Notes and others under the terms of the
Restructuring Agreement.
In light of the regulatory approvals needed to accomplish the liquidations, and
recognizing the need to retain senior management in order to insure continuity
and compliance with all gaming regulations and licensing requirements in the
Company's operations during the process, the Restructuring Agreement requires
implementation of a senior management incentive and retention program. After
obtaining Bankruptcy Court approval in December 2000, this program was adopted
by the Company in order to retain Philip D. Griffith, Michael E. McPherson, Max
L. Page and Paul H. Manske, each an officer, director and/or senior executive of
the Company, as key executives and to compensate them for their continued
employment with the Company during the process.
For further information concerning the Restructuring Agreement, please refer to
our Current Report on Form 8-K dated, December 5, 2000, as filed with the
Securities and Exchange Commission.
-2-
5
PURCHASE AGREEMENT
Pursuant to the Purchase Agreement, the Company has agreed to: (i) sell free and
clear of liens pursuant to Section 363 of the Bankruptcy Code substantially all
of the Company's assets including Fitzgeralds Las Vegas, Fitzgeralds Black Hawk
and Fitzgeralds Tunica; and (ii) assume and assign pursuant to Section 365 of
the Bankruptcy Code contracts used in its operations at Fitzgeralds Las Vegas,
Fitzgeralds Black Hawk, and Fitzgeralds Tunica, as well as the Company's
interest in The Fremont Street Experience Limited Liability Company
(collectively, the "Assets") to Majestic for $149.0 million in cash, subject to
certain holdbacks and adjustments, plus the assumption of certain liabilities
relating to the Assets. Majestic has deposited in escrow $2.0 million of the
cash portion of the purchase price as an earnest money deposit. The Purchase
Agreement contains customary representations, warranties, conditions and
covenants, and provides for a dollar-for-dollar purchase price adjustment based
on changes in each of the target properties working capital and long-term debt,
excluding debt related to the Notes, at closing, and adjustment if the Company's
earnings before interest, income taxes, depreciation and amortization for the
12-month period prior to closing vary by 5% or more from a target earnings
amount for such period and adjustments as may apply in the event that the
Company fails to obtain certain consents. The closing is contingent upon, among
other things, Majestic obtaining financing of up to $137.0 million and approval
of gaming authorities in Colorado, Mississippi and Nevada.
For further information concerning the Purchase Agreement, please refer to our
Current Report on Form 8-K, dated December 5, 2000, as filed with the Securities
and Exchange Commission.
OPERATING STRATEGY
Although it continues to operate its business as debtor in possession, because
of the pendency of the Bankruptcy Cases, substantially all of the Company's
activities are subject to the supervision of the Bankruptcy Court. The Company
cannot assure that the Bankruptcy Court will continue to permit it to operate,
or that the Company will deem it to be appropriate to continue to operate, in
the manner described below.
Pending consummation of the transactions contemplated by the Restructuring
Agreement and the Purchase Agreement, the Company's operating strategy is to
increase profitability by utilizing its national gaming brand and fully
integrated player tracking system (the "Fitzgeralds Card") to further penetrate
the middle-market customer base and to capitalize on the competitive strengths
of its four Fitzgeralds-brand properties. The Company's operating strategy is
characterized by several principal elements including:
Development of National Gaming Brand
The Company has developed a national gaming brand by using a consistent Irish
Luck theme throughout the casinos, hotels, restaurants and bars at all of its
properties. 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 its theme creates an exciting and comfortable environment together with a
distinctive brand identity for customers. The Irish Luck theme allows the
Company to capitalize on its belief that every casino guest wants to feel lucky
and, by associating luck with the Fitzgeralds name, "Fitzgeralds Irish Luck"
becomes unique.
Middle Market Customer Focus
The Company provides a high-quality casino entertainment experience at an
affordable price to attract the middle market guests which it believes
constitute the largest segment of potential gaming customers
-3-
6
whom the Company can then identify, qualify and target for direct marketing
activities. The importance of friendly and efficient service is stressed
continuously through extensive employee training. The Company's approach to
business includes personal contact with trained hosts, moderately priced food,
beverages and lodging, and the use of the Fitzgeralds Card as part of a frequent
player recognition program. The Company believes that such an approach to
business provides a comfortable, "Lucky" environment designed to promote
customer loyalty, a high rate of repeat business and the basis for the further
development of its national brand.
Emphasis on Slot Play
The Company emphasizes slot machine play, which it believes to be the fastest
growing and most profitable segment of the casino entertainment business. The
increasing popularity of slot machines is due, in part, to the continuing rapid
technological development that is resulting in the replacement of older devices
with advanced interactive electronic games and bill acceptors. These newer games
offer greater variety, higher pay outs and longer periods of play for the casino
entertainment dollar relative to simple older devices. Subject to the
availability of financing, as to which there can be no assurance, the Company
intends to continue investing in state-of-the-art machines and related equipment
and systems, such as bill acceptors and player tracking, and continue replacing
older models with the most current product offerings in an effort to maximize
revenue.
OPERATING PROPERTIES
The Company currently owns and operates two Nevada properties (Fitzgeralds Las
Vegas and Fitzgeralds Reno), one Mississippi property (Fitzgeralds Tunica) and
one Colorado property (Fitzgeralds Black Hawk) hereinafter referred to
collectively as (the "Operating Properties").
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 US 95 and markets to Las Vegas
tourists, numbering approximately 35.8 million in 2000 and, to a lesser extent,
to the approximately 1.4 million residents of the Las Vegas valley. The 34-story
building underwent a refurbishment of the hotel and remodeling expansion of the
casino, which was substantially completed in December 1996 at a cost of
approximately $19.4 million. At December 31, 2000, the facility contained a
638-room hotel (including 14 suites) and a casino offering 976 slot machines, 23
table games, a 42-seat keno lounge and a sports book (operated by a third
party). Fitzgeralds Las Vegas amenities include four restaurants, three bars, an
ice cream parlor, a special events center, a gift shop and an entertainment
area. Fitzgeralds Las Vegas includes a 335-space parking structure and an
adjacent surface parking area with an additional 38 spaces.
The Company has a 13-year franchise license agreement with Holiday Inns
Franchising, Inc. ("Holiday Inns"), to operate the Fitzgeralds Las Vegas hotel
as a Holiday Inn commencing in July 1996. Subject to the terms and conditions of
the agreement, the Fitzgeralds Las Vegas hotel has been included in the Holiday
Inn Worldwide Reservation System and has use of Holiday Inn copyrights,
trademarks and similar proprietary rights used by other Holiday Inn licensees.
The Company is the exclusive licensee of Holiday Inn-branded hotels within the
defined territory encompassing downtown Las Vegas. The Company pays a monthly
royalty based on a percentage of Fitzgeralds Las Vegas revenues from room
rentals after deduction of sales and room taxes and a portion of complimentary
rooms. The Company also pays marketing, reservation and similar fees based on
such revenues or the number of rooms.
-4-
7
Although the ability of the Company to assume and assign the franchise agreement
pursuant to the Bankruptcy Code is questionable, Majestic has initiated
discussions with Holiday Inns concerning entering into a new franchise agreement
to replace the existing franchise agreement. In the event the franchise
agreement is not assumable and assignable, a replacement franchise agreement
with Holiday Inns is not executed, and assuming the Majestic Purchase Agreement
is consummated, the Company would be subject to an unsecured claim in the
Bankruptcy Cases based upon the liquidated damages provision of the franchise
agreement which provides for a lump sum payment equal to the last 36 months of
fees paid pursuant to the franchise agreement, (approximately $1.6 million as of
the date hereof). While the Company would contest the allowance of such a claim
by the Bankruptcy Court, the Company cannot determine at this time the ultimate
resolution of such a claim.
In December 1999, the Company entered into a Chilled Water Service Agreement
with e.three Custom Energy Solutions, LLC ("E-Three"). E-Three constructed a
facility on land leased from Fitzgeralds Las Vegas for producing and
distributing chilled water to various customers in downtown Las Vegas. The
agreement became effective upon completion of the facility in October of 2000. A
motion is pending before the Bankruptcy Court to assume and assign the
agreement.
Las Vegas continues to grow rapidly and is one of the world's largest tourist
destinations. In order to more fully participate in that growth, eight downtown
gaming companies, including the Company, opened the Fremont Street Experience in
November 1995 to revitalize the central core of the downtown Las Vegas gaming
district. The Fremont Street Experience converted five blocks of Fremont Street
into a "must see" attraction that restores and enhances the intimacy and visual
excitement of downtown Las Vegas. The Fremont Street Experience includes a
pedestrian mall, shops, restaurants and entertainment beneath an approximately
1,500-foot long, 90-foot high Space Frame, which incorporates approximately 2.1
million lights to offer a number of "Sky Parade Light Shows," as well as a
number of special events and festivals. In addition, there have been extensive
sidewalk and street improvements, and the construction of an approximately
1,400-space parking structure which includes the 240 seat Race Rock restaurant.
In 1999, construction was started on a retail shopping facility located on an
adjacent lot; however, one of the major tenants has filed for bankruptcy and
construction was suspended until December 2000 and is currently not scheduled
for completion until February 2002. With its appeal to adults, together with its
location on Fremont Street, the Fremont Street Experience is distinguishable
from other Las Vegas attractions and draws both locals and tourists who might
not otherwise visit the downtown area.
Fitzgeralds Tunica
Fitzgeralds Tunica is located in north Tunica County, Mississippi, approximately
30 miles from downtown Memphis, Tennessee. Fitzgeralds Tunica is designed as an
Irish castle and is the focal point of a heavily wooded, 121-acre Company-owned
site situated by the Mississippi River. The Fitzgeralds Tunica casino opened in
June 1994 at a cost of approximately $46.0 million. The facility was expanded to
include a hotel and related amenities. These improvements were substantially
completed in October 1996 at a cost of approximately $34.0 million. At December
31, 2000, the facility included a 507-room hotel, a special events center, an
indoor swimming pool and a casino offering 1,336 slot machines and 34 table
games, two bars, four restaurants and a gift shop. In June 2000, the Company
finished construction on a 411-space covered parking garage and 170 spaces of
surface parking at a cost of $5.6 million.
The Company has developed Fitzgeralds Tunica into a full-service entertainment
destination and has been able to increase and diversify its customer base by
attracting, in addition to its local customers, independent travelers,
tour-and-travel customers and guests for special events and conventions.
-5-
8
Fitzgeralds Reno
Fitzgeralds Reno is located in downtown Reno on the corner of Virginia Street
and Commercial Row next to the landmark Reno Arch. At December 31, 2000, the
facility consisted of a 16-story, 351-room hotel and a casino offering 865 slot
machines, 25 table games, a 110-seat keno lounge and a sports book (operated by
a third party). Amenities include three restaurants, four bars, an entertainment
lounge and a gift shop. Historically, Fitzgeralds Reno leased parking spaces in
an adjacent 834-space parking garage on an annual basis with no certainty that
the lease would be renewed from year to year. Since available parking in
downtown Reno is limited, losing access to these spaces would substantially
impair the performance of Fitzgeralds Reno unless an alternative site became
available. Therefore, on February 1, 2000, Fitzgeralds Reno acquired ownership
of the garage for $3.0 million as well as an assignment of the underlying ground
lease on which the garage is located. The original term of the ground lease
expires on February 28, 2013, and may be extended for one additional period of
ten years.
The Fitzgeralds marketing strategy is to capitalize on the high level of
pedestrian traffic surrounding Fitzgeralds Reno, which is located in the heart
of downtown Reno adjacent to the landmark Reno Arch. Fitzgeralds Reno maintains
active sidewalk marketing programs aimed at attracting pedestrians into the
casino. To further increase Fitzgeralds Reno's appeal and convenience, the
Company constructed an enclosed temperature-controlled, themed pedestrian bridge
(the "Rainbow Skyway"), which connects the sidewalk located across the railroad
tracks near the entrance to the Eldorado Hotel and Casino to the upgraded second
floor casino of Fitzgeralds Reno. Fitzgeralds Reno guests entering via the
Rainbow Skyway step into a themed "Lucky Forest" and are greeted at the
Fitzgeralds Card Center. The second floor of the casino has been further
upgraded with the addition of new slot machines, specialty table gaming products
and a renovated restaurant in anticipation of increased traffic flow from the
Rainbow Skyway. The cost of the Rainbow Skyway was approximately $2.3 million,
of which $1.0 million was funded by the Union Pacific Railroad with the balance
being borne by the Company. The Rainbow Skyway was opened to the public on
February 7, 1998. The Rainbow Skyway was constructed over air rights that were
acquired by the Company from the Southern Pacific Railroad. Such air rights may
be subject to a claim of ownership (or claim of an ownership interest) by the
United States of America. Although the Company believes it is unlikely that the
United States of America would, in a manner adverse to the Company, exercise any
right, title, or interest it may hold or obtain in the air rights parcel, no
assurance can be made that such an exercise will not occur.
The Company believes that the renovation of the front entrance and hotel rooms
has increased visibility and improved operations. In addition, the Company
continues to upgrade its slot and specialty table game products in conjunction
with its fully integrated player tracking system. With regard to the impact of
the Reno Transportation Rail Access Corridor (ReTRAC) Project, see Item 3 -
Legal Proceedings.
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 sets it apart visually from many other Black Hawk casinos. At
December 31, 2000, the casino offered 595 slot machines, 6 table games, a
restaurant, and a bar. The second floor is mostly unfinished and is being
partially used for offices and storage. Fitzgeralds Black Hawk also has a
400-space, all valet parking garage, adjacent to the casino.
-6-
9
In August 2000, Fitzgeralds Black Hawk acquired an adjoining parcel of land as
part of its planned expansion. The Company has obtained some, but not all of the
permits necessary to undertake its proposed expansion. The Company is reviewing
its development plans with Majestic to determine if any other action will
be taken concerning the expansion project prior to the close of the anticipated
sale with Majestic.
OTHER OPERATIONS
Cliff Castle Casino
Cliff Castle Casino ("Cliff Castle") is a gaming facility owned and operated by
the Yavapai-Apache Nation (the "Nation") located in Camp Verde, Arizona. In May
1995, Fitzgeralds Arizona Management, Inc. ("FAMI"), an 85%-owned subsidiary of
the Company, entered into an exclusive agreement (the "Cliff Castle Management
Agreement") to manage Cliff Castle for five years. In June 1998, FAMI entered
into a termination agreement with the Nation, wherein the parties mutually
agreed to terminate the Cliff Castle Management Agreement.
Turning Stone Casino
In consideration of work performed by the Company pursuant to an agreement with
the Oneida Indian Nation to manage Turning Stone Casino ("Turning Stone")
located in Verona, New York, the Company received monthly payments of $133,333
through September 1998.
Certain Hotel Operating Information
The following table on Fitzgeralds hotel operations is provided as additional
supplemental information:
NUMBER AVERAGE AVERAGE REVENUE/
YEAR DATE OF RENOVATION RENOVATION OCCUPANCY ROOM AVAILABLE
HOTEL BUILT ACQUIRED ROOMS YEAR(S) AMOUNT RATE RATE ROOMS
- ------------ ----- --------- ------ ---------- ---------- --------- --------- ---------
Las Vegas 1979 Nov. 1987 638 1996-2000 $4,146,200 92.1% $ 39.08 $ 35.98
Tunica 1996 N/A 507 2000-2001 $ 250,000 92.5% $ 47.85 $ 44.26
Reno 1978 Dec. 1986 351 1998-2000 $1,152,500 88.9% $ 48.28 $ 43.38
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, 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 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. As of the date hereof, the
filing of the Bankruptcy Cases has not had a material adverse impact on the
Company's operations; however there can be no assurance that the Company will
not incur a material adverse impact in the future.
-7-
10
Nevada Operations
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-market" 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 approximately
9,200 rooms all opened in 1999; and the Aladdin resort with approximately 2,600
rooms opened in August of 2000. Two other properties located off the Las Vegas
Strip, the Las Vegas Regent and Lake Las Vegas, also opened in 1999. 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. 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.
Fitzgeralds Reno encounters strong competition from other hotel and casino
facilities in the Reno area as well as competition from gaming establishments in
other areas of Nevada and, to a lesser extent, other jurisdictions in the United
States where gaming has been legalized (including Indian gaming establishments).
Fitzgeralds Reno competes with other properties principally on the basis of
location and direct marketing. Additional competition may come from the
expansion or construction of other hotel and casino properties or the upgrading
of other existing facilities in the Reno area. There can be no assurance that
such growth will not adversely affect the pricing policies at Fitzgeralds Reno,
including the room pricing policies.
In addition, management believes that the introduction of casino gaming or the
expansion of presently conducted gaming operations, particularly at Indian
casinos in areas in or close to Nevada, such as California, Oregon, Washington,
Arizona and western Canada, could have an adverse effect on operations at the
Company's Las Vegas and Reno properties and, depending on the nature, location
and extent of such operations, such effect could be material.
In November 1998, California voters approved Proposition 5, otherwise known as
the Indian Self-Reliance Initiative, which legalized Nevada-style games for
tribal casinos, subject to specified limitations. Provisions included that
Indian casinos: (i) may be located only on Tribal lands; (ii) may only continue
to offer games in effect prior to the adoption of Proposition 5; and (iii) may
only offer lottery-style gaming in which prizes come from a pool of wagered
money rather than the casino. Specifically, the types of casino gaming permitted
under Proposition 5 would be player-pool card games, pari-mutual betting on
horse racing and video gaming machines with lottery style prize structures. Slot
machines operated by a handle that take and dispense coins or games such as
craps, roulette and baccarat would not be permitted.
However, in August 1999, the California Supreme Court ruled that Proposition 5
was unconstitutional because the state constitution prohibits Las Vegas style
gambling. Governor Gray Davis immediately entered into negotiations with gaming
tribes that resulted in a two-part agreement: (i) to put a constitutional
amendment ("Proposition 1A") on the March 2000 primary ballot and (ii) to sign
tribal-state gaming Compacts that would go into effect if Proposition 1A was
approved by the voters.
-8-
11
On March 7, 2000, California voters approved Proposition 1A. The maximum number
of slots permitted for any one tribe is 2,000, with an estimated 40,000
projected statewide. Three years after any Compact is approved, the tribe may
renegotiate to request an increase in the number of its slot machines. Tribes
will immediately have the right to operate "any banking or percentage card
game"; however, although craps and roulette are not available as of the date
hereof they may become available later this year or thereafter. The legal
gambling age will be 18, while the drinking age will remain at 21. Players may
not sue a tribe if there is a dispute over a bet; however, tribes did agree to
waive their sovereignty concerning unions and allow workers to unionize. Tribes
are not required to waive their immunity from suits for patron injuries,
although they will be required to carry at least $5.0 million in public
liability insurance for patron claims.
The Company's ability to maintain its competitive position in Las Vegas and Reno
will require the expenditure of sufficient funds for such items as updating slot
machines to reflect changing technology, periodic refurbishing of rooms and
public service areas, and replacing obsolete equipment on an ongoing basis.
Because the Company is subject to the supervision of the Bankruptcy Court, is
highly leveraged, lacks financial flexibility by virtue of the constraints of
the Restructuring Agreement, the Bankruptcy Code and the obligation to make
Post-petition Distributions, is in default on its Notes and may not generate
sufficient funds internally, there can be no assurance that the Company will
generate sufficient funds internally or obtain sufficient additional financing
to fund such expenditures or that any such arrangement would be approved by the
Bankruptcy Court.
Mississippi Operations
Fitzgeralds Tunica competes primarily with nine other dockside gaming facilities
in the Tunica 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 with other Mississippi operations and
may have to compete with surrounding areas for customers in Memphis, Tennessee
and Little Rock, Arkansas. There can be no assurance that the State of Tennessee
or the State of Arkansas will not legalize casino gaming in the future.
To maintain and enhance its competitive position, it will be necessary to incur
capital expenditures at Fitzgeralds Tunica from time to time to add to the
appeal of the property. Because the Company is subject to the supervision of the
Bankruptcy Court, is highly leveraged, lacks financial flexibility by virtue
of the constraints of the Restructuring Agreement, the Bankruptcy Code and the
obligation to make Post-petition Distributions, is in default on its Notes and
may not generate sufficient funds internally, there can be no assurance that the
Company will be able to fund any such expenditures or that any such arrangement
would be approved by the Bankruptcy Court.
Colorado Operations
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, construction has commenced on a casino developed by Windsor
Woodmont Black Hawk Resort Corporation and Hyatt Gaming which is expected to
open in December 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
-9-
12
material adverse effect on Fitzgeralds Black Hawk operations and may continue to
do so; moreover, 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.
The Company will be required to make substantial capital expenditures to
increase the attractiveness of the Fitzgeralds Black Hawk property in the face
of increasing competition. See Operating Properties -- Fitzgeralds Black Hawk.
Because the Company is subject to the supervision of the Bankruptcy Court and is
highly leveraged, and lacks financial flexibility by virtue of the constraints
of the Restructuring Agreement, the Bankruptcy Code and Post-petition
Distributions, and is in default on its senior secured debt and may not generate
sufficient funds internally, there can be no assurance that the Company will be
able to fund any such expenditures or that any such arrangement would be
approved by the Bankruptcy Court.
EMPLOYEES
As of December 31, 2000, the Company employed approximately 3,234 people.
Fitzgeralds Las Vegas employed approximately 932 people, approximately 404 of
whom are represented by the Culinary Workers Union, Local No. 226 and the
Bartenders Union, Local No. 165, under a five-year contract expiring on May 31,
2002. In addition, five 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
expiring on July 31, 2001. Fitzgeralds Tunica, Fitzgeralds Reno and Fitzgeralds
Black Hawk employed approximately 1,152, 765 and 355 people, respectively, none
of whom are represented by a union. In addition, the Company also employed 30
people in its corporate offices.
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
The Company believes that its distinctive trade names, trademarks and service
marks are important to its efforts to develop a distinctive national brand
identity. Because of their importance, the Company expends considerable effort
to conceptualize, obtain, utilize and protect its trade names, trademarks and
service marks. The Company has proprietary rights in approximately 84 registered
trade names, trademarks and service marks used in connection with its businesses
and created to enhance its Irish luck theme, its gaming activities and its
association with the Fremont Street Experience, including the marks
"Fitzgeralds," "Fitz" and the "Mr. O'Lucky" character design. Registered marks
usually have perpetual life, provided that they are renewed on a timely basis
and continue to be used properly as marks. The Company also has several
non-exclusive licenses and supply agreements permitting it 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,
trademark and copyright rights.
GOVERNMENTAL REGULATION
General
The ownership and operation of the Company's casino gaming facilities are
subject to various state and local regulations in the jurisdictions where they
are located. In Nevada, the Company's gaming
-10-
13
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, the Company must register under the Mississippi Gaming Control
Act and its gaming operations are subject primarily to the licensing and
regulatory control of the Mississippi Gaming Commission, the Mississippi State
Tax Commission and various local, city and county regulatory agencies. In
Colorado, the Company's 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. The Company's
operations are also subject to the Colorado Liquor Code and the state and local
liquor licensing authorities.
The Company holds all licenses and permits it needs to operate its gaming
facilities. Directors, officers and key employees of the Company are required to
hold individual licenses, which requirements vary from jurisdiction to
jurisdiction. Licenses and permits of gaming operations and of individual
licensees are subject to revocation or non-renewal for cause. Under certain
circumstances, holders of the Company's securities are required to secure
independent licenses and permits.
Nevada Gaming Regulation
The ownership and operation of casino gaming facilities in Nevada are subject to
the Nevada Gaming Control Act and the regulations promulgated thereunder (the
"Nevada Act") and to the licensing and regulatory control of the Nevada Gaming
Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the
"Nevada Board") and various local ordinances and regulations, including, without
limitation, applicable city and county gaming and liquor licensing authorities
(collectively, the "Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and filing periodic reports with the
Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent
practices; and (v) providing a source of state and local revenues through
taxation and licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations.
The Company's direct and indirect subsidiaries that conduct gaming operations
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. The Company is registered by the Nevada Commission as a publicly
traded corporation (a "Registered Corporation") and has been found suitable to
own the stock of FSI and FRI. FSI is registered as an intermediary company (an
"Intermediary Company") and has been found suitable to own the stock of FLVI,
which has been licensed as a manufacturer and distributor of gaming devices and
to conduct nonrestricted gaming operations at Fitzgeralds Las Vegas. FRI has
been licensed as a manufacturer and distributor of gaming devices and to conduct
nonrestricted gaming operations at Fitzgeralds Reno. FLVI and FRI are each a
corporate gaming licensee (a "Corporate Licensee" or individually a "Nevada
Gaming Subsidiary" and collectively the "Nevada Gaming Subsidiaries") under the
terms of the Nevada Act. No person may become a stockholder of, or receive any
percentage of
-11-
14
profits from, an Intermediary Company or a Nevada Gaming Subsidiary without
first obtaining licenses and approvals from the Nevada Gaming Authorities. The
Company, FSI and the Nevada Gaming Subsidiaries have obtained from the Nevada
Gaming Authorities the various registrations, findings of suitability,
approvals, permits and licenses required in order to engage in gaming activities
in Nevada. The following statutory and regulatory requirements are currently
applicable to the Company, FSI and the Nevada Gaming Subsidiaries, including
requirements applicable to the Company as a Registered Corporation, and will be
applicable to Majestic in consummating the Purchase Agreement or to any other
purchaser of the Nevada Gaming Subsidiaries or operating assets of the Nevada
Gaming Subsidiaries.
The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company, FSI or the Nevada
Gaming Subsidiaries in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of the Nevada Gaming Subsidiaries 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 or FSI who are actively and directly involved
in gaming activities of the Nevada Gaming Subsidiaries may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and, in addition to their authority
to deny an application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, FSI or the Nevada Gaming Subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company, FSI or the Nevada
Gaming Subsidiaries to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company, FSI and the Nevada Gaming Subsidiaries are required periodically to
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 Nevada Gaming Subsidiaries must be reported to or
approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by FSI or any Nevada
Gaming Subsidiary, the registration or gaming licenses they hold could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, FSI, the Nevada
Gaming Subsidiaries 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 Fitzgeralds Reno and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for reasonable rental value of the casino) could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of the gaming licenses
of the Nevada Gaming Subsidiaries 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.
-12-
15
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 his or her 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. 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 thirty days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of a Registered
Corporation's voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information, including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 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 stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Company will be subject to disciplinary action if, after
it receives notice that a person is unsuitable to be a stockholder or to have
any other relationship with the Company or the Nevada Gaming Subsidiaries, the
Company (i) pays that person any dividend or interest upon voting securities of
the Company, (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the City
of Las Vegas and the City of Reno have the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming
licensee.
-13-
16
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 (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which may
be examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company will also be required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates to bear a legend indicating
that the securities are subject to the Nevada Act. To date, the Nevada
Commission has not imposed such a requirement on the Company.
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. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.
Changes in control of a Registered Corporation through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in
-14-
17
response to a tender offer made directly to the Registered Corporation's
stockholders for the purposes of acquiring control of the Registered
Corporation.
License fees and taxes, computed in various ways depending on the type of gaming
or activity involved, are payable to the State of Nevada and to 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 either (i) a
percentage of the gross revenues received; (ii) the number of gaming devices
operated; or (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is furnished in
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, such as the Nevada Gaming Subsidiaries, also pay certain
fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who 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 their 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 personal unsuitability.
The sale of alcoholic beverages at Fitzgeralds Las Vegas and at Fitzgeralds Reno
are subject to licensing, control and regulation by the City of Las Vegas and
the City of Reno, respectively. 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 the Nevada
Gaming Subsidiaries.
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 regulatory control of the Mississippi Commission (the "Mississippi
Commission") and the Mississippi State Tax Commission. The Company must register
under the Mississippi Gaming Control Act (the "Mississippi Act") and its gaming
operations are subject to the licensing and regulatory control of the
Mississippi Commission and various local, city and county regulatory agencies.
The Mississippi Act, which legalized dockside casino gaming in Mississippi, was
enacted on June 29, 1990. Although not identical, the Mississippi Act is similar
to the Nevada Act. Effective October 29, 1991, the Mississippi Commission
adopted regulations in furtherance of the Mississippi Act which are also similar
in many respects to the Nevada gaming regulations.
Under Mississippi law, gaming vessels in Tunica County must be located on the
Mississippi River or on navigable waters emptying into the Mississippi River.
Fitzgeralds Tunica was constructed on barges situated in a specially constructed
basin made a part of the Mississippi River by a navigable inlet. On May 24,
1993, the Mississippi Commission granted site approval to the Fitzgeralds Tunica
site. On
-15-
18
April 21, 1994, FMI dba Fitzgeralds Tunica received a gaming operator's license
from the Mississippi Commission. At the same meeting, certain key principals of
FMI were found suitable. The license was most recently renewed on March 26,
1998, effective April 23, 1998, and will expire on April 23, 2000. All related
findings of suitability have been maintained and are current. A condition placed
on this license by the Mississippi Commission is that the barge placement
continue to meet the statutory requirements of navigability. Fitzgeralds Tunica
opened on June 6, 1994.
The following statutory and regulatory requirements are currently applicable to
the Company, FSI and FMI, including requirements applicable to the Company as a
Registered Corporation and will be applicable to Majestic in consummating the
Purchase Agreement or to any other purchaser of FMI or the operating assets of
FMI.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Commission seek to: (i) prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Commission; (iv) prevent cheating and
fraudulent practices; (v) provide a source of state and local revenues through
taxation and licensing fees; and (vi) ensure that gaming licensees, to the
extent practicable, employ Mississippi residents. The regulations are subject to
amendment and interpretation by the Mississippi Commission.
The Mississippi Act provides for legalized dockside gaming at the discretion of
the 14 counties that either border the Gulf Coast or the Mississippi River, but
only if the voters in such counties have not voted to prohibit gaming in that
county. As of November 20, 1997, dockside gaming was permitted in nine of the 14
eligible counties in the State and gaming operations have commenced in Adams,
Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. The law
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.
There are no limitations on the number of gaming licenses which may be issued in
Mississippi. The legal age for gaming in Mississippi is 21.
The Company and FMI are required to submit detailed financial, operating and
other reports to the Mississippi Commission. Substantially all loans, leases,
sales of securities and similar financing transactions entered into by the
Company and FMI must be reported to or approved by the Mississippi Commission.
FMI is also required to periodically submit detailed financial and operating
reports to the Mississippi Commission and to furnish any other information
required thereby.
Each of the directors, officers and key employees of the Company who are
actively and directly engaged in the administration or supervision of gaming, or
who have any other significant involvement with the activities of the Company,
and each of the officers and directors and certain employees of FMI, must be
found suitable therefor, and may be required to be licensed, by the Mississippi
Commission. The finding of suitability is comparable to licensing, and both
require submission of detailed personal financial information followed by a
thorough investigation. In addition, any individual who is found to have a
material relationship to, or material involvement with, the Company or FMI may
be required to be investigated in order to be found suitable or to be licensed
as a business associate of the Company or FMI. Key employees, controlling
persons or others who exercise significant influence upon the management or
affairs of the Company or FMI may also be deemed to have such a relationship or
involvement. There can be no assurance that such persons will be found suitable
by the Mississippi
-16-
19
Commission. An application for licensing may be denied for any cause deemed
reasonable by the Mississippi Commission. Changes in licensed positions must be
reported to the Mississippi Commission. In addition to its authority to deny an
application for a license, the Mississippi Commission has jurisdiction to
disapprove a change in corporate position. If the Mississippi Commission were to
find a director, officer or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the Company or FMI, the Company or FMI
would have to suspend, dismiss and sever all relationships with such person. The
Company or FMI would have similar obligations with regard to any person who
refuses to file appropriate applications. Each gaming employee must obtain a
work permit which may be revoked upon the occurrence of certain specified
events.
Mississippi statutes and regulations give the Mississippi Commission the
discretion to require a suitability finding with respect to anyone who acquires
any security of the Company or FMI, regardless of the percentage of ownership.
The current practice of the Mississippi Commission is to require any individual
acquiring 5% or more and any qualifying institutional investor acquiring 15% or
more of any voting securities of a licensee or a public or private company with
a licensed subsidiary to be found suitable. If the owner of voting securities
who is required to be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information, including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any owner of voting securities found unsuitable and who holds, directly or
indirectly, any beneficial ownership of equity interests in the Company or FMI
beyond such period of time as may be prescribed by the Mississippi Commission
may be guilty of a misdemeanor. Any person who fails or refuses to apply for a
finding of suitability or a license within 30 days after being ordered to do so
by the Mississippi Commission may be found unsuitable. The Company or FMI is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be an owner of or to have any other relationship with it, the
Company or FMI: (i) pays the unsuitable person any dividends or interest upon
any of its securities or any payments or distributions of any kind whatsoever;
(ii) recognizes the exercise, directly or indirectly, of any voting rights in
its securities by the unsuitable person; or (iii) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
limited and specific circumstances. In addition, if the Mississippi Commission
finds any owner of voting securities unsuitable, such owner must immediately
surrender all securities to the Company or FMI, as applicable, and the Company
or FMI must purchase the securities so offered for cash at fair market value
within 10 days.
The Company and FMI will be required to maintain current ownership ledgers in
the State of Mississippi which may be examined 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. The Company and FMI also are required
to render maximum assistance in determining the identity of the beneficial
owner. In addition, the Mississippi Commission under the Mississippi Act may, in
its discretion: (i) require holders of debt securities of registered
corporations to file applications; (ii) investigate such holders; and (iii)
require such holders to be found suitable to own such debt securities. Although
the Mississippi Commission generally does not require the individual holders of
such obligations 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 investigation fees and costs of the Mississippi Commission in connection
with such an investigation.
-17-
20
The regulations provide that a change in control of the Company or FMI may not
occur without the prior approval of the Mississippi Commission. Mississippi law
prohibits the Company from making a public offering or private placement of its
securities without the approval of or waiver of approval by the Mississippi
Commission if any part of the proceeds of the offering is to be used to finance
the construction, acquisition or operation of gaming facilities in Mississippi,
or to retire or extend obligations incurred for one or more of such purposes.
Mississippi law also prohibits the Company from pledging or otherwise placing
restrictions on the stock of FMI without the prior approval of the Mississippi
Commission.
The Mississippi Act requires that certificates representing securities of the
Company or FMI bear a legend to the general effect that the securities are
subject to the Mississippi Act and regulations of the Mississippi Commission.
The Mississippi Commission, through the power to regulate licensees, has the
power to impose additional restrictions on the holders of the Company's or FMI's
securities at any time.
As Mississippi licensees, neither the Company nor FMI may engage in gaming
activities outside Mississippi without approval of the Mississippi Commission.
Such approvals were initially granted on April 21, 1994, and additional
approvals have been granted on a jurisdiction-by-jurisdiction basis.
The licenses obtained by the Company and FMI are not transferable and new
licenses must be obtained every two years. There can be no assurance that any
subsequent application will be approved. Each issuing agency may at any time
dissolve, suspend, condition, limit or restrict a license or approval to own
equity interests in the Company or FMI for any cause deemed reasonable by such
agency. Substantial fines for each violation of gaming laws or regulations may
be levied against the Company or FMI in Mississippi. A violation under any
gaming license held by the Company or FMI may be deemed a violation of all the
other licenses held by the Company or FMI. Suspension or revocation of any of
the foregoing licenses or of the approval of the Company or FMI would have a
material adverse effect upon the business of the Company.
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 FMI's operations will be conducted. Depending upon the particular fee
or tax involved, these fees and taxes are payable either monthly, quarterly or
annually and are based upon: (i) the percentage of the gross gaming revenues
received by the casino operation; (ii) the number of slot machines operated by
the casino; (iii) the number of table games operated by the casino; or (iv) the
number of casino patrons. The foregoing license fees are allowed as a credit
against FMI's Mississippi income tax liability for the year paid.
In October 1994, the Mississippi Commission adopted a regulation requiring, as a
condition of licensure or license renewal, that a gaming establishment's site
development plan include an approved 500-car parking facility in close proximity
to the casino complex and infrastructure facilities which will amount to at
least 25% of the casino cost. Such facilities may include any of the following:
a 250-room hotel of at least a two-star rating (as defined by the current
edition of the Mobil Travel Guide), a theme park, a golf course, marinas, a
tennis complex, entertainment facilities or any other such facility as approved
by the Mississippi Commission as infrastructure. Parking facilities, roads,
sewage and water systems or facilities normally provided by governmental
entities are excluded. The Mississippi Commission may, in its discretion, reduce
the number of hotel rooms and parking spaces required where it is shown, to the
satisfaction of the Mississippi Commission, that sufficient rooms are available
to accommodate the anticipated visitor load. Such reduction in the number of
rooms does not impact the 25% investment requirement imposed by the regulation.
The number of parking spaces may also be reduced to accommodate smaller casinos.
The Company met such requirements with the opening of the Fitzgeralds
-18-
21
Tunica Hotel and related facilities in 1996. On January 21, 1999, the
Mississippi Commission amended this regulation to increase the minimum level of
infrastructure investment from 25% to 100% of the casino cost; however, the 100%
infrastructure investment amendment applies only to new casino developments and
existing casino developments that are not operating at the time of their
acquisition or purchase, and would therefore not apply to Fitzgeralds Tunica.
The sale of alcoholic beverages, including beer and wine, at Fitzgeralds Tunica
is subject to licensing, control and regulation by the Alcoholic Beverage
Control Division (the "ABC") of the Mississippi State Tax Commission. The ABC
requires that all equity owners and managers file personal record forms and
fingerprint forms for their licensing process. In addition, owners of more than
5% of FMI's equity and FMI's officers and managers must submit detailed
financial information to ABC for licensing. All such licenses are revocable and
are non-transferable. The Mississippi State Tax Commission has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of Fitzgeralds Tunica.
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 is 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.
The following statutory and regulatory requirements are currently applicable to
the Company, FI, and its Colorado Gaming subsidiaries, including requirements
applicable to the Company as a Registered Corporation and will be applicable to
Majestic in consummating the Purchase Agreement or to any other purchaser of 101
Main or the operating assets of 101 Main.
Pursuant to the Colorado Act and the rules and regulations promulgated
thereunder (collectively, the "rules"), the ownership and operation of limited
gaming facilities in Colorado, however acquired, are subject to extensive
regulation. The Colorado Act created the Division of Gaming (the "Colorado
Division") within the Colorado Department of Revenue and the Colorado Limited
Gaming Control Commission (the "Colorado Gaming Commission") to license,
implement, regulate, and supervise the conduct of limited gaming. The Director
of the Colorado Division (the "Colorado Director"), under the general
supervision of the Colorado Gaming Commission, is granted broad powers to ensure
compliance with the Colorado Act and the rules. The Colorado Act now provides
that the provisions which established the Colorado Division are repealed
effective July 1, 2003, unless continued by act of the General Assembly. 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 is unknown.
The Colorado Gaming Commission has authority to issue retail gaming, operator,
key employee and support licenses, and licenses for slot machine manufacturers
and distributors. The Colorado Director also has the authority to issue key
employee and support licenses. All such licenses are for renewable
-19-
22
one-year periods. The Colorado Gaming Commission has broad discretion to
condition, suspend, revoke, limit or restrict a license at any time. The
Colorado Gaming Commission may issue temporary licenses with a duration of up to
six months. The Colorado Gaming Commission also has authority to impose fines
against licensees.
All license applicants must demonstrate to the Colorado Gaming Commission that
they are suitable for licensing and are of good moral character. Applicants who
are career offenders, have certain criminal convictions, have associations with
career offender cartels or have certain pending criminal charges are
disqualified from licensure. Licensure by the Colorado Gaming Commission or the
Colorado Director is a revocable privilege and not a vested interest or property
right. All licenses are non-transferable.
A retail gaming license is required for all persons permitting or conducting
limited gaming on their premises. In addition, an operator license is required
for all persons who permit slot machines on their premises or who engage in the
business of placing and operating slot machines on the premises of a retail
gaming licensee. No person may have an ownership interest in more than three
retail licenses. With certain exceptions for licensed operators, a slot machine
manufacturer or distributor license is required for all persons who manufacture,
import, distribute, sell or lease for a fixed or flat fee, slot machines in
Colorado.
All natural persons employed in the field of limited gaming and all gaming
employees must hold either a support or key employee license. A key employee is
an executive, employee or agent of a gaming licensee having the power to
exercise a significant influence over decisions concerning any part of the
operation of a gaming licensee. The Colorado Gaming Commission may determine
that any employee of a licensee is a key employee and, therefore, require that
such person apply for licensing as a key employee.
All applicants for Colorado gaming licenses must complete comprehensive
applications, forms, pay required fees, and provide all information required by
the Colorado Gaming Commission and the Colorado Division. The Colorado Division
conducts a thorough background investigation of each applicant or any persons or
entities associated with the applicant. The investigation may cover the
background, personal history, financial associations, character, record and
reputation of the applicant. The applicant pays the full cost of the background
investigation. There is no limit on the cost or duration of the background
investigation. Applicants who do not provide all requested information during a
background investigation may be denied a gaming license.
The practice of the Colorado Division and the Colorado Gaming Commission, which
may change at any time, is to require every officer and director, or equivalent
office holders for non-corporate applicants, and 5% or greater beneficial owners
of an applicant or licensee to complete background investigation forms, provide
comprehensive information and submit to a full background investigation
conducted by the Colorado Division and Colorado Gaming Commission. The Colorado
Division may, and sometimes does, require information from and conducts
background investigations of persons holding less than a 5% beneficial interest
in an applicant or licensee.
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
-20-
23
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. Applicants and
licensees may be required by the Colorado Gaming Commission to pay the costs of
background, suitability, or other investigations of persons associated with the
applicant or licensee. Investigations for suitability, background, or any other
reason may delay license application or the operation under any agreement with a
licensee. All agreements, contracts, leases or arrangements in violation of the
Colorado Act or the rules are void and unenforceable.
Persons found unsuitable by the Colorado Gaming Commission may be required
immediately to terminate any interest in, association or agreement with, or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant may also jeopardize the licensee's license or applicant's license
application. Licenses may be conditioned upon termination of any relationship
with unsuitable persons.
The Colorado Act and the rules require licensees to maintain detailed books and
records which accurately account for all monies and business transactions. Books
and records must be furnished upon demand to the Colorado Gaming Commission, the
Colorado Division and other law enforcement authorities. The rules also
establish extensive playing procedures, standards, requirements and rules of
play for poker, blackjack and slot machines.
Retail gaming licensees must, in addition, adopt comprehensive internal control
procedures governing their limited gaming operations. Such procedures include
the areas of accounting, internal fiscal control, surveillance, security,
cashier operations, key control, reporting procedures, personnel procedures and
fill and drop procedures, among others. Such procedures must be approved in
advance by the Colorado Division. Licensees are prohibited from engaging in
fraudulent acts which include, among other things, misrepresenting the
probabilities of pay out, improperly canceling a bet, conducting limited gaming
without a valid license and employing an unlicensed person in a position which
requires a licensed employee. Licensees must report to the Colorado Division all
licenses, and all applications for licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly traded
entities, no person, including persons who may acquire an interest in a licensee
pursuant to a foreclosure, may sell lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Gaming Commission.
The rules impose certain additional restrictions and reporting and filing
requirements on publicly traded entities holding gaming licenses in Colorado and
on gaming licensees in Colorado owned directly or indirectly, 5% or more, by
publicly traded entities. Such rules apply to the Company. In addition, gaming
licensees, affiliated companies, and controlling persons thereof, must comply
with notice requirements upon the filing of registration statements with the
Securities and Exchange Commission. Such entities also must include certain
provisions in their charter or other organization 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. Black Hawk also
imposes taxes and fees on other aspects of the businesses of gaming licensees,
such as parking, liquor license and other
-21-
24
municipal taxes and fees. It is not unreasonable to expect substantial increases
in these fees or the imposition of new taxes and fees.
The State of Colorado has enacted an annual tax on the adjusted gross proceeds
("AGP") from limited gaming. AGP is generally defined as the amounts wagered
minus payments to players. For poker, AGP means those sums wagered on a hand
retained by the licensee as compensation. Currently, the gaming tax on AGP
ranges between 2% and 20%. The gaming tax is paid monthly, with licensees
required to file returns by the 15th of the following month. Effective July 1 of
each year, the Colorado Gaming Commission establishes the gaming tax rates for
the following 12 months. Under the Colorado Constitution, the Colorado Gaming
Commission may increase the gaming tax rate to as much as 40% of AGP.
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, 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.
ITEM 2. PROPERTIES
Reference is made to the information contained in Part I, Item 1. Business -
Properties of this Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
RENO TRANSPORTATION RAIL ACCESS CORRIDOR (RETRAC) PROJECT
In October 1998, the Reno City Council approved a special assessment
district to finance a portion of the costs to lower the railroad tracks that run
through downtown Reno, Nevada (the "ReTRAC Project"). Preliminary plans for the
ReTRAC Project provide for the construction of a temporary rail bypass that will
be used to divert rail traffic around the main railroad during construction. The
City estimates that a period of approximately two and one half years will be
required to complete the ReTRAC Project. The southern boundary of the bypass
will extend out into the middle of Commercial Row, the street adjacent to the
Fitzgeralds Reno hotel entrance, valet parking area and hotel loading zone.
On November 30, 1998, the Company filed a lawsuit against the City of
Reno to challenge the method by which the special assessment to be levied
against the Company was determined. Based on preliminary plans prepared by the
City of Reno, Fitzgeralds Reno would expect to lose several parking spaces, the
current valet parking area, an outdoor billboard structure advertising available
rooms and a building used to house administrative offices, and be required to
relocate the hotel entrance currently on Commercial Row. The City of Reno also
subsequently indicated that the ReTRAC Project might require the demolition of
the Fitzgeralds Reno Rainbow Skyway. Implementation of the ReTRAC Project under
these circumstances would cause the Company to suffer significant and permanent
loss in business revenue
-22-
25
and income; certain operating efficiencies from demolished or impaired physical
structures; and a portion of its existing customer base as a result of the
construction and operation of the proposed rail bypass.
The City of Reno filed an answer to the Company's lawsuit on January 19,
1999. Subsequent thereto, George Karadanis and Robert Maloff d/b/a Sundowner
Hotel and Casino (the "Sundowner") were permitted by court order to file a
Complaint in Intervention. Notwithstanding that intervention, on December 22,
1999, the court granted the City of Reno's Motion for Summary Judgment against
the Sundowner which motion was joined in by the Company.
After hearing oral arguments and considering the parties' briefs, the
Court concluded that there was insufficient evidence before the Reno City
Council to support a finding that the ReTRAC Project confers a special benefit
on Fitzgeralds Reno as is required by statute before a special assessment may be
imposed. The Court remanded the matter to the Reno City Council and directed the
council to conduct a new hearing to consider evidence as to whether Fitzgeralds
Reno would receive a special benefit from the proposed project.
On February 27, 2001, the Reno City Council voted to continue the
process of determining the actual cost of construction of the ReTRAC Project,
which has previously been estimated to be $218 million. It is anticipated that
the construction cost analysis will be completed in April 2002.
The Company cannot predict what action the City of Reno will take or
whether or when the City of Reno will negotiate mitigation measures or whether
such measures could or would fully compensate the Company for the fair market
value of its property taken in connection with the ReTRAC Project and
anticipated operating losses.
OTHER MATTERS
The Company is a party to various lawsuits relating to routine matters
incidental to its business. The Company does not believe that the outcome of
such litigation, individually or in the aggregate, will have any material
adverse effect on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-23-
26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is not listed or traded on any exchange. As of March
19, 2001, the Company had 42 shareholders of record.
In December 1995, as part of a public offering of $123.0 million senior secured
notes (the "1995 Notes") and Preferred Stock, the Company issued 2,675,237
warrants, each exercisable for one share of the Company's Common Stock, at an
exercise price of $.01 per share (the "Warrants"). In December 1997,
concurrently with the redemption of the 1995 Notes, the Company canceled 703,402
of the Warrants.
The remaining Warrants had an expiration date of December 19, 1998. The Warrant
Agent received timely notice of exercise for 1,495,236 Warrants and 476,599
Warrants expired. The Company advised each exercising Warrant holder that the
exercise of the Warrants and issuance of the underlying Common Stock might be
subject to certain Nevada, Colorado and Mississippi gaming licensure
requirements, and that no such Common Stock would be issued without compliance
with or exemption from applicable gaming requirements. The Company was
subsequently advised by the applicable gaming authorities for each such
jurisdiction that, based on the information provided by the Warrant Agent, no
licensure was required by virtue of the exercise of the Warrants or issuance of
the underlying Common Stock.
In September 1999, a total of 1,495,236 shares of Common Stock was issued to the
exercising Warrant holders in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act of 1933 on the basis that there
was no public offering of the Common Stock underlying the Warrants. The Company
received $14,952, representing the exercise price of the Warrants.
The Company has not paid any cash dividends on its Common Stock and because of
the Bankruptcy Cases, the Bankruptcy Code and the Restructuring Agreement the
Company does not anticipate paying cash dividends (including those with respect
to its Preferred Stock). For the same reasons the payment of dividends is no
longer within the discretion of the Company's Board of Directors.
The Restructuring Agreement requires that as part of the liquidation process,
all of the existing common stock and preferred stock of the Company is to be
canceled and extinguished without any payment. Therefore, it is not expected
that any distribution will be made to holders of the existing capital stock of
the Company.
-24-
27
ITEM 6. SELECTED FINANCIAL DATA
FITZGERALDS GAMING CORPORATION
DECEMBER 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net Operating Revenues $ 213,398 $ 202,398 $ 207,125 $ 179,702 $ 140,530
Income from Operations(1) 14,481 11,399 21,680 13,622 3,871
Interest Expense, Net 30,803 29,168 26,646 25,033 18,187
Net Loss (16,386) (17,954) (8,667) (31,542) (13,494)
Net loss per common share:
Before extraordinary item $ (4.14) $ (5.35) $ (3.35) $ (4.09) $ (4.26)
Net Loss $ (4.14) $ (5.35) $ (3.35) $ (4.80) $ (4.26)
OTHER DATA:
EBITDA:(2)
Fitzgeralds Las Vegas(3) $ 3,692 $ 2,594 $ 2,682 $ 2,651 $ 1,656
Fitzgeralds Tunica 15,253 11,553 8,051 11,744 3,790
Fitzgeralds Reno 4,947 4,588 4,805 5,462 4,596
Fitzgeralds Black Hawk 8,138 9,303 10,863 4,842 --
Other(4) (3,521) (2,281) 9,622 4,111 2,874
--------- --------- --------- --------- ---------
Total Properties 28,509 25,757 36,023 28,810 12,916
Nevada Club (50) (90) (561) (1,282) (148)
Harolds Club -- (64) (111) (1,853) --
--------- --------- --------- --------- ---------
Total EBITDA 28,459 25,603 35,351 25,675 12,768
Adjustments to EBITDA(5) 3,401 2,325 (5,328) 4,924 742
--------- --------- --------- --------- ---------
Adjusted EBITDA $ 31,860 $ 27,928 $ 30,023 $ 30,599 $ 13,510
========= ========= ========= ========= =========
EARNINGS TO FIXED CHARGES:(6) -- -- -- -- --
NET CASH PROVIDED BY (USED IN):
Operating activities $ 10,564 $ 21,089 $ 12,189 $ 1,287 $ 759
Investing activities (13,647) (1,961) (5,451) (24,657) (6,368)
Financing activities (739) (10,051) (8,509) 24,830 (885)
DEPRECIATION AND AMORTIZATION 13,978 14,203 13,671 12,054 8,897
CAPITAL EXPENDITURES 13,508 6,184 9,352 3,944 57,026
BALANCE SHEET DATA:
Cash $ 8,181 $ 22,116 $ 13,039 $ 14,810 $ 13,349
Total Assets 188,048 206,796 209,197 215,695 191,179
Net Assets held for Sale 170,388 -- -- -- --
Short-Term Debt 110 203,840 4,940 7,591 27,750
Long-Term Debt 2,407 598 208,204 206,191 127,882
Liabilities subject to compromise 242,870 -- -- -- --
Preferred stock, net of offering
costs and discounts 36,406 29,963 24,401 19,631 15,489
Stockholders' Deficiency (97,605) (74,496) (51,300) (37,863) (2,043)
-25-
28
- -------------
(1) Excludes write-off by Fitzgeralds Reno of $3.2 million inter-company debt
from Nevada Club in 1999. The Company recorded allowances of $0.2 million
and $2.2 million in 1998 and 1997, respectively, against the book value of
Nevada Club assets held for sale to write such assets down to estimated net
realizable value, and recorded expenses of $0.1 million and $1.9 million in
1998 and 1997, respectively, for the anticipated net settlement obligation
relating to certain land lease payments and property-related costs arising
out of the Company's purchase and subsequent sale of Harolds Club in 1995.
The Company acquired the remaining 78% interest in Fitzgeralds Black Hawk
in August 1997.
(2) EBITDA, or "earnings before interest, taxes on income, depreciation, and
amortization," is a supplemental financial measurement used by the Company
in the evaluation of its gaming business and by many gaming industry
analysts. EBITDA is calculated by adding depreciation and amortization
expense to income from operations. At any property, EBITDA is calculated
after the allocation of corporate costs. However, EBITDA should only be
read in conjunction with all of the Company's financial data summarized
above and its financial statements prepared in accordance with GAAP
("Generally Accepted Accounting Principles") 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. This
presentation of EBITDA may not be comparable to similarly titled measures
reported by other companies.
(3) Fitzgeralds Las Vegas invested $0.9 million, $0.9 million, $0.8 million,
$0.8 million and $1.0 million for 2000, 1999, 1998, 1997 and 1996,
respectively, in the Fremont Street Experience, Limited Liability Company
("FSE"). Prior to 1999, such investments were reported under the equity
method with no impact on earnings. The 1999 investment was charged against
earnings. See Note 11 "Impairment Loss" of the Notes to Consolidated
Financial Statements.
(4) Other includes (i) management fees from Fitzgeralds Black Hawk for 1997 and
1996; (ii) management fees from Cliff Castle for 1998, 1997 and 1996; (iii)
payments from the Turning Stone settlement agreement for 1998, 1997 and
1996; (iv) non-recurring revenue of $8.0 million for termination of the
Cliff Castle Management Agreement in 1998; and (v) corporate expenses not
allocated to the Operating Properties for all periods presented, which
includes $3.2 million and $2.2 million of pre-petition professional fees
and expenses incurred with the Company's restructuring in 2000 and 1999,
respectively and $0.1 million of post-petition professional fees and
expenses, net of interest income included as reorganization items.
(5) Adjustments to EBITDA include (i) exclusion of EBITDA for Nevada Club for
all periods presented; (ii) exclusion of EBITDA for Harolds Club for 1999,
1998 and 1997; (iii) exclusion of write down of Nevada Club assets of $0.03
million, $0.2 million and $2.2 million for 1999, 1998 and 1997,
respectively; (iv) exclusion of Harolds Club lease settlement of $0.06
million, $0.1 million and $1.9 million for 1999, 1998 and 1997,
respectively; (v) inclusion of $1.0 million for 1997 and $0.6 million for
1996 in cash received by the Company as a result of its 22% membership in
101 Main; (vi) exclusion of $6.0 million of the $8.0 million received in
connection with the termination of the Cliff Castle Management Agreement in
1998; (vii) exclusion of pre-petition professional fees and expenses
incurred with the Company's restructuring of $3.2 million and $2.2 million
in 2000 and 1999, respectively; and (viii) exclusion of $0.1 million of
post-petition professional fees and expenses, net of interest income
included as reorganization items.
(6) For the Ratio of Earnings to Fixed Charges, earnings are defined as
earnings before income taxes, interest on indebtedness, imputed interest on
capital lease obligations and the portion of rent expense deemed to
represent interest. Fixed charges consist of interest on indebtedness,
imputed interest on capital lease obligations, and the portion of rent
expense deemed to represent interest. Earnings were insufficient to cover
fixed charges by $16.4 million, $18.0 million, $10.0 million, $10.6 million
and $15.5 million for the years ended December 31, 2000, 1999, 1998, 1997
and 1996, respectively.
-26-
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. The following discussion should be read in
conjunction with, and is qualified in its entirety by, the Company's
Consolidated Financial Statements and the Notes thereto listed in Item 14(a).
The following discussion and other material in the report on Form 10-K contain
certain forward-looking statements. The forward-looking statements are
necessarily based upon a number of estimates and assumptions that, while
considered reasonable, are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond the
control of the Company, and upon assumptions with respect to future business
decisions which are subject to change. Risks to which the Company is subject
include, but are not necessarily limited to, its efforts to restructure its
indebtedness and capital structure, consummation of the Restructuring Agreement
and the Purchase Agreement, the uncertainties of the Bankruptcy Cases,
competition, high level of indebtedness, the need for additional financing,
development and construction risks, market fluctuations, gaming, liquor and
other regulatory matters, taxation, the availability and retention of key
management, environmental matters and other factors discussed in the Company's
other filings with the Securities and Exchange Commission. Accordingly, actual
results could differ materially from those contemplated by such forward-looking
statements.
OVERVIEW
Fitzgeralds Reno, Fitzgeralds Las Vegas and Fitzgeralds Tunica have been owned
and operated by the Company or its affiliates since 1985, 1987 and 1994,
respectively. Between December 1994 and February 1995, a business combination
was effected, resulting in the existing single ownership structure for the
companies operating Fitzgeralds-brand casinos. In May 1995, the Company, under
exclusive management contracts, opened two properties outside of Nevada,
Fitzgeralds Black Hawk and Cliff Castle, and in December 1995, the Company
acquired those portions of Fitzgeralds Tunica (20%) and Fitzgeralds Inc. (2%)
which it did not own. In August 1997, the Company acquired the remaining 78%
membership interest in 101 Main not previously owned.
BANKRUPTCY
On December 5, 2000, the Company commenced the Bankruptcy Cases in the
Bankruptcy Court. The Bankruptcy Cases are jointly administered and coordinated
under Case No. BK-N-00-33467 GWZ. The Bankruptcy Cases were commenced in
accordance the Restructuring Agreement with the Consenting Noteholders who hold
a majority in interest of the Notes. The Restructuring Agreement contemplates an
expeditious and orderly sale of all of the Company's operating assets and
properties as going concerns.
As part of the restructuring contemplated in the Restructuring Agreement, the
Company, as debtor in possession, sought Bankruptcy Court approval to: (i) sell
free and clear of liens pursuant to Section 363 of the Bankruptcy Code
substantially all of its assets comprising Fitzgeralds Las Vegas, Fitzgeralds
Black Hawk and Fitzgeralds Tunica; and (ii) assume and assign pursuant to
Section 365 of the Bankruptcy Code contracts used in its operations in Las
Vegas, Nevada, Black Hawk, Colorado and Tunica, Mississippi to an affiliate of
Majestic, pursuant to a Purchase Agreement. On March 19, 2001, the Bankruptcy
Court approved the Purchase Agreement with Majestic.
-27-
30
On a consolidated basis, net operating revenues increased to $213.4 million in
2000 from $202.4 million in 1999, primarily as a result of the improved
performance of Fitzgeralds Tunica which opened a 411-space covered parking
garage in June 2000.
Casino operations provided an average of approximately 85.2% and 84.9% of the
Company's net operating revenues during 2000 and 1999, respectively, and
substantially all of its income from operations. Slot machine income has been
the primary component of the Company's gaming revenues, providing an average of
approximately 85.1% and 83.9% of such revenues during 2000 and 1999,
respectively.
Unless otherwise noted, the narrative discussion below is focused on the results
of the Company's Operating Properties which together with Cliff Castle and
Turning Stone for 1998 are collectively referred to as (the "Properties").
Unless the context otherwise indicates, the discussion below excludes Nevada
Club, which was closed in December 1997 pending completion of its sale which
occurred in June 1999, and in management's opinion, is not material to the
ongoing operations of the Company. Corporate expense of $1.0 million per year is
allocated to each of the Operating Properties as an operating expense. The
remainder of the unallocated corporate expense is included in Other Operations
of the Properties. See Note 3 of Statement of Operations Data.
-28-
31
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain Statement of
Operations Data and Other Data for the Company's Properties.
YEAR ENDED DECEMBER 31,
-----------------------------------------
STATEMENT OF OPERATIONS DATA 2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
NET OPERATING REVENUES:
Fitzgeralds Las Vegas $ 52,752 $ 51,845 $ 50,987
Fitzgeralds Tunica 81,561 74,332 68,349
Fitzgeralds Reno 41,203 40,019 39,729
Fitzgeralds Black Hawk 37,728 36,202 36,256
Other(1) 154 -- 11,742
--------- --------- ---------
Total Properties 213,398 202,398 207,063
Nevada Club -- -- 62
--------- --------- ---------
Total $ 213,398 $ 202,398 $ 207,125
========= ========= =========
INCOME (LOSS) FROM OPERATIONS:
Fitzgeralds Las Vegas $ (7) $ (1,115) $ (594)
Fitzgeralds Tunica 9,018 5,322 2,063
Fitzgeralds Reno(2) 2,716 2,151 2,400
Fitzgeralds Black Hawk 6,385 7,517 9,074
Other(3) (3,581) (2,322) 9,414
--------- --------- ---------
Total Properties 14,531 11,553 22,357
Nevada Club (50) (90) (566)
Harolds Club -- (64) (111)
--------- --------- ---------
Total $ 14,481 $ 11,399 $ 21,680
========= ========= =========
OTHER DATA
EBITDA(4):
Fitzgeralds Las Vegas(5) $ 3,692 $ 2,594 $ 2,682
Fitzgeralds Tunica 15,253 11,553 8,051
Fitzgeralds Reno 4,947 4,588 4,805
Fitzgeralds Black Hawk 8,138 9,303 10,863
Other(3) (3,521) (2,281) 9,622
--------- --------- ---------
Total Properties 28,509 25,757 36,023
Nevada Club (50) (90) (561)
Harolds Club -- (64) (111)
--------- --------- ---------
Total EBITDA 28,459 25,603 35,351
Adjustments to EBITDA 3,401 2,325 (5,328)
--------- --------- ---------
Adjusted EBITDA $ 31,860 $ 27,928 $ 30,023
========= ========= =========
-29-
32
YEAR ENDED DECEMBER 31,
--------------------------------------
STATEMENT OF OPERATIONS DATA 2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
NET CASH PROVIDED BY (USED IN)
Operating Activities $ 10,564 $ 21,089 $ 12,189
Investing Activities (13,647) (1,961) (5,451)
Financing Activities (739) (10,051) (8,509)
DEPRECIATION AND AMORTIZATION 13,978 14,203 13,671
CAPITAL EXPENDITURES 13,508 6,184 9,352
EARNINGS TO FIXED CHARGES(6) -- -- --
- --------
(1) Other includes (i) management fees from Cliff Castle for 1998; (ii)
payments from the Turning Stone settlement agreement for 1998; (iii)
non-recurring revenue of $8.0 million for termination of the Cliff Castle
Management Agreement in 1998.
(2) Excludes inter-company debt write-off of $3.2 million from Nevada Club in
1999.
(3) Other includes (i) management fees from Cliff Castle for 1998; (ii)
payments from the Turning Stone settlement agreement for 1998; (iii)
non-recurring revenue of $8.0 million for termination of the Cliff Castle
Management Agreement in 1998; (iv) corporate expenses not allocated to the
Operating Properties for all periods presented, which includes $3.2 and
$2.2 million of pre-petition professional fees and expenses incurred with
the Company's restructuring for 2000 and 1999, respectively.
(4) For a definition of EBITDA and Adjustments to EBITDA, see Notes 2 and 5 of
Notes to Selected Financial Data.
(5) Fitzgeralds Las Vegas invested $0.9 million, $0.9 million and $0.8 million
for 2000, 1999 and 1998, respectively, in FSE. Prior to 1999, such
investments were reported under the equity method with no impact on
earnings. The 1999 investment was charged against earnings. See Note 11
"Impairment Loss" of Notes to Consolidated Financial Statements.
(6) For the Ratio of Earnings to Fixed Charges, earnings are defined as
earnings before income taxes, interest on indebtedness, imputed interest on
capital lease obligations and the portion of rent expense deemed to
represent interest. Fixed charges consist of interest on indebtedness,
imputed interest on capital lease obligations and the portion of rent
expense deemed to represent interest. Earnings were insufficient to cover
fixed charges by $16.4 million, $18.0 million and $10.0 million for the
years ended December 31, 2000, 1999 and 1998, respectively.
FISCAL 2000 COMPARISON TO FISCAL 1999
Operating Revenues
Total revenues for the Properties were $234.1 million and net operating revenues
were $213.4 million for 2000, representing increases of 5.7% and 5.4%,
respectively, over total revenues for the Properties of $221.5 million and net
operating revenues of $202.4 million for 1999. Such increases were largely the
result of the improved performance of Fitzgeralds Tunica which opened a
411-space covered parking garage in June 2000. To maintain market share in each
of its four existing markets, the Company has
-30-
33
found it necessary to increase its promotional and complimentary expenses to
meet the challenges of the intense competition.
The Company's business can be separated into four operating departments: casino,
food and beverage, rooms (except for Fitzgeralds Black Hawk) and other. Casino
revenues (of which approximately 85.1% and 83.9% are derived from slot machine
revenues for 2000 and 1999, respectively) increased 5.8% to $181.7 million for
2000 from the $171.7 million recorded for 1999.
Room revenues (at 9.4% and 9.7% of total revenues for 2000 and 1999,
respectively) increased 2.4% from 1999. Fitzgeralds Las Vegas room revenues
decreased 0.2% as its average daily rate decreased 0.8%, while occupancy rates
remained the same at 92.1% for 2000 and 1999. Fitzgeralds Reno room revenues
increased 3.9%, as a decrease in occupancy to 88.9% in 2000 from 89.8% in 1999
was offset by a 3.1% increase in the average daily rate. Fitzgeralds Tunica room
revenues increased 4.1% due to a 3.2% increase in the average daily rate while
occupancy rates increased to 92.5% in 2000 from 92.1% in 1999.
Food and beverage revenues (at 11.0% and 11.1% of total revenues for 2000 and
1999, respectively) increased 4.9% from 1999. There were increases in food
revenues of 0.4%, 4.2%, 5.9% and 9.1% at Fitzgeralds Las Vegas, Fitzgeralds
Black Hawk, Fitzgeralds Reno and Fitzgeralds Tunica, respectively. The food
revenue increase at Fitzgeralds Tunica was due primarily to an increase in
volumes, while the food revenues increases at Fitzgeralds Las Vegas, Fitzgeralds
Black Hawk and Fitzgeralds Reno were due to pricing increases.
Other revenues increased $0.9 million or 25.4% for 2000, primarily due to the
acquisition of the parking garage in Reno which generated an additional $0.4
million in revenue and an additional $0.2 million of revenue generated from
E-Three lease income and management fees.
Promotional allowances showed a net increase of $1.6 million or 8.5% for 2000,
reflecting the increased level of competition in all four markets.
Operating Costs and Expenses
Total operating costs and expenses for the Properties increased 4.2%, to $198.9
million for 2000 from $190.8 million for 1999.
Casino expenses were $89.1 million for 2000, a 6.2% increase from $83.9 million
for 1999, primarily due to increases in expenses associated directly with
increased casino revenues, particularly personnel expenses and gaming taxes.
Food and beverage expenses decreased 0.7% to $15.4 million for 2000 from $15.5
million for 1999. Room expenses increased 1.8% for 2000 from $12.6 million in
1999. Selling, general and administrative expenses increased 4.3% to $65.3
million for 2000 from $62.6 million for 1999, which includes $3.2 million and
$2.2 million for 2000 and 1999, respectively, of professional fees and expenses
incurred in conjunction with the ongoing development, negotiation and
implementation of the Company's restructuring. Such expenses also include
professional fees and expenses paid by the Company for the financial and legal
advisors to the informal committee (the "Committee") representing holders of a
majority in interest of the Notes.
Personnel expenses increased 3.7%, to $82.5 million for 2000 from $79.6 million
for 1999. The increase is due to continued competitive pressures in the Tunica
and Black Hawk markets as personnel expenses at Fitzgeralds Tunica and
Fitzgeralds Black Hawk increased 4.9% and 9.0%, respectively, from 1999.
-31-
34
Marketing expenses, which include advertising, promotional material and special
events, increased 9.7% for 2000. The increase reflects more intensive marketing
efforts at each property undertaken in response to increasing competition in
each of the markets in which the Company operates, particularly at Fitzgeralds
Black Hawk, as well as Fitzgeralds Tunica. The Company's strategy is to utilize
its expanded and renovated facilities as additional marketing elements and to
continue to adjust marketing expense levels as needed to respond to competition.
Depreciation and amortization expense decreased 1.6% to $14.0 million for 2000
from $14.2 million for 1999, due to the discontinuation of depreciation and
amortization subsequent to filing the Bankruptcy Cases.
Income from Operations
As a result of the foregoing, income from operations for the Properties
increased 25.8% to $14.5 million for 2000 from $11.6 million in 1999.
Net Interest Expense
Interest expense (net of interest income) increased 5.6% to $30.8 million for
2000 from $29.2 million for 1999, due primarily to $6.6 million of additional
interest resulting from the default on the Notes. The Company stopped accruing
interest on the Notes on December 5, 2000 with the commencement of the
Bankruptcy Cases.
Net Loss
Net loss for the Properties decreased to $16.4 million in 2000 compared to
$20.9 million in 1999.
FISCAL 1999 COMPARISON TO FISCAL 1998
Operating Revenues
Total revenues for the Properties were $221.5 million and net operating revenues
were $202.4 million for 1999, representing decreases of 1.3% and 2.3%,
respectively, over total revenues for the Properties of $224.4 million and net
operating revenues of $207.1 million for 1998. Such decreases were largely the
result of the termination of the Cliff Castle Management Agreement and
completion of the settlement agreement with Turning Stone, which provided
revenues of $9.8 million and $1.1 million, respectively, in 1998. To maintain
market share in each of its four existing markets, the Company has found it
necessary to increase its promotional and complimentary expenses to meet the
challenges of the intense competition, resulting in reduced operating margins.
The Company's business can be separated into four operating departments: casino,
food and beverage, rooms (except for Fitzgeralds Black Hawk) and other. Casino
revenues (of which approximately 83.9% and 82.7% are derived from slot machine
revenues for 1999 and 1998, respectively) increased 5.7% to $171.7 million for
1999 from the $162.5 million recorded for 1998.
Room revenues (at 9.7% and 9.5% of total revenues for 1999 and 1998,
respectively) increased 1.6% from 1998. Fitzgeralds Las Vegas room revenues
increased 6.3% due to an increase in occupancy rates to 92.1% in 1999 from 88.8%
in 1998, while its average daily rate increased 3.7%. Fitzgeralds Reno room
revenues decreased 2.5%, as an increase in occupancy to 89.8% in 1999 from 89.7%
in 1998 was
-32-
35
offset by a 1.0% decrease in the average daily rate. Fitzgeralds Tunica room
revenues decreased 0.4% due to a decrease in occupancy to 92.1% in 1999 from
94.3% in 1998, which was offset by a 1.9% increase in the average daily rate.
Food and beverage revenues (at 11.1% and 11.2% of total revenues for 1999 and
1998, respectively) decreased 1.3% from 1998. Decreases in food revenues of 7.4%
and 8.1% at Fitzgeralds Las Vegas and Fitzgeralds Black Hawk, respectively, were
offset by increases of 4.2% and 4.0% at Fitzgeralds Reno and Fitzgeralds Tunica,
respectively. The decrease at Fitzgeralds Las Vegas is due to changes in
utilization of food product as a marketing strategy to generate traffic volumes
while the decrease at Fitzgeralds Black Hawk is due to increased gaming
competition in the Black Hawk market.
Other revenues decreased $12.1 million or 76.9% for 1999, primarily due to the
termination of the Cliff Castle Management Agreement and completion of the
Turning Stone settlement agreement in 1998.
Promotional allowances showed a net increase of $1.8 million or 10.7% for 1999,
reflecting the increased level of competition in all four markets.
Operating Costs and Expenses
Total operating costs and expenses for the Properties increased 3.3%, to $190.8
million for 1999 from $184.7 million for 1998.
Casino expenses were $83.9 million for 1999, a 3.0% increase from $81.4 million
for 1998, primarily due to increases in promotional expenses associated with the
Fitzgeralds Card. Food and beverage expenses decreased 15.2% to $15.5 million
for 1999 from $18.3 million for 1998, due to improved cost controls at all of
the Operating Properties with Fitzgeralds Las Vegas and Fitzgeralds Tunica
achieving the largest improvement as expenses decreased 22.9% and 14.7%,
respectively, for 1999. Room expenses decreased 0.1% for 1999 from $12.6 million
in 1998. Selling, general and administrative expenses increased 10.7% to $62.6
million for 1999 from $56.6 million for 1998, which in 1999, includes $2.2
million of professional fees and expenses incurred in conjunction with the
ongoing development and negotiation of the Company's restructuring. Such
expenses also include professional fees and expenses paid by the Company for the
financial and legal advisors to the Committee.
Personnel expenses increased 3.0%, to $79.6 million for 1999 from $77.4 million
for 1998. The increase is due to continued competitive pressures in the Tunica
and Black Hawk markets as personnel expenses at Fitzgeralds Tunica and
Fitzgeralds Black Hawk increased 5.8% and 6.8%, respectively, from 1998.
Marketing expenses, which include advertising, promotional material and special
events, increased 2.0% for 1999. The increase reflects more intensive marketing
efforts at each property undertaken in response to increasing competition in
each of the markets in which the Company operates, particularly at Fitzgeralds
Black Hawk. The Company's strategy is to utilize its expanded and renovated
facilities as additional marketing elements and to continue to adjust marketing
expense levels as needed to respond to competition.
Depreciation and amortization expense increased 3.9% to $14.2 million for 1999
from $13.7 million for 1998, due to the acquisition of additional property and
equipment.
-33-
36
Income from Operations
As a result of the foregoing, income from operations for the Properties
decreased 48.3% to $11.6 million for 1999 from $22.4 million in 1998.
Net Interest Expense
Interest expense (net of interest income) increased 10.6% to $29.2 million for
1999 from $26.4 million for 1998, due primarily to $2.2 million of additional
interest resulting from the default on the Senior Secured Notes. Failure to make
the regularly scheduled interest payment on June 15, 1999 resulted in a 1.0%
increase in the interest rate to 13.25%, effective June 16, 1999.
Net Loss
Net loss for the Properties increased to $20.9 million in 1999 compared to
$8.0 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had unrestricted cash of $18.3 million
compared to $22.1 million at December 31, 1999. The Company's primary sources of
liquidity and cash flows during 2000 were $10.6 million from operations. Net
cash used in investing activities was $13.6 million for 2000 which included the
construction of a parking garage and surface parking lot at Fitzgeralds Tunica
at a cost of $5.6 million as well as $5.3 million for the acquisition of other
property and equipment, compared to $2.0 million in investing activities for
1999. Net cash used in financing activities was $0.7 million for 2000 compared
to $10.1 million for 1999 as the Company repaid a substantial amount of debt,
except on the Notes, in 1999.
The Company's principal sources of capital will consist of cash from operations,
and vendor or third party financing of gaming and other equipment. The Company
believes that it has adequate sources of liquidity to meet its normal operating
requirements. However, its relatively high degree of leverage has prevented it
from making the level of capital expenditures required to maintain and enhance
the competitive position of its properties. Management and the Board of
Directors did not see any way to resolve this problem without restructuring the
Company's indebtedness. An Event of Default under the Indenture pursuant to
which the Notes were issued occurred on July 15, 1999.
Upon execution of the Restructuring Agreement and before commencement of the
Bankruptcy Cases, the Company distributed $13.0 million in Excess Cash (as that
term is defined in the Restructuring Agreement) to the Indenture Trustee to be
applied to accrued and unpaid interest and principal as provided in the
Indenture.
On December 5, 2000, the Company commenced the Bankruptcy Cases in the
Bankruptcy Court. For further information concerning the Bankruptcy Cases and
related matters, see Item 1. Business-Bankruptcy,-Restructuring Agreement,
and-Purchase Agreement.
By suspending the interest payments on the Notes other than the Post-petition
Distributions and sales proceeds of collateral for the Notes until such time as
the liquidation of the Company's assets contemplated by the Restructuring
Agreement has been completed, the Company believes that its liquidity and
capital resources will be sufficient to maintain all of its normal operations at
current levels during the
-34-
37
pendency of the Bankruptcy Cases and does not anticipate any adverse impact on
its operations, customers or employees. However, costs incurred and to be
incurred in connection with the Bankruptcy Cases have been and will continue to
be substantial and, in any event, there can be no assurance that the Company
will be able to successfully consummate the Restructuring Agreement and the
Purchase Agreement or that its liquidity and capital resources will be
sufficient to maintain its normal operations during the pendency of the
Bankruptcy Cases.
EBITDA AND ADJUSTED EBITDA
The Company's EBITDA was $28.5 million for 2000 and $25.6 million for 1999.
EBITDA is calculated by adding depreciation and amortization expenses to income
from operations. The Company's Adjusted EBITDA was $31.9 million for 2000 and
$27.9 million for 1999. Adjusted EBITDA is determined based on the adjustments
described in Note 5 to "Statement of Operations Data." However, 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 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. This presentation
of EBITDA may not be comparable to similarly titled measures reported by other
companies.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges measures the extent by which earnings, as
defined, exceed certain fixed charges. Earnings are defined as earnings before
income taxes, interest on indebtedness, imputed interest on capital lease
obligations and the portion of rent expense deemed to represent interest. Fixed
charges consist of interest on indebtedness, imputed interest on capital lease
obligations, and the portion of rent expense deemed to represent interest.
Earnings were insufficient to cover fixed charges by $16.4 million and $18.0
million for the years ended December 31, 2000 and 1999, respectively.
BUSINESS SEASONALITY
The gaming operations of the Company in certain locations may be seasonal and,
depending on the location and other circumstances, the effects of such
seasonality could be significant. At Fitzgeralds Las Vegas, business levels are
generally weaker from Thanksgiving through the middle of January (except during
the week between Christmas and New Year's) and throughout the summer, and
generally stronger from mid-January through Easter and from mid-September
through Thanksgiving. At each of the three other Fitzgeralds-brand properties,
business levels are typically weaker from Thanksgiving through the end of the
winter and typically stronger from mid-June to mid-November.
The Company's results are also affected by inclement weather in relevant
markets. The Fitzgeralds Black Hawk site, located in the Rocky Mountains of
Colorado, and the Fitzgeralds Reno site, located in the foothills of the Sierra
Nevada mountains in Nevada, are subject to snow and icy road conditions during
the winter months. Any such severe weather conditions may discourage potential
customers from visiting the Company's facilities.
-35-
38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily as a result of its
borrowing activities and third party financing. 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 definitive extent of the Company's interest
rate risk is not quantifiable or predictable because of the variability of
future interest rates and business financing requirements, but the Company does
not believe such risk is material. The Company does not currently use derivative
instruments to adjust the Company's interest rate risk profile.
The table below presents principal amounts and related weighted-average interest
rates by year of maturity for the Company's debt obligations at December 31,
2000 and 1999:
EXPECTED EXPECTED MATURITY WEIGHTED AVERAGE
MATURITY DATE AMOUNTS INTEREST RATES FAIR VALUE
- ------------------- ---------------------- ------------------------- ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
Fixed Rate 2000 1999 2000 1999 2000 1999
-------- -------- --------- --------- --------- ---------
2000 -- $203,840 -- 13.23%
2001 $ 350 246 13.24% 9.76%
2002 244 131 10.01% 8.93%
2003 255 129 10.14% 9.07%
2004 218 79 10.88% 10.30%
2005 112 -- 10.71% --
Thereafter 1,972 14 10.01% 10.30%
Unknown 203,450 -- 13.25% --
-------- -------- --------- --------- --------- ---------
Total Fixed Rate $206,601 $204,439 $ 115,049 $ 113,014
-------- -------- --------- ---------
The Company does not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial instruments. On
the basis of the fair value of the Company's market sensitive instruments at
December 31, 2000, the Company does not consider the potential near-term losses
in future earnings, fair values and cash flows from reasonably possible
near-term changes in interest rates to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is listed under Item 14 of Part IV of this
Report on Form 10-K.
-36-
39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-37-
40
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF REGISTRANT
The following tables set forth certain information with respect to directors,
executive officers and significant employees of the Company as of December 31,
2000:
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION(S) HELD
- ---- --- ----------------
Philip D. Griffith 55 Chairman, President and Chief Executive Officer
Philip P. Hannifin 66 Director, Executive Vice President
Patricia W. Becker 49 Director
Max L. Page 51 Director; Executive Vice President and a
director of Fitzgeralds Reno, Inc., and General
Manager of Fitzgeralds Reno
Michael E. McPherson 49 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
SIGNIFICANT EMPLOYEES
NAME AGE POSITION(S) HELD
- ---- --- ----------------
Paul H. Manske 60 Executive Vice President of Marketing
Cara L. Brown 38 Vice President and General Counsel
William J. Noonan, III 49 Vice President and a director of Fitzgeralds
Las Vegas, Inc., and General Manager of
Fitzgeralds Las Vegas
Domenic Mezzetta 65 Vice President and a director of Fitzgeralds
Mississippi, Inc., ("FMI") and General Manager
of Fitzgeralds Tunica
Joe C. Collins 61 Vice President and a director of Fitzgeralds
Black Hawk, Inc. and Fitzgeralds Black Hawk II,
Inc., and General Manager of Fitzgeralds Black
Hawk
- --------
(1) Mr. Hannifin resigned as Executive Vice President on December 31, 2000.
PHILIP D. GRIFFITH, one of the Company's founders, has been President, Chief
Executive Officer and a director of the Company and certain of its subsidiary
companies since its inception in 1984 and has been Chairman of the Board since
August 1997. Prior to his involvement with the Fitzgeralds group, Mr. Griffith
was active in the gaming industry holding a variety of positions, including
Chief Financial Officer and later President of Harolds Club in Reno from 1973 to
1984 and President of the Sands Hotel & Casino in Las Vegas with the Howard
Hughes organization from 1982 to 1984. From 1968 to 1973, Mr. Griffith was a
Certified Public Accountant with the St. Louis, Missouri and Las Vegas offices
of Deloitte Haskins & Sells. He is also a director of Federal Liaison Services,
Inc.
PHILIP P. HANNIFIN has served as Executive Vice President since joining the
Company in 1991 until resigning on December 31, 2000 and was a director of
certain subsidiaries of the Company from 1986 to
-38-
41
1995. He has been active in the gaming industry holding a variety of positions,
including a director of Riviera Holdings Corp. from 1993 to 1998, Executive Vice
President and a director of MGM Grand, Inc. from 1987 to 1991, President of
Harrah's West from 1984 to 1986 and Executive Vice President and a director of
Summa Corporation from 1977 to 1984. He is a past Chairman of the Nevada State
Gaming Control Board. He holds a degree in psychology from the University of
Nevada at Reno. Mr. Hannifin has been a director of the Company since April
1999. He is Chairman of the Audit Committee of the Board of Directors and a
member of the Compensation Committee of the Board of Directors. He is also a
director of American Wagering, Inc.
PATRICIA W. BECKER. Ms. Becker has been Senior Vice President of Corporate
Affairs & Legal of Aladdin Gaming LLC since May 1998. From October 1993 to
January 1995, she served as Chief of Staff to Nevada Governor Bob Miller. From
September 1984 to October 1993, Ms. Becker was Senior Vice President, General
Counsel and Secretary for Harrah's Casino Hotels, where she was responsible for
all legal affairs. She was also a member of the senior strategic management
group. From January 1983 to September 1984, Ms. Becker was a member of the
Nevada State Gaming Control Board and from July 1979 to January 1983, she was a
Deputy and Chief Deputy Attorney General assigned to the Nevada Gaming Division.
She is President of Patricia Becker & Associates which provides consulting
services to the gaming industry, a Vice Chair for the Gaming Law Section of the
American Bar Association, President of the International Association of Gaming
Attorneys and a past president of the Nevada Trial Lawyers Association. Ms.
Becker has been a director of the Company since December 1995. She is
Chairperson of the Compensation Committee of the Board of Directors and a member
of the Audit Committee of the Board of Directors.
MAX L. PAGE, one of the Company's founders, has served as Executive Vice
President and a director of certain subsidiaries of the Company since September
1986 and as General Manager of Fitzgeralds Reno since November 1994. He has a
B.A. in political science and a Masters in public administration from Brigham
Young University. Mr. Page has been a director of the Company since January
1998. He was also a director of Nevstar Gaming & Entertainment Corporation
during 1999, but resigned in March 2000.
MICHAEL E. MCPHERSON has been Executive Vice President since July 1999,
Secretary since September 1997 and Chief Financial Officer and Treasurer since
August 1997. Prior thereto he was Senior Vice President. He has served in
various executive and financial positions since joining the Company in March
1985, including Senior Vice President of Operations from September 1995 to July
1997, Vice President of Finance from November 1994 to September 1995, Vice
President and Treasurer for certain subsidiaries of the Company and Director of
Finance for Fitzgeralds Reno. Mr. McPherson has a degree in business
administration from the University of Nevada at Reno and is an associate member
of the Nevada Society of Certified Public Accountants.
PAUL H. MANSKE, one of the Company's founders, has been Executive Vice President
of Marketing since September 1999. Prior thereto he was Senior Vice President of
Marketing and Executive Vice President of certain subsidiaries of the Company.
He was Vice President of Marketing for Harolds Club and the Sands Hotel & Casino
with the Howard Hughes organization in Las Vegas from 1978 to 1984 and a
marketing executive with the Ford Motor Company from 1964 to 1978. Mr. Manske
has a degree in business administration from Jacksonville University.
CARA L. BROWN has been Vice President and General Counsel since joining the
Company in May 1996. Prior thereto, she was an associate counsel at Harrah's Las
Vegas and a staff attorney at Jones, Jones, Close & Brown in Las Vegas. Ms.
Brown has a degree from the University of North Carolina at Chapel
-39-
42
Hill and a law degree from the Marshall-Wythe School of Law at the College of
William and Mary in Williamsburg, Virginia.
WILLIAM J. NOONAN, III has been Vice President and a director of Fitzgeralds Las
Vegas, Inc. and General Manager of Fitzgeralds Las Vegas since May 1994. He was
first employed as Vice President of FLVI in January 1994. Prior to joining the
Company, he served as city manager of Perry, Florida from January 1982 to
September 1987; Cape Coral, Florida from September 1987 to January 1991; and Las
Vegas, Nevada from February 1991 to July 1993. He was also engaged in business
and gaming consulting services from August 1993 to February 1994. Mr. Noonan has
a Master's degree in public administration from the University of Kansas and a
B.S. degree in public administration and economics from South Missouri State
University.
DOMENIC MEZZETTA has been Vice President and a director of Fitzgeralds
Mississippi, Inc. and General Manager of Fitzgeralds Tunica since joining the
Company in May 1998. Prior there to, he was Vice President & General Manager of
Hollywood Casino & Hotel in Tunica from January 1994 to May 1998; Vice President
& General Manager of Island Fantasy Casino in Tunica from August 1993 to January
1994; General Manager of El Capitan in Hawthorne, Nevada from May 1990 to August
1993; Assistant General Manager of the Stardust Hotel & Casino in Las Vegas from
May 1986 to May 1990; General Manager of Cactus Pete's Resort Hotel & Casino in
Elko, Nevada from October 1983 to May 1985. He also held various executive level
positions at Harvey's Resort Hotel and Inn Casino at Lake Tahoe, Nevada, from
July 1971 to October 1983.
JOE C. COLLINS has been Vice President and a director of Fitzgeralds Black Hawk
Inc, and General Manager of Fitzgeralds Black Hawk since January 1995. He has
also been Vice President and a director of Fitzgeralds Black Hawk II, Inc. since
July 1997. He was hotel director at Fitzgeralds Reno from April 1985 to December
1994. Mr. Collins currently serves on the executive Board of the Black Hawk
Casino Owners Association and on the Board of the Black Hawk Business
Improvement District.
BOARD OF DIRECTORS
Directors are elected at the annual meeting of stockholders and each director is
elected to serve until a successor is elected and qualified. The Company has not
held an annual meeting of stockholders since August 1998. The number of
directors may not be less than three or more than nine. In cases where all of
the common shares of the Company are owned beneficially or of record by either
one or two stockholders, the number may be less than three but not less than the
number of stockholders. The current Board of Directors consists of four
directors.
The Board of Directors has two standing committees: Audit and Compensation.
The Audit Committee reviews reports of the Company's independent certified
public accountants and makes recommendations to the full Board on matters
concerning the Company's audits and the selection of independent certified
public accountants. The Audit Committee does not have a formal written Audit
Committee charter. The members of the Audit Committee are Patricia W. Becker and
Philip P. Hannifin, as Chairman. Although the Company's Common Stock is not
listed on any stock exchange or quoted on NASDAQ, only Ms. Becker would be
deemed independent under current NASDAQ rules.
The Audit Committee has reviewed and discussed the audited financial statements
with management. The Audit Committee has discussed with the independent
certified public accountants the matters required to be discussed by SAS61
(Codification of Statements on Auditing Standards, AU380). The
-40-
43
Audit Committee has reviewed the written disclosures and the letter from the
independent certified public accountants required by Independence Standards
Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees), and has discussed with the independent
certified public accountants the independent certified public accountants
independence. Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000. The Company's unaudited financial statements included
in Forms 10-Q subsequent to the date of this Annual Report on Form 10-K will be
reviewed by the Company's independent certified public accountants in accordance
with the procedure set forth in Statement on Accounting Standards No. 71.
The Compensation Committee reviews and makes recommendations to the Board of
Directors with respect to salaries, bonuses and other compensation of the
Company's executive officers. The members of the Compensation Committee are
Philip P. Hannifin and Patricia W. Becker, as Chairperson.
Directors who are also employees of the Company do not receive any compensation
for their services as directors. A non-employee director is paid fees of $40,000
per year and $1,000 per Board meeting attended in person or telephonically. Ms.
Becker is also chairperson of the Gaming Compliance Committee (a non-Board
committee) for which she is paid an additional fee of $48,000 per year and
$1,000 per Committee meeting attended in person or telephonically. She also
participates in all health insurance plans generally available to the Company's
employees. The Company reimburses each director for reasonable out-of-pocket
expenses incurred in his or her capacity as a member of the Board of Directors.
No payments are made for actions taken in writing. Each director attended all of
the meetings of the Board and the committees on which he or she served during
the fiscal year ended December 31, 2000.
The Company has no nominating committee or other committee performing similar
functions.
NON-BOARD COMMITTEES
The Executive Committee, comprised of Michael E. McPherson, Max L. Page and
Philip D. Griffith, as Chairman, provides a forum for interaction and discussion
among its senior executives.
The Gaming Compliance Committee, comprised of Cara L. Brown, Kathleen Bryant,
Philip P. Hannifin, Michael E. McPherson and Patricia W. Becker, as Chairperson,
establishes procedures for and monitors compliance with gaming regulations.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires officers and
directors of the Company and persons who own more than ten percent of a
registered class of the Company's equity securities (collectively, "Insiders")
to file initial reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and to furnish the Company
with copies of all forms filed.
To the Company's knowledge, based solely on its review of the copies of such
forms furnished to the Company and written representation that no other reports
were required, during the past fiscal year all Section 16(a) filing requirements
applicable to the Company's Insiders were met.
-41-
44
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by the Company
in the three fiscal years ended December 31, 2000, 1999 and 1998 to the
Company's Chief Executive Officer and each of its other most highly compensated
executive officers (collectively the "named executive officers"). The named
executive officers include: (i) each person who served as Chief Executive
Officer during 2000; (ii) each person who (a) served as an executive officer at
December 31, 2000, (b) was among the four most highly paid executive officers of
the Company, not including the Chief Executive Officer, during 2000; and (c)
received over $100,000 in compensation in 2000; (iii) up to two persons who
would be included under clause (ii) above had they served as an executive
officer at December 31, 2000; and (iv) certain persons who served as executive
officers of a subsidiary of the Company. Titles refer to the Company unless
otherwise indicated.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
---------------------------------------------------------
OTHER
ANNUAL SECURITIES ALL OTHER
FISCAL BONUS COMPENSATION UNDERLYING COMPENSATION
NAME & POSITION YEAR SALARY ($) ($)(2) ($)(3) OPTIONS (#) ($)(4)
- --------------------------------- ------ --------- ------- ------------ ---------- ------------
Philip D. Griffith 2000 576,715 -- -- -- 180,723
Chairman, President & 1999 541,997 225,000 -- -- 273,715
Chief Executive Officer 1998 511,125 225,000 -- -- 126,877
Michael E. McPherson 2000 255,673 -- -- -- 13,942
Executive Vice 1999 236,538 75,000 -- 11,854(5) 7,714
President, Chief Financial 1998 222,115 75,000 -- 11,854 3,675
Officer, Treasurer & Secretary
Paul H. Manske 2000 254,478 -- -- -- 25,285
Executive Vice 1999 274,038 75,000 -- -- 19,174
President Marketing 1998 249,313 75,000 -- -- 11,448
Max L Page 2000 253,846 -- -- -- 16,472
Director; Executive 1999 240,500 68,000 -- -- 21,855
Vice President of FRI & 1998 224,423 20,000 -- -- 7,575
General Manager of
Fitzgeralds Reno
Domenic Mezzetta(6) 2000 205,255 -- -- -- 5,783
Vice President of FMI 1999 195,481 23,300 -- -- 18,535
& General Manager of 1998 109,616 1,180
Fitzgeralds Tunica
- -------
(1) Amounts shown include cash compensation earned for the periods reported
whether paid or accrued in such periods.
(2) Amounts shown in 1999 represent bonus compensation earned in 1999 and
not calculable at the time of filing the Form 10-K for the fiscal year
ending December 31, 1999. As of December 31, 2000, the Company has
accrued $ $683,346 for payment of bonuses earned in 2000; however,
individual amounts have not yet been determined and approved by the
Compensation Committee.
(3) Other Annual Compensation for perquisites for each individual named
above for 2000, 1999 and 1998 aggregated less than (a) 10% of the total
annual salary and bonus for each individual or (b) $50,000, whichever is
lower; therefore, no such amounts are included.
-42-
45
(4) Amounts represent premiums for life insurance and long-term disability
policies, medical benefits and the Company's Profit Sharing and 401(k)
contributions. In fiscal 2000, the Company's Profit Sharing and 401(k)
contributions were $2,503, $2,550, $2,550, $2,496 and $2,053 for Messrs.
Griffith, McPherson, Manske, Page and Mezzetta, respectively. During
2000, the Company paid $13,591, $8,258, $5,271, $9,571; and $2,213 in
medical benefits for Messrs. Griffith, McPherson, Manske, Page and
Mezzetta, respectively. During 2000, the Company paid $164,629 in
premiums for split dollar, term life insurance and long-term disability
policies for Mr. Griffith and $3,134, $17,464, $4,405 and $1,517 in
premiums for term life insurance and long-term disability policies for
Messrs. McPherson, Manske, Page and Mezzetta, respectively. See
Employment Agreements with Executive Officers and Key Employees.
(5) Options that would have normally expired on June 30, 1998 were cancelled
and re-granted with an expiration date of June 30, 1999. The term of the
options was later extended to December 31, 1999, at which time they
expired unexercised.
(6) Mr. Mezzetta was appointed Vice President of FMI and General Manager of
Fitzgeralds Tunica on May 25, 1998.
OPTION GRANTS
The Company did not grant any stock options during the fiscal year ended
December 31, 2000. During 2000, a total of 271,000 stock options expired. The
Company has never granted stock appreciation rights.
OPTION EXERCISES
No named executive officers exercised stock options during the fiscal year ended
December 31, 2000 or held unexercised stock options as of December 31, 2000.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company has entered into employment agreements with Messrs. Griffith,
McPherson, Manske, Page and Ms. Brown to serve in their present offices for
terms expiring June 28, 2003, July 5, 2002, September 1, 2002, September 1, 2002
and April 30, 2001, respectively. As of March 19, 2001, Messrs. Griffith,
McPherson, Manske, Page and Ms. Brown have salaries of $573,300, $262,500,
$262,500, $262,500 and $121,600, respectively, and their respective employment
agreements generally provide for annual merit increases. The employment
agreements also provide that such persons will participate in the Company's
executive compensation plans, health plan and any other benefit plan established
for selected officers of the Company and that in the event of a termination of
employment without "good cause" (as defined in the agreements), such persons
will be entitled to any unpaid salary in a specified percentage through the
remainder of the term of their respective agreement.
FMI has entered into an employment agreement with Mr. Mezzetta under which he
was appointed Vice President of FMI and General Manager of Fitzgeralds Tunica
for a term expiring on May 24, 2001. As of March 19, 2001, Mr. Mezzetta receives
a salary of $209,475 and is eligible to participate in FMI's bonus plan, health
plan and in any other benefit plan established by Fitzgeralds Tunica for its
executives.
Consistent with industry practice, the Company has entered into employment
agreements with certain of its other vice presidents and departmental directors.
In accordance with the Restructuring Agreement, the Company has agreed not to
assume these employment agreements as provided for in Section 365 of the
Bankruptcy Code.
-43-
46
EXECUTIVE BONUS PLAN
The Company has established an Executive Bonus Plan to provide the senior
executive officers of the Company with a performance-based compensation program.
Effective January 1, 1999, the Company revised the threshold established for
bonus consideration to take into account the termination of management and
consulting services provided to Indian operations in Arizona and New York. The
new threshold is $25.0 million in EBITDA, prior to accruing bonus expense and
adjusted for extraordinary, non-recurring items that are deemed non-operational
in nature ("Adjusted EBITDA"). The bonus amount will start at 1.4% of Adjusted
EBITDA at the $25.0 million level and increase by one-tenth of one percent for
each $1.0 million of Adjusted EBITDA above $25.0 million up to a maximum of 3%.
Each percentage increase achieved would be on a first dollar basis and computed
on the entire adjusted EBITDA. The Bankruptcy Court has entered an order to the
effect that the Executive Bonus Plan will remain in place during the Bankruptcy
Cases. The Compensation Committee will have discretion concerning the payment of
executive bonuses.
STOCK OPTION INCENTIVE PLAN
Prior to the commencement of the Bankruptcy Cases, the Company had adopted a
Stock Option Incentive Plan (the "Stock Option Plan") which was approved by
stockholders in August 1997. The Stock Option Plan provides for the grant of
options to purchase Common Stock of the Company that are intended either to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or not intended to
qualify ("non-qualified stock options"). All officers, directors, employees,
consultants, advisers, independent contractors and agents are eligible to
receive options under the Stock Option Plan, except that only employees could
receive incentive stock options. The maximum number of shares available for
issuance under the Stock Option Plan is 1,000,000. At December 31, 2000, there
were no stock options outstanding under the Stock Option Plan. Since there are
no options outstanding under the Stock Option Plan, no options will be granted
and the Stock Option Plan will be terminated in connection with the Bankruptcy
Cases, a description of the Stock Option Plan would not be meaningful.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company is comprised
of Philip P. Hannifin and Patricia W. Becker, as Chairperson. Ms. Becker was not
an officer or employee of the Company during or prior to 2000.
SENIOR MANAGEMENT INCENTIVE PROGRAM
On December 21, 2000, the Bankruptcy Court approved a senior management
incentive program (the "Incentive Program") as contemplated by the Restructuring
Agreement. In accordance with the Restructuring Agreement, Messrs. Philip D.
Griffith, Paul H. Manske, Michael E. McPherson and Max L. Page (collectively
referred to as "Senior Management") agreed, subject to the Restructuring
Agreement not being terminated, that their pre-petition employment agreements
with the Company would not be assumed pursuant to Section 365 of the Bankruptcy
Code. In consideration of the Incentive Program, senior management further
agreed to forego alternative employment opportunities in favor of remaining with
the Company through December 31, 2001 in order to maintain the stability of
operations, maintain the Company's existing gaming licenses pending the sale of
its operating properties and to ensure a more orderly liquidation process.
-44-
47
In consideration of their services to the Company, the Incentive Program
provides for Senior Management to receive: (i) the compensation and benefits
provided for in their respective pre-petition employment agreements through at
least December 31, 2001; (ii) an incentive cash distribution generally computed
as a percentage of the net proceeds from the sale of certain of the Company's
assets distributed to the holders of the Notes in excess of $115.0 million;
(iii) a retention and severance payment equal to an aggregate of $2.4 million;
and (iv) payments of up to $2.0 million in consideration for entering into
non-competition agreements.
-45-
48
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth to the best of the Company's knowledge certain
information regarding the beneficial ownership of the Common Stock as of
February 24, 2000 by (i) each person who beneficially owned more that 5% of the
outstanding Common Stock; (ii) each director of the Company; (iii) each other
person named in the Summary Compensation Table (See Item 11 - Executive
Compensation); and (iv) all executive officers and directors of the Company as a
group.
NAME AND ADDRESS OF BENEFICIAL OWNER
NUMBER OF SHARES PERCENT
BENEFICIALLY OWNED OF CLASS
------------------ --------
Philip D. Griffith 3,419,105(a) 62.1%
301 Fremont Street
Las Vegas, NV 89101
Putnam Investments, Inc.
One Post Office Square 384,560(b) 7.0%
Boston, MA 02109
Paul H. Manske 123,565(c) 2.2%
Max L. Page 123,565(d) 2.2%
Philip P. Hannifin 23,988 *
Patricia W. Becker 27,475(e) *
Michael E. McPherson 0 *
Domenic Mezzetta 0 *
All directors and executive officers
as a group (five persons) 4,102,258 74.4%
- -------------
* Indicates less than 1%
(a) Held by the Philip D. Griffith Gaming Trust of which Mr. Griffith is a
trustee.
(b) Putnam Investments, Inc. ("PI") is a holding company organized under
Massachusetts law. Filing on behalf of itself and its wholly-owned
subsidiary, Putnam Investment Management, Inc. ("PIM"), an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, PI and PIM have reported beneficial ownership with shared
dispositive power over the shares listed. As part of the Putnam family
of mutual funds, Putnam Diversified Income Trust has reported beneficial
ownership with shared dispositive power over 216,863 shares of the
384,560 shares held by PIM. The source of this information is a Schedule
13G filed by PI with the Securities and Exchange Commission dated
February 17, 1999. Ownership is reported as of December 31, 1998.
(c) Held by the Paul H. Manske Family Trust of which Mr. Manske is a
trustee.
(d) Held by the Max Lynn Page 1987 Trust of which Mr. Page is a trustee.
(e) Held by the Patricia W. Becker Family Trust of which Ms. Becker is a
trustee.
-46-
49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company provided executive and administrative services to each of its
significant subsidiaries and allocated a portion of its corporate overhead to
each such significant subsidiary. This allocation does not necessarily reflect
the costs incurred by the Company in connection with such support and
accordingly, such allocation does not necessarily reflect that which could be
obtained from an unaffiliated party.
In connection with the Bankruptcy Cases all transactions other than transactions
entered into in the ordinary course of business on terms generally made
available to third parties, will be subject to review and approval by the
Bankruptcy Court.
-47-
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following financial statements are attached:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Stockholders' Deficiency for the Years Ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
Schedule II -- Consolidated Valuation and Qualifying Accounts.
Other Financial Statement Schedules are not required.
3. Exhibits. Refer to (c) below
(b) Reports on Form 8-K. For the last quarter of the fiscal year ended
December 31, 2000, the Company filed the following reports on Form 8-K:
Report on Form 8-K, Item 3 and 5, filed on December 7, 2000
(c) Exhibits. Reference is made to the Index to Exhibits immediately
preceding the exhibits thereto.
-48-
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 28,
2001.
Fitzgeralds Gaming Corporation
By: /s/ Michael E. McPherson
-------------------------------------
Michael E. McPherson
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
-49-
52
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Philip D. Griffith and Michael E. McPherson, and
each of them, his or her own attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Philip D. Griffith Chairman, President, Chief March 26, 2001
- -------------------------- Executive Officer and Director
Philip D. Griffith (Principal Executive Officer)
/s/ Michael E. McPherson Executive Vice President, Chief March 26, 2001
- -------------------------- Financial Officer, Treasurer and
Michael E. McPherson Secretary (Principal Financial
and Accounting Officer)
/s/ Philip P. Hannifin Director March 26, 2001
- --------------------------
Philip P. Hannifin
/s/ Patricia W. Becker Director March 26, 2001
- --------------------------
Patricia W. Becker
/s/ Max L. Page Director March 26, 2001
- --------------------------
Max L. Page
-50-
53
FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS PAGE
Independent Auditors' Report F - 2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F - 3
Consolidated Statements of Operations for the Years Ended December 31, 2000,
1999 and 1998 F - 5
Consolidated Statements of Stockholders' Deficiency for the Years Ended
December 31, 2000, 1999 and 1998 F - 6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998 F - 7
Notes to Consolidated Financial Statements F - 9
54
INDEPENDENT AUDITORS' REPORT
Fitzgeralds Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Fitzgeralds
Gaming Corporation and subsidiaries (the "Company") (Debtor-in-Possession) as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' deficiency, and cash flows for each of the three years
in the period ended December 31, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(2). 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 the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fitzgeralds Gaming Corporation and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2, the Company has filed for reorganization under Chapter
11 of the Federal Bankruptcy Code. The accompanying consolidated financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such consolidated financial statements do
not purport to show (a) as to assets, their realizable value on a liquidation
basis or their availability to satisfy liabilities; (b) as to prepetition
liabilities, the amounts that may be allowed for claims or contingencies, or the
status and priority thereof; (c) as to stockholder accounts, the effect of any
changes that may be made in the capitalization of the Company; or (d) as to
operations, the effect of any changes that may be made in its business.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's event of default on its Senior
Secured Notes, along with its recurring losses from operations, negative working
capital and stockholders' capital deficiency raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are discussed in Note 2. The consolidated financial statements do not
include adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 19, 2001
F-2
55
FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
- --------------------------------------------------------------------------------
ASSETS 2000 1999
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 8,181,388 $ 22,115,594
Accounts receivable, net of allowance for doubtful
accounts of $64,087 and $405,003 575,765 1,416,795
Inventories 471,913 1,771,327
Prepaid expenses:
Gaming taxes 993,551 1,379,589
Other 1,394,968 2,858,118
------------- -------------
Total current assets 11,617,585 29,541,423
------------- -------------
PROPERTY AND EQUIPMENT, net 79,656 152,017,061
------------- -------------
OTHER ASSETS:
Net assets held for sale 170,388,338 --
Restricted cash 4,489,000 2,203,978
Debt offering costs -- 7,394,649
Goodwill, net of accumulated amortization of $843,796 -- 13,335,365
Other assets 1,473,204 2,304,014
------------- -------------
Total other assets 176,350,542 25,238,006
------------- -------------
TOTAL $ 188,047,783 $ 206,796,490
============= =============
See notes to consolidated financial statements (Continued)
F-3
56
FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2000 AND 1999
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2000 1999
------------- -------------
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Debt accelerated due to default $ -- $ 203,166,582
Current portion of long-term debt 109,937 673,619
Accounts payable 306,299 4,552,807
Accrued and other:
Payroll and related 2,652,200 4,619,366
Progressive jackpots 63,633 1,230,036
Outstanding chips and tokens 187,652 864,263
Interest -- 28,456,467
Other 649,866 7,168,493
------------- -------------
Total current liabilities 3,969,587 250,731,633
LONG-TERM DEBT, net of current portion and
debt accelerated due to default 2,407,023 598,478
------------- -------------
Total liabilities not subject to compromise 6,376,610 251,330,111
LIABILITIES SUBJECT TO COMPROMISE 242,869,829 --
------------- -------------
Total liabilities 249,246,439 251,330,111
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 14)
CUMULATIVE REDEEMABLE PREFERRED STOCK
$.01 par value; $25 stated value; 800,000 shares authorized, issued and
outstanding; liquidation preference $20,000,000 stated value plus accrued
dividends of $21,971,855 and $16,224,779 recorded at liquidation
preference, net of unamortized offering costs and discount
of $5,565,696 and $6,262,268, respectively 36,406,159 29,962,511
STOCKHOLDERS' DEFICIENCY
Common stock, $.01 par value; 29,200,000 shares authorized;
5,508,082 shares issued and outstanding 55,080 55,080
Additional paid-in-capital 23,675,511 23,954,220
Accumulated deficit (121,335,406) (98,505,432)
------------- -------------
Total stockholders' deficiency (97,604,815) (74,496,132)
------------- -------------
TOTAL $ 188,047,783 $ 206,796,490
============= =============
See notes to consolidated financial statements
F-4
57
FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
------------- ------------- -------------
OPERATING REVENUES:
Casino $ 181,724,286 $ 171,739,693 $ 162,506,030
Food and beverage 25,809,006 24,603,925 24,936,289
Rooms 22,060,254 21,551,208 21,213,266
Other 4,549,683 3,627,150 15,745,882
------------- ------------- -------------
Total 234,143,229 221,521,976 224,401,467
Less promotional allowances 20,745,442 19,123,882 17,276,879
------------- ------------- -------------
Net 213,397,787 202,398,094 207,124,588
------------- ------------- -------------
OPERATING COSTS AND EXPENSES:
Casino 89,127,840 83,895,369 81,538,490
Food and beverage 15,398,511 15,504,787 18,295,526
Rooms 12,793,036 12,563,589 12,579,464
Other operating expense 2,115,389 2,046,933 2,162,019
Selling, general and administrative 65,354,766 62,687,856 56,856,342
Depreciation and amortization 13,977,855 14,202,957 13,670,796
Write-down of assets and lease settlement -- 97,759 341,728
Reorganization items 149,536 -- --
------------- ------------- -------------
Total 198,916,933 190,999,250 185,444,365
------------- ------------- -------------
INCOME FROM OPERATIONS 14,480,854 11,398,844 21,680,223
OTHER INCOME (EXPENSE):
Interest income 1,039,946 535,730 527,378
Interest expense (contractual interest for 2000
of $33,699,003) (31,842,584) (29,703,969) (27,154,145)
Interest expense - stockholders -- -- (19,009)
Impairment loss -- -- (798,607)
Other expense (64,542) (184,959) (2,902,667)
------------- ------------- -------------
NET LOSS (16,386,326) (17,954,354) (8,666,827)
PREFERRED STOCK DIVIDENDS (6,443,648) (5,561,339) (4,769,775)
------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON STOCK $ (22,829,974) $ (23,515,693) $ (13,436,602)
============= ============= =============
NET LOSS PER COMMON SHARE $ (4.14) $ (5.35) $ (3.35)
============= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,508,082 4,393,824 4,012,846
============= ============= =============
See notes to consolidated financial statements
F-5
58
FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL TOTAL
-------------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
------------- ------------- ------------- ------------- -------------
BALANCE, JANUARY 1, 1998 4,012,846 $ 40,128 $ 23,649,582 $ (61,553,137) $ (37,863,427)
Net loss -- -- -- (8,666,827) (8,666,827)
Preferred stock dividends -- -- -- (4,769,775) (4,769,775)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 4,012,846 40,128 23,649,582 (74,989,739) (51,300,029)
Net loss -- -- -- (17,954,354) (17,954,354)
Preferred stock dividends -- -- -- (5,561,339) (5,561,339)
Issuance of stock 1,495,236 14,952 -- -- 14,952
Additional paid-in-capital -- -- 304,638 -- 304,638
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 5,508,082 55,080 23,954,220 (98,505,432) (74,496,132)
Net loss -- -- -- (16,386,326) (16,386,326)
Preferred stock dividends -- -- -- (6,443,648) (6,443,648)
Expired stock options -- -- (278,709) -- (278,709)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 2000 5,508,082 $ 55,080 $ 23,675,511 $(121,335,406) $ (97,604,815)
============= ============= ============= ============= =============
See notes to consolidated financial statements
F-6
59
FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (16,386,326) $ (17,954,354) $ (8,666,827)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 13,977,855 14,202,957 13,670,796
Amortization of note discount and offering costs 2,164,691 1,753,845 1,154,276
Write down of assets and lease settlement -- 97,759 281,250
Impairment loss -- -- 798,607
Equity in net loss of unconsolidated affiliates -- -- 1,352,693
Minority interest in loss of subsidiaries -- 92,803 1,760,932
Loss on sale of assets 50,316
Write down of deferred stock options (278,709) -- --
Reorganization items incurred in connection
with chapter 11 and related legal proceedings 149,536 -- --
Other -- 27,674 (489,709)
(Increase) decrease in restricted cash -- 537,179 (1,196,179)
(Increase) decrease in accounts receivable, net (436,719) 20,300 622,950
(Increase) decrease in advances to
affiliated companies 97,774 (797,791) 133,019
(Increase) decrease in inventories 254,916 (395,884) (61,832)
Increase in prepaid expenses (758,532) (555,473) (799,467)
(Increase) decrease in other assets (81,422) (1,263,781) 160,201
Increase (decrease) in accounts payable (2,792,761) (3,452,879) 902,623
Increase in liabilities subject to compromise 120,125 -- --
Increase in accrued and other liabilities 14,632,357 28,776,343 2,565,616
-------------- -------------- --------------
Net cash provided by operating activities before
reorganization items 10,713,101 21,088,698 12,188,949
Reorganization items incurred in connection
with chapter 11 and related legal proceedings (149,536) -- --
-------------- -------------- --------------
Net cash provided by operating activities 10,563,565 21,088,698 12,188,949
-------------- -------------- --------------
See notes to consolidated financial statements (Continued)
F-7
60
FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 41,971 4,223,144 485,208
Acquisition of property and equipment (10,889,665) (5,639,294) (5,151,859)
Acquisition of assets - held for sale -- -- (374,865)
(Increase) decrease in restricted cash (2,799,000) (544,978) 393,987
Other -- -- (803,488)
------------- ------------- -------------
Net cash used in investing activities (13,646,694) (1,961,128) (5,451,017)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from line of credit -- -- 3,000,000
Payment of debt offering costs -- (305,424) (1,537,826)
Proceeds from issuance of stock -- 14,952 --
Repayment of long-term debt (739,205) (6,623,763) (8,128,144)
Repayment of line of credit -- (3,000,000) --
Dividends to minority stockholders -- (136,330) (1,842,990)
------------- ------------- -------------
Net cash used in financing activities (739,205) (10,050,565) (8,508,960)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,822,334) 9,077,005 (1,771,028)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 22,115,594 13,038,589 14,809,617
CASH AND CASH EQUIVALENTS INCLUDED IN
NET ASSETS HELD FOR SALE (10,111,872) -- --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 8,181,388 $ 22,115,594 $ 13,038,589
============= ============= =============
See notes to consolidated financial statements
F-8
61
FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND FINANCIAL STATEMENT PRESENTATION
Fitzgeralds Gaming Corporation (the "Company") is a diversified
multi-jurisdictional gaming holding company that owns and operates four
Fitzgeralds-brand casino-hotels, in downtown Las Vegas, Nevada ("Fitzgeralds
Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica, Mississippi
("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds Black Hawk"),
collectively referred to as (the "Operating Properties").
The Company currently conducts substantially all of its business through
wholly-owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds
South, Inc. ("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly owns
and operates Fitzgeralds Reno; FSI owns and operates Fitzgeralds Las Vegas
and Fitzgeralds Tunica through wholly owned subsidiaries; and FI owns and
operates Fitzgeralds Black Hawk through wholly owned subsidiaries, including
101 Main Street Limited Liability Company ("101 Main").
Fitzgeralds Arizona Management, Inc. ("FAMI"), a subsidiary 85% owned by FI,
had an exclusive agreement (the "Cliff Castle Management Agreement") to
manage the Cliff Castle Casino ("Cliff Castle") a gaming facility in Camp
Verde, Arizona, owned and operated by the Yavapai-Apache Indian Nation (the
"Nation"). In June 1998, FAMI entered into a termination agreement with the
Nation wherein the parties mutually agreed to terminate the Cliff Castle
Management Agreement, in consideration for which FAMI received $8.0 million.
In addition, through its 85%-owned subsidiary, Fitzgeralds New York, Inc
("FNYI"), FI had received monthly payments through September 1998 in
consideration of work performed prior and subsequent to the opening of the
Turning Stone Casino ("Turning Stone") in Verona, New York, owned by the
Oneida Indian Nation.
Nevada Club, Inc. ("NCI"), a wholly owned subsidiary of the Company, owned
and operated the Nevada Club in Reno, Nevada. The Nevada Club was sold in
June 1999.
The Company incurred net losses of $16.4 million, $18.0 million and $8.7
million in 2000, 1999 and 1998 respectively. The Company is highly leveraged
as total indebtedness including the 12.25% Senior Secured Notes which
matures December 15, 2004 (the "Notes") was $206.6 million at December 31,
2000 and $204.4 million at December 31, 1999. The Company's stockholders'
deficiency was $97.6 million and $74.5 million at December 31, 2000 and
1999, respectively. However, earnings before interest, taxes on income,
depreciation and amortization ("EBITDA") increased from $25.6 million for
the year ended December 31, 1999 to $28.5 million for the year ended
December 31, 2000. Adjusted EBITDA increased from $27.9 million for the year
ended December 31, 1999 to $31.9 million for the year ended December 31,
2000. Adjustments to EBITDA include (i) exclusion of EBITDA for Nevada Club
for the 2000 and 1999; (ii) exclusion of EBITDA of Harolds Club for 1999;
(iii) exclusion of write-down of Nevada Club assets of $0.03 million for
1999; (iv) exclusion of Harolds Club lease settlement of $0.06 million for
1999; (v) exclusion of pre-petition professional fees and expenses incurred
with the Company's restructuring of $3.2 million and $2.2 million in 2000
and 1999, respectively; and (vi) exclusion of $0.1 million of post-petition
professional fees and expenses, net of interest income included in
reorganization items.
The accompanying financial statements have been prepared on a going concern
basis. At December 31, 2000, liabilities exceeded assets by approximately
$61.2 million and stockholders' deficiency was $97.6 million. The Company's
inability to meet the interest payment on the Note, along with its recurring
losses from operations, negative working capital and stockholders' capital
deficiency, raise substantial doubt about its ability to continue as a going
concern.
F-9
62
2. PETITION FOR RELIEF UNDER CHAPTER 11
GENERAL
On December 5, 2000, the Company commenced cases under Chapter 11 of the
Bankruptcy Code (collectively, the "Bankruptcy Cases") in the United States
Bankruptcy Court for the Northern District of Nevada (the "Bankruptcy
Court"). The Bankruptcy Cases are jointly administered and coordinated under
Case No. BK-N-00-33467 GWZ. The Bankruptcy Cases were commenced in
accordance with an Agreement Regarding Pre-Negotiated Restructuring, dated
as of December 1, 2000 (the "Restructuring Agreement"), with the holders
(the "Consenting Noteholders") of a majority in interest of the Company's
Notes issued under an indenture dated December 30, 1997 (the "Indenture").
The Restructuring Agreement contemplates an expeditious and orderly sale of
all of the Company's operating assets and properties as going concerns.
As part of the restructuring contemplated in the Restructuring Agreement,
the Company, as debtor in possession, is seeking Bankruptcy Court approval
to: (i) sell free and clear of liens pursuant to Section 363 of the
Bankruptcy Code substantially all of its assets; and (ii) assume and assign
pursuant to Section 365 of the Bankruptcy Code contracts used in its
operations in Las Vegas, Nevada, Black Hawk, Colorado and Tunica,
Mississippi to an affiliate of The Majestic Star Casino, LLC, an Indiana
limited liability company ("Majestic"), pursuant to a Purchase and Sale
Agreement, dated as of November 22, 2000, as amended on December 4, 2000
(the "Purchase Agreement"). On March 19, 2001, the Bankruptcy Court approved
the Purchase Agreement with Majestic.
The Restructuring Agreement provides a vehicle for liquidating the assets of
the Company in the Bankruptcy Court through Chapter 11 of the Bankruptcy
Code. Upon execution of the Restructuring Agreement and before commencement
of the Bankruptcy Cases, the Company distributed $13.0 million in Excess
Cash (as that term is defined in the Restructuring Agreement) to the trustee
under the Indenture (the "Indenture Trustee") to be applied to unpaid and
accrued Indenture Trustee's fees and expenses incurred and as partial
payment of accrued and unpaid interest and principal as provided in the
Indenture. In accordance with the Restructuring Agreement and as approved by
the Bankruptcy Court, the Company has been authorized and directed to make
additional Excess Cash distributions ("Post-petition Distributions") during
the Bankruptcy Cases. As part of the Restructuring Agreement, the Consenting
Noteholders and Indenture Trustee agree to forbear from exercising certain
of their rights otherwise allowable under the Notes and the Indenture.
The parties to the Restructuring Agreement have each concluded that the fair
market value of the Company's real and personal property given as collateral
for the Notes is less than the total outstanding principal and interest due
under the Notes, and that the fair market value of the real and personal
property not securing Notes is less than the amount of the unsecured
deficiency claim of the holders of the Notes. As a result, it is not
expected that any distribution will be made to holders of the existing
capital stock of the Company. The Restructuring Agreement requires that as
part of the liquidation process, all of the existing common stock and
preferred stock of the Company is to be canceled and extinguished without
payment therefor.
Under the terms of the Restructuring Agreement, the Company is required to
seek buyers for each of its operating businesses. In order to effectuate
this liquidation, the Company commenced the Bankruptcy Cases and has
received approval from the Bankruptcy Court to sell its operating businesses
through negotiated sales agreements either by way of motion to sell free and
clear of liens under Section 363 of the Bankruptcy Code, or under one or
more plans of reorganization. In accordance with the Restructuring
Agreement, the Bankruptcy Court has authorized an auction tentatively
scheduled for June 2001 in the Bankruptcy Court with respect to those assets
not sold pursuant to negotiated sales agreements such as the Purchase
Agreement.
Under the terms of the Restructuring Agreement, upon the closing of each
sale of the Company's assets, the net proceeds of the collateral for the
Notes, less certain reserves for management incentives and other
F-10
63
liabilities, must be distributed to the Indenture Trustee for the benefit of
and distribution to the holders of the Notes in accordance with the
Indenture. All of the Company's assets remaining after such sales, including
any notes received as part of the consideration for the sales of the
Company's assets and payment of remaining liabilities of the Company, will
be transferred to a liquidating trust created for the benefit of the holders
of the Notes and others under the terms of the Restructuring Agreement.
In light of the regulatory approvals needed to accomplish the liquidations,
and recognizing the need to retain senior management in order to insure
continuity and compliance with all gaming regulations and licensing
requirements in the Company's operations during the process, the
Restructuring Agreement requires implementation of a senior management
incentive and retention program. After obtaining Bankruptcy Court approval
in December 2000, this program was adopted by the Company in order to retain
Philip D. Griffith, Michael E. McPherson, Max L. Page and Paul H. Manske,
each an officer, director and/or senior executive of the Company, as key
executives and to compensate them for their continued employment with the
Company during the process.
Pursuant to the Purchase Agreement, the Company has agreed to: (i) sell free
and clear of liens pursuant to Section 363 of the Bankruptcy Code
substantially all of the Company's assets including Fitzgeralds Las Vegas,
Fitzgeralds Black Hawk and Fitzgeralds Tunica; and (ii) assume and assign
pursuant to Section 365 of the Bankruptcy Code contracts used in its
operations at Fitzgeralds Las Vegas, Fitzgeralds Black Hawk, and Fitzgeralds
Tunica, as well as the Company's interest in The Fremont Street Experience
Limited Liability Company (collectively, the "Assets") to Majestic for
$149.0 million in cash, subject to certain holdbacks and adjustments, plus
the assumption of certain liabilities relating to the Assets. Majestic has
deposited in escrow $2.0 million of the cash portion of the purchase price
as an earnest money deposit. The Purchase Agreement contains customary
representations, warranties, conditions and covenants, that provides for a
dollar-for-dollar purchase price adjustment based on changes in each of the
target properties working capital and long-term debt, excluding debt related
to the Notes, at closing, and adjustment if the Company's earnings before
interest, income taxes, depreciation and amortization for the 12-month
period prior to closing vary by 5% or more from a target earnings amount for
such period and adjustments as may apply in the event that the Company fails
to obtain certain consents. The closing is contingent upon, among other
things, Majestic obtaining financing of up to $137.0 million and approval of
gaming authorities in Colorado, Mississippi and Nevada.
For further information concerning the Purchase Agreement, please refer to
our Current Report on Form 8-K, dated December 5, 2000, as filed with the
Securities and Exchange Commission.
REORGANIZATION ITEMS
As of December 31, 2000, the Company incurred the following expenses
subsequent to the filing of the Bankruptcy Cases:
Reorganization items:
Post petition professional fees $163,597
Pre-petition expenses recorded post-petition 38,967
Interest earned on accumulated cash resulting from the
bankruptcy proceedings (53,028)
--------
$149,536
========
F-11
64
LIABILITIES SUBJECT TO COMPROMISE
At December 31, 2000, liabilities subject to compromise consisted of the
following:
Liabilities subject to compromise
Notes $205,000,000
Discount on the Notes (1,549,855)
Accrued interest on the Notes 44,813,080
Debt offering costs on the Notes (5,513,521)
Unsecured creditors 120,125
------------
$242,869,829
============
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements of the Company include
the accounts of its wholly owned and majority owned subsidiaries. All
inter-company balances and transactions have been eliminated in the
consolidation.
CASH AND CASH EQUIVALENTS - Cash includes cash required for gaming
operations. The Company considers cash equivalents to include short-term
investments with original maturities of ninety days or less.
INVENTORIES - consisting principally of food and beverage and operating
supplies are stated at the lower of first-in, first-out cost or market.
The estimated cost of normal operating quantities (base stock) of china,
silverware, glassware, linen, uniforms and utensils has been recorded as an
asset and is not being depreciated. Costs of base stock replacements are
expensed as incurred.
PROPERTY AND EQUIPMENT - are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated service lives
of the assets. Costs of major improvements are capitalized; costs of normal
repairs and maintenance are charged to expenses as incurred. Gains or losses
on disposals are recognized. The Company discontinued the depreciation and
amortization of its property and equipment subsequent to the filing of the
Bankruptcy Cases.
DEBT OFFERING COSTS - Costs associated with the issuance of the Notes and
securing the loan and security agreement (the "Credit Facility") are
deferred and amortized over the life of the related indebtedness using the
effective interest method.
RESTRICTED CASH - At December 31, 2000 and 1999, restricted cash represents
interest bearing certificates of deposit with a bank securing letters of
credit for various workers' compensation and insurance plans (see Note 14)
and U.S. Treasury Notes of $1,000,000 held in an escrow account for the
benefit of certain land lessors related to Fitzgeralds Las Vegas. At
December 31, 2000 a deposit of $2,400,000 is held in an escrow account for
the benefit of the Company related to the implementation of a senior
management incentive and retention program in conjunction with the
Restructuring Agreement (see Note 2).
GOODWILL - represents the cost in excess of fair value of the net assets
acquired in purchase transactions. Goodwill is being amortized using the
straight-line method over 40 years and is recorded net of accumulated
amortization. The Company discontinued the amortization of its goodwill
subsequent to the filing of the Bankruptcy Cases (see Note 6).
CASINO REVENUE - is the net win from gaming activities, which is the
difference between gaming wins and losses.
F-12
65
PROMOTIONAL ALLOWANCES - Operating revenues include the retail value of
rooms, food and beverage provided to customers without charge; corresponding
charges have been deducted from revenue in the accompanying consolidated
statements of operations as promotional allowances in the determination of
net operating revenues. The estimated costs of providing the complimentary
services are charged to the casino department and are as follows:
2000 1999 1998
------------- ------------- -------------
Hotel $ 3,067,565 $ 2,987,383 $ 2,498,405
Food and beverage 13,389,226 12,595,908 11,383,379
Other 524,426 280,998 283,482
------------- ------------- -------------
Total $ 16,981,217 $ 15,864,289 $ 14,165,266
============= ============= =============
ADVERTISING COSTS - Advertising expenditures are expensed in the period the
advertising initially takes place. Direct response advertising costs are
amortized over the period during which the benefits are expected.
FEDERAL INCOME TAXES - The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carry forwards.
FINANCIAL REPORTING PERIOD - The Company has adopted a "4-4-5" (weeks)
financial reporting period which maintains a December 31 year-end. This
method of reporting results in 13 weeks in each quarterly accounting period.
The first and fourth accounting periods will have a fluctuating number of
days resulting from the maintenance of a December 31 year-end, whereas the
second and third periods will have the same number of days each year.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based on current
information, that the carrying value of the Company's cash and cash
equivalents, restricted cash, accounts receivable, advances, and accounts
payable approximates fair value because of the short maturity of those
instruments. The Notes were trading at approximately 55% of the face value
at December 31, 2000 and December 31, 1999. The Company is unable to
estimate the fair value of its Preferred Stock since no market quotes for
such securities are readily available. The Company estimates that the fair
value of all other long-term debt approximates its carrying value because
interest rates on the debt approximate market rates.
IMPAIRMENT OF LONG LIVED ASSETS - The Company reviews long-lived assets and
certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
STOCK-BASED COMPENSATION - The Company utilizes SFAS No. 123, Accounting for
Awards of Stock-Based Compensation to account for stock-based employee
compensation plans and for transactions where equity securities are issued
for goods and services. This statement defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock
F-13
66
Issued to Employees. In accounting for stock based employee compensation
plans, the Company applies APB Opinion No. 25, and adopted only the
disclosure requirement of SFAS No. 123.
RECENTLY ISSUED ACCOUNTING STANDARDS - On June 30, 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and is effective for the Company's fiscal year ending December
31, 2001. Management believes that adoption of this statement will not have
a material impact on its financial condition or results of operation.
BANKRUPTCY RELATED ACCOUNTING - The Company has accounted for all
transactions related to the Bankruptcy Cases in accordance with Statement of
Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," which was issued by the American
Institute of Certified Public Accountants in November 1990. Accordingly,
liabilities subject to compromise under the Bankruptcy Cases have been
segregated on the Consolidated Balance Sheet and are recorded for the
amounts that are expected to be allowed under the Restructuring Agreement
(see Note 2). In addition, the Consolidated Statements of Operations and
Consolidated Statements of Cash Flows for the period ended December 31, 2000
disclose expenses related to the Bankruptcy Cases under "Reorganization
Items". The Company will continue to presents its Cash Flow using the
indirect method.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain assets
and liabilities at the date of the financial statements. These estimates
also affect the disclosure of contingent liabilities at the date of the
financial statement and the reported amounts of certain revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
4. STATEMENTS OF CASH FLOWS INFORMATION
The following supplemental disclosure is provided as part of the
consolidated statements of cash flows for the years ended December 31, 2000,
1999 and 1998:
Cash paid for interest, net of amounts capitalized, during the years ended
December 31, 2000, 1999 and 1998 was $13,343,195, $682,217 and $25,043,835,
respectively.
Certain non-cash operating, investing and financing activities were as
follows:
Long-term contracts payable of $2,618,420 in 2000, $545,079 in 1999 and
$4,159,447 in 1998, were incurred with the acquisition of new equipment for
all years presented and a parking garage in 2000.
During 2000, 1999 and 1998, accumulated deficit was increased by $6,443,648,
$5,561,339 and $4,769,775 for preferred stock dividends consisting of
$5,747,076, $4,960,147 and $4,280,969 accrued dividends and $696,572,
$601,193 and $488,806 accretion of discount on preferred stock.
During 2000, additional paid-in-capital decreased by $278,709 due to the
expiration of the stock options. In 1999, additional paid-in-capital
increased and an amount due to stockholders decreased by $304,638 (see Note
9).
In 1999, additional offering costs of $169,590 were incurred in connection
with the Notes and the Credit Facility.
See Note 2 and Note 6 for a summary of Net Assets Held for Sale and
Liabilities Subject to Compromise
F-14
67
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
ESTIMATED
SERVICE
2000 1999 LIFE
------------- ------------- -------------
Land used in casino operations $ 18,204,843 $ 17,736,900 --
Buildings and improvements 122,789,471 119,134,393 7-40 years
Site improvements 20,960,324 15,299,870 20 years
Barge and improvements 12,896,235 12,896,235 15 years
Furniture, fixtures and equipment 67,566,143 65,379,739 3-12 years
------------- -------------
242,417,016 230,447,137
Less accumulated depreciation and amortization (91,396,928) (79,476,431)
------------- -------------
151,020,088 150,970,706
Construction in progress 764,698 1,046,355
------------- -------------
151,784,786 152,017,061
Less net assets held for sale (151,705,130) --
------------- -------------
Total $ 79,656 $ 152,017,061
============= =============
Total property and equipment at December 31, 2000 is compromised of
furniture and fixtures for the Company's corporate offices. Substantially
all property and equipment is pledged as collateral on long-term debt.
6. NET ASSETS HELD FOR SALE
On December 1, 2000, the Company entered into the Restructuring Agreement
with the Consenting Noteholders. The Restructuring Agreement contemplates an
expeditious and orderly sale of all of the Company's operating assets and
properties. Assets not included in net assets held for sale of $11.5 million
consist mainly of cash, not transferable upon the close of a sale with
Majestic and assets of Fitzgeralds Reno excluding property and equipment.
On March 19, the Company received the Bankruptcy Court approval to sell
substantially all of its Assets to Majestic, pursuant to the Purchase
Agreement for $149.0 million in cash. The closing is contingent upon, among
other things, Majestic obtaining financing of up to $137.0 million and
approval of gaming authorities in Colorado, Mississippi and Nevada. The
Company is actively seeking a buyer for the Fitzgeralds Reno property.
F-15
68
The components of the net assets held for sale as of December 31, 2000 are
as follows:
FITZGERALDS FITZGERALDS FITZGERALDS FITZGERALDS
RENO LAS VEGAS TUNICA BLACK HAWK ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------ ------------
Assets:
Cash and cash equivalents $ -- $ 3,082,396 $ 5,274,598 $ 1,754,878 $ -- $ 10,111,872
Account receivable, net of
allowance for doubtful
accounts of $210,586 -- 696,054 539,510 55,420 -- 1,290,984
Inventories -- 445,572 445,722 153,204 -- 1,044,498
Prepaid gaming taxes -- 566,788 -- 48,052 -- 614,840
Other current assets -- 1,506,705 366,376 109,802 -- 1,982,883
Property and equipment, net (1) 28,949,595 37,162,537 62,708,013 24,789,132 (1,904,147) 151,705,130
Goodwill, net of accumulated
amortization of
$1,173,579 -- -- -- 13,005,582 -- 13,005,582
Restricted cash -- 500,000 -- -- -- 500,000
Other non-current assets -- 320,251 461,361 141,363 -- 922,975
Current portion of long term debt -- (167,273) (73,015) -- -- (240,288)
Accounts payable -- (514,831) (809,013) (227,676) -- (1,551,520)
Accrued expenses:
Payroll and related -- (1,336,852) (2,349,516) (667,094) -- (4,353,462)
Progressive jackpots -- (269,561) (322,665) (387,602) -- (979,828)
Outstanding chips and tokens -- (104,175) (91,247) (39,152) -- (234,574)
Other -- (788,550) (1,095,992) (1,152,148) -- (3,036,690)
Long term debt -- (394,064) -- -- -- (394,064)
------------ ------------ ------------ ------------ ------------ ------------
$ 28,949,595 $ 40,704,997 $ 65,054,132 $ 37,583,761 $ (1,904,147) $170,388,338
============ ============ ============ ============ ============ ============
(1) The elimination entry is for the intercompany purchase and sale of
property and equipment.
Net property and equipment held for sale consists of the following at
December 31, 2000:
ESTIMATED
SERVICE LIFE
-------------
Land used in casino operations $ 18,204,843 --
Buildings and improvements 122,789,471 7-40 years
Site improvements 20,960,324 20 years
Barge and improvements 12,896,235 15 years
Furniture, fixtures and equipment 67,330,488 3-12 years
------------- -------------
242,181,361
Less accumulated depreciation and amortization (91,240,929)
-------------
150,940,432
Construction in progress 764,698
-------------
Total $ 151,705,130
=============
7. LONG TERM DEBT
The Notes bear interest at a fixed annual rate of 12.25% payable on June 15
and December 15 of each year, commencing June 15, 1998. The Notes will
mature on December 15, 2004. The Company has not paid the regularly
scheduled interest payments of $12.5 million that were due and payable June
15, 1999, December 15, 1999 and June 15, 2000. Under the Note Indenture, an
Event of Default occurred on July 15, 1999, and continued until the Company
filed the Bankruptcy Cases. Failure to make the scheduled interest payment
on June 15, 1999 resulted in a 1.0% increase in the interest rate to 13.25%,
effective June 16, 1999 until the Company filed the Bankruptcy Cases. In
accordance with the Indenture, the Company began accruing interest on the
unpaid interest at 13.25% effective June 16, 1999 until the filing of the
F-16
69
Bankruptcy Cases. Upon execution of the Restructuring Agreement and before
commencement of the Bankruptcy Cases, the Company distributed $13.0 million
in Excess Cash (as that term is defined in the Restructuring Agreement) to
the Indenture Trustee to be applied to unpaid and accrued Indenture
Trustee's fees and expenses incurred and as partial payment of accrued and
unpaid interest as provided in the Indenture.
On February 1, 2000, Fitzgeralds Reno purchased an adjacent 834-space
parking garage for $3.0 million. The seller-financed acquisition required a
$0.75 million down payment, with the balance financed at an interest rate of
10.0% with monthly principal and interest payments based on a 20-year
amortization schedule. The note matures in ten years with a lump sum
principal payment due of approximately $1.7 million.
In December 2000, the Company terminated its Credit Facility with a lending
institution. At December 31, 1999, $5.0 million was available for capital
expenditures at Fitzgeralds Black Hawk and $10.0 million was available for
general corporate purposes.
Long-term debt outstanding at December 31,
2000 1999
------------- -------------
The Notes; (net of unamortized discount of $1,549,855
in 2000 and $1,833,418 in 1999) $ 203,450,145 $ 203,166,582
Note payable to acquire a parking garage secured by
the parking garage; monthly installments of $21,713,
including interest at 10.0% with final balloon payment
due February 2010 2,216,014 --
Contracts payable secured by certain equipment due
in maximum aggregate monthly installments of $40,792
and $83,158, with varying maturity dates through 2006 935,298 1,272,097
and 2005, respectively
------------- -------------
Total debt 206,601,457 204,438,679
Less debt accelerated due to default -- (203,166,582)
Less liabilities subject to compromise (203,450,145) --
Less net assets held for sale (634,352) --
Less current portion (109,937) (673,619)
------------- -------------
Long term debt $ 2,407,023 $ 598,478
============= =============
The scheduled maturities of long-term debt are as follows for the year ending
December 31,
2001 $ 350,225
2002 243,964
2003 255,032
2004 218,184
2005 111,674
Thereafter 1,972,233
Unknown 203,450,145
-------------
Total $ 206,601,457
=============
F-17
70
8. COMMITMENTS
Future minimum rental payments under operating leases with non-cancelable
lease terms in excess of one year are as follows:
Year Ending December 31,
2001 $ 1,968,199
2002 1,625,933
2003 1,473,555
2004 1,249,460
2005 1,159,749
Thereafter 8,296,012
-----------
Total $15,772,908
===========
Such operating lease commitments primarily relate to equipment, signs,
warehouses and ground leases on which the Company's buildings and equipment
reside. Rent expense for the years ended December 31, 2000, 1999 and 1998
was $2,797,177, $2,845,668 and $1,719,876, respectively.
EMPLOYMENT AGREEMENTS - The Company has entered into employment agreements
with certain senior executives of the Company. In addition to their
respective salaries, the employment agreements also provide that such senior
executives will participate in the Company's executive compensation plans,
health plan and any other benefit plan established for selected officers of
the Company and that in the event of a termination of employment without
"good cause" (as defined in the agreements), such persons will be entitled
to any unpaid salary in a specified percentage through the remainder of the
term of their respective agreement.
Consistent with industry practice, the Company has entered into employment
agreements with certain of its other vice presidents and departmental
directors. In accordance with the Restructuring Agreement, the Company has
agreed not to assume these employment agreements as provided for in section
365 of the Bankruptcy Code.
9. RELATED PARTY TRANSACTIONS
In 1999, demand notes of $304,638 from shareholders that bear interest at
6.24% were retired and treated as additional paid-in-capital.
10. PROFIT SHARING PLAN
The Company has contributory profit-sharing plans for eligible employees.
The Company's contribution to the plans for any year, as determined by the
Board of Directors, is discretionary. Contributions to the plan are
allocated among eligible participants in the proportion of their salaries to
the total salaries of all participants.
The Company amended the plans to include a 401(k) savings plan whereby
eligible employees may contribute up to 20% of their salary, which is
matched by the Company at 25 cents per employee dollar contributed, up to a
maximum of 6% of their salary. The Company's matching contributions were
$346,377, $332,155 and $329,217 for the years ended December 31, 2000, 1999
and 1998.
Each employee age 21 or older completing 1,000 or more hours of service
during the twelve-month period
F-18
71
preceding the entry dates, January 1, April 1, July 1 or October 1, is
eligible to participate in the plans.
In addition, the Company contributes to multi-employer defined contribution
pension plans under various union agreements. Contributions, based on wages
paid to covered employees, were $351,847, $537,998 and $430,071 for the
years ended December 31, 2000, 1999 and 1998.
11. IMPAIRMENT LOSS
In 1998, the Company recorded an impairment loss of $798,607 related to its
17.76% ownership interest in the Fremont Street Experience, Limited
Liability Company ("FSE"). This impairment loss is principally due to
significant levels of operating losses by FSE. Management expects this trend
to continue and, therefore, does not expect to recover its investment in
this entity.
12. STOCKHOLDERS' DEFICIENCY
The Restructuring Agreement requires that all of the existing Common Stock
and Preferred Stock of the Company to be canceled and extinguished without
payment therefor. It is not expected that any distribution will be made to
holders of the existing capital stock of the Company.
PREFERRED STOCK
As part of a public offering of $123.0 million senior secured notes (the
"1995 Notes"), the Company issued 800,000 shares of Preferred Stock with a
liquidation preference of $20 million dollars ($25 per share), plus accrued
and unpaid dividends. Cash dividends on the Preferred Stock are payable out
of funds legally available therefor (when and if declared by the Company's
Board of Directors) in an amount equal to 15% of the liquidation preference.
Dividends not paid (whether or not declared) are cumulative from December
19, 1995, compounded quarterly. The Indenture restricts the Company's
ability to pay dividends on the Preferred Stock, and the Company has no
current intention to pay any dividends on the Preferred Stock. The Preferred
Stock was redeemable by the Company at any time at a redemption price equal
to 100% of the liquidation preference plus accrued and unpaid dividends on
the date of redemption subject to restrictions in the Indenture. The Company
was obligated to redeem all of the Preferred Stock on December 31, 2005 at a
redemption price equal to 100% of the liquidation preference plus accrued
and unpaid dividends on the date of redemption. In the event that the
Company consummated a Qualified Public Offering (Qualified Public Offering
means a firm commitment underwritten public offering of Common Stock of the
Company for which the Company receives net proceeds of at least $25 million,
and after which the Common Stock is traded on a national securities exchange
or quoted on the Nasdaq National Market), it would have been required to
offer to repurchase 35% of the Preferred Stock at a price equal to 100% of
the liquidation preference on the date of repurchase. The Company has not
paid any cash dividends on its Preferred Stock and because of the Bankruptcy
Cases, the Bankruptcy Code and the Restructuring Agreement, the Company does
not anticipate paying any cash dividends. The Restructuring Agreement
requires that as part of the bankruptcy process, all of the existing
Preferred Stock is to be cancelled and extinguished without any payment. It
is not expected that any distribution will be made to the holders of the
Preferred Stock.
WARRANTS AND COMMON STOCK
As part of the offering of the 1995 Notes, the Company issued 2,675,237
warrants, each exercisable for one share of the Company's Common Stock at an
exercise price of $.01 per share (the "Warrants"). In connection with the
offering of the Notes and the repayment of the 1995 Notes, the Company
canceled 703,402 of the Warrants. The remaining Warrants had an expiration
date of December 19, 1998. The Warrant Agent timely received notice of
exercise for 1,495,236 Warrants and 476,599 Warrants expired.
F-19
72
In September 1999, the Company issued 1,495,236 shares of Common Stock to
exercising Warrant holders in reliance on the exemption from registration
requirements contained in Section 4(2) of the Securities Act of 1933 and on
the basis that there was no public offering of the Common Stock underlying
the Warrants. The Company received $14,952, representing the exercise price
of the Warrants.
The Company has not paid any cash dividends on its Common Stock and because
of the Bankruptcy Cases, the Bankruptcy Code and the Restructuring Agreement
the Company does not anticipate paying any cash dividends. The Restructuring
Agreement requires that as part of the bankruptcy process, all of the
existing Common Stock is to be cancelled and extinguished without any
payment. It is not expected that any distribution will be made to the
holders of the Common Stock.
In March 1994, as part of the issuance of $36 million of 13% senior secured
notes due 1996, FSI issued warrants (the "FSI Warrants") to purchase 100,559
shares of its common stock. No value was ascribed to the FSI Warrants. The
FSI Warrants were exercisable at $.01 per share, expired five years from the
closing of the offering for these notes and were subject to certain
anti-dilution adjustments. FSI Warrants to purchase 54,384 shares of common
stock of FSI were also issued to the sales agent. These FSI Warrants were
exercisable at $32.18 per share and expired five years from the closing of
the offering. All FSI Warrants issued in connection with this note offering
were exercisable only for shares of common stock of FSI. The notes issued in
1994 by FSI were repaid from a portion of the proceeds from the offering of
the 1995 Notes, at which time the Company repurchased approximately 59% of
the $.01 FSI Warrants, leaving 73,250 FSI Warrants outstanding. The warrant
agent timely received notice of exercise for 8,500 shares of common stock of
FSI and 64,750 FSI Warrants expired. No additional shares of common stock of
FSI were issued as of December 31, 2000.
STOCK OPTIONS
Prior to the commencement of the Bankruptcy Cases, the Stock Option Plan was
administered by the Board of Directors or, at its discretion, by a committee
of the Board of Directors appointed for that purpose (the "Stock Option Plan
Committee"), which, subject to the terms of the Stock Option Plan, had the
authority in its sole discretion to interpret the Plan and to determine: (a)
the individuals to whom options shall be granted; (b) the time or times at
which options may be exercised; (c) the number of shares subject to each
option; (d) the option price and the duration of each option granted; and
(e) all of the other terms and conditions of options granted under the Stock
Option Plan. As of December 31, 2000, no options were outstanding under the
Stock Option Plan. In accordance with the Bankruptcy Cases, the Bankruptcy
Code and the Restructuring Agreement, no additional options will be granted
under the Stock Option Plan and the Stock Option Plan will be terminated
during the pendency of the Bankruptcy Cases.
The exercise price of incentive stock options granted under the Stock Option
Plan was required to be at least equal to the fair market value of the
shares on the date of grant (110% of fair market value in the case of
participants possessing more than 10% of the combined voting power of the
Company or any of its subsidiaries) and was not permitted to have a term in
excess of 10 years from the date of grant (five years in the case of
participants possessing more than 10% of the combined voting power of the
Company). In no event could the aggregate fair market value (determined as
of the time the option is granted) of the shares with respect to which
incentive stock options (granted under the Stock Option Plan and all other
plans of the Company or any of its subsidiaries) are exercisable for the
first time by an optionee in any calendar year exceed $100,000.
All stock options issued in prior years expired on December 31, 2000, with
no stock options exercised.
F-20
73
A summary of the status of the Company's stock option grants as of December
31, 2000, 1999 and 1998 and changes during the years then ended is presented
below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
Outstanding at January 1, 1998 676,974 $ 1.03
Canceled (55,524) 1.00
Re-granted 55,524 1.00
Forfeited (112,450) 1.00
--------- ---------
Outstanding at December 31, 1998 564,524 1.04
Canceled (321,138) 1.02
Re-granted 53,261 1.00
Forfeited (25,647) 1.00
--------- ---------
Outstanding at December 31, 1999 271,000 1.04
Canceled (271,000) 1.00
--------- ---------
Outstanding and exercisable at December 31, 2000 -- $ --
========= =========
Such options are not included in the computation of diluted earnings per
share for the years ended December 31, 1999 and 1998. As of December 31,
2000, no options were outstanding under the Stock Option Plan.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. The Company did not have any compensation cost
that has been charged against income for its plans in 2000, 1999 and 1998.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's pro forma
net loss and loss per common share-basic would have been the amounts
indicated below:
2000 1999 1998
-------------- -------------- --------------
Net loss As reported $ (16,386,326) $ (17,954,354) $ (8,666,827)
Proforma (16,386,326) (17,954,354) (8,669,735)
Loss per common share As reported $ (4.14) $ (5.35) $ (3.35)
Proforma (4.14) (5.35) (3.35)
The fair value of each option grant for the pro forma disclosure was
estimated on the date of grant using the minimum value method with the
following weighted-average assumptions used for grants in 1999 and 1998;
risk-free interest rate of 5.84% and 5.38%, respectively. The weighted
average fair value of options granted during 1999 and 1998 was $1.00. In
2000, no options were granted.
F-21
74
13. INCOME TAXES
A reconciliation of the income tax benefit with amounts determined by
applying the statutory U.S. Federal income tax rate to consolidated loss
before taxes is as follows:
2000 1999 1998
------------- ------------- -------------
Tax benefit at U.S. statutory rate $ 6,399,031 $ 6,284,023 $ 3,033,390
Increase in valuation allowance (6,387,636) (5,481,709) (2,696,503)
Other (11,395) (802,314) (336,887)
------------- ------------- -------------
Total $ -- $ -- $ --
============= ============= =============
The following summarizes the effect of deferred income tax items and the
impact of "temporary differences" between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws.
The tax items comprising the Company's net deferred tax asset as of
December 31, 2000 are as follows:
CURRENT NONCURRENT TOTAL
------------- ------------- -------------
Deferred tax assets:
Accrued and other liabilities $ 650,280 $ -- $ 650,280
Bad debt reserve 53,715 -- 53,715
FICA credits not utilized -- 614,868 614,868
NOL carryforward -- 39,029,518 39,029,518
Other -- 372,814 372,814
------------- ------------- -------------
703,995 40,017,200 40,721,195
------------- ------------- -------------
Deferred tax liabilities:
Difference between book and
tax basis of property -- 8,441,062 8,441,062
Intangibles 710,827 710,827
Prepaid expenses 1,228,452 -- 1,228,452
Differences from flow through entity -- 98,482 98,482
------------- ------------- -------------
1,228,452 9,250,371 10,478,823
------------- ------------- -------------
(524,457) 30,766,829 30,242,372
Less: valuation allowance 524,457 (30,766,829) (30,242,372)
------------- ------------- -------------
Net $ -- $ -- $ --
============= ============= =============
F-22
75
The tax items comprising the Company's net deferred tax asset as of
December 31, 1999 are as follows:
CURRENT NONCURRENT TOTAL
------------- ------------- -------------
Deferred tax assets:
Accrued and other liabilities $ 932,984 $ -- $ 932,984
Bad debt reserve 141,750 -- 141,750
FICA credits not utilized -- 623,755 623,755
NOL carryforward -- 31,741,121 31,741,121
Differences from flow through entity -- 126,503 126,503
Other -- 61,788 61,788
------------- ------------- -------------
1,074,734 32,553,167 33,627,901
------------- ------------- -------------
Deferred tax liabilities:
Difference between book and
tax basis of property -- 8,524,349 8,524,349
Intangibles -- 272,246 272,246
Prepaid expenses 976,571 -- 976,571
------------- ------------- -------------
976,571 8,796,595 9,773,166
------------- ------------- -------------
98,163 23,756,572 23,854,735
Less: valuation allowance (98,163) (23,756,572) (23,854,735)
------------- ------------- -------------
Net $ -- $ -- $ --
============= ============= =============
Due to the uncertainty of the realization of certain tax carry forward
items, a valuation allowance has been established in the amount of $30.2
million at December 31, 2000. Realization of a significant portion of the
assets offset by the valuation allowance is dependent on the Company
generating sufficient taxable income prior to expiration of the loss and
credit carry forwards.
As of December 31, 2000, the Company had a consolidated net operating loss
carry forward of approximately $111.5 million and a tax credit carry forward
of $0.6 million, which are available to offset future tax through 2020. Of
the loss carry forward, $3.7 million is available only to offset future
taxable income of FMI. The availability of the loss and credit carry
forwards may be subject to limitations under sections 382 and 383 of the
Internal Revenue Code in the event of a significant change of ownership.
14. CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK - In the normal course of
business, the Company is a party to financial instruments with off-balance
sheet risk which are not reflected in the accompanying consolidated balance
sheets.
The Company has an irrevocable letter of credit with a bank in the amount of
$164,000 that expires on November 1, 2001 and may be drawn upon by the State
of Nevada Insurance Division in the event that Fitzgeralds Reno, Nevada Club
or Fitzgeralds Las Vegas fails to pay workers' compensation benefits to its
employees under a self-insurance program. The letter of credit is secured
with a certificate of deposit for $164,000.
F-23
76
The Company has an irrevocable letter of credit with an insurance company in
the amount of $600,000 which expires on October 13, 2001 and serves as
collateral for a $2.5 million surety bond, enabling the Company to remain a
participant in the State of Nevada self-insured workers' compensation
program. The letter of credit is secured with a certificate of deposit for
$600,000.
The Company has irrevocable letters of credit with a bank in the amount of
$430,000 and $290,000. Such letters, which expire on March 31, 2001 and
April 1, 2001, respectively, may be drawn by an insurance company in the
event that Fitzgeralds Tunica or Fitzgeralds Black Hawk fails to pay
worker's compensation benefits to its employees. The letters of credit are
secured with certificates of deposit for $430,000 and $290,000.
The Company has an irrevocable letter of credit with a bank in the amount of
$105,000 that expires on January 1, 2001 and may be drawn upon by certain
individuals in the event that Fitzgeralds Reno is unable to make certain
rental payments on leased property. The letter of credit is secured with a
certificate of deposit for $105,000.
At December 31, 2000, no amounts were drawn on the above investment or
letters of credit, and management does not expect any adverse effects on the
Company's operating results.
LEGAL MATTERS
RENO TRANSPORTATION RAIL ACCESS CORRIDOR (RETRAC) PROJECT - In October 1998,
the Reno City Council approved a special assessment district to finance a
portion of the costs to lower the railroad tracks that run through downtown
Reno, Nevada (the "ReTRAC Project"). Preliminary plans for the ReTRAC
Project provide for the construction of a temporary rail bypass that will be
used to divert rail traffic around the main railroad during construction.
The City of Reno (the "City") estimates that a period of approximately two
and one half years will be required to complete the ReTRAC Project. The
southern boundary of the bypass will extend out into the middle of
Commercial Row, the street where the Fitzgeralds Reno hotel entrance, valet
parking area and hotel loading zone are situated.
On November 30, 1998, the Company filed a lawsuit against the City to
challenge the method by which the special assessment to be levied against
the Company was determined. Based on preliminary plans prepared by the City,
Fitzgeralds Reno would expect to lose several parking spaces, the current
valet parking area, an outdoor billboard structure advertising available
rooms and a building used to house administrative offices, and be required
to relocate the hotel entrance currently on Commercial Row. The City has
also subsequently indicated that the ReTRAC Project might require the
demolition of the Fitzgeralds Reno Rainbow Skyway. Implementation of the
ReTRAC Project under these circumstances would cause the Company to suffer
significant and permanent loss in business revenue and income; certain
operating efficiencies from demolished or impaired physical structures; and
a portion of its existing customer base as a result of the construction and
operation of the proposed rail bypass.
The City filed an answer to the Company's lawsuit on January 19, 1999.
Subsequent thereto, George Karadanis and Robert Maloff d/b/a Sundowner Hotel
and Casino (the "Sundowner") were permitted by court order to file a
Complaint in Intervention. Notwithstanding said intervention, on December
22, 1999, the court granted the City's Motion for Summary Judgment against
the Sundowner which motion was joined in by the Company.
After hearing oral arguments and considering the parties' briefs, the Court
concluded that there was insufficient evidence before the Reno City Council
to support a finding that the ReTRAC Project confers a special benefit on
Fitzgeralds Reno as is required by statute before a special assessment may
be imposed. The Court remanded the matter to the Reno City Council and
directed the council to conduct a new hearing to consider evidence as to
whether Fitzgeralds Reno would receive a special benefit from the proposed
project.
F-24
77
On February 27, 2001, the Reno City Council voted to continue the process of
determining the actual cost of construction of the ReTRAC Project, which has
previously been estimated to be $218 million. It is anticipated that the
construction cost analysis will be completed in April 2002.
The Company cannot predict what action the City of Reno will take or whether
or when the City will negotiate mitigation measures and whether such
measures could or would fully compensate the Company for the fair market
value of its property taken in connection with the ReTRAC project and
anticipated operating losses.
Other Matters - The Company is a party to various lawsuits relating to
routine matters incidental to its business. The Company does not believe
that the outcome of such litigation, individually or in the aggregate, will
have any material adverse effect on its financial condition.
15. SEGMENT INFORMATION
The Company is a diversified multi-jurisdictional gaming holding company
that owns and operates four Fitzgeralds casino-hotels in downtown Las Vegas,
Nevada; Reno, Nevada; Tunica, Mississippi; and Black Hawk, Colorado. The
Company identifies its business in four segments based on geographic
location. The Company markets in each of its segments primarily to
middle-market customers, emphasizing its Fitzgeralds brand and its
"Fitzgeralds Irish Luck" theme. The major products offered in each segment
are: casino and hotel (except for Fitzgeralds Black Hawk) and food and
beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies. There are
minimal inter-segment sales. The Company evaluates business segment
performance based on EBITDA. Corporate costs are allocated to the business
segments through management fees.
Assets are principally cash and cash equivalents, property and equipment and
goodwill related to the acquisition of the remaining 78% membership interest
in 101 Main. No single customer accounts for more than 10% of revenue.
A summary of the Company's operations by business segment for 2000, 1999 and
1998 is presented below:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998
------------- ------------- -------------
(IN THOUSANDS)
Net operating revenues:
Fitzgeralds Las Vegas $ 52,752 $ 51,845 $ 50,987
Fitzgeralds Tunica 81,561 74,332 68,349
Fitzgeralds Reno 41,203 40,019 39,729
Fitzgeralds Black Hawk 37,728 36,202 36,256
Other(1) 154 -- 11,742
------------- ------------- -------------
Total Properties 213,398 202,398 207,063
Nevada Club -- -- 62
------------- ------------- -------------
Total $ 213,398 $ 202,398 $ 207,125
============= ============= =============
F-25
78
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998
------------- ------------- -------------
(IN THOUSANDS)
Income (loss) from operations:
Fitzgeralds Las Vegas $ (7) $ (1,115) $ (594)
Fitzgeralds Tunica 9,018 5,322 2,063
Fitzgeralds Reno(2) 2,716 2,151 2,400
Fitzgeralds Black Hawk 6,385 7,517 9,074
Other(1) (3,581) (2,322) 9,414
------------- ------------- -------------
Total Properties 14,531 11,553 22,357
Nevada Club (50) (90) (566)
Harolds Club -- (64) (111)
------------- ------------- -------------
Total $ 14,481 $ 11,399 $ 21,680
============= ============= =============
Reconciliation of total business segment operating income to consolidated
net loss before income tax and extraordinary item:
Total segment operating income $ 18,112 $ 13,875 $ 12,943
Nevada Club (50) (90) (566)
Harolds Club -- (64) (111)
Other (7,581) (6,320) 9,414
Eliminations 11,572 17,240 9,112
Interest Income 1,040 536 527
Interest income - shareholder and inter-company 29,659 31,879 32,110
Interest expense (31,843) (29,704) (27,154)
Interest expense - shareholder and inter-company (29,586) (31,808) (32,057)
Other expense (7,709) (13,498) (12,885)
------------- ------------- -------------
Net loss before income tax $ (16,386) $ (17,954) $ (8,667)
============= ============= =============
EBITDA(3):
Fitzgeralds Las Vegas(4) $ 3,692 $ 2,594 $ 2,682
Fitzgeralds Tunica 15,253 11,553 8,051
Fitzgeralds Reno 4,947 4,588 4,805
Fitzgeralds Black Hawk 8,138 9,303 10,863
Other(1) (3,521) (2,281) 9,622
------------- ------------- -------------
Total Properties 28,509 25,757 36,023
Nevada Club (50) (90) (561)
Harolds Club -- (64) (111)
------------- ------------- -------------
Total EBITDA 28,459 25,603 35,351
Adjustments to EBITDA(5) 3,401 2,325 (5,328)
------------- ------------- -------------
Adjusted EBITDA $ 31,860 $ 27,928 $ 30,023
============= ============= =============
F-26
79
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998
------------- ------------- -------------
(IN THOUSANDS)
Segment depreciation and amortization:
Fitzgeralds Las Vegas $ 3,698 $ 3,709 $ 3,276
Fitzgeralds Tunica 6,235 6,231 5,987
Fitzgeralds Reno 2,231 2,437 2,405
Fitzgeralds Black Hawk 1,755 1,786 1,789
Other 59 40 214
------------- ------------- -------------
Total $ 13,978 $ 14,203 $ 13,671
============= ============= =============
Segment assets:
Fitzgeralds Las Vegas $ 42,657 $ 46,788 $ 48,535
Fitzgeralds Tunica 65,943 69,869 72,470
Fitzgeralds Reno 34,579 32,020 37,302
Fitzgeralds Black Hawk 38,728 40,371 41,019
Other 6,141 17,749 9,871
------------- ------------- -------------
Total $ 188,048 $ 206,797 $ 209,197
============= ============= =============
Expenditures for additions to long-lived assets:
Fitzgeralds Las Vegas $ 1,619 $ 1,635 $ 1,832
Fitzgeralds Tunica 6,199 2,393 2,903
Fitzgeralds Reno 4,103 1,387 3,260
Fitzgeralds Black Hawk 1,518 687 1,312
Other 25 82 8
------------- ------------- -------------
Total $ 13,464 $ 6,184 $ 9,315
============= ============= =============
- ----------
(1) Other includes (i) management fees from Cliff Castle for 1998; (ii) payments
from the Turning Stone settlement agreement for 1998; (iii) non-recurring
revenue of $8.0 million for termination of the Cliff Castle Management
Agreement in 1998; (v) corporate expenses not allocated to the Operating
Properties for all periods presented, which includes pre-petition
restructuring expenses of $3.2 million and $2.2 million for 2000 and 1999,
respectively and $0.1 million of post-petition professional fees and
expenses, net of interest income included in reorganization items for 2000.
(2) Excludes inter-company debt write-off of $3.2 million from Nevada Club in
1999.
(3) EBITDA is a supplemental financial measurement used by the Company in the
evaluation of its gaming business and by many gaming industry analysts.
EBITDA is calculated by adding depreciation and amortization expense to
income from operations. At any property, EBITDA is calculated after the
allocation of corporate costs. However, EBITDA should only be read in
conjunction with all of the 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. This presentation of EBITDA
may not be comparable to similarly titled measures reported by other
companies.
(4) Fitzgeralds Las Vegas invested $0.9 million, $0.9 million and $0.8 million
for 2000, 1999 and 1998, respectively, in FSE. Prior to 1999, such
investments were reported under the equity method with no impact on
earnings. The 1999 investment was charged against earnings. See Note 11
"Impairment Loss" of Notes to Consolidated Financial Statements.
F-27
80
(5) Adjustments to EBITDA include (i) exclusion of EBITDA for Nevada Club for
all periods presented; (ii) exclusion of EBITDA for Harolds Club for 1999
and 1998 (iii) exclusion of write down of Nevada Club assets of $0.03
million and $0.2 million 1999 and 1998, respectively; (iv) exclusion of
Harolds Club lease settlements of $0.06 million and $0.1 million 1999 and
1998, respectively; (v) exclusion of $6.0 million of the $8.0 million
received in connection with the termination of the Cliff Castle Management
Agreement in 1998; (vi) exclusion of pre-petition professional fees and
expenses incurred with the Company's restructuring of $3.2 million and $2.2
million for 2000 and 1999, respectively; and (vii) exclusion of $0.1 million
of post-petition professional fees and expenses, net of interest income
included in reorganization items.
16. GUARANTEE OF THE NOTES
The Company's obligations under the Notes are fully and unconditionally
guaranteed, jointly and severally, by all subsidiaries of the Company (other
than FAMI, FNYI, and NCI). Subject to certain exceptions, the guarantee of
the Notes is secured by a lien on substantially all assets of the Guarantor
Subsidiaries other than certain excluded assets, as defined. Such excluded
assets include, among other things, (i) cash, deposit accounts and other
cash equivalents of $8,170,879 and $22,010,057 at December 31, 2000 and
1999, respectively; (ii) furniture, fixtures and equipment with a net book
value of $1,033,306 and $1,343,984 at December 31, 2000 and 1999,
respectively, securing certain non-recourse indebtedness; and (iii) any
agreements, permits, licenses or the like that cannot be subjected to a lien
without the consent of third parties, which consent is not obtainable by the
Company (including all gaming licenses of the Company and its restricted
subsidiaries as defined), provided that excluded assets does not include the
proceeds of the assets under clauses (ii) or (iii) or any other collateral
to the extent such proceeds do not constitute excluded assets under clause
(i) above. On December 5, 2000, the Company commenced the Bankruptcy Cases
(see Note 2).
F-28
81
Condensed consolidating financial statement information for Fitzgeralds
Gaming Corporation, the Guarantor Subsidiaries, the Non-Guarantor
Subsidiaries and Eliminating Entries (which consist principally of the
elimination of inter-company loan and investment accounts) follows:
Condensed consolidating balance sheet information as of December 31, 2000:
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,168,037 $ 6,002,842 $ 10,509 $ -- $ 8,181,388
Accounts and notes receivable, net 289,432 286,333 -- -- 575,765
Inventories -- 471,913 -- -- 471,913
Prepaid and other current assets 404,944 1,983,575 -- -- 2,388,519
------------- ------------- ------------- ------------- -------------
Total current assets 2,862,413 8,744,663 10,509 -- 11,617,585
PROPERTY AND EQUIPMENT, NET 77,030 2,626 -- -- 79,656
NET ASSETS HELD FOR SALE -- 170,388,338 -- -- 170,388,338
OTHER ASSETS 197,871,465 16,386,529 10,000 (208,305,790)(b) 5,962,204
------------- ------------- ------------- ------------- -------------
TOTAL $ 200,810,908 $ 195,522,156 $ 20,509 $(208,305,790) $ 188,047,783
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt -- 109,937 -- -- 109,937
Accounts payable, accrued and other 2,842,743 2,507,968 13,015 (1,504,076)(c) 3,859,650
------------- ------------- ------------- ------------- -------------
Total current liabilities 2,842,743 2,617,905 13,015 (1,504,076) 3,969,587
------------- ------------- ------------- ------------- -------------
LIABILITIES SUBJECT TO COMPROMISE 258,255,041 259,654,258 88,240 (275,127,710)(a) 242,869,829
LONG TERM DEBT, Net of current portion -- 2,407,023 -- -- 2,407,023
------------- ------------- ------------- ------------- -------------
Total liabilities 261,097,784 264,679,186 101,255 (276,631,786) 249,246,439
CUMULATIVE REDEEMABLE
PREFERRED STOCK 36,406,159 -- -- -- 36,406,159
STOCKHOLDERS' EQUITY (DEFICIENCY) (96,693,035) (69,157,030) (80,746) 68,325,996(d) (97,604,815)
------------- ------------- ------------- ------------- -------------
TOTAL $ 200,810,908 $ 195,522,156 $ 20,509 $(208,305,790) $ 188,047,783
============= ============= ============= ============= =============
- --------
(a) To eliminate inter-company accounts and notes payable.
(b) To eliminate inter-company accounts and notes receivable, investment in
subsidiaries and other capitalized costs.
(c) To eliminate inter-company deferred interest income.
(d) To eliminate investment in subsidiaries, other capitalized costs and
inter-company deferred interest income.
F-29
82
Condensed consolidating balance sheet information as of December 31, 1999:
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,204,431 $ 12,805,626 $ 105,537 $ -- $ 22,115,594
Accounts and notes receivable, net 3,261 1,413,534 -- -- 1,416,795
Inventories -- 1,771,327 -- -- 1,771,327
Prepaid and other current assets 396,037 3,841,670 -- -- 4,237,707
------------- ------------- ------------- ------------- -------------
Total current assets 9,603,729 19,832,157 105,537 -- 29,541,423
PROPERTY AND EQUIPMENT, NET 110,789 151,906,272 -- -- 152,017,061
OTHER ASSETS 196,521,739 26,022,397 -- (197,306,130)(b) 25,238,006
------------- ------------- ------------- ------------- -------------
TOTAL $ 206,236,257 $ 197,760,826 $ 105,537 $(197,306,130) $ 206,796,490
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Debt accelerated due to default $ 203,166,582 $ -- $ -- $ -- $ 203,166,582
Current portion of long-term debt 178,470 495,149 -- -- 673,619
Accounts payable, accrued and other 31,236,099 17,199,789 31,854 (1,576,310)(c) 46,891,432
------------- ------------- ------------- ------------- -------------
Total current liabilities 234,581,151 17,694,938 31,854 (1,576,310) 250,731,633
------------- ------------- ------------- ------------- -------------
LONG TERM DEBT, Net of current portion 16,977,829 247,677,421 22 (264,056,794)(a) 598,478
------------- ------------- ------------- ------------- -------------
Total liabilities 251,558,980 265,372,359 31,876 (265,633,104) 251,330,111
CUMULATIVE REDEEMABLE
PREFERRED STOCK 29,962,511 -- -- -- 29,962,511
STOCKHOLDERS' EQUITY (DEFICIENCY) (75,285,234) (67,611,533) 73,661 68,326,974 (d) (74,496,132)
------------- ------------- ------------- ------------- -------------
TOTAL $ 206,236,257 $ 197,760,826 $ 105,537 $(197,306,130) $ 206,796,490
============= ============= ============= ============= =============
(a) To eliminate inter-company accounts and notes payable.
(b) To eliminate inter-company accounts and notes receivable, investment in
subsidiaries and other capitalized costs.
(c) To eliminate inter-company deferred interest income.
(d) To eliminate investment in subsidiaries, other capitalized costs and
inter-company deferred interest income.
F-30
83
Condensed consolidating statement of operations information for the year ended
December 31, 2000:
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
OPERATING REVENUES:
Casino $ -- $ 181,724,286 $ -- $ -- $ 181,724,286
Food and beverage -- 25,809,006 -- -- 25,809,006
Rooms -- 22,060,254 -- -- 22,060,254
Other 153,571 4,396,112 -- -- 4,549,683
------------- ------------- ------------- ------------- -------------
Total 153,571 233,989,658 -- -- 234,143,229
Less promotional allowances -- 20,745,442 -- -- 20,745,442
------------- ------------- ------------- ------------- -------------
Net revenue 153,571 213,244,216 -- -- 213,397,787
------------- ------------- ------------- ------------- -------------
OPERATING COSTS AND
EXPENSES:
Casino -- 89,127,840 -- -- 89,127,840
Food and beverage -- 15,398,511 -- -- 15,398,511
Rooms -- 12,793,036 -- -- 12,793,036
Other operating expense -- 2,115,389 -- -- 2,115,389
Selling, general and administrative 7,564,174 61,739,708 50,884 (4,000,000)(g) 65,354,766
Depreciation and amortization 58,259 13,919,596 -- -- 13,977,855
Reorganization items 110,569 38,967 -- -- 149,536
------------- ------------- ------------- ------------- -------------
Total 7,733,002 195,133,047 50,884 (4,000,000) 198,916,933
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (7,579,431) 18,111,169 (50,884) 4,000,000 14,480,854
OTHER INCOME (EXPENSE):
Interest income 30,528,357 168,070 2,150 (29,658,631)(h) 1,039,946
Interest expense (31,531,365) (29,897,611) -- 29,586,392 (e) (31,842,584)
Other income (expense) (7,691,360) (1,711) (15,851) 7,644,380 (f) (64,542)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (16,273,799) $ (11,620,083) $ (64,585) $ 11,572,141 $ (16,386,326)
============= ============= ============= ============= =============
- -------------
(e) To eliminate inter-company interest expense.
(f) To eliminate interest in loss of subsidiaries and inter-company management
fee expense.
(g) To eliminate inter-company management fee expense.
(h) To eliminate inter-company interest income, inter-company management
fee income, inter-company deferred interest income,
and other inter-company income.
F-31
84
Condensed consolidating statement of operations information for the year ended
December 31, 1999:
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
OPERATING REVENUES:
Casino $ -- $ 171,739,693 $ -- $ -- $ 171,739,693
Food and beverage -- 24,603,925 -- -- 24,603,925
Rooms -- 21,551,208 -- -- 21,551,208
Other -- 3,627,105 45 -- 3,627,150
------------- ------------- ------------- ------------- -------------
Total -- 221,521,931 45 -- 221,521,976
Less promotional allowances -- 19,123,882 -- -- 19,123,882
------------- ------------- ------------- ------------- -------------
Net revenue -- 202,398,049 45 -- 202,398,094
------------- ------------- ------------- ------------- -------------
OPERATING COSTS AND
EXPENSES:
Casino -- 83,895,369 -- -- 83,895,369
Food and beverage -- 15,505,671 (884) -- 15,504,787
Rooms -- 12,563,589 -- -- 12,563,589
Other operating expense -- 2,046,933 -- -- 2,046,933
Selling, general and administrative 6,259,315 60,368,306 60,235 (4,000,000)(g) 62,687,856
Depreciation and amortization 38,624 14,164,333 -- -- 14,202,957
Write-down of assets and lease
settlement -- 97,759 -- -- 97,759
------------- ------------- ------------- ------------- -------------
Total 6,297,939 188,641,960 59,351 (4,000,000) 190,999,250
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (6,297,939) 13,756,089 (59,306) 4,000,000 11,398,844
OTHER INCOME (EXPENSE):
Interest income 32,278,886 129,862 5,807 (31,878,825)(h) 535,730
Interest expense (29,391,019) (32,119,599) -- 31,806,649 (e) (29,703,969)
Other income (expense) (13,341,248) (3,195,441) 3,022,714 13,329,016 (f) (184,959)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (16,751,320) $ (21,429,089) $ 2,969,215 $ 17,256,840 $ (17,954,354)
============= ============= ============= ============= =============
(e) To eliminate inter-company interest expense.
(f) To eliminate interest in loss of subsidiaries and inter-company management
fee expense.
(g) To eliminate inter-company management fee expense.
(h) To eliminate inter-company interest income, inter-company management fee
income, inter-company deferred interest income, and other inter-company
income.
F-32
85
Condensed consolidating statement of operations information for the year ended
December 31, 1998:
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
OPERATING REVENUES:
Casino $ -- $ 162,506,030 $ -- $ -- $ 162,506,030
Food and beverage -- 24,936,289 -- -- 24,936,289
Rooms -- 21,213,266 -- -- 21,213,266
Other -- 4,639,429 11,106,453 -- 15,745,882
------------- ------------- ------------- ------------- -------------
Total -- 213,295,014 11,106,453 -- 224,401,467
Less promotional allowances -- 17,276,879 -- -- 17,276,879
------------- ------------- ------------- ------------- -------------
Net revenue -- 196,018,135 11,106,453 -- 207,124,588
------------- ------------- ------------- ------------- -------------
OPERATING COSTS AND
EXPENSES:
Casino -- 81,439,540 98,950 -- 81,538,490
Food and beverage -- 18,290,363 5,163 -- 18,295,526
Rooms -- 12,579,464 -- -- 12,579,464
Other operating expense -- 2,162,019 -- -- 2,162,019
Selling, general and administrative 5,470,096 55,150,699 308,729 (4,073,182)(g) 56,856,342
Depreciation and amortization 23,502 13,456,510 190,784 -- 13,670,796
Write-down of assets and lease
settlement (260) 110,738 231,250 -- 341,728
------------- ------------- ------------- ------------- -------------
Total 5,493,338 183,189,333 834,876 (4,073,182) 185,444,365
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (5,493,338) 12,828,802 10,271,577 4,073,182 21,680,223
OTHER INCOME (EXPENSE):
Interest income 32,352,261 194,057 80,266 (32,099,206)(h) 527,378
Interest expense (26,250,515) (32,675,237) (274,438) 32,027,036 (e) (27,173,154)
Other income (expense) (7,772,650) 16,415,898 (866,903) (11,477,619)(f) (3,701,274)
------------- ------------- ------------- ------------- -------------
Income (loss) (7,164,242) (3,236,480) 9,210,502 (7,476,607) (8,666,827)
Income tax (provision) benefit (185,715) -- 185,715 -- --
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (7,349,957) $ (3,236,480) $ 9,396,217 $ (7,476,607) $ (8,666,827)
============= ============= ============= ============= =============
- -----------
(e) To eliminate inter-company interest expense.
(f) To eliminate interest in loss of subsidiaries and inter-company management
fee expense.
(g) To eliminate inter-company management fee expense.
(h) To eliminate inter-company interest income, inter-company management fee
income, deferred interest income, and other inter-company income.
F-33
86
Condensed consolidating statement of cash flows information for the year ended
December 31, 2000:
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATING
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (4,034,421) $ 14,603,192 $ (5,206) $ -- $ 10,563,565
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets -- 41,971 -- -- 41,971
Acquisition of property and equipment (24,500) (10,865,165) -- -- (10,889,665)
decrease in restricted cash (2,799,000) -- -- -- (2,799,000)
Dividends received -- 89,827 -- (89,827)(a) --
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (2,823,500) (10,733,367) -- -- (13,646,694)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term debt (178,470) (560,735) -- -- (739,205)
Payment of dividend -- -- 89,827 (89,827)(a) --
------------- ------------- ------------- ------------- -------------
Net cash used in financing activities (178,470) (560,735) -- -- (739,205)
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (7,036,391) 3,309,090 (95,033) -- (3,822,334)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 9,204,428 12,805,624 105,542 -- 22,115,594
CASH AND CASH EQUIVALENTS INCLUDED
IN NET ASSETS HELD FOR SALE -- (10,111,872) -- -- (10,111,872)
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 2,168,037 $ 6,002,842 $ 10,509 $ -- $ 8,181,388
============= ============= ============= ============= =============
F-34
87
Condensed consolidating statement of cash flows information for the year ended
December 31, 1999:
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATING
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 11,220,021 $ 11,943,668 $ (2,379,626) $ 304,635 (b) $ 21,088,698
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets -- 1,847,530 2,375,614 -- 4,223,144
Acquisition of property and equipment (14,301) (5,624,993) -- -- (5,639,294)
decrease in restricted cash (544,978) -- -- -- (544,978)
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (559,279) (3,777,463) 2,375,614 -- (1,961,128)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of debt offering costs (305,424) -- -- -- (305,424)
Proceeds from issuance of stock 319,587 -- -- (304,635)(b) 14,952
Repayment of long-term debt (302,991) (6,320,772) -- -- (6,623,763)
Repayment of line of credit (3,000,000) -- -- -- (3,000,000)
Dividends to minority stockholders -- -- (136,330) -- (136,330)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities (3,288,828) (6,320,772) (136,330) (304,635) (10,050,565)
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,371,914 1,845,433 (140,342) -- 9,077,005
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 1,832,514 10,960,191 245,884 -- 13,038,589
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 9,204,428 $ 12,805,624 $ 105,542 $ -- $ 22,115,594
============= ============= ============= ============= =============
- ------------
(b) To eliminate inter-company advances.
F-35
88
Condensed consolidating statement of cash flows information for the year ended
December 31, 1998:
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATING
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------- ------------- ------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (3,363,058) $ 2,186,708 $ 13,365,299 $ -- $ 12,188,949
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets -- 81,910 403,298 -- 485,208
Acquisition of property and equipment (7,920) (5,143,939) -- -- (5,151,859)
Acquisition of assets to be held for sale -- (374,865) -- -- (374,865)
Decrease in restricted cash 355,572 38,415 -- -- 393,987
Dividends received 1,000,000 10,443,616 -- (11,443,616)(a) --
Other -- (803,488) -- -- (803,488)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities 1,347,652 4,241,649 403,298 (11,443,616) (5,451,017)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from line of credit 3,000,000 -- -- -- 3,000,000
Payment of debt offering costs (1,537,826) -- -- -- (1,537,826)
Repayment of long-term debt -- (5,419,788) (2,708,356) -- (8,128,144)
Payment of dividend -- (1,000,000) (12,286,606) 11,443,616 (a) (1,842,990)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 1,462,174 (6,419,788) (14,994,962) 11,443,616 (8,508,960)
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (553,232) 8,569 (1,226,365) -- (1,771,028)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 2,385,746 10,951,622 1,472,249 -- 14,809,617
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 1,832,514 $ 10,960,191 $ 245,884 $ -- $ 13,038,589
============= ============= ============= ============= =============
- ---------
(a) To eliminate inter-company dividends.
F-36
89
17. CONDENSED QUARTERLY RESULTS (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
2000
Net operating revenue $ 53,777,065 $ 54,711,766 $ 54,498,576 $ 50,410,380
Income from operations 4,175,486 4,643,562 4,659,817 1,001,989
Net loss (4,025,552) (3,454,491) (3,690,137) (5,216,146)
Net loss per share:
Basic $ (1.01) $ (0.91) $ (0.97) $ (0.95)
Diluted $ (1.01) $ (0.91) $ (0.97) $ (0.95)
1999
Net operating revenue $ 51,974,427 $ 52,317,801 $ 52,143,588 $ 45,962,278
Income from operations 4,289,515 3,868,730 3,210,235 30,364
Net loss (2,810,619) (3,204,626) (4,030,788) (7,908,321)
Net loss per share:
Basic $ (1.03) $ (1.14) $ (1.36) $ (1.80)
Diluted $ (1.03) $ (1.14) $ (1.36) $ (1.80)
1998
Net operating revenue $ 47,418,356 $ 57,727,272 $ 50,889,875 $ 51,089,085
Income from operations 4,459,587 11,421,946 4,109,539 1,689,151
Net income (loss) (2,580,158) 3,320,144 (3,126,523) (6,280,290)
Net income (loss) per share:
Basic $ (0.93) $ 0.54 $ (1.08) $ (1.57)
Diluted $ (0.93) $ 0.36 $ (1.08) $ (1.57)
F-37
90
FITZGERALDS GAMING CORPORATION SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
ADDITIONS
CHARGED TO
BEGINNING COSTS AND ENDING
FYE BALANCE EXPENSES DEDUCTIONS(1) BALANCE
- -------------------------------------- ------------------- ----------------- ----------
12/31/98 $ 411,881 $ 388,573 $ (454,914) $ 345,540
12/31/99 345,540 493,568 (434,105) 405,003
12/31/00 405,003 147,640 (277,970) 274,673
ALLOWANCE TO WRITE ASSETS HELD FOR SALE TO ESTIMATED REALIZABLE VALUE
ADDITIONS
CHARGED TO
BEGINNING COSTS AND ENDING
FYE BALANCE EXPENSES DISPOSAL BALANCE
- -------------------------------------- ------------------- ------------------ -----------
12/31/98 $ 2,157,000 $ 231,250 $ -- $ 2,388,250
12/31/99 2,388,250 97,759 (2,486,009)(2) --
12/31/00 -- -- -- --
- -------------
(1) Write-offs of uncollectible accounts receivable, net of recoveries.
(2) Represents assets disposed of during the year.
F-38
91
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------- ------------------------------------------------------------------- ------------
2(a) (i) Recapitalization Agreement, dated March 14, 1994, among
Fitzgeralds South, Inc. (formerly Fitzgeralds Gaming Corporation),
Fitzgeralds Las Vegas, Inc. and certain stockholders thereof; (ii)
Plan of Reorganization and Stockholders Agreement, dated December
5, 1994, among Fitzgeralds Gaming Corporation and stockholders of
Fitzgeralds Reno, Inc., Fitzgeralds South, Inc., Fitzgeralds Inc.,
Nevada Club, Inc.; and (iii) Supplement to Plan of Reorganization
and Stockholders Agreement, dated December 30, 1994, between
Fitzgeralds Gaming Corporation and the stockholders of Fitzgeralds
Reno, Inc. and Nevada Club, Inc.(1)
3(a) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Gaming Corporation, as amended.(1)(8)
3(b) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds South, Inc.(1)
3(c) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Reno, Inc., as amended.(1)
3(d) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Incorporated.(1)
3(e) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Nevada Club, Inc.(1)
3(f) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Las Vegas, Inc.(1)
3(g) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Fremont Experience Corporation.(1)
3(h) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Mississippi, Inc.(1)
3(i) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Black Hawk, Inc.(1)
3(j) (i) Articles of Incorporation, as amended, and (ii) By-Laws of
Fitzgeralds Black Hawk II, Inc.(3)
3(k) (i) Certificate of Organization, as amended and (ii) Second Amended
and Restated Operating Agreement of 101 Main Street Limited
Liability Company.(3)
4(a) Form of Indenture dated as of December 30, 1997, by and among
Fitzgeralds Gaming Corporation, Fitzgeralds South, Inc.,
Fitzgeralds Reno, Inc., Fitzgeralds Incorporated, Fitzgeralds Las
Vegas, Inc., Fitzgeralds Fremont Experience Corporation,
Fitzgeralds Mississippi, Inc., Fitzgeralds Black Hawk, Inc.,
Fitzgeralds Black Hawk II, Inc. and 101 Main Street Limited
Liability Company, and The Bank of New York, as trustee.(2)
E-1
92
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------- ------------------------------------------------------------------- ------------
4(b) Form of Registration Rights Agreement dated as of December 30,
1997, by and among Fitzgeralds Gaming Corporation, Fitzgeralds
South, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Incorporated,
Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont Experience
Corporation, Fitzgeralds Mississippi, Inc., Fitzgeralds Black Hawk,
Inc., Fitzgeralds Black Hawk II, Inc. and 101 Main Street Limited
Liability Company, and Jefferies & Company, Inc. and Merrill Lynch,
Merrill, Lynch, Pierce, Fenner and Smith Incorporated, as initial
purchasers.(2)
4(c) Form of Security and Pledge Agreement dated as of December 30,
1997, by and among Fitzgeralds Gaming Corporation, Fitzgeralds
South, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Incorporated,
Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont Experience
Corporation, Fitzgeralds Mississippi, Inc., Fitzgeralds Black Hawk,
Inc., Fitzgeralds Black Hawk II, Inc., and 101 Main Street Limited
Liability Company, as grantors, and The Bank of New York, as
collateral agent.(2)
4(d) Forms of Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents, dated as of December 30, 1997, by each of
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc., and
Fitzgeralds Reno, Inc., as trustor, the trustee named therein, as
trustee, and The Bank of New York, as beneficiary.(2)
4(e) Form of First Preferred Vessel Mortgage on the Whole of the
Fitzgeralds Tunica dated as of December 30, 1997, by and between
Fitzgeralds Mississippi, Inc., as owner and mortgagor and The Bank
of New York, as trustee.(2)
4(f) Form of Assignment of Rents, Leases and Property dated as of
December 30, 1997, by each of Fitzgeralds Mississippi, Inc. and 101
Main Street Limited Liability Company, each as an assignor, and The
Bank of New York, as assignee.(2)
4(g) Form of Certificate of Designation of Preferences and Rights for
the Preferred Stock.(1)
4(h) Form of Warrant Agreement between the Company and The Bank of New
York, as successor in interest to First Interstate Bank of Nevada,
N.A., as warrant agent.(1)
4(i) Form of First Amendment to Warrant Agreement by and between
Fitzgeralds Gaming Corporation and The Bank of New York, as warrant
agent.(2)
10(a) (i) Agreement for Wastewater Service and (ii) Agreement for Water
Service, each dated March 15, 1994, and (iii) Amendment to
Agreements for Water and Wastewater Services, dated June 27, 1994,
each between Fitzgeralds Mississippi, Inc. and River Bend
Environmental Energy, Inc.(1)
10(b) (i) Lease, dated December 31, 1974, between Santino Oppio, as
Lessor, and Center Street Properties Corp., as Lessee, and (ii)
Sublease and Agreement, dated December 31, 1986, by Meta K.
Fitzgerald, as Sublessor, and Lincoln Investments, Inc. (now known
as Fitzgeralds Reno, Inc.), as Sublessee.(1)
E-2
93
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------- ------------------------------------------------------------------- ------------
10(c) (i) Lease Agreement and Interim Agreement Regarding Lease Agreement
and (ii) Lease Agreement, dated September 5, 1995, both 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.(1)
10(d) Lease Agreement, dated September 1, 1978, between Jewel F. Nolan
and Julie L. Nolan, David Kramer and Betty Bennett and Richard J.
Tinkler, as Lessor, and M.B. Dalitz, as Lessee. Amendment, dated
December 20, 1982, between Julie L. Nolan, David Kramer, Betty
Bennett and Richard J. Tinkler, as Lessor, and M.B. Dalitz, as
Lessee. Lease Amendment, Estoppel Certificate and Consent to
Assignment, dated October 18, 1987, to the named recipients and
between Julie L. Nolan, David Kramer, Betty Bennett and Richard J.
Tinkler, as Lessor, and M.B. Dalitz, as Lessee.(1)
10(e) Lease Agreement, dated July 21, 1954, between Las Vegas Lodge No.
32, Free & Accepted Masons, as Lessor, and H. John Gluskin, as
Lessee. 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. Assignments, dated July 27, 1954, February
2, 1955, August 7, 1972 and September 1, 1973. Supplemental
Agreement of October 14, 1994, between Las Vegas Lodge No. 32, Free
& Accepted Masons and H. John Gluskin. 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. Amendment to Masonic Lodge Ground
Lease, dated December 20, 1982. 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.(1)
10(f) Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee, under
wills of A.W. Ham and Alta M. Ham, as Lessor, and Nevada Building
Company, as Lessee, Amendments to Lease, dated December 20, 1982
and December 30, 1982, between A.W. Ham, Jr., Trustee, as Lessor,
and M.B. Dalitz, as Lessee. 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.(1)
10(g) Amended and Restated Operating Agreement of The Fremont Street
Experience Limited Liability Company, a Nevada Limited Liability
Company, dated June 6, 1995.(1)
10(h) Fitzgeralds Gaming Corporation Stock Option Incentive Plan, amended
and restated as of May 1, 1998.(4)
10(i) Employment Agreements between Fitzgeralds Gaming Corporation and
(i) Philip D. Griffith dated June 28, 1999; (ii) Michael E.
McPherson dated July 5, 1999; and (iii) each of Paul H. Manske and
Max L. Page dated September 1, 1999.(7)(8)
10(j) Fitzgeralds Gaming Corporation Executive Bonus Plan, amended and
restated as of January 1, 1999.(6)
E-3
94
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------- ------------------------------------------------------------------- ------------
10(k) License Agreement, dated September 11, 1995, between Holiday Inns
Franchising, Inc. and Fitzgeralds Las Vegas, Inc.(1)
10(l) Indemnification Agreements, each dated July 14, 1995, between
Fitzgeralds Gaming Corporation and each of Philip D. Griffith,
Jerome H. Turk, Terrance W. Oliver, Fernando Bensuaski, Michael E.
McPherson and Gerald C. Heetland.(1)
10(m) Shareholders' Agreement, dated December 19, 1995, among the
Shareholders listed therein, Fitzgeralds Gaming Corporation and
First Interstate Bank of Nevada, N.A.(6)
10(n) Self Insurer's Surety Bond, dated as of October 19, 2000, executed
by Western Bonding Company for $2.5 million, for Fitzgeralds Gaming
Corporation to act as a self-insured employer in the State of
Nevada.(11)
10(o) Form of Management Agreement, dated March 17, 1999, between
Fitzgeralds Gaming Corporation and each of Fitzgeralds Las Vegas,
Inc., Fitzgeralds Mississippi, Inc., Fitzgeralds Reno, Inc. and 101
Main Street Limited Liability Company.(6)
10(p) Agreement, dated February 25, 1999, between Fitzgeralds Las Vegas,
Inc. and Culinary Workers Union Local No. 226 and Bartenders Union
Local No. 165.(6)
10(q) Labor Agreement, dated February March 1, 1999, between Fitzgeralds
Las Vegas, Inc. and the United Brotherhood of Carpenters and
Joiners of America, Southern California-Nevada Regional Council of
Carpenters and its Affiliated Local Union No. 1780, for the period
August 1, 1998 through July 31, 2001.(6)
10(r) Non-Disburbance and Attornment Agreement dated as of December 10,
1999, by and between e.three Custom Energy Solutions, LLC,
Fitzgeralds Las Vegas, Inc. and Foothill Capital Corporation.(9)
10(s) (i) Lease Agreement and (ii) Chilled Water Service Agreement, each
dated as of December 10, 1999, between e.three Custom Energy
Solutions, LLC and Fitzgeralds Las Vegas, Inc.(9)
10(t) Construction Agreement dated as of February 8, 2000, by and between
the Las Vegas Valley Water District, Fitzgeralds Las Vegas, Inc.
and e.three Custom Energy Solutions, LLC.(9)
10(u) Agreement Regarding Pre-Negotiated Restructuring dated December 1,
2000.(10)
10(v) Purchase and Sale Agreement, as amended dated as of November 22,
2000 by and among Majestic Investor, LLC, a Delaware limited
liability company; Fitzgeralds Las Vegas, Inc., a Nevada
Corporation; 101 Main Street Limited Liability, a Colorado limited
liability company doing business as "Fitzgeralds Casino Black
Hawk"; Fitzgeralds Mississippi, Inc., a Mississippi corporation;
Fitzgeralds Gaming Corporation, a Nevada corporation; and certain
affiliates of the foregoing parties with respect to the assets of
Fitzgeralds Las Vegas, Fitzgeralds Black Hawk and Fitzgeralds
Tunica.(10)
21 List of subsidiaries of the Company.(3)
- --------
E-4
95
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, File No. 33-94624, which became effective on December 13,
1995.
(2) Incorporated by reference to the Company's Report on Form 8-K, SEC File
No. 0-26518, filed January 12, 1998.
(3) Incorporated by reference to the Company's Report on Form 10-K, SEC File
No. 0-26518, filed March 31, 1998.
(4) Incorporated by reference to the Company's Report on Form 10-Q, SEC.
File No. 0-26518, filed June 28, 1998.
(5) Incorporated by reference to the Company's Report on Form 8-K, SEC. File
No. 0-26518, filed December 4, 1998.
(6) Incorporated by reference to the Company's Report on Form 10-K, SEC File
No. 0-26518, filed March 30, 1999.
(7) Incorporated by reference to the Company's Report on Form 10-Q, SEC File
No. 0-26518, filed August 17, 1999.
(8) Incorporated by reference to the Company's Report on Form 10-Q, SEC File
No. 0-26518, filed November 10, 1999.
(9) Incorporated by reference to the Company's Report on Form 10-K, SEC File
No. 0-26518, filed March 21, 2000.
(10) Incorporated by reference to the Company's Report on Form 8-K, SEC File
No. 0-26518, filed December 7, 2000.
(11) Filed herewith.
E-5