Item 1.
Business
General
Fitzgeralds Gaming Corporation (the “Company”) is a gaming holding company that until December 6, 2001 owned and operated 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”). On December 6, 2001, the Company sold substantially all of the assets and related liabilities of its Fitzgeralds Las Vegas, Fitzgeralds Mississippi and Fitzgeralds Black Hawk properties to Majestic Investor Holdings, LLC (“Majestic”). As of December 31, 2002, Fitzgeralds Reno, had a total of 885 slot machines, 25 table games and approximately 350 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 the residual assets and liabilities of Fitzgeralds Las Vegas (“FLVI”) and Fitzgeralds Tunica (“FMI”) through wholly owned subsidiaries; and FI owns the residual assets and liabilities of 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 3097 E. Warm Springs Rd. Suite 100, Las Vegas, Nevada 89120; telephone (702) 940-2000; facsimile (702) 940-2207.
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. The Company has been informed by Contrarian Capital Advisors L.L.C. (“Contrarian”), one of the Consenting Noteholders, that as of the date hereof substantially all of the Notes held by the Consenting Noteholders are now held by Contrarian and its affiliates.
Restructuring Agreement
The Restructuring Agreement provided 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.
Pursuant to the Restructuring Agreement and an order entered by the Bankruptcy Court, the Company was required to distribute unrestricted cash (which includes cash in net assets held for sale) in excess of $24.8 million to holders of its Notes within 45 days after the end of each quarter. In May, August and November 2001, the Company distributed $1.8 million, $7.7 million and $7.2 million, respectively, in Excess Cash to the Indenture Trustee to be applied to accrued and unpaid interest and principal as provided in the Indenture. On December 6, 2001, the Company sold substantially all of the assets and related liabilities of its Fitzgeralds Las Vegas, Fitzgeralds Mississippi and Fitzgeralds Black Hawk properties to Majestic. At that time, approximately $133.3 million was distributed to the Indenture Trustee from the proceeds of the sale. The Company and the Informal Committee subsequently established a new threshold for cash reserves of $16.5 million, which was approved by the Bankruptcy Court on November 27, 2002 and effective November 1, 2002. Pursuant to that order, the Company distributed $6.2 million to the Indenture Trustee to be applied to accrued and unpaid interest and principal. As part of the Restructuring Agreement, the Consenting Noteholders and Indenture Trustee agreed to forbear from exercising certain of their rights otherwise allowable under the Notes and the Indenture.
As of the commencement of the Bankruptcy Cases, the parties to the Restructuring Agreement each concluded that the fair market value of the Company’s real and personal property given as collateral for the Notes was 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 was less than the amount of the unsecured deficiency claim of the holders of the Notes. As a result, it was not expected then and is still 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.
In accordance with the Restructuring Agreement, an auction sale was to be scheduled for no later than June 15, 2001 in the Bankruptcy Court with respect to those operating assets and properties not sold pursuant to negotiated sales agreements such as the purchase agreement with Majestic. With the consent of the Consenting Noteholders, the auction sale was not conducted and the Company and the Consenting Noteholders executed an amendment to the Restructuring Agreement, which was approved by the Bankruptcy Court on November 27, 2002 and effective November 1, 2002 (the “Amended and Restated Restructuring Agreement”). The Amended and Restated Restructuring Agreement provided for the Company to attempt to conduct the auction sale of the one remaining operating property, Fitzgeralds Reno as soon as possible.
Under the terms of the Amended and Restated 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, were required to 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, were to have been transferred to a liquidating trust created for the benefit of the holders of the Notes and others under a plan of reorganization to be consistent with the terms of the Amended and Restated Restructuring Agreement.
On December 2, 2002, the Bankruptcy Court issued an Order approving the adequacy of the disclosures in the Company’s Disclosure Statement and setting deadlines for balloting and opposing confirmation of the Company’s Plan of Reorganization (the “Initial Plan”). The confirmation hearing on the Initial Plan was set for March 6, 2003 but was continued to April 21, 2003. A significant number of Consenting Noteholders, including several Consenting Noteholders managed by Contrarian, voted to reject the Initial Plan. The Company believes that these votes were in violation of the obligations of the Consenting Noteholders to vote in favor of the Initial Plan and declared the Consenting Noteholders in breach of the Amended and Restated Restructuring Agreement and filed with the Bankruptcy Court a motion seeking to disallow the votes. The motion to disallow the votes was set for hearing before the Bankruptcy Court on March 6, 2003.
Prior to the hearing on March 6, 2003, the Company and Contrarian agreed to Amendment No. 1 to the Amended and Restated Restructuring Agreement (the “Current Restructuring Agreement”) to provide, among other matters, (i) that Fitzgeralds Reno would not be sold, but would be retained by the Company and (ii) for an amendment to the Initial Plan (in the form of a Second Amended Plan of Reorganization (the “New Plan”)) to permit the conversion of the indebtedness due the holders of the Notes into equity of the successor to the Company. The Current Restructuring Agreement, the New Plan and the Supplemental Disclosure Statement to accompany Debtor’s Amended Plan of Reorganization (the “Disclosure Statement”) were filed with the Bankruptcy Court on March 20, 2003.
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 required 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, (the “Senior Management”) 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 6, 2001, and our subsequent filing with the Securities and Exchange Commission. For further information concerning the Plan of Reorganization, please refer to our Current Report on Form 8-K dated February 27, 2003. Until such time as a Plan of Reorganization is confirmed by the Bankruptcy Court, the Current Restructuring Agreement, Disclosure Statement and New Plan are subject to change.
Operating Strategy
Although the Company continues to operate the remainder of 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 all of the transactions contemplated by the Current Restructuring Agreement, the Company’s operating strategy is to increase profitability by utilizing its gaming brand and fully integrated player tracking system (the “Fitzgeralds Card”) to further penetrate the middle-market customer base. The Company’s operating strategy is characterized by several principal elements including:
Development of Gaming Brand
The Company has developed a gaming brand by using a consistent Irish Luck theme throughout the casino, hotel, restaurants and bars at its Reno property. The Company continues to use the Fitzgeralds brand pursuant to a license agreement since the sale of the Company’s other gaming properties to Majestic in December 2001. 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 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.
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.
Properties
Until December 6, 2001, the Company owned and operated 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 “Properties”). Currently, the Company’s only remaining gaming property is Fitzgeralds Reno, which the Company was actively attempting to sell pursuant to the terms of the Restructuring Agreement. Pursuant to the terms of the Current Restructuring Agreement, efforts to sell Fitzgeralds Reno will cease. Information on Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk is provided here only for historical purposes.
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. Substantially all of the assets and related liabilities of Fitzgeralds Las Vegas were sold to Majestic on December 6, 2001.
The Company had 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. Majestic elected not to enter into a new franchise agreement to replace the existing franchise agreement. On October 26, 2001, the Bankruptcy Court granted the Company’s motion to remove its pre-petition franchise and other agreements with Inns from the list of agreements to be assumed and assigned to Majestic and subsequently granted the Company’s motion to reject the franchise agreement. The Inns then filed an unsecured claim in Bankruptcy Court claiming liquidated damages under the franchise agreement of $1.8 million. The Company is contesting the allowance of the claim, but cannot predict the Bankruptcy Court’s ultimate resolution of the claim.
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, 50-acre 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. 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. Substantially all of the assets and related liabilities of Fitzgeralds Tunica were sold to Majestic on December 6, 2001.
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. Substantially all of the assets and related liabilities of Fitzgeralds Black Hawk were sold to Majestic on December 6, 2001.
Fitzgeralds Reno
Fitzgeralds Reno, built in 1978, is located in downtown Reno on the corner of Virginia Street and Commercial Row next to the landmark Reno Arch. The Company acquired the facility in December 1986. At December 31, 2002, the facility consisted of a 16-story, 350-room hotel and a casino offering 885 slot machines, 25 table games, a 73-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. During the period from 1998 - 2001, the Company renovated portions of Fitzgeralds Reno at a cost of approximately $1.8 million. 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, 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. The original term of the ground lease expires on February 28, 2013, and has been extended for one additional period of ten years.
The Fitzgeralds Reno 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, 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 “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 by the Company. The Rainbow Skyway was opened to the public in February 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.
During the year ended December 31, 2002, average occupancy and average room rates were 83.8% and $47.20, respectively. With regard to the impact of the Reno Transportation Rail Access Corridor (ReTRAC) Project, see Item 3 - Legal Proceedings.
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.
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 other jurisdiction, 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, and particularly the expansion of Indian Gaming in California, 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 gaming operations; however there can be no assurance that the Company will not incur a material adverse consequences in the future.
Reno Operations
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 (particularly Indian gaming establishments in California). 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, is likely to continue to have an adverse effect on operations.
Pursuant to an amendment to the California Constitution, approved by voters in March 2000 and California tribal-state gaming compacts, casino gaming is now permitted in California. The maximum
number of slots permitted for any one tribe is 2,000, with the maximum number of slots currently estimated to be 61,700 for the 53 tribes. The maximum number of allowed slots continue to be an issue and increases in the maximum number of slots allowed is being actively discussed between the tribes and the State of California. Three years after any Compact is approved, the tribe may renegotiate to request an increase in the number of its slot machines. California tribes 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.
The Company’s ability to maintain its competitive position in 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.
Employees
As of December 31, 2002, the Company employed approximately 668 people. Approximately 660 people were employed at the Fitzgeralds Reno property with the balance employed at the Company’s corporate offices.
Trade Names, Trademarks and Service Marks
The Company believes that its distinctive trade names, trademarks and service marks are important. In connection with the December 2001 sale of the Company’s Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to Majestic, the Company negotiated a 99-year, royalty free license, to continue utilizing the trade names, trademarks and service marks in specified geographic areas generally comprising Northern Nevada, California, Oregon and Washington. If the rights are not adopted and continuously used anywhere in Oregon and Washington by December 6, 2011, their use in such locations thereafter during the term of the license would bear a market rate royalty to be determined. The license is subject to other customary terms and conditions and is not transferable without the consent of the licensor except in the event of the sale of Fitzgeralds Reno.
Governmental Regulation
Nevada Gaming Regulation
The ownership and operation of the Company’s Fitzgeralds Reno casino gaming facility 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 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.
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 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.
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.
The Nevada Act provides that each person who acquires, directly or indirectly, beneficial ownership of any debt security in a Registered Corporation may be required to be found suitable if the Nevada
Commission has reason to believe that the acquisition of such debt security would otherwise be inconsistent with the declared policy of the State of Nevada.
The Nevada Commission may, in its discretion, require the holder of any debt 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 determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, he shall not hold, directly or indirectly, the debt security of the publicly registered company, beyond the time prescribed by the Nevada Commission. 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 rights 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.
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 Reno had the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming licensee.
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 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 Company has established, and will be required to maintain, a Gaming Compliance Program for the purpose of, at a minimum, performing due diligence, determining the suitability of relationships with other entities and individuals and to review and ensure compliance by the Company, its subsidiaries and any affiliated entities, with the Act and Regulations and the laws and regulations of any other jurisdiction in which the Company or its subsidiaries or affiliates operate. The Gaming Compliance Program, any amendments thereto, and the members, one such members which shall be independent, shall be administratively reviewed and approved by the Chairman of the Nevada Board. The Company shall amend the compliance program or any element thereof, and perform such duties as may be assigned by the Chairman of the Nevada Board or his designee, related to review of activities relevant to the continuing qualification of the Company.
The sale of alcoholic beverages at Fitzgeralds Reno is subject to licensing, control and regulation by the City of Reno. 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.
Item 2.
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.
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”). 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 more than three 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 Fitzgeralds Reno hotel entrance, valet parking area and hotel loading zone are situated.
Based on plans prepared by the City, Fitzgeralds Reno would expect to lose permanently approximately 3,802 square feet of land and temporarily 22,979 square feet of land through eminent domain, several parking spaces, the current valet parking area, an outdoor billboard structure advertising available rooms and a building used to house administrative offices, and may be required to relocate the hotel entrance currently on Commercial Row. The City has also indicated that the ReTRAC Project might require the demolition of the Fitzgeralds Reno Rainbow Skyway if underpinning during construction of the ReTRAC Project cannot preserve the structure. 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.
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. 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 June 20, 2001, the Reno City Council commenced a public hearing in compliance with the remand order of the Court. That public hearing was recessed and continued to November 29, 2001. After resuming the hearing on November 29, 2001, the Reno City Council again recessed and continued the proceedings to January 4, 2002, at which time the hearing was completed and the matter was submitted for decision of the Reno City Council. On February 19, 2002, the Reno City Council voted on the matter. By a 4-3 decision, the Reno City Council concluded that the ReTRAC Project would confer a special benefit on Fitzgeralds Reno. On a 5-2 decision, however, the Reno City Council determined that the value of the special benefit in light of the evidence presented was $1.00.
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 the City has estimated to be recently $282 million. On May 24, 2001, Fitzgeralds Reno commenced an action, CV-N-01-0329-PMP-RAM, in the United States District Court for the District of Nevada, against the Federal Highway Administration (“FHWA”), the Nevada Department of Transportation (“NDOT”), and the City (collectively, the “Defendants”) for violations of the National Environmental Policy Act (“NEPA”), codified at 42 U.S.C. §§ 4321-4327. The claims against all Defendants allege a violation of 42 U.S.C. § 4332 (Violation of NEPA: Failure to Consider Reasonable Alternatives & Failure to Consider and Provide Adequate Mitigation Measures). Specifically, Fitzgeralds Reno asserts the Defendants failed to consider the Partial Cover and Cut Tunnel Alternative and the use of the Feather River Route on a temporary basis, and failed to include a plan for mitigating the adverse environmental impacts, including construction disruption, loss of operating facilities, noise and vibration impacts, that will be caused by the ReTRAC Project and incurred by Fitzgeralds Reno and others.
On or about June 12, 2001, NDOT filed a motion to dismiss the Company’s NEPA complaint based on a claim of sovereign immunity and the Company moved to amend its complaint to substitute as a defendant the Director of NDOT, Thomas E. Stephens, for the Defendant NDOT, in lieu of considering NDOT’s Eleventh Amendment immunity claim. This unopposed motion was granted by the Court on August 17, 2001, and the Company filed its amended complaint on August 23, 2001. Defendant FHWA filed its answer to the Complaint on September 6, 2001 and Defendant Stephens filed his answer on October 3, 2001. The City filed a motion to dismiss the amended complaint so far as it named the City as defendant on September 6, 2001. On February 15, 2002, the United States District Court held a hearing to consider the City’s motion to dismiss. At the hearing, the Defendant FHWA and the Defendant NDOT joined the City’s motion to dismiss. The City’s motion to dismiss was fully argued and submitted to the Court for a ruling. On March 11, 2002, the Court issued an order dismissing all of the Company’s claims against the
City. The Court ruled the ReTRAC Project must comply with NEPA but the specific federal aid statute under which the City is receiving funding for the ReTRAC Project does not explicitly require the local government body to consent to suit under NEPA. Accordingly, the Court found the City was not a proper party in the case. The Court, however, denied the motions to dismiss by FHWA and NDOT stating the Company is entitled to proceed on the claims against those agencies for a violation of NEPA. The remaining parties - Fitzgeralds Reno, FHWA and NDOT - filed cross motions for summary judgment on December 23, 2002. These parties’ oppositions to the respective cross motions for summary judgment were filed on February 18, 2003. The cross motions for summary judgment was orally argued on February 26, 2003. On March 6, 2003, Judge Pro entered an order and judgment dismissing Fitzgeralds Reno’s claim against the FHWA and NDOT on the grounds the claims raised did not satisfy the applicable “arbitrary and capricious” standard under NEPA and only alleged “generalized and speculative environmental harms.” The Company is evaluating its legal options concerning the Court’s decision and judgment.
The City completed its construction cost analysis in July 2002. Construction contracts for the ReTRAC Project were awarded by the City Council on July 16, 2002. Preliminary construction activities have commenced and on February 25, 2003, the City Council adopted a resolution of intent to commence in the future eminent domain proceedings against the Company to acquire from Fitzgeralds Reno fee title to approximately 3,802 square feet of land and a 4,524 square foot administrative office building owned and used by the Company, as well as temporary easements for approximately 22,979 square feet of land to facilitate construction of the ReTRAC Project. The Company also is discussing with the City certain federal government benefits for the relocation and displacement of businesses in connection with the ReTRAC Project.
Other Litigation
The Company is a party to various lawsuits relating to routine matters incidental to its business. Except as noted below, 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.
Reliance - From April 1, 1998 through September 30, 1999, the Company’s general liability insurance and worker’s compensation insurance carrier was Reliance Insurance Company (“Reliance”). On May 29, 2001, a Pennsylvania court placed Reliance under the control of the Pennsylvania Insurance Department for rehabilitation. Thereafter, on October 3, 2001, the Reliance Insurance Company was declared insolvent and placed under an order of liquidation by the Pennsylvania Commonwealth Court at the request of the Pennsylvania Insurance Department. The Pennsylvania Insurance Department is now referring claims incurred in Mississippi, Nevada and Colorado from April 1, 1998 through September 30, 1999 to the Mississippi Insurance Guaranty Association, the Nevada Insurance Guaranty Association and the Colorado Insurance Guaranty Association, respectively. Each state’s Guaranty Insurance Association will investigate the claims incurred in their jurisdictions to determine if any of these claims are eligible for any insurance coverage under the respective Insurance Guaranty Association. The Company has not incurred any material amounts for liability claims or workers compensation claims that would be subject to reimbursement by Reliance. However, the statute of limitation has not expired for filing claims and it is unclear at this time what the insurance coverage would be from Reliance, if any, in the event that a future claim is filed that would be large enough to result in an insurance reimbursement from Reliance or any state Insurance Guaranty Association, or if there is insurance coverage for an existing claim that is currently under the threshold level for reimbursement, but increases in the future to an amount eligible for reimbursement. The reimbursement threshold per claim is $25,000 and $100,000 for liability claims and worker compensation claims, respectively. At the present time, the Company is unable to determine what effect this action may have on liability and worker’s compensation claims which arose during the
coverage period for which Reliance was the Company’s insurance carrier or whether any limitations on coverage would have a material adverse effect on the Company’s financial condition.
Item 4.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
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 February 21, 2003, 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. 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 Current Restructuring Agreement requires, and the New Plan provides, 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, no distribution will be made to holders of the existing capital stock of the Company.
Item 6.
Item 6.
Selected Financial Data
Fitzgeralds Gaming Corporation
Item 7.
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 has been owned and operated by the Company or its affiliate since 1985, and, Fitzgeralds Las Vegas and Fitzgeralds Tunica were owned and operated by the Company or its affiliates since 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. In December 2001, the Company sold substantially all of the assets of Fitzgeralds Las Vegas, Fitzgeralds Black Hawk, and Fitzgeralds Tunica, as well as the Company’s interest in The Fremont Street Experience Limited Liability Company, to Majestic for $149.0 million in cash, subject to certain holdbacks and adjustments, plus the assumption of certain liabilities relating to the Assets.
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. The Company has been informed by Contrarian Capital Advisers L.L.C. (“Contrarian”), one of the Consenting Noteholders, that as of the date hereof substantially all of the Notes held by the Consenting Noteholders are now held by Contrarian and its affiliates.
The Restructuring Agreement provided 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.
Pursuant to the Restructuring Agreement and an order entered by the Bankruptcy Court, the Company was required to distribute unrestricted cash (which includes cash in net assets held for sale) in excess of $24.8 million to holders of its Notes within 45 days after the end of each quarter. In May, August and November 2001, the Company distributed $1.8 million, $7.7 million and $7.2 million, respectively, in Excess Cash to the Indenture Trustee to be applied to accrued and unpaid interest and principal as
provided in the Indenture. On December 6, 2001, the Company sold substantially all of the assets and related liabilities of its Fitzgeralds Las Vegas, Fitzgeralds Mississippi and Fitzgeralds Black Hawk properties to Majestic. At that time, approximately $133.3 million was distributed to the Indenture Trustee from the proceeds of the sale. The Company and the Informal Committee subsequently established a new threshold for cash reserves of $16.5 million, which was approved by the Bankruptcy Court on November 27, 2002 and effective November 1, 2002. Pursuant to that order the Company distributed $6.2 million to the Indenture Trustee to be applied to accrued and unpaid interest and principal. As part of the Restructuring Agreement, the Consenting Noteholders and Indenture Trustee agreed to forbear from exercising certain of their rights otherwise allowable under the Notes and the Indenture.
As of the commencement of the Bankruptcy Cases, the parties to the Restructuring Agreement each concluded that the fair market value of the Company’s real and personal property given as collateral for the Notes was 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 was less than the amount of the unsecured deficiency claim of the holders of the Notes. As a result, it was not expected then and is still 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.
In accordance with the Restructuring Agreement, an auction sale was to be scheduled for no later than June 15, 2001 in the Bankruptcy Court with respect to those operating assets and properties not sold pursuant to negotiated sales agreements such as the purchase agreement with Majestic. With the consent of the Consenting Noteholders, the auction sale was not conducted and the Company and the Consenting Noteholders executed the Amended and Restated Restructuring Agreement. The Amended and Restated Restructuring Agreement provided for the Company to attempt to conduct the auction sale of the one remaining operating property, Fitzgeralds Reno as soon as possible.
Under the terms of the Amended and Restated 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, were required to 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, were to have been transferred to a liquidating trust created for the benefit of the holders of the Notes and others under a plan of reorganization to be consistent with the terms of the Amended and Restated Restructuring Agreement.
On December 2, 2002, the Bankruptcy Court issued an Order approving the adequacy of the disclosures in the Company’s Disclosure Statement, setting deadlines for balloting an opposing confirmation of the Company’s Initial Plan. The Confirmation hearing on the Initial Plan was set for March 6, 2003 but was continued to April 21, 2003. A significant number of Consenting Noteholders, including several Consenting Noteholders managed by Contrarian, voted to reject the Initial Plan. The Company believes that these votes were in violation of the obligations of the Consenting Noteholders to vote in favor of the Initial Plan and declared the Consenting Noteholders in breach of the Amended and Restated Restructuring Agreement and filed with the Bankruptcy Court a motion seeking to disallow the votes. The motion to disallow the votes was set for hearing before the Bankruptcy Court on March 6, 2003.
Prior to the hearing on March 6, 2003, the Company and Contrarian agreed to the Current Restructuring Agreement to provide, among other matters, (i) that Fitzgeralds Reno would not be sold, but would be retained by the Company and (ii) for an amendment to the Initial Plan (in the form of a New Plan) to permit the conversion of the indebtedness due the holders of the Notes into equity of the successor to the Company. The Current Restructuring Agreement, the New Plan and the Supplemental Disclosure Statement to accompany Debtor’s Disclosure Statement were filed with the Bankruptcy Court on March 20, 2003.
As a result of the sale of Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk on December 6, 2001, operating revenue and expenses for these three properties will not reflect a full year of operations when comparing results for the year 2001 to the year 2000. In addition, the comparison for the year 2002 to the year 2001 will not be meaningful due to the sale of the three properties mentioned above.
Unless otherwise noted, the narrative discussion below is focused on the results of the Company’s 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 was allocated to each of the Properties for 2001 and 2000. Such expenses are included in selling, general and administrative expenses at each of the Operating Properties. In 2002, the Company charged corporate expense of $0.05 million to Fitzgeralds Reno, and, Fitzgeralds Reno incurred $0.4 million of net expense for services previously provided by the Company. The remainder of the unallocated corporate expense is included in the selling, general and administrative expenses of Other Operations of the Properties. See Note 3 of Statement of Operations Data.
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.
Fiscal 2002 Comparison to Fiscal 2001
Operating Revenues
Total revenues for the Properties were $42.5 million and net operating revenues were $37.0 million for 2002, representing decreases of 81.6% and 81.1%, respectively, over total revenues for the Properties of $231.2 million and net operating revenues of $196.0 million for 2001. The decreases were substantially all the result of the sale of Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to Majestic on December 6, 2001. Total operating revenue for Fitzgeralds Reno decreased 2.4% to $42.5 million for 2002 from $43.5 million for the 2001.
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 75.6% and 86.9% were derived from slot machine revenues for 2002 and 2001, respectively) decreased 83.2% to $30.7 million for 2002 from the $182.1 million recorded for 2001. Substantially all of the decrease was a result of the sale to Majestic. Casino revenues at Fitzgeralds Reno decreased to $30.7 million for 2002 from $31.4 million for 2001.
Room revenues (11.9% and 8.9% of total revenues for 2002 and 2001, respectively) decreased 75.2% from $20.5 million in 2001 to $5.1 million in 2002. Substantially all of the decrease was a result of the sale to Majestic. Fitzgeralds Reno room revenues decreased 6.1%, from $5.4 million in 2001 to $5.1 million in 2002, due to a combination of decrease in the average occupancy rate to 83.8% in 2002 from 87.6% in 2001 and a 2.8% decrease in the average daily rate.
Food and beverage revenues (14.1% and 10.5% of total revenues for 2002 and 2001, respectively) decreased 75.3%, from $24.2 million in 2001 to $6.0 million in 2002. Substantially all of the decrease was a result of the sale to Majestic. Food and beverage revenue at Fitzgeralds Reno increased 2.6% to $6.0 million for 2002 from $5.8 million for 2001.
Other revenues decreased from $4.4 million in 2001 to $0.8 million in 2002, a decrease of 81.8% for 2002. Substantially all of the decrease was a result of the sale to Majestic.
Promotional allowances showed a net decrease of 84.3% to $5.5 million for 2002 from $35.2 million for 2001. Substantially all of the decrease was a result of the sale to Majestic. Promotional allowances for Fitzgeralds Reno increased 6.5% to $5.5 million for 2002 from $5.2 million for 2001.
Operating Costs and Expenses
Total operating costs and expenses for the Properties decreased 77.9%, to $41.1 million for 2002 from $186.0 million for 2001. Substantially all of the decrease was a result of the sale to Majestic. Total operating expenses for Fitzgeralds Reno decreased 30.1% to $35.1 million for 2002 from $50.1 million for 2001. The decrease at Fitzgeralds Reno was primarily due to the write-down of assets of $14.8 million in 2001.
Casino expenses were $15.8 million for 2002, an 81.6% decrease from $85.7 million for 2001. Food and beverage expenses decreased 72.3% to $4.0 million for 2002 from $14.4 million for 2001. Room expenses decreased 85.0% to $1.8 million for 2002 from $11.7 million in 2001. Selling, general and administrative expenses decreased 66.7% to $17.4 million for 2002 from $52.3 million for 2001. 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. Substantially all of the decrease was a result of the sale to Majestic.
Personnel expenses decreased 77.1%, to $17.2 million for 2002 from $75.0 million for 2001. Substantially all of the decrease was a result of the sale to Majestic. Such expenses are included in the operating departmental expense to which they relate on the consolidated statements of operations. Personnel expenses at Fitzgeralds Reno increased 1.7%, to $17.2 million for 2002 from $16.9 million for 2001.
Marketing expenses, which include advertising, promotional material and special events, decreased 70.9%, to $3.9 million for 2002 from $13.4 million for 2001. Substantially all of the decrease was a result of the sale to Majestic. The Company’s strategy is to continue to adjust marketing expense levels as needed to respond to competition. Such expenses are included in selling, general and administrative expenses on the consolidated statements of operations. Marketing expense at Fitzgeralds Reno increased 1.7%, to $3.9 million for 2002 from $3.8 million for 2001.
Depreciation and amortization expense decreased 10.5% to $0.030 million for 2002 from $0.034 million for 2001.
Income from Operations
As a result of the foregoing, income from operations for the Properties decreased from $10.0 million for 2001 to a loss from operations of $4.1 million for 2002. Income from operations for Fitzgeralds Reno increased to $1.9 million for 2002, from a loss from operations of $11.8 million for 2001. The increase for Fitzgeralds Reno is due to the write down of assets of $14.8 million in 2001.
Net Interest Expense
Interest expense (net of interest income) decreased 73.3% to $1.2 million for 2002 from $4.5 million for 2001. Section 506(b) of the Bankruptcy Code permits the allowance of interest on an allowed secured claim secured by property, the value of which is greater than the amount of the claim. Inasmuch as the parties to the Restructuring Agreement have concluded that the fair market value of the collateral securing the Notes is less than the outstanding principal of the Notes, concurrently with the filing of the Bankruptcy Cases on December 5, 2000 the Company ceased accruing interest on the Notes.
Net Income
For the reasons cited above, net income for the Properties decreased from $4.2 million for 2001 to a net loss of $5.3 million in 2002. Fitzgeralds Reno’s net income increased to $1.7 million for 2002 from a net loss of $15.1 million for 2001 for the reasons discussed above.
Fiscal 2001 Comparison to Fiscal 2000
Operating Revenues
Total revenues for the Properties were $231.2 and net operating revenues was $196.0 for 2001, representing decreases of 1.3% and 2.0%, respectively, over total revenues for the Properties of $234.1 million and net operating revenues of $200.1 million for 2000. Such decreases were largely the result of the sale of Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to Majestic on December 6, 2001.
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 86.9% and 85.1% are derived from slot machine revenues for 2001 and 2000, respectively) increased 0.2% to $182.1 million for 2001 from the $181.7 million recorded for 2000.
Room revenues (at 8.9% and 9.4% of total revenues for 2001 and 2000, respectively) decreased 7.1% from $22.1 million in 2000 to $20.5 million in 2001. Fitzgeralds Las Vegas room revenues decreased 11.7% from $8.5 million in 2000 to $7.5 million in 2001, as its average daily rate decreased 7.4%, and the average occupancy rate decreased to 91.9% in 2001 from 92.1% in 2000. Fitzgeralds Reno room revenues decreased 0.9%, from $5.5 million in 2000 to $5.4 million in 2001, as a decrease in the average occupancy rate to 87.6% in 2001 from 88.9% in 2000 was offset by a 0.5% increase in the average daily rate. Fitzgeralds Tunica room revenues decreased 6.5%, from $8.1 million for 2000 to $7.6 million in 2001, as an increase in the average occupancy rate to 94.5% in 2001 from 92.5% in 2000 was offset by a 2.2% decrease in the average daily rate.
Food and beverage revenues (at 10.5% and 11.0% of total revenues for 2001 and 2000, respectively) decreased 6.3%, from $25.8 million in 2000 to $24.2 million in 2001 primarily due to the sale of assets to Majestic.
Other revenues decreased 3.3% from $4.6 million in 2000 to $4.4 million in 2001.
Promotional allowances showed a net increase of 3.3% to $35.2 million for 2001 from $34.0 million 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 0.2%, to $186.0 million for 2001 from $185.6 million for 2000. After excluding the $11.4 million gain on sale of asset to Majestic and $14.8 million and $13.0 million for the write-down of Fitzgerald Reno and Fitzgeralds Black Hawk assets, operating costs and expenses decreased 8.6% to $169.6 million. Such decreases were largely the result of the sale of Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to Majestic on December 6, 2001.
Casino expenses were $85.7 million for 2001, a 1.2% increase from $84.7 million for 2000. Food and beverage expenses decreased 6.3% to $14.4 million for 2001 from $15.4 million for 2000. Room expenses decreased 8.2% to $11.7 million for 2001 from $12.8 million in 2000. Selling, general and administrative expenses decreased 7.4% to $52.2 million for 2001 from $56.4 million for 2000, which includes $3.2 million for 2000 of pre-petition 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 decreased 9.1%, to $75.0 million for 2001 from $82.5 million for 2000, primarily as a result of the December 6, 2001 sale. Such expenses are included in the operating departmental expense to which they relate on the consolidated statements of operations.
Marketing expenses at Fitzgeralds Reno, which include advertising, promotional material and special events, decreased 11.1%, to $13.4 million for 2001 from $15.1 million for 2000. 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. Such expenses are included in selling, general and administrative expenses on the consolidated statements of operations.
Depreciation and amortization expense decreased 99.8% to $0.034 million for 2001 from $14.0 million for 2000, due to the discontinuation of recording depreciation and amortization expense for property and equipment included in net assets held for sale subsequent to filing the Bankruptcy Cases in December 2000.
Income from Operations
As a result of the foregoing, income from operations for the Properties decreased from $14.5 million for 2000 to $10.0 million for 2001. The decrease in results is primarily due to the $14.8 million and $13.0 million write-down in assets of Fitzgeralds Reno and Fitzgeralds Black Hawk, respectively, offset by the $11.4 million gain on sale of assets to Majestic and a $13.9 million decrease in depreciation and amortization expense resulting from the discontinuation of recording substantially all depreciation and amortization expense for assets held for sale in 2001.
Net Interest Expense
Interest expense (net of interest income) decreased 85.3% to $4.5 million for 2001 from $30.8 million for 2000, due to the discontinuation of accruing interest on the Notes on December 5, 2000 with the commencement of the Bankruptcy Cases.
Net Income
Net income for the Properties increased to $4.2 million for 2001 compared to a net loss of $16.4 million in 2000.
Liquidity and Capital Resources
At December 31, 2002, the Company had unrestricted cash of $14.5 million compared to $25.6 million at December 31, 2001. The Company’s net cash used in operating activities during 2002 was $8.0 million. Net cash provided by investing activities was $3.4 million for 2002, compared to $135.0 million for
2001. In 2001 net cash provided by investing activities included proceeds from the sale of assets to Majestic on December 6, 2001. Net cash used in financing activities was $6.5 million for 2002 compared to $105.6 million for 2001. In 2001, with the proceeds from the sale of the assets, the Company repaid a portion of the Notes in accordance with the Restructuring Agreement.
The Company’s principal sources of capital have historically consisted of cash from operations and vendor or third party financing of gaming and other equipment. 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.
The Restructuring Agreement provided 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. 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.
Pursuant to the Restructuring Agreement and an order entered by the Bankruptcy Court, the Company was required to distribute unrestricted cash (which includes cash in net assets held for sale) in excess of $24.8 million to holders of its Notes within 45 days after the end of each quarter until the closing of the sale to Majestic. In May, August and November 2001, the Company distributed $1.8 million, $7.7 million and $7.2 million, respectively, in Excess Cash to the Indenture Trustee to be applied to accrued and unpaid interest and principal as provided in the Indenture. The Company and the Informal Committee subsequently established a new threshold for cash reserves of $16.5 million, which was approved by the Bankruptcy Court on November 27, 2002 and effective November 1, 2002. Pursuant to that order, the Company distributed $6.2 million to the Indenture Trustee to be applied to accrued and unpaid interest and principal. As part of the Restructuring Agreement, the Consenting Noteholders and Indenture Trustee agreed to forbear from exercising certain of their rights otherwise allowable under the Notes and the Indenture.
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 remainder 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 normal operations at Fitzgeralds Reno at current levels during the pendency of the Bankruptcy Cases and does not anticipate any adverse impact on operations, customers or employees at Fitzgeralds Reno. 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 or that its liquidity and capital resources will be sufficient to maintain normal operations at Fitzgeralds Reno during the pendency of the Bankruptcy Cases.
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. The Fixed Charge Coverage Ratio was 1.8x for the year ended December 31, 2001. However, earnings were insufficient to cover fixed charges by $5.3 million and $16.4 million for the years ended December 31, 2002 and 2000, respectively.
Business Seasonality
The gaming operations of the Company are seasonal and could be significant. At Fitzgeralds Reno business levels are typically weaker from Thanksgiving through the end of the winter and typically stronger from mid-June to mid-November. In addition, because of its proximity to a mountainous region, Reno is subject to severe weather, particularly during the winter months, that can and often does have an adverse impact on business.
Critical Accounting Policies and Estimates
A summary of our significant accounting policies can be found in Note 3 of the Notes to Consolidated Financial Statements. Our preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant among those estimates are the useful lives and potential impairment of long-term assets, such as investments, buildings, equipment and goodwill, the adequacy of our allowance for uncollectible receivables, and the amount of litigation and self insurance reserves. These estimated amounts are based on our best judgments using both historical information and known trends in our company and in our industry. Because of the uncertainty inherent in any estimate, it is likely that the actual results will differ from the initial estimates, and the differences could be material.
Recently Issued Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 145 (“SFAS 145”), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The most significant provisions of this statement relate to the rescission of Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt and it also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Under this new statement, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods that does not meet certain defined criteria must be reclassified. The provisions of this Statement, related to the rescission of Statement 4, should be applied in fiscal years beginning after May 15, 2002. Generally, SFAS 145 is effective for the Company’s fiscal year 2003. Adoption of this statement did not have a material impact on the Company’s financial condition or results of operation.
In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), Accounting for Costs Associated with Exit or Disposal Activities. This statement address financial accounting and reporting for costs associated with exit or disposal activities and supercedes EITF No. 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The statement requires that a liability for a cost associated with an exit or disposal activity is recognized when the liability is incurred. A fundamental conclusion reached by the FASB in SFAS 146 is than an entity’s commitment to a plan, by itself, does not create a present obligation to
others that meets the definition of a liability. This statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with early application encouraged. Adoption of this statement did not have a material impact on the Company’s financial condition or results of operation.
In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, including indirect Guarantees of Indebtedness of Others. FIN 45 expands the information disclosures required by guarantors for obligations under certain types of guarantees. It also requires initial recognition at fair value of a liability for such guarantees. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not anticipate that the adoption of FIN No. 45 will have a material impact on the consolidated financial statements.
In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 148 (“SFAS 148”), Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to the transition and disclosure provisions are effective for financial statements for fiscal years ending after December 15, 2002 with early adoption encouraged. The Company does not anticipate that the adoption of SFAS No. 148 will have a material impact on the consolidated financial statements.
Item 7A.
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 fair market value of the Company’s fixed debt obligations was $51.9 million at December 31, 2001. Due to the Company’s bankruptcy filing, subsequent sale of a substantial portion of its assets, interim payments on the aggregate balance of accrued interest and principal on the Notes, as well as delays encountered in selling the Company’s remaining operating casino, the Company believes it is no longer possible to accurately determine the fair market value of its fixed debt obligations at December 31, 2002. The majority of the Company’s fixed debt obligations are comprised of the Company’s Notes.
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, 2002, 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.
Item 8.
Financial Statements and Supplementary Data
The information required by this item is listed under Item 15 of Part IV of this Report on Form 10-K.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
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, 2002:
Directors and Executive Officers
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 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 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.
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, past 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.
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.
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 SAS 61 (Codification of Statements on Auditing Standards, AU380). The 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, 2002. 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. During 2002, non-employee directors were paid fees of $40,000 per year and $1,000 per Board meeting attended in person or telephonically. Commencing February 1, 2003 non-employee directors will be paid fees of $20,000 per year. Ms. Becker is also chairperson of the Gaming Compliance Committee (a non-Board committee) for which she was paid an additional fee of $53,000 per year and $1,000 per Committee meeting attended in person or telephonically in 2002. Mr. Hannifin is also chairman of the Audit Committee for which he was paid an additional fee of $27,500 per year and $1,000 per Committee meeting attended in Person or telephonically. Ms. Becker and Mr. Hannifin also participate 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, 2002.
In accordance with requirements of the Sarbanes-Oxley Act of 2002 and the Regulations adopted pursuant thereto, on December 11, 2002, the Board of Directors established a Disclosure Committee and approved and adopted the Disclosure Committee Charter, Disclosure Policy and Standards of Business Conduct and Ethics. The Disclosure Committee membership is comprised of Philip D. Griffith, President and Chief Executive Officer, Michael E. McPherson, Executive Vice President and Chief Financial Officer, and Phillip P. Hannifin, Chairperson of the Audit Committee of the Company.
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 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.
Item 11.
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, 2002, 2001 and 2000 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 2002; (ii) each person who (a) served as an executive officer at December 31, 2002, (b) was among the four most highly paid executive officers of the Company, not including the Chief Executive Officer, during 2002; and (c) received over $100,000 in compensation in 2002; (iii) up to two persons who would be included under clause (ii) above had they served as an executive officer at December 31, 2002; 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
Option Grants
The Company did not grant any stock options during fiscal years ended December 31, 2002 and 2001. 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, 2002 or held unexercised stock options as of December 31, 2002.
Employment Agreements with Executive Officers and Key Employees
The Company has entered into employment agreements with Messrs. Griffith, McPherson, Manske and Page to serve in their present offices for terms expiring June 28, 2003, July 5, 2003, September 1, 2003, and September 1, 2003, respectively. Pursuant to the Amended and Restated Agreement Regarding Pre-negotiated Restructuring dated as of November 1, 2002, Mr. Griffith, among other things, agreed to have his annual salary reduced by $30,000 per quarter commencing November 1, 2002; $40,000 per quarter commencing February 1, 2003; and $50,000 per quarter commencing May 1, 2003 and all subsequent quarters thereafter. As of February 21, 2003, Messrs. Griffith, McPherson, Manske and Page have annual salaries of $445,500, $275,700, $275,700 and $275,700, 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. It is not anticipated that such Employment Agreement will continue for more than four months after a Plan of Reorganization is confirmed by the Bankruptcy Court.
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.
Executive Bonus Plan
The Company had previously 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 was $25.0 million in earnings before interest, taxes, depreciation and amortization, prior to accruing bonus expense and adjusted for extraordinary, non-recurring items deemed non-operational in nature. The bonus amount started at 1.4% at the $25.0 million level and increased by one-tenth of one percent for each $1.0 million above $25.0 million up to a maximum of 3%. Although the Bankruptcy Court entered an order to the effect that the Executive Bonus Plan would remain in place during the Bankruptcy Cases, pursuant to the Amended and Restated Restructuring Agreement Messrs. Philip D. Griffith, Paul H. Manske, Michael E. McPherson and Max L. Page (collectively referred to as “Senior Management”) agreed to forgo compensation pursuant to the Executive Bonus Plan for operating years commencing January 1, 2002. Prior to the Amended and Restated Restructuring Agreement the Compensation Committee had 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, 2002, 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 2002. Mr. Hannifin was not an officer or employee of the Company during 2002.
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, 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. It is not anticipated that such Employment Agreement will continue for more than four months after the Plan of Reorganization is confirmed by the Bankruptcy Court.
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 until the sale of the Reno property; (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.
Item 12.
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 21, 2003 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.
*
Indicates less than 1%
(a)
Held by the Philip D. Griffith Gaming Trust of which Mr. Griffith is a trustee.
(b)
Putnam Investments, LLC (“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 223,713 shares of the 392,628 shares held by PIM. The source of this information is a Schedule 13G/A filed by PI with the Securities and Exchange Commission on February 13, 2002. Ownership is reported as of December 31, 2001. The number of shares listed in the schedule 13G/A filed by PI does not agree with the 384,560 shares reflected in our records as held by PI.
(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.
Item 13.
Item 13.
Certain Relationships and Related Transactions
Prior to 2002, 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 did not necessarily reflect the costs incurred by the Company in connection with such support and accordingly, such allocation did not necessarily reflect that which could be obtained from an unaffiliated party. In 2002, the Company charged to Fitzgeralds Reno corporate expenses of $0.05 million. 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.
In conjunction with the winding down of its affairs, as well as the orderly liquidation of assets and liabilities of the Company pursuant to the filing of its bankruptcies, and after obtaining the Bankruptcy Court approval, the Company entered into a contract with Meritage Employer Services, LLC (“Meritage”) on June 1, 2001 to assist in certain areas of that process. Meritage agreed to hire the 16 employees of the Company’s risk management department and to provide (1) health benefits design, claims processing and administration services, (2) liability claims investigation and administration services, (3) property and casualty insurance consulting and (4) workers compensation claims processing and administration. The amount of fees paid by the Company to Meritage for 2002 and 2001 totaled $579,233 and $604,800, respectively, plus reimbursable expenses and deposits. Meritage ownership is comprised of Senior Management, outside director Phil Hannifin, and a former executive of the Company, Kathleen Bryant.
Item 14.
Item 14.
Controls and Procedures
Based on the Chief Executive Officer and the Chief Financial Officer (the “Officers”), evaluations of the Company’s internal controls, disclosure controls and procedures within 90 days of the filing date of this report, the Officers have concluded that the effectiveness of such controls and procedures is satisfactory. Furthermore, there were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
PART IV
Item 15.
Item 15.
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, 2002 and 2001
Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001, and 2000
Consolidated Statements of Stockholders’ Deficiency for the Years Ended
December 31, 2002, 2001, and 2000
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001, and 2000
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, 2002, the Company filed the following reports on Form 8-K:
Report on Form 8-K, Item 2 and 5, filed on February 27, 2003.
(c)
Exhibits. Reference is made to the Index to Exhibits immediately
preceding the exhibits thereto.
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 25, 2003.
Fitzgeralds Gaming Corporation
By: /s/ Michael E. McPherson
Michael E. McPherson
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, 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.
CERTIFICATIONS
I, Philip D. Griffith, certify that:
1)
I have reviewed this annual report on Form 10-K of Fitzgeralds Gaming Corporation (the “Registrant”)
2)
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to sate a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report.
3)
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in the report.
4)
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a)
designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)
evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)
presented in this annual report, our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5)
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and to the audit committee and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
6)
The Registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses
Dated: March 25, 2003
/s/ Philip D. Griffith
Philip D. Griffith
President and Chief Executive Officer
CERTIFICATIONS
I, Michael E. McPherson, certify that:
1)
I have reviewed this annual report on Form 10-K of Fitzgeralds Gaming Corporation (the “Registrant”)
2)
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to sate a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report.
3)
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in the report.
4)
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a)
designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)
evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)
presented in this annual report, our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5)
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and to the audit committee and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
6)
The Registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses
Dated:
March 25, 2003
/s/ Michael E. McPherson
Michael E. McPherson
Executive Vice President and Chief
Financial Officer
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, 2002 and 2001, and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. 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
February 21, 2003
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FITZGERALDS GAMING CORPORATION (Debtor-In-Possession)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
FITZGERALDS GAMING CORPORATION (Debtor-In-Possession)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2002 AND 2001
See notes to consolidated financial statements
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FITZGERALDS GAMING CORPORATION (Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
See notes to consolidated financial statements
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FITZGERALDS GAMING CORPORATION (Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
FOR YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
See notes to consolidated financial statements
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FITZGERALDS GAMING CORPORATION (Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
See notes to consolidated financial statements
(Continued)
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FITZGERALDS GAMING CORPORATION (Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
See notes to consolidated financial statements
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FITZGERALDS GAMING CORPORATION (Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
1.
ORGANIZATION AND FINANCIAL STATEMENT PRESENTATION
Fitzgeralds Gaming Corporation (the “Company”) is a gaming holding company that until December 6, 2001 owned and operated 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 “Properties”). On December 6, 2001, the Company sold substantially all of the assets and related liabilities of its Fitzgeralds Las Vegas, Fitzgeralds Mississippi and Fitzgeralds Black Hawk properties to Majestic Investors Holding, LLC (“Majestic”).
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 the residual assets and liabilities of Fitzgeralds Las Vegas (“FLVI”) and Fitzgeralds Tunica (“FMI”) through wholly owned subsidiaries; and FI owns the residual assets and liabilities of Fitzgeralds Black Hawk through wholly-owned subsidiaries, including 101 Main Street Limited Liability Company (“101 Main”).
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 loss of $5.3 million in 2002 and net income of $4.3 million in 2001. The Company is highly leveraged as total indebtedness including the 12.25% Senior Secured Notes which mature December 15, 2004 (the “Notes”) was $95.8 million at December 31, 2002 and $101.5 million at December 31, 2001. The Company’s stockholders’ deficiency was $114.8 million and $100.8 million at December 31, 2002 and 2001, respectively.
The accompanying financial statements have been prepared on a going concern basis. At December 31, 2002, liabilities exceeded assets by approximately $62.2 million and stockholders’ deficiency was $114.8 million. The Company’s inability to meet the interest payment on the Notes, along with its recurring losses from operations in prior years, negative working capital and stockholders’ capital deficiency, raise substantial doubt about its ability to continue as a going concern.
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 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. The Company has been informed by Contrarian Capital Advisors L.L.C. (“Contrarian”), one of the Consenting Noteholders, that as of the date hereof substantially all of the Notes held by the Consenting Noteholders are now held by Contrarian and its affiliates.
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The Restructuring Agreement provided 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.
Pursuant to the Restructuring Agreement and an order entered by the Bankruptcy Court, the Company was required to distribute unrestricted cash (which includes cash in net assets held for sale) in excess of $24.8 million to holders of its Notes within 45 days after the end of each quarter. In May, August and November 2001, the Company distributed $1.8 million, $7.7 million and $7.2 million, respectively, in Excess Cash to the Indenture Trustee to be applied to accrued and unpaid interest and principal as provided in the Indenture. On December 6, 2001, the Company sold substantially all of the assets and related liabilities of its Fitzgeralds Las Vegas, Fitzgeralds Mississippi and Fitzgeralds Black Hawk properties to Majestic. At that time, approximately $133.3 million was distributed to the Indenture Trustee from the proceeds of the sale. The Company and the Informal Committee subsequently established a new threshold for cash reserves of $16.5 million, which was approved by the Bankruptcy Court on November 27, 2002 and effective November 1, 2002. Pursuant to that order, the Company distributed $6.2 million to the Indenture Trustee to be applied to accrued and unpaid interest and principal. As part of the Restructuring Agreement, the Consenting Noteholders and Indenture Trustee agreed to forbear from exercising certain of their rights otherwise allowable under the Notes and the Indenture.
As of the commencement of the Bankruptcy Cases, the parties to the Restructuring Agreement each concluded that the fair market value of the Company’s real and personal property given as collateral for the Notes was 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 was less than the amount of the unsecured deficiency claim of the holders of the Notes. As a result, it was not expected then and is still 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.
In accordance with the Restructuring Agreement, an auction sale was to be scheduled for no later than June 15, 2001 in the Bankruptcy Court with respect to those operating assets and properties not sold pursuant to negotiated sales agreements such as the purchase agreement with Majestic. With the consent of the Consenting Noteholders, the auction sale was not conducted and the Company and the Consenting Noteholders executed an amendment to the Restructuring Agreement, which was approved by the Bankruptcy Court on November 27, 2002 and effective November 1, 2002, (the “Amended and Restated Restructuring Agreement.”) The Amended and Restated Restructuring Agreement provided for the Company to attempt to conduct the auction sale of the one remaining operating property, Fitzgeralds Reno as soon as possible.
Under the terms of the Amended and Restated 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, were required to 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, were to have been transferred to a liquidating trust created for the benefit of the holders of the Notes and others under a plan of reorganization to be consistent with the terms of the Amended and Restated Restructuring Agreement.
On December 2, 2002, the Bankruptcy Court issued an Order approving the adequacy of the disclosures in the Company’s Disclosure Statement and setting deadlines for balloting an opposing confirmation of the
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Company’s Plan of Reorganization (the “Initial Plan”). The confirmation hearing on the Initial Plan was set for March 6, 2003 but was continued to April 21, 2003. A significant number of Consenting Noteholders, including several Consenting Noteholders managed by Contrarian, voted to reject the Initial Plan. The Company believes that these votes were in violation of the obligations of the Consenting Noteholders to vote in favor of the Initial Plan and declared the Consenting Noteholders in breach of the Amended and Restated Restructuring Agreement and filed with the Bankruptcy Court a motion seeking to disallow the votes. The motion to disallow the votes was set for hearing before the Bankruptcy Court on March 6, 2003.
Prior to the hearing on March 6, 2003, the Company and Contrarian agreed to Amendments No. 1 to the Amended and Restated Restructuring Agreement (the “Current Restructuring Agreement”) to provide, among other matters, (i) that Fitzgeralds Reno would not be sold, but would be retained by the Company and (ii) for an amendment to the Initial Plan (in the form of a Second Amended Plan of Reorganization (the “New Plan”)) to permit the conversion of the indebtedness due the holders of the Notes into equity of the successor to the Company. The Current Restructuring Agreement, the New Plan and the Supplemental Disclosure Statement to accompany Debtor’s Amended Plan of Reorganization (the “Disclosure Statement”) were filed with the Bankruptcy Court on March 20, 2003.
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 required 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, (the “Senior Management”) 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 6, 2001, and our subsequent filing with the Securities and Exchange Commission. For further information concerning the Plan of Reorganization, please refer to our Current Report on Form 8-K dated February 27, 2003. Until such time as the Plan of Reorganization is confirmed by the Bankruptcy Court, the Restructuring Agreement, Disclosure Statement and Plan of Reorganization are subject to change.
Reorganization Items
As of December 31, 2002 and 2001, the Company incurred the following expenses subsequent to the filing of the Bankruptcy Cases:
Liabilities Subject to Compromise
At December 31, 2002 and 2001, liabilities subject to compromise consisted of the following:
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
F - 11
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 maturities of ninety days or less at the date of purchase.
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. Certain of the assets of the Operating Properties were classified as held for sale upon consummation of the Purchase Agreement with Majestic in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This standard requires that assets to be disposed of shall be reported at the lower of carrying amount or fair value less costs to sell and shall not be depreciated or amortized while they are held for disposal. The Company discontinued recording depreciation and amortization expense for property and equipment included in net assets held for sale subsequent to the filing of the Bankruptcy Cases and consummation of the Purchase Agreement with Majestic based on the requirements of SFAS No. 121.
Debt Offering Costs - Costs associated with the issuance of the Notes are deferred and amortized over the life of the indebtedness using the effective interest method. In 2001, the Company wrote-off the cost associated with the issuance of the Notes in proportion with the amount paid on the Notes.
Restricted Cash - At December 31, 2002 and 2001, 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). At December 31, 2002 and 2001 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). At December 31, 2001 $3,761,166 of cash was held in an escrow in compliance with the Purchase and Sale Agreement dated as of November 22, 2000, as amended on December 4, 2000 and November 1, 2001.
Goodwill - represents the cost in excess of fair value of the net assets acquired in purchase transactions. Goodwill was amortized using the straight-line method over 40 years and recorded net of accumulated amortization. The Company discontinued recording the amortization of its goodwill included in net assets held for sale subsequent to the filing of the Bankruptcy Cases on December 5, 2000. Furthermore, the Company wrote down $13.0 million of the asset as of December 6, 2001 due to the sale of Fitzgeralds Black Hawk to Majestic.
Casino Revenue - is the net win from gaming activities, which is the difference between gaming wins and losses. Food and beverage and room revenue includes the aggregate amounts generated by those departments at the each of the Operating Properties.
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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:
Advertising Costs - Advertising expenditures are expensed in the period the advertising initially takes place. Advertising costs included in selling, general and administrative expenses were $1,587,534, $4,696,846 and $5,308,556 for the years ended December 31, 2002, 2001 and 2000, respectively.
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, 2001. Due to the Company’s bankruptcy filing, subsequent sale of a substantial portion of its assets, interim payments on the aggregate balance of accrued interest and principal on the Notes, as well as delays encountered in selling the Company’s remaining operating casino, the Company believes it is no longer possible to accurately determine the fair market value of its fixed debt obligations at December 31, 2002. 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. During the 2001 year, Fitzgeralds Reno wrote-down $14.8 million in property and equipment to its estimated fair value.
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
F - 13
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 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 Pronouncements - In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 145 (“SFAS 145”), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The most significant provisions of this statement relate to the rescission of Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt and it also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Under this new statement, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods that does not meet certain defined criteria must be reclassified. The provisions of this Statement, related to the rescission of Statement 4, should be applied in fiscal years beginning after May 15, 2002. Generally, SFAS 145 is effective for the Company’s fiscal year 2003. Adoption of this statement did not have a material impact on the Company’s financial condition or results of operation.
In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), Accounting for Costs Associated with Exit or Disposal Activities. This statement address financial accounting and reporting for costs associated with exit or disposal activities and supercedes EITF No. 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The statement requires that a liability for a cost associated with an exit or disposal activity is recognized when the liability is incurred. A fundamental conclusion reached by the FASB in SFAS 146 is than an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. This statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with early application encouraged. Adoption of this statement did not have a material impact on the Company’s financial condition or results of operation.
In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, including indirect Guarantees of Indebtedness of Others. FIN 45 expands the information disclosures required by guarantors for obligations under certain types of guarantees. It also requires initial recognition at fair value of a liability for such guarantees. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not anticipate that the adoption of FIN No. 45 will have a material impact on the consolidated financial statements.
In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 148 (“SFAS 148”), Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to the transition and disclosure provisions are effective for financial statements for fiscal years ending after December 15, 2002 with early adoption encouraged. The Company does not anticipate that the adoption of SFAS No. 148 will have a material impact on the consolidated financial statements.
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5.
PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
Total property and equipment at December 31, 2002 and 2001 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. The sale to Majestic was consummated on December 6, 2001. The purchase price for substantially all of the Assets of Fitzgeralds Las Vegas, Fitzgeralds Tunica, and Fitzgeralds Black Hawk properties was $149.0 million, subject to certain adjustments and holdbacks specified in the purchase agreement, which resulted in net proceeds prior to distributions of approximately $146.9 million.
As of December 31, 2002 and 2001 assets included in net assets held for sale of $12.5 million and $12.0 million, respectively, consists mainly of property and equipment transferable upon the sale of Fitzgerald Reno.
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Net property and equipment held for sale consists of the following at December 31,
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The scheduled maturities of long-term debt are as follows for the year ending December 31,
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8.
COMMITMENTS
Future minimum rental payments under operating leases with non-cancelable lease terms in excess of one year are as follows:
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, 2002, 2001 and 2000 was $865,484 and $2,133,291 and $2,797,177, 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 in Section 365 of the Bankruptcy Code.
9.
RELATED PARTY TRANSACTIONS
In order to facilitate the winding down of its affairs, as well as the orderly liquidation of assets and liabilities of the Company pursuant to the filing of its bankruptcies, and after obtaining the Bankruptcy Court approval the Company entered into a contract with Meritage Employer Services, LLC (“Meritage”) on June 1, 2001 to assist in that process. Meritage agreed to hire the 16 employees of the Company’s risk management department and to provide (1) health benefits design, claims processing and administration services, (2) liability claims investigation and administration services, (3) property and casualty insurance consulting and (4) workers compensation claims processing and administration. The amount of fees paid by the Company to Meritage for 2002 and 2001 totaled $579,233 and $604,800, respectively plus reimbursable expenses and deposits. Meritage ownership is comprised of Senior Management, outside director, Phil Hannifin, and a former executive of the Company, Kathleen Bryant.
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.
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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 and the New Plan provided 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.
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, 2002 and 2001, 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) were 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.
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:
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, 2002 are as follows:
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Due to the uncertainty of the realization of certain tax carry forward items, a valuation allowance has been established in the amount of $28.8 million at December 31, 2001. 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, 2002, the Company had a consolidated net operating loss carry forward of
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approximately $64,000,000 million and a tax credit carry forward of $660,000 million, which are available to offset future tax through 2022. 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 $208,000 that expires on November 1, 2003 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 $208,000.
The Company has an irrevocable letter of credit with an insurance company in the amount of $600,000 which expires on October 13, 2003 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 $640,822. Such letters, which expire on March 31, 2003 and April 1, 2003, 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 $640,822.
At December 31, 2002, 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.
Holiday Inn - Upon notification by Majestic of its intent to not enter into a new franchise agreement with Holiday Inn Franchising, Inc. (“Inn”), the Company filed a motion with the Bankruptcy Court on October 26, 2001 to remove its pre-petition franchise and other agreements with Inns from the list of agreements to be assumed and assigned to Majestic. On October 26, 2001, the Bankruptcy Court granted the motion. On or about July 9, 2002, the Bankruptcy Court entered an order granting the Company’s motion for an order authorizing the rejection of the franchise agreement. Inn disagreed with the rejection and subsequently filed an unsecured claim in Bankruptcy Court based upon the liquidated damage provision of the franchise agreement for $1.8 million. While the Company is contesting the allowance of such a claim by the Bankruptcy Court, the Company cannot predict the Bankruptcy Court’s ultimate resolution of such a claim.
Jerome H. Turk - a former officer and shareholder of the Company filed a $782,551 unsecured claim in Bankruptcy Court for breach of contract concerning premium payments due to him on a split dollar life insurance policy purchased by him personally pursuant to a former employment contract with the Company. While the Company is contesting the allowance of such as claim by the Bankruptcy Court, the Company can not predict the Bankruptcy Court’s ultimate resolution of such a claim
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”). 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
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during construction. The City of Reno (the “City”) estimates that a period of more than three 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 Fitzgeralds Reno hotel entrance, valet parking area and hotel loading zone are situated.
Based on plans prepared by the City, Fitzgeralds Reno would expect to lose permanently approximately 3,802 square feet of land and temporarily 22,979 square feet of land through eminent domain, several parking spaces, the current valet parking area, an outdoor billboard structure advertising available rooms and a building used to house administrative offices, and may be required to relocate the hotel entrance currently on Commercial Row. The City has also indicated that the ReTRAC Project might require the demolition of the Fitzgeralds Reno Rainbow Skyway if underpinning during construction of the ReTRAC Project cannot preserve the structure. 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.
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. 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 June 20, 2001, the Reno City Council commenced a public hearing in compliance with the remand order of the Court. That public hearing was recessed and continued to November 29, 2001. After resuming the hearing on November 29, 2001, the Reno City Council again recessed and continued the proceedings to January 4, 2002, at which time the hearing was completed and the matter was submitted for decision of the Reno City Council. On February 19, 2002, the Reno City Council voted on the matter. By a 4-3 decision, the Reno City Council concluded that the ReTRAC Project would confer a special benefit on Fitzgeralds Reno. On a 5-2 decision, however, the Reno City Council determined that the value of the special benefit in light of the evidence presented was $1.00.
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 the City has recently estimated to be $282 million. On May 24, 2001, Fitzgeralds Reno commenced an action, CV-N-01-0329-PMP-RAM, in the United States District Court for the District of Nevada, against the Federal Highway Administration (“FHWA”), the Nevada Department of Transportation (“NDOT”), and the City (collectively, the “Defendants”) for violations of the National Environmental Policy Act (“NEPA”), codified at 42 U.S.C. §§ 4321-4327. The claims against all Defendants allege a violation of 42 U.S.C. § 4332 (Violation of NEPA: Failure to Consider Reasonable Alternatives & Failure to Consider and Provide Adequate Mitigation Measures). Specifically, Fitzgeralds Reno asserts the Defendants failed to consider the Partial Cover and Cut Tunnel Alternative and the use of the Feather River Route on a temporary basis, and failed to include a plan for mitigating the adverse environmental impacts, including construction disruption, loss of operating facilities, noise and vibration impacts, that will be caused by the ReTRAC Project and incurred by Fitzgeralds Reno and others.
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On or about June 12, 2001, NDOT filed a motion to dismiss the Company’s NEPA complaint based on a claim of sovereign immunity and the Company moved to amend its complaint to substitute as a defendant the Director of NDOT, Thomas E. Stephens, for the Defendant NDOT, in lieu of considering NDOT’s Eleventh Amendment immunity claim. This unopposed motion was granted by the Court on August 17, 2001, and the Company filed its amended complaint on August 23, 2001. Defendant FHWA filed its answer to the Complaint on September 6, 2001 and Defendant Stephens filed his answer on October 3, 2001. The City filed a motion to dismiss the amended complaint so far as it named the City as defendant on September 6, 2001. On February 15, 2002, the United States District Court held a hearing to consider the City’s motion to dismiss. At the hearing, the Defendant FHWA and the Defendant NDOT joined the City’s motion to dismiss. The City’s motion to dismiss was fully argued and submitted to the Court for a ruling. On March 11, 2002, the Court issued an order dismissing all of the Company’s claims against the City. The Court ruled the ReTRAC Project must comply with NEPA but the specific federal aid statute under which the City is receiving funding for the ReTRAC Project does not explicitly require the local government body to consent to suit under NEPA. Accordingly, the Court found the City was not a proper party in the case. The Court, however, denied the motions to dismiss by FHWA and NDOT stating the Company is entitled to proceed on the claims against those agencies for a violation of NEPA. The remaining parties - Fitzgeralds Reno, FHWA and NDOT - filed cross motions for summary judgment on December 23, 2002. These parties’ oppositions to the respective cross motions for summary judgment were filed on February 18, 2003. The cross motions for summary judgment was orally argued on February 26, 2003. On March 6, 2003, Judge Pro entered an order and judgment dismissing Fitzgeralds Reno’s claim against the FHWA and NDOT on the grounds the claims raised did not satisfy the applicable “arbitrary and capricious” standard under NEPA and only alleged “generalized and speculative environmental harms.” The Company is evaluating its legal options concerning the Court’s decision and judgment.
The City completed its construction cost analysis in July 2002. Construction contracts for the ReTRAC Project were awarded by the City Council on July 16, 2002. Preliminary construction activities have commenced and on February 25, 2003, the City Council adopted a resolution of intent to commence in the future eminent domain proceedings against the Company to acquire from Fitzgeralds Reno fee title to approximately 3,802 square feet of land and a 4,524 square foot administrative office building owned and used by the Company, as well as temporary easements for approximately 22,979 square feet of land to facilitate construction of the ReTRAC Project. The Company also is discussing with the City certain federal government benefits for the relocation and displacement of businesses in connection with the ReTRAC Project.
Other Litigation - The Company is a party to various lawsuits relating to routine matters incidental to its business. Except as noted below, 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.
Reliance - From April 1, 1998 through September 30, 1999, the Company’s general liability insurance and worker’s compensation insurance carrier was Reliance Insurance Company (“Reliance”). On May 29, 2001, a Pennsylvania court placed Reliance under the control of the Pennsylvania Insurance Department for rehabilitation. Thereafter, on October 3, 2001, the Reliance Insurance Company was declared insolvent and placed under an order of liquidation by the Pennsylvania Commonwealth Court at the request of the Pennsylvania Insurance Department. The Pennsylvania Insurance Department is now referring claims incurred in Mississippi, Nevada and Colorado from April 1, 1998 through September 30, 1999 to the Mississippi Insurance Guaranty Association, the Nevada Insurance Guaranty Association and the Colorado Insurance Guaranty Association, respectively. Each state’s Guaranty Insurance Association will investigate the claims incurred in their jurisdictions to determine if any of these claims are eligible for any insurance coverage under the respective Insurance Guaranty Association. The Company has not incurred any material amounts for liability claims or workers compensation claims that would be subject to reimbursement by Reliance. However, the statute of limitation has not expired for filing claims and it is unclear at this time what the insurance coverage would be from Reliance, if any, in the event that a future
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claim is filed that would be large enough to result in an insurance reimbursement from Reliance or any state Insurance Guaranty Association, or if there is insurance coverage for an existing claim that is currently under the threshold level for reimbursement, but increases in the future to an amount eligible for reimbursement. The reimbursement threshold per claim is $25,000 and $100,000 for liability claims and worker compensation claims, respectively. At the present time, the Company is unable to determine what effect this action may have on liability and worker’s compensation claims which arose during the coverage period for which Reliance was the Company’s insurance carrier or whether any limitations on coverage would have a material adverse effect on the Company’s financial condition.
15.
SEGMENT INFORMATION
The Company is a gaming holding company that until December 6, 2001 owned and operated four Fitzgeralds-brand casino-hotels, in downtown Las Vegas, Nevada, Reno, Nevada, Tunica, Mississippi, and Black Hawk, Colorado. On December 6, 2001, the Company sold substantially all of the Assets of Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to Majestic. The Company identified its business in four segments based on geographic location. The Company markets its Reno segment 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. Corporate costs are allocated to the business segments through management fees.
Assets are principally cash and cash equivalents and property and equipment. No single customer accounts for more than 10% of revenue.
A summary of the Company’s operations by business segment for 2002, 2001 and 2000 is presented below:
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Reconciliation of total business segment operating income to consolidated net income (loss) before income tax and extraordinary item:
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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 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 $14,525,165 and $25,608,202 at December 31, 2002 and 2001, respectively; (ii) property and equipments with a net book value of $2,926,656 and $3,203,237 at December 31, 2002 and 2001, 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 do 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 6, 2001, the Company sold substantially all of the Assets of Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to Majestic.
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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, 2002:
(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 investment in subsidiaries and other capitalized costs.
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Condensed consolidating balance sheet information as of December 31, 2001:
(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 investment in subsidiaries, other capitalized costs and inter-company deferred interest income.
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Condensed consolidating statement of operations information for the year ended December 31, 2002:
(e)
To eliminate inter-company interest in income of subsidiaries.
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Condensed consolidating statement of operations information for the year ended December 31, 2001:
(e)
To eliminate inter-company loss on sale of asset.
(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.
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Condensed consolidating statement of operations information for the year ended December 31, 2000:
(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.
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Condensed consolidating statement of cash flows information for the year ended December 31, 2002:
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Condensed consolidating statement of cash flows information for the year ended December 31, 2001:
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Condensed consolidating statement of cash flows information for the year ended December 31, 2000:
(a)
To eliminate inter-company advances.
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17. CONDENSED QUARTERLY RESULTS (Unaudited)
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FITZGERALDS GAMING CORPORATION (DEBTOR-IN-POSSESSION)
SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
ALLOWANCE TO WRITE ASSETS HELD FOR SALE TO ESTIMATED REALIZABLE VALUE
(1)
Write-offs of uncollectible accounts receivable, net of recoveries.
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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)(7)
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
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) 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)
10(b)
Fitzgeralds Gaming Corporation Stock Option Incentive Plan, amended and restated as of May 1, 1998.(4)
10(c)
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.(6)(7)
10(d)
Fitzgeralds Gaming Corporation Executive Bonus Plan, amended and restated as of January 1, 1999.(5)
E-2
Sequentially
Exhibit
Numbered
Number
Document
Page
10(e)
License Agreement, dated September 11, 1995, between Holiday Inns Franchising, Inc. and Fitzgeralds Las Vegas, Inc.(1)
10(f)
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(g)
Shareholders’ Agreement, dated December 19, 1995, among the Shareholders listed therein, Fitzgeralds Gaming Corporation and First Interstate Bank of Nevada, N.A.(5)
10(h)
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.(9)
10(i)
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.(5)
10(j)
Agreement Regarding Pre-Negotiated Restructuring dated December 1, 2000.(8)
10(k)
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.(8)
10(l)
Consulting contract, dated June 1, 2001, between Fitzgeralds Gaming Corporation on behalf of itself and each of its operating subsidiaries: Fitzgeralds Mississippi, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Las Vegas, Inc. and 101 Main Street, LLC, and Meritage Employer Services, LLC. (10)
10(m)
Service Agreement for Workers’ Compensation Self-Insurance Program, dated June 1, 2001 between Fitzgeralds Gaming Corporation on behalf of itself and each of its operating subsidiaries: Fitzgeralds Mississippi, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Las Vegas, Inc. and 101 Main Street, LLC, and Meritage Employer Services, LLC. (10)
10(n)
The Liability Claims Investigation, Adjustment and Management Agreement, dated June 1, 2001 between Fitzgeralds Gaming Corporation on behalf of itself and each of its operating subsidiaries: Fitzgeralds Mississippi, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Las Vegas, Inc. and 101 Main Street, LLC, and Meritage Employer Services, LLC. (10)
10(o)
The Claims Processing and Managed Care Services Contract, dated June 1, 2001 between Fitzgeralds Gaming Corporation on behalf of itself and each of its operating subsidiaries: Fitzgeralds Mississippi, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Las Vegas, Inc. and 101 Main Street, LLC, and Meritage Employer Services, LLC. (10)
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