-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TV4ymT+5M/V0zh22SlYZYe4gwga+0f4l3AN20mz58fJOnnRQIprWLP4DtjDhk0wm efdXElFMeJxE4/fJ3p1H6Q== 0000898430-01-501763.txt : 20010814 0000898430-01-501763.hdr.sgml : 20010814 ACCESSION NUMBER: 0000898430-01-501763 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PINNACLE ENTERTAINMENT INC CENTRAL INDEX KEY: 0000356213 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 953667491 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13641 FILM NUMBER: 1706123 BUSINESS ADDRESS: STREET 1: 330 NORTH BRAND BOULEVARD STREET 2: SUITE 1110 CITY: GLENDALE STATE: CA ZIP: 91203-2308 BUSINESS PHONE: 8186625900 MAIL ADDRESS: STREET 1: 330 NORTH BRAND BOULEVARD STREET 2: SUITE 1110 CITY: GLENDALE STATE: CA ZIP: 91203-2308 FORMER COMPANY: FORMER CONFORMED NAME: HOLLYWOOD PARK INC/NEW/ DATE OF NAME CHANGE: 19920703 10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2001 Commission file number 0-106-619 PINNACLE ENTERTAINMENT, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 95-3667491 (IRS Employer Identification No.) 330 North Brand Boulevard, Suite 1100, Glendale, California 91203 (Address of Principal Executive Offices) (Zip Code) (818) 662-5900 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] The number of outstanding shares of the registrant's common stock, as of the close of business on August 7, 2001: 25,494,844. PINNACLE ENTERTAINMENT, INC. Table of Contents Part I Item 1. Financial information Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000............................................................ 1 Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000................. 2 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000............................................................ 3 Condensed Notes to Consolidated Financial Statements.................................. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements and Risk Factors........................................... 20 Factors Affecting Future Operating Results............................................ 20 Results of Operations................................................................. 22 Liquidity, Capital Resources and Other Factors Influencing Future Results............. 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 28 Part II Item 1. Legal Proceedings........................................................................ 28 Item 4. Submission of Matters to a Vote of Security Holders...................................... 29 Item 5. Other Information........................................................................ 30 Item 6. Exhibits and Reports on Form 8-K......................................................... 30 Other Financial Information.............................................................. 31 Signatures............................................................................... 32
Pinnacle Entertainment, Inc. Consolidated Statements of Operations
For the three months For the six months ended June 30, ended June 30, --------------------- -------------------- 2001 2000 2001 2000 --------- -------- --------- -------- (in thousands, except per share data - unaudited) Revenues: Gaming $ 107,983 $126,329 $ 222,245 $253,540 Food and beverage 7,730 8,985 15,093 17,236 Hotel and recreational vehicle park 4,004 3,532 7,128 6,346 Truck stop and service station 5,672 5,307 9,934 9,383 Other income 6,214 6,449 11,210 14,609 Racing 0 3,309 0 9,452 --------- -------- --------- -------- 131,603 153,911 265,610 310,566 --------- -------- --------- -------- Expenses: Gaming 63,274 69,097 129,536 137,400 Food and beverage 9,822 9,843 19,315 19,020 Hotel and recreational vehicle park 2,206 1,564 4,872 3,104 Truck stop and service station 5,293 4,939 9,311 8,703 Racing 0 1,475 0 4,133 General and administrative 33,581 27,246 62,553 57,959 Depreciation and amortization 12,135 11,664 24,223 24,255 Other operating expenses 3,304 3,689 6,469 6,053 Pre-opening costs, Belterra Casino Resort 412 3,713 610 5,456 Gain on sale of assets (581) (35,587) (581) (59,441) Terminated merger costs (464) 1,500 (464) 2,125 --------- -------- --------- -------- 128,982 99,143 255,844 208,767 --------- -------- --------- -------- Operating income 2,621 54,768 9,766 101,799 Interest income (1,428) (3,183) (3,276) (6,372) Interest expense, net of capitalized interest 12,311 14,262 24,618 30,331 --------- -------- --------- -------- (Loss) income before income taxes (8,262) 43,689 (11,576) 77,840 Income tax (benefit) expense (2,975) 17,457 (4,168) 29,696 --------- -------- --------- -------- Net (loss) income ($5,287) $ 26,232 ($7,408) $48,144 ========= ======== ========= ======== =============================================================================================================== Net income per common share: Net income - basic ($0.20) $ 1.00 ($0.28) $ 1.83 Net income - diluted ($0.20) $ 0.96 ($0.28) $ 1.76 Number of shares - basic 25,996 26,303 26,141 26,281 Number of shares - diluted 25,996 27,345 26,141 27,326
________ See accompanying condensed notes to the consolidated financial statements. 1 Pinnacle Entertainment, Inc. Consolidated Balance Sheets
June 30, December 31, 2001 2000 ------------ ------------ (unaudited) Assets (in thousands, except share data) Current Assets: Cash and cash equivalents $146,875 $172,868 Receivables, net 15,163 19,007 Prepaid expenses and other assets 22,953 18,425 Assets held for sale 12,160 12,164 Current portion of notes receivable 1,073 2,393 -------- -------- Total current assets 198,224 224,857 Notes receivable 1,000 6,604 Net property, plant and equipment 597,701 593,718 Goodwill, net of amortization 69,841 71,263 Gaming licenses, net of amortization 37,659 38,934 Debt issuance costs, net of amortization 14,009 15,847 Other assets 10,382 10,252 -------- -------- $928,816 $961,475 ======== ======== - ------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 12,992 $ 19,349 Accrued interest 17,164 17,997 Other accrued liabilities 22,895 31,594 Accrued compensation 15,549 16,668 Deferred income taxes 4,335 4,335 Current portion of notes payable 3,492 3,432 -------- -------- Total current liabilities 76,427 93,375 Notes payable, less current maturities 495,020 497,162 Deferred income taxes 9,762 9,762 Stockholders' Equity: Capital stock -- Preferred - $1.00 par value, authorized 250,000 shares; none issued and outstanding in 2001 and 2000 0 0 Common - $0.10 par value, authorized 40,000,000 shares; 26,046,744 and 26,434,302 shares issued and outstanding in 2001 and 2000 2,587 2,644 Capital in excess of par value 221,991 228,095 Retained earnings 123,029 130,437 -------- -------- Total stockholders' equity 347,607 361,176 -------- -------- $928,816 $961,475 ======== ========
- ------ See accompanying condensed notes to the consolidated financial statements. 2 Pinnacle Entertainment, Inc. Condensed Consolidated Statements of Cash Flows
For the six months ended June 30 -------------------------------- 2001 2000 ---------- ----------- (in thousands - unaudited) Cash flows from operating activities: Net income (loss) ($ 7,408) $ 48,144 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 24,223 24,255 Gain on sale of assets, net (581) (59,441) Other changes that provided (used) cash: Receivables, net 3,844 4,020 Prepaid expenses and other assets (4,508) (6,588) Accounts payable (6,357) 627 Accrued interest (833) (1,516) Other accrued liabilities (8,699) (809) Accrued compensation (1,119) (1,482) All other, net 1,764 (2,353) --------- --------- Net cash provided by operating activities 326 4,857 --------- --------- Cash flows from investing activites: Additions to property, plant and equipment (25,037) (105,833) Capitalized interest included in property, plant and equipment (481) (2,943) Receipts from sale of property, plant and equipment 87 76,528 Principal collected on notes receivable 7,563 567 Proceeds from short term investments 0 123,428 --------- --------- Net cash (used in) provided by investing activities (17,868) 91,747 --------- --------- Cash flows from financing activites: Repurchase of common stock (6,849) 0 Payment on notes payable (2,082) (3,650) Common stock options excercised 480 885 --------- --------- Net cash used in financing activities (8,451) (2,765) --------- --------- (Decrease) Increase in cash and cash equivalents (25,993) 93,839 Cash and cash equivalents at beginning of the period 172,868 123,362 --------- --------- Cash and cash equivalents at the end of the period $ 146,875 $ 217,201 ========= =========
____________ See accompanying condensed notes to consolidated financial statements. 3 PINNACLE ENTERTAINMENT, INC. Condensed Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies General Pinnacle Entertainment, Inc. (the "Company" or "Pinnacle Entertainment") is a diversified gaming company that owns and operates seven casinos (four with hotels) in Indiana, Nevada, Mississippi, Louisiana and Argentina. Pinnacle Entertainment owns and operates through a subsidiary, the Belterra Casino Resort, a hotel and cruising riverboat casino resort in Switzerland County, Indiana, in which the Company owned a 97% interest, until August 2001, at which time the remaining 3% held by a non-voting local partner was purchased by the Company (see Note 2). The Company also owns and operates, through its Boomtown, Inc. ("Boomtown") subsidiary, land-based gaming operations in Verdi, Nevada ("Boomtown Reno") and dockside riverboat gaming operations in Harvey, Louisiana ("Boomtown New Orleans"). On April 1, 2001, legislation became effective in Louisiana that requires cruising riverboat casinos in Southern Louisiana, including the Company's Boomtown New Orleans operations, to remain dockside at all times (see Note 3). The Company also owns and operates, through its Casino Magic Corp. ("Casino Magic") subsidiary, dockside gaming operations in Biloxi, Mississippi ("Casino Magic Biloxi"); dockside riverboat gaming operations in Bossier City, Louisiana ("Casino Magic Bossier City"); and two land-based casinos in Argentina ("Casino Magic Argentina"). Pinnacle Entertainment receives lease income from two card clubs - the Hollywood Park- Casino and Crystal Park Hotel and Casino. The Hollywood Park-Casino is leased from Churchill Downs California Company ("Churchill Downs"), a wholly-owned subsidiary of Churchill Downs Incorporated, and subleased to an unaffiliated third party operator. The Crystal Park Hotel and Casino ("Crystal Park") is owned by the Company and is leased to the same card club operator that leases and operates the Hollywood Park-Casino. Prior to August 8, 2000, the Company owned and operated dockside gaming facilities in Biloxi, Mississippi ("Boomtown Biloxi") and in Bay St. Louis, Mississippi ("Casino Magic Bay St. Louis"). On August 8, 2000, the Company completed the sale of these facilities to subsidiaries of Penn National Gaming, Inc. (see Note 7). Prior to June 13, 2000, the Company owned and operated Turf Paradise, Inc. ("Turf Paradise"), a horse racing facility in Phoenix, Arizona. On June 13, 2000, the Company completed the sale of Turf Paradise to a company owned by a private investor (see Note 7). The financial information included herein has been prepared in conformity with U.S. generally accepted accounting principles as reflected in the Company's consolidated Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the year ended December 31, 2000. This Quarterly Report on Form 10-Q does not include certain footnotes and financial presentations normally presented annually and should be read in conjunction with the Company's 2000 Annual Report on Form 10-K. The information furnished herein is unaudited; however, in the opinion of management, it reflects all normal and recurring adjustments necessary to present a fair statement of the financial results for the interim periods. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. Principles of Consolidation The consolidated financial statements include the accounts of Pinnacle Entertainment and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. The Company's significant subsidiaries include Belterra Casino Resort, Boomtown, Inc. (and its Boomtown casinos) and Casino Magic Corp. (and its Casino Magic casinos). Gaming Licenses In 1994, Casino Magic acquired a twelve-year concession agreement to operate two casinos in Argentina, and capitalized the costs related to obtaining the concession agreement. Such costs are being amortized, based on the straight-line method, over the life of the concession agreement. The exclusive concession contract with the Province of Neuquen, Argentina was originally scheduled to expire in December 2006, however in August 2001, the Company and the Province entered into an agreement whereby the concession contract will be extended 4 for an additional fifteen years if Casino Magic Argentina invests in the development of a new casino facility and related amenities. In 1996, Casino Magic acquired a Louisiana gaming license to conduct the gaming operations of Casino Magic Bossier City. Casino Magic allocated a portion of the purchase price to the gaming license and is amortizing the cost, based on the straight-line method, over twenty-five years. Accumulated amortization as of June 30, 2001 and December 31, 2000 was $7,622,000 and $6,821,000, respectively. Amortization expense was $400,000 for both the three months ended June 30, 2001 and 2000, and was $801,000 for both the six months ended June 30, 2001 and 2000. Amortization of Debt Issuance Costs Debt issuance costs incurred in connection with long-term debt and bank financing are capitalized and amortized, based on the straight-line method which approximates the effective interest method, to interest expense during the period the debt or loan commitments are outstanding. Accumulated amortization as of June 30, 2001 and December 31, 2000 was $10,805,000 and $8,967,000, respectively. During the twelve months ended December 31, 2000, the Company wrote off $2,429,000 of unamortized debt issuance costs associated with the Casino Magic 13% Notes in connection with the redemption of such notes (see Note 11). Amortization of debt issuance costs included in interest expense was $919,000 and $659,000 for the three months ended June 30, 2001 and 2000, respectively, and $1,838,000 and $1,311,000 for the six months ended June 30, 2001 and 2000, respectively. Goodwill Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations and is being amortized on a straight-line basis over 40 years. Accumulated amortization as of June 30, 2001 and December 31, 2000 was $12,439,000 and $11,017,000, respectively. In August 2000, in connection with the sale of the two casinos in Mississippi (see Note 7), the Company wrote off approximately $13,128,000 of unamortized goodwill associated with these properties. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS No. 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142") which are effective July 1, 2001 and January 1, 2002, respectively, for the Company. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. With the adoption of SFAS No. 142 on January 1, 2002 (earlier adoption is not permitted), goodwill will no longer be amortized over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based-test. The Company is in the process of evaluating the financial statement impact of adoption of SFAS No. 142. Any transition related impairment charge as of January 1, 2002 will be classified as a cumulative effect of a change in accounting principle. In addition, under the new rules, any future acquired intangible asset will be separately recognized if the benefit of the intangible is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. Intangible assets with definitive lives will be amortized over their useful lives. Goodwill amortization expense was $712,000 and $804,000 for the three months ended June 30, 2001 and 2000, respectively, and $1,422,000 and $1,605,000 for the six months ended June 30, 2001 and 2000, respectively. Gaming Revenues and Promotional Allowances Gaming revenues at the Belterra, Boomtown and Casino Magic properties consist of the difference between gaming wins and losses. Revenues in the accompanying statements of operations exclude the retail value of food and beverage, hotel rooms and other items provided to patrons on a complimentary basis. The estimated cost of providing these promotional allowances (which is included in gaming expenses) was $11,888,000 and $11,805,000 for the three months ended June 30, 2001 and 2000, respectively and $24,986,000 and $23,311,000 for the six months ended June 30, 2001 and 2000, respectively. 5 Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. The Company uses estimates in evaluating the recoverability of property, plant and equipment, deferred tax assets, other long-term assets, reserves associated with asset sales, and in determining litigation reserves and other obligations. Actual results could differ from those estimates. Property, Plant and Equipment Additions to property, plant and equipment are recorded at cost and projects in excess of $10,000,000 include interest on funds borrowed to finance construction. Capitalized interest was $256,000 and $2,166,000 for the three months ended June 30, 2001 and 2000, respectively, and $481,000 and $2,943,000 for the six months ended June 30, 2001 and 2000, respectively, attributed to the Belterra casino, hotel and golf course. Cash and Cash Equivalents Cash and cash equivalents consist of cash, certificates of deposit and short-term investments with original maturities of 90 days or less. There was no restricted cash at June 30, 2001 and December 31, 2000. Long-lived Assets The Company periodically reviews the propriety of the carrying amount of long-lived assets and the related intangible assets as well as the related amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or to the estimates of useful lives. This evaluation consists of comparing asset carrying values to the Company's projection of the undiscounted cash flows over the remaining lives of the assets, in accordance with Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of ("SFAS No. 121"). Based on its review, the Company believes that, as of June 30, 2001, there were no significant impairments of its long-lived assets or related intangible assets. Pre-opening Costs The Company's policy has been to expense pre-opening costs as incurred. In April 1998, Statement of Position 98-5 Reporting on the Costs of Start-Up Activities was issued and was effective for years beginning after December 15, 1998. Statement of Position 98-5 required that start-up activities and organization costs be expensed as incurred. Derivative Instruments and Hedging Activities In June 1998, Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133") was issued. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In June 1999, Statement of Financial Accounting Standards No. 137 Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 ("SFAS No. 137") was issued. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company did not have any derivative or hedging instruments as of June 30, 2001 and December 31, 2000. Accounting for Customer "Cash-back" Loyalty Programs In January 2001, the Emerging Issues Task Force ("EITF") reached consensus on Issue 3 addressed in Issue No. 00-22 Accounting for "Points" and Certain Other Time-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future. This EITF pronouncement requires that the cost of the cash back component of the Company's customer loyalty programs be treated as a reduction in revenues. The Company rewards customers with cash, based upon their level of play on certain casino games (primarily slot machines). These costs were previously recorded as a casino expense. The consensus reached on Issue 3 is effective beginning in fiscal quarters ending after February 15, 2001 and was adopted by the Company in the quarter ended March 31, 2001. In connection with the adoption of Issue 3, the Company reclassified (i.e., reduced gaming revenue and gaming expense) the cash back component of its customer loyalty programs in the amount of $4,993,000 and $9,881,000 related to the three and six months ended June 30, 2000 to be consistent with the three and six months ended June 30, 2001. 6 Earnings per Share Basic earnings per share are based on net income less preferred stock dividend requirements divided by the weighted average common shares outstanding during the period. Diluted earnings per share assume exercise of in-the-money stock options outstanding at the beginning of the year or date of the issuance, unless they are antidilutive. Reclassifications Certain reclassifications have been made to the 2000 amounts to be consistent with the 2001 financial statement presentation. Note 2 - Belterra Casino Resort and subsequent event Prior to August 2001, the Company owned a 97% interest in the Belterra Casino Resort, which opened in October 2000, with the remaining 3% held by a non-voting local partner. In November 2000, the Company entered into an agreement with the local partner whereby the local partner had the right to require the Company to purchase, for a purchase price determined in accordance with the agreement, its entire ownership interest in the Belterra Casino Resort at any time on or after January 1, 2001. A $100,000 deposit toward such ultimate purchase price was made by the Company to the partner at that time. The agreement also provided that the Company had the option to require the local partner to sell to the Company, for a purchase price determined in accordance with the agreement, his ownership interest in the Belterra Casino Resort. In July 2001, the local partner exercised the right to require the Company to purchase the remaining 3% ownership held by the partner for approximately $1.6 million as was calculated in accordance with the Agreement. In August 2001, the remaining payment of approximately $1.5 million was made to the partner and the Belterra Casino Resort is now wholly owned by the Company. Note 3 - Louisiana Dockside Gaming Legislation In March 2001, the governor of Louisiana called a special session of the state legislature (the "2001 Special Session") to address new gaming legislation. In the 2001 Special Session, a law was passed requiring riverboat casinos to remain dockside at all times and increasing the gaming taxes paid to the state of Louisiana from 18.5% to 21.5% of net gaming proceeds effective April 1, 2001 for the nine riverboats in the southern region of the state, including the Company's Boomtown New Orleans property. The gaming tax increase to 21.5% of net gaming proceeds will be phased in over an approximately two-year period for the riverboats operating in parishes bordering the Red River, including the Company's Casino Magic Bossier City property. Note 4 - Expansion and Development Boomtown New Orleans As discussed in Note 3, effective April 1, 2001, the Company's Boomtown New Orleans riverboat casino is required to remain dockside at all times. In preparation for the anticipated increase in casino customers, the Company renovated the third floor of its dockside riverboat casino during the second quarter of 2001, including adding 325 slot machines (while still conforming to the state of Louisiana's 30,000 square foot gaming limitation). In addition, during the quarter, the Company began renovations and improvements of its land-based facility, which are expected to be completed in the third quarter of 2001. The Company anticipates spending between $9,000,000 to $10,000,000 in connection with the renovation of the facility and purchase of gaming equipment. Casino Magic Bossier City In April 2001, in response to increased competition in the Bossier City/ Shreveport gaming market and increased gaming taxes (see Note 3), the Board of Directors of the Company approved the expansion and renovation of the Casino Magic Bossier City facility, including the replacement of the existing dockside riverboat casino with a new, larger and more luxurious dockside riverboat casino, the construction of a new 300-room hotel tower adjacent to the new dockside riverboat casino and the renovation and upgrade of other land-based amenities. In April 2001, the Company estimated the cost of this expansion and renovation to be approximately $115,000,000. Based upon the continued competitive market and the slower than anticipated growth of the Bossier City/ Shreveport gaming market, the Company is evaluating phasing in 7 this expansion and renovation over a longer period of time than previously reported and also reducing the scope and cost of the project. In addition, the bank credit agreement which was amended in July 2001 limits additional spending at the Bossier City Facility to $5 million for the first phase of this project (see note 11). Lake Charles In November 1999, the Company filed an application for the fifteenth and final gaming license to be issued by the Louisiana Gaming Control Board. In July 2000, the Company was one of three groups that presented their proposed projects to the Louisiana Gaming Control Board. The Company's application is seeking the approval to construct and operate a dockside riverboat casino, hotel and golf course resort complex in Lake Charles, Louisiana (the Company amended the original application to reflect dockside legislation recently enacted in Louisiana - see Note 3). The Louisiana Gaming Control Board has not awarded such license and there is no assurance such license will be issued to the Company or to any other applicant. At the July 2000 meeting, the Louisiana Gaming Control Board indicated that another meeting to address the applications for the license would be held at such time as the Louisiana State Police shall have completed its suitability investigations of the applicants. The Louisiana State Police is in the process of completing its investigations, with a report to the Louisiana Gaming Control Board expected after such completion. In connection with the application, Pinnacle Entertainment entered into an option agreement with the Lake Charles Harbor and Terminal District (the "District") to lease 225 acres of unimproved land from the District upon which such resort complex would be constructed. The initial lease option was for a six-month period ending January 2000, with three six-month renewal options (all of which have been exercised), at a cost of $62,500 per six-month renewal option. As of June 30, 2001, the District agreed to extend the option period for one additional six-month term at a cost of $62,500 for such additional period. These lease option payments are expensed over the option periods. If the lease option were exercised, the annual rental payment would be $815,000, with a maximum annual increase of 5%. The term of the lease would be for a total of up to 70 years, with an initial term of 10 years and six consecutive renewal options of 10 years each. The lease would require the Company to develop certain on- and off-site improvements at the location. If awarded the license by the Louisiana Gaming Control Board, the Company anticipates building a resort similar in design and scope to the Belterra Casino Resort and incorporating the benefits of dockside gaming legislation recently enacted in Louisiana (see Note 3). All costs incurred by the Company related to obtaining this license have been expensed as incurred. Note 5 - Stock Buyback In August 1998, the Company announced its intention to repurchase and retire up to 20%, or approximately 5,256,000 shares, of its then issued and outstanding common stock on the open market or in negotiated transactions. In February 2001, the Company announced its intention to continue to make purchases under this program. During the six months ended June 30, 2001, the Company had repurchased 680,900 shares at a cost of approximately $6.8 million. As of August 7, 2001, the Company had repurchased approximately 1,551,900 shares at a total cost of approximately $14,991,000 in connection with this program. Under the Company's most restrictive debt covenants, approximately $3.5 million is currently available to continue the stock buyback program (see Note 11). Note 6 - HP Yakama In 1998, the Company, through its wholly owned subsidiary HP Yakama, Inc. ("HP Yakama"), loaned approximately $9,618,000 to the Tribal Gaming Corporation (the "Tribal Corporation") to construct the Legends Casino in Yakima, Washington. The Tribal Corporation gave HP Yakama a promissory note for the $9,618,000, payable in 84 equal monthly installments at a 10% rate of interest. Pursuant to a seven year Master Lease between HP Yakama and the Confederated Tribes and Banks of the Yakama Indian Nation (the "Tribes"), HP Yakama must pay the Tribes monthly rent of $1,000. HP Yakama and the Tribal Corporation concurrently entered into a corresponding seven-year Sublease, under which the Tribal Corporation owes rent to HP Yakama. Such rent under the Sublease was initially set at 28% of Net Revenues (as defined in the relevant agreements), and decreases to 22% over the seven-year term of the lease. 8 In June 2001, the Company received an early pay-off of the promissory note (which amount was approximately $6,300,000 at such time) and payment for the early termination of the Master Lease and Sublease for a cumulative amount of approximately $8,490,000. After deducting for cash participation receivables through June 30, 2001, and certain closing costs, the Company's pre-tax gain from the transaction (which was recorded in the second quarter of 2001) was approximately $639,000. Effective with this early termination of the promissory note and related lease agreement, the Company will no longer receive interest income nor cash participation income for the sublease agreement. Note 7 - Assets Sold Casino Sales On August 8, 2000, the Company completed the sale of two of its casinos in Mississippi, Casino Magic Bay St. Louis and Boomtown Biloxi, to subsidiaries of Penn National Gaming, Inc. ("Penn National") for $195,000,000 in cash. Subsidiaries of Penn National purchased all of the operating assets and assumed certain liabilities of the Casino Magic Bay St. Louis and Boomtown Biloxi properties, including 590 acres of land at Casino Magic Bay St. Louis and leasehold rights at Boomtown Biloxi. Goodwill, net of accumulated amortization of $13,128,000, was written off in connection with the casino sales. The after-tax gain from these sales (which was recorded in the third quarter of 2000) was approximately $35,538,000. Due to the sale of Casino Magic Bay St. Louis and Boomtown Biloxi in August 2000, there are no results of operations for the three or six months ended June 30, 2001 for these facilities. The condensed results of operations before income taxes for Casino Magic Bay St. Louis and Boomtown Biloxi for the three and six months ended June 30, 2000 were: Three months ended Six months ended June 30, 2000 June 30, 2000 ------------- ------------- Revenues (a) $ 37,873 $ 77,882 Expenses 30,577 63,163 ------------- ------------- Operating income 7,296 14,719 Interest expense, net of interest income 37 82 ------------- ------------- Income before income taxes $ 7,259 $ 14,637 ============= ============= (a) Revenues for the three and six months ended June 30, 2000 include proceeds from the settlement of a business Interruption claim of approximately $1,204,000 related to hurricane damage and casino closure in September 1998. Turf Paradise Sale On June 13, 2000, the Company completed the sale of Turf Paradise, including all 275 acres at the Phoenix, Arizona horse racing facility, to a company owned by a private investor for $53,000,000 in cash. The after-tax gain from this sale (which was recorded in the second quarter of 2000) was approximately $21,262,000. Due to the sale of Turf Paradise in June 2000, there are no results of operations for the three and six months ended June 30, 2001 for this facility. The condensed results of operations before income taxes for Turf Paradise from April 1, 2000 to June 13, 2000 and from January 1, 2000 to June 13, 2000 were: 74 days ended 165 days ended June 13, 2000 June 13, 2000 ------------- ------------- Revenues $ 3,722 $ 10,665 Expenses 2,978 7,628 ------------- ------------- Operating income 744 3,037 Interest expense, net of interest income (22) (49) ------------- ------------- Income before income taxes $ 766 $ 3,086 ============= ============= 9 Land Sale On March 24, 2000, the Company announced it had completed the sale of approximately 42 acres of surplus land in Inglewood, California to Home Depot, Inc. for $24,200,000 in cash. The after-tax gain from this sale (which was recorded in the first quarter of 2000) was approximately $15,322,000. Note 8 - Assets Held For Sale Assets held for sale of $12,160,000 and $12,164,000 as of June 30, 2001 and December 31, 2000, respectively, consist of 97 acres of surplus land in Inglewood, California. In April 2000, the Company announced it had entered into an agreement with Casden Properties Inc. for the sale of the 97 acres for $63,050,000 in cash. On April 18, 2001, the Company announced that Casden Properties Inc. had elected to terminate the agreement. The Company continues to market the property to prospective buyers. Note 9 - Terminated Merger Agreement On April 17, 2000, the Company entered into a definitive agreement with PH Casino Resorts ("PHCR"), a newly formed subsidiary of Harveys Casino Resorts, and Pinnacle Acquisition Corporation ("Pinnacle Acq Corp"), a newly formed subsidiary of PHCR, pursuant to which PHCR would have acquired by merger (the "Merger") all of the outstanding capital stock of Pinnacle Entertainment (the "Merger Agreement"). Consummation of the Merger was subject to numerous conditions, including PHCR obtaining the necessary financing for the transaction and regulatory approvals. On January 23, 2001, the Company announced that it had been notified by PHCR that PHCR did not intend to further extend the outside closing date (previously extended to January 31, 2001) of the Merger. Since all of the conditions to consummation of the Merger would not be met by such date, the Company, PHCR and Pinnacle Acq Corp mutually agreed that the Merger Agreement would be terminated. Note 10 - Property, Plant and Equipment Property, plant and equipment held at June 30, 2001 and December 31, 2000 consisted of the following: June 30, December 31, 2001 (a) 2000 (a) ------------ ------------ (unaudited) (in thousands) Land and land improvements $102,907 $ 96,249 Buildings 355,764 353,902 Equipment 189,241 183,523 Vessel and barges 109,236 105,829 Construction in progress 8,672 2,404 ------------ ------------ 765,820 741,907 Less accumulated depreciation 168,119 148,189 ------------ ------------ $597,701 $593,718 ============ ============ (a) Excludes $12,160,000 and $12,164,000 of assets as of June 30, 2001 and December 31, 2000, respectively, related to assets classified as held for sale (see Note 8). 10 Note 11 - Secured and Unsecured Notes Payable Notes payable at June 30, 2001 and December 31, 2000 consisted of the following:
June 30, December 31, 2001 2000 ----------- --------------- (unaudited) (in thousands) Secured notes payable, Bank Credit Facility $ 0 $ 0 Unsecured 9.25% Notes 350,000 350,000 Unsecured 9.5% Notes 125,000 125,000 Hollywood Park-Casino debt obligation 19,809 20,745 Other secured notes payable 2,849 3,259 Other unsecured notes payable 854 1,590 ---------- ------------- 498,512 500,594 Less current maturities 3,492 3,432 ---------- ------------- $495,020 $497,162 ========== =============
Secured Notes Payable, Bank Credit Facility Under the terms of the 1998 bank credit facility with a syndicate of banks, expiring in 2003 (the "Credit Facility"), the Company chose in May of 1999 to reduce the amount available under the facility from $300,000,000 to $200,000,000. Effective April 2, 2001 and July 2, 2001, the commitment amount of the Credit Facility was reduced by $10,000,000 on each such date, such that, in connection with the scheduled commitment reductions, the commitment balance is currently at $180,000,000. Remaining scheduled commitment reductions are $10,000,000 on each of September 30 and December 31, 2001, and March 31, June 30, September 30 and December 31, 2002, with the commitment reduction amount increasing to $16,667,000 on each March 31, June 30 and September 30, 2003. The Credit Facility also provides for letters of credit up to $30,000,000 and swing line loans of up to $10,000,000. As of June 30, 2001 and December 31, 2000, the Company had no outstanding borrowings under the Credit Facility. The Credit Facility has remained unused since February 1999. Interest rates on borrowings under the Credit Facility are determined by adding a margin, which is based upon the Company's debt to cash flow ratio (as defined in the Credit Facility), to either the LIBOR rate or Prime Rate (at the Company's option). The Company also pays a quarterly commitment fee on the unused balance of the Credit Facility. The Credit Facility allows for interest rate swap agreements or other interest rate protection agreements. Presently, the Company does not use such financial instruments. On July 24, 2001, the Company and the bank syndicate executed Amendment No. 5, which, among other things, (i) amended various financial covenant ratios to be more consistent with the current operations (therefore reflective of the operations sold in 1999 and 2000, as well as the opening of the Belterra Casino Resort in October 2000), and (ii) allowed for the necessary capital spending for the Lake Charles opportunity (see Note 4) and other capital projects in process at July 24, 2001 and normal maintenance capital expenditures of approximately $20 million each year. An additional amendment to the Bank Credit Facility will be necessary to obtain approval from the Bank syndicate for other capital projects, including expansion at Casino Magic Bossier in excess of $5 million. Costs associated with this Amendment No. 5 will be deferred and amortized over the remaining life of the bank credit facility. Unsecured 9.25% and 9.5% Notes In February of 1999, the Company issued $350,000,000 of 9.25% Senior Subordinated Notes due 2007 (the "9.25% Notes"), the proceeds from which were used to pay the outstanding borrowings on the Credit Facility, to fund current capital expenditures, and for other general corporate purposes. 11 In August of 1997, the Company issued $125,000,000 of 9.5% Senior Subordinated Notes due 2007 (the "9.5% Notes"). On January 29, 1999, the Company received the required number of consents to modify selected covenants associated with the 9.5% Notes. Among other things, the modifications lowered the required minimum consolidated coverage ratio for debt assumption and increased the size of allowed borrowings under the Credit Facility. The Company paid a consent fee of $50 per $1,000 principal amount of the 9.5% Notes which, combined with other transactional expenses, is being amortized over the remaining term of the 9.5% Notes. The 9.25% and 9.5% Notes are redeemable, at the option of the Company, in whole or in part, on the following dates, at the following premium-to-face values: 9.25% Notes redeemable: 9.5% Notes edeemable: -------------------------------------- ---------------------------------- after February 14, at a premium of after July 31, at a premium of -------------------------------------- ---------------------------------- 2003 104.625% 2002 104.750% 2004 103.083% 2003 102.375% 2005 101.542% 2004 101.188% 2006 100.000% 2005 100.000% 2007 maturity 2006 100.000% 2007 maturity Both the 9.25% and the 9.5% Notes are unsecured obligations of the Company, guaranteed by all material restricted subsidiaries of the Company, as defined in the indentures. The subsidiaries which do not guaranty the debt include certain Casino Magic subsidiaries, principally the Casino Magic Argentina subsidiaries. The indentures governing the 9.25% and 9.5% Notes, as well as the Credit Facility, contain certain covenants limiting the ability of the Company and its restricted subsidiaries to incur additional indebtedness, issue preferred stock, pay dividends or make certain distributions, repurchase equity interests or subordinated indebtedness (including the Company's common stock - see Note 5), create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell equity interests in its subsidiaries, or enter into certain mergers and consolidations. Redemption of Casino Magic 13% Notes and Extraordinary Item In August of 1996, Casino Magic of Louisiana, Corp. ("Casino Magic of Louisiana") issued $115,000,000 of 13% First Mortgage Notes due 2003 (the "Casino Magic 13% Notes"), with contingent interest equal to 5% of Casino Magic Bossier City's adjusted consolidated cash flows (as defined by the indenture). On August 15, 2000, the Company redeemed all $112,875,000 in aggregate principal amount of its then outstanding Casino Magic 13% Notes at the redemption price of 106.5%. Upon deposit of principal, premium and accrued interest for such redemption, Casino Magic of Louisiana satisfied all conditions required to discharge its obligations under the indenture. In connection with the redemption, in August 2000, the Company recorded an extraordinary loss of $2,653,000, net of federal and state income taxes, or $0.10 per basic and diluted share. The extraordinary loss represents the payment of the redemption premium and the write-off of deferred finance and premium costs, net of the related federal and state income tax benefit of $1,493,000. Following the redemption, Casino Magic of Louisiana became a guarantor of the Credit Facility, the 9.25% Notes and the 9.5% Notes. Hollywood Park-Casino Debt Obligation In connection with the disposition of the Hollywood Park-Casino to Churchill Downs in September 1999, the Company recorded a long-term lease obligation of $23,000,000. Annual lease payments to Churchill Downs of $3,000,000 are applied as a reduction of principal and interest expense. The debt obligation is being amortized, based on a mortgage interest method, over 10 years (the initial lease term with Churchill Downs). 12 Note 12 - Litigation Poulos Lawsuit A class action lawsuit was filed on April 26, 1994, in the United - -------------- States District Court, Middle District of Florida (the "Poulos Lawsuit"), naming as defendants 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including Casino Magic. The lawsuit alleges that the defendants have engaged in a course of fraudulent and misleading conduct intended to induce people to play such games based on false beliefs concerning the operation of the gaming machines and the extent to which there is an opportunity to win. The suit alleges violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $6 billion. On May 10, 1994, a second class action lawsuit was filed in the United States District Court, Middle District of Florida (the "Ahern Lawsuit"), naming as defendants the same defendants who were named in the Poulos Lawsuit and adding as defendants the owners of certain casino operations in Puerto Rico and the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit were consolidated into one case file (the "Poulos/Ahern Lawsuit") in the United States District Court, Middle District of Florida. On December 9, 1994 a motion by the defendants for change of venue was granted, transferring the case to the United States District Court for the District of Nevada, in Las Vegas. In an order dated April 17, 1996, the court granted motions to dismiss filed by Casino Magic and other defendants and dismissed the Complaint without prejudice. The plaintiffs then filed an amended Complaint on May 31, 1996 seeking damages against Casino Magic and other defendants in excess of $1 billion and punitive damages for violations of RICO and for state common law claims for fraud, unjust enrichment and negligent misrepresentation. At a December 13, 1996 status conference, the Poulos/Ahern Lawsuit was consolidated with two other class action lawsuits (one on behalf of a smaller, more defined class of plaintiffs and one against additional defendants) involving allegations substantially identical to those in the Poulos/Ahern Lawsuit (collectively, the "Consolidated Lawsuits") and all pending motions in the Consolidated Lawsuits were deemed withdrawn without prejudice. The plaintiffs in the Consolidated Lawsuits filed a consolidated amended complaint on February 14, 1997, which the defendants moved to dismiss. On December 19, 1997, the court granted the defendants' motion to dismiss certain allegations in the RICO claim, but denied the motion as to the remainder of such claim; granted the defendants' motion to strike certain parts of the consolidated amended complaint; denied the defendants' remaining motions to dismiss and to stay or abstain; and permitted the plaintiffs to substitute one of the class representatives. On January 9, 1998, the plaintiffs filed a second consolidated amended complaint containing claims nearly identical to those in the previously dismissed complaints. The defendants answered, denying the substantive allegations of the second consolidated amended complaint. On March 19, 1998, the magistrate judge granted the defendants' motion to bifurcate discovery into "class" and "merits" phases. "Class" discovery was completed on July 17, 1998. The magistrate judge recommended denial of the plaintiffs' motion to compel further discovery from the defendants, and the court affirmed in part. "Merits" discovery is stayed until the court decides the motion for class certification filed by the plaintiffs on March 18, 1998, which motion the defendants opposed. In January 2001, the plaintiffs filed a supplement to their Motion for Class Certification. On March 29, 2001, defendants filed their response to plaintiffs' supplement to motion for class certification. The hearing on plaintiffs' Motion for Class Certification has been set for November 9, 2001. The claims are not covered under the Company's insurance policies. While the Company cannot predict the outcome of this litigation, management believes that the claims are without merit and does not expect that the lawsuit will have a materially adverse effect on the financial condition or results of operations of the Company. Casino America Litigation On or about September 6, 1996, Casino America, Inc. - ------------------------- commenced litigation in the Chancery Court of Harrison County, Mississippi, Second Judicial District, against Casino Magic Corp., and James Edward Ernst, its then Chief Executive Officer. In the complaint, as amended, the plaintiff claims, among other things, that the defendants (i) breached the terms of an agreement they had with the plaintiff; (ii) tortiously interfered with certain of the plaintiff's contracts and business relations; and (iii) breached covenants of good faith and fair dealing they allegedly owed to the plaintiff, and seeks compensatory damages in an 13 amount to be proven at trial as well as punitive damages. On or about October 8, 1996, the defendants interposed an answer, denying the allegations contained in the Complaint. On June 26, 1998, defendants filed a motion for summary judgment, as well as a motion for partial summary judgment on damages issues. Thereafter, the plaintiff, in July of 1998, filed a motion to reopen discovery. The court granted the plaintiff's motion, in part, allowing the parties to conduct additional limited discovery. The motion for summary judgment and partial summary judgment are pending. On November 30, 1999, the matter was transferred to the Circuit Court for the Second Judicial District for Harrison County, Mississippi. A trial date has been set for October 2001. The Company's insurer has essentially denied coverage of the claim against Mr. Ernst under the Company's directors and officer's insurance policy, but has reserved its right to review the matter as to tortious interference at or following trial. The Company believes that the insurer should not be permitted to deny coverage, although no assurances can be given that the insurer will change its position. While the Company cannot predict the outcome of this action, management believes the lawsuit will not have a material adverse effect on the financial condition or results of operations of the Company, and intends to vigorously defend this action. Bus Litigation On May 9, 1999, a bus owned and operated by Custom Bus Charters, - -------------- Inc. was involved in an accident in New Orleans, Louisiana while en route to Casino Magic in Bay St. Louis, Mississippi. To date, multiple deaths and numerous injuries are attributed to this accident and the Company's subsidiaries, Casino Magic Corp. and / or Mardi Gras Casino Corp., together with several other defendants (including the State of Louisiana, the manufacturer of the bus and the doctor who treated the driver of the bus and released him to return to work), have been named in fifty-four (54) lawsuits, each seeking unspecified damages due to the deaths and injuries sustained in this accident. Most of the cases filed in the Louisiana state courts were removed and consolidated with the cases which were filed and are pending in the United States District Court for the Eastern District of Louisiana. Casino Magic has denied liability in the cases. The federal district court entered a case management/scheduling order which fixes pretrial scheduling deadlines and preliminary trial dates have been set for the fall of 2001. The proceedings are in the stages of discovery. While the Company cannot predict the outcome of the litigation, the Company believes Casino Magic is not liable for any damages arising from this accident and the Company, together with its applicable insurers, intend to vigorously defend these actions. Skrmetta Lawsuit A suit was filed on August 14, 1998 in the Circuit Court of - ---------------- Harrison County, Mississippi by the ground lessor of property underlying the Boomtown Biloxi land based improvements in Biloxi, Mississippi (the "Project"). The lawsuit alleges that the plaintiff agreed to exchange the first two years' ground rentals for an equity position in the Project based upon defendants' purported assurances that a hotel would be constructed as a component of the Project. Plaintiff seeks recovery in excess of $4,000,000 plus punitive damages. At trial of the matter in March 2000, the judge granted the Company's motion to dismiss the case. On April 26, 2000, plaintiff appealed the court's dismissal to the Mississippi Supreme Court. The claim is not covered under the Company's insurance policies. While the Company cannot predict the outcome of this lawsuit, management does not expect that the lawsuit will have a materially adverse effect on the financial condition or results of operations of the Company. Purported Class Action Lawsuits On March 14, 2000, Harbor Finance Partners filed - ------------------------------- a purported class action lawsuit in the Chancery Court of the State of Delaware against the Company and each of its directors, claiming that the defendants breached their fiduciary duty to the stockholders of the Company by agreeing to negotiate exclusively with Harveys, an affiliate of Colony Capital, LLC (see Note 9). On June 2, 2000, the action was dismissed without prejudice. On March 21, 2000, a similar purported class action lawsuit was filed by Leta Hilliard in the Superior Court of the State of California. The lawsuit claimed that the Company and its directors failed to undertake an appropriate process for evaluating the Company's worth and eliciting bids from third parties, and that the price for the stock is inadequate. The Company believes that the plaintiff's claims were without merit. The parties executed a definitive agreement to settle the purported Hilliard class action litigation. The settlement was subject to court approval. As part of the settlement, the Company agreed to pay attorney's fees and costs to the plaintiff's counsel, subject to court approval. As of June 30, 2001, the Company had incurred estimated 14 costs of approximately $2,000,000 in connection with the negotiation and settlement of this lawsuit, including monies paid to plaintiff's counsel for fees and costs. In view of the fact that the Merger Agreement had been terminated, the parties to the litigation filed a stipulated dismissal of the case with prejudice, incorporating the Company's agreement to pay attorney's fees and costs to the plaintiff's counsel as provided in the settlement agreement, though at a reduced level. The defendants' agreement to the settlement/ stipulated dismissal does not constitute, and should not be construed as, an admission that the defendants have any liability to or acted wrongfully in any way with respect to the plaintiff or any other person. Final judgment and order of dismissal with prejudice was entered on May 18, 2001. Casino Magic Bay St. Louis Wrongful Death Litigation On February 17, 2000, three - ---------------------------------------------------- Mardi Gras Casino Corp. (dba Casino Magic Bay St. Louis) patrons, after leaving the casino property, were involved in a vehicular accident which resulted in the death of two of the individuals and injury to the third. On April 13, 2000, a lawsuit was filed on behalf of the injured individual and one of the deceased individuals against Mardi Gras Casino Corp. seeking compensatory damages in the amount of $2,000,000 and punitive damages, attorney fees, costs and expenses in the amount of $10,000,000. The suit alleges, among other things, that Mardi Gras Casino Corp. employees negligently served alcoholic beverages to the three individuals and the acts and omissions of the employees were the proximate cause of the accident. The Company has submitted a claim to its insurer under its general liability insurance policy. While the Company cannot predict the outcome of this lawsuit, management believes the claims are without merit and intends to vigorously defend this action. Astoria Entertainment Litigation In November 1998, Astoria Entertainment, Inc. - -------------------------------- filed a complaint in the United States District Court for the Eastern District of Louisiana. Astoria, an unsuccessful applicant for a license to operate a riverboat casino in Louisiana, attempted to assert a claim under the Racketeer Influenced and Corrupt Organizations ("RICO") statutes, seeking damages allegedly resulting from its failure to obtain a license. Astoria named several companies and individuals as defendants, including Hollywood Park, Inc. (the predecessor to Pinnacle Entertainment), Louisiana Gaming Enterprises, Inc. ("LGE"), and an employee of Boomtown, Inc. The Company believed the RICO claim against it had no merit and, indeed, Astoria voluntarily dismissed its RICO claim against Hollywood Park, LGE, and the Boomtown employee. On March 1, 2001, Astoria amended its complaint. Astoria's amended complaint added new legal claims, and named Boomtown, Inc. and LGE as defendants. Astoria claims that the defendants (i) conspired to corrupt the process for awarding licenses to operate riverboat casinos in Louisiana, (ii) succeeded in corrupting the process, (iii) violated federal and Louisiana antitrust laws, and (iv) violated the Louisiana Unfair Trade Practices Act. The amended complaint asserts that Astoria would have obtained a license to operate a riverboat casino in Louisiana, but for these alleged improper acts. While the Company cannot predict the outcome of this action, the Company asserts that it has no liability in this matter, and it intends to vigorously defend the action. Casino Magic Biloxi Patron Shooting Incident On January 13, 2001, three Casino - -------------------------------------------- Magic Biloxi patrons were shot, in the casino, sustaining serious injuries as a result of a shooting incident involving another Casino Magic Biloxi patron, who then killed himself. Several other patrons sustained minor injuries while attempting to exit the casino. To date, no lawsuits relating to this incident have been filed against Casino Magic Biloxi. However, the Company has notified its insurance carriers of the incident, and the Company will submit any claims relating to the incident to its insurers under its general liability insurance policy, subject to a deductible. Other Proceedings The Company is party to a number of other pending legal - ----------------- proceedings in the ordinary course of business, though management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on the Company's financial condition or results of operations. 15 Note 13 - Consolidating Condensed Financial Information The Company's subsidiaries (excluding Casino Magic Argentina, certain non- material subsidiaries and before August 2000 Casino Magic of Louisiana, Corp.) have fully and unconditionally guaranteed the payment of all obligations under the 9.25% Notes and the 9.5% Notes. Separate financial statements and other disclosures regarding the subsidiary guarantors are not included herein because management has determined that such information is not material to investors. In lieu thereof, the Company includes the following:
Pinnacle Entertainment, Inc. Consolidating Condensed Financial Information For the three and six months ended June 30, 2001 and 2000 and balance sheets as of June 30, 2001 and December 31, 2000 (in thousands - unaudited) (b) (a) Wholly Wholly Owned Consolidating Pinnacle Pinnacle Owned Non- and Entertainment, Entertainment, Guarantor Guarantor Eliminating Inc. Inc. Subsidiaries Subsidiaries Entries Consolidated ---- ------------ ------------ ------- ------------ Balance Sheet ------------- As of June 30, 2001 Current assets $124,585 $ 63,993 $ 9,646 $ 0 $198,224 Property, plant and equipment, net 22,780 571,847 3,074 0 597,701 Other non-current assets 22,356 63,905 5,219 41,411 132,891 Investment in subsidiaries 580,048 8,514 0 (588,562) 0 Inter-company 141,453 106,069 0 (247,522) 0 -------- -------- ------- ---------- -------- $891,222 $814,328 $17,939 ($794,673) $928,816 ======== ======== ======= ========== ======== Current liabilities $ 32,003 $ 43,943 $ 481 $ 0 $ 76,427 Notes payable, long term 492,997 2,023 0 0 495,020 Other non-current liabilities 18,615 0 3,353 (12,206) 9,762 Inter-company 0 241,931 5,591 (247,522) 0 Equity 347,607 526,431 8,514 (534,945) 347,607 -------- -------- ------- ---------- -------- $891,222 $814,328 $17,939 ($794,673) $928,816 ======== ======== ======= ========== ======== Statement of Operations ----------------------- For the three months ended June 30, 2001 Revenues: Gaming $ 0 $103,010 $ 4,973 $ 0 $107,983 Food and beverage 0 7,353 377 0 7,730 Equity in subsidiaries 5,828 1,558 0 (7,386) 0 Other 1,500 14,356 34 0 15,890 -------- -------- ------- ---------- -------- 7,328 126,277 5,384 (7,386) 131,603 Expenses: Gaming 0 61,872 1,402 0 63,274 Food and beverage 0 9,544 278 0 9,822 Administrative and other 3,584 38,678 1,489 0 43,751 Depreciation and amortization 669 10,843 344 279 12,135 -------- -------- ------- ---------- -------- 4,253 120,937 3,513 279 128,982 -------- -------- ------- ---------- -------- Operating income (loss) 3,075 5,340 1,871 (7,665) 2,621 Interest expense, (income) net 11,435 (488) (64) 0 10,883 -------- -------- ------- ---------- -------- Income (loss) before minority interests and taxes (8,360) 5,828 1,935 (7,665) (8,262) Income tax (benefit) expense (3,352) 0 377 0 (2,975) -------- -------- ------- ---------- -------- Net income (loss) ($5,008) $ 5,828 $1,558 ($7,665) ($5,287) ======== ======== ======= ========== ========
16 Pinnacle Entertainment, Inc. Consolidating Condensed Financial Information For the three and six months ended June 30, 2001 and 2000 and balance sheets as of June 30, 2001 and December 31, 2000 (in thousands - unaudited)
(b) (a) Wholly Wholly Owned Consolidating Pinnacle Pinnacle Owned Non- and Entertainment, Entertainment, Guarantor Guarantor Eliminating Inc. Inc. Subsidiaries Subsidiaries Entries Consolidated --- ------------ ------------- ------- ------------ Statement of Operations - ----------------------- For the six months ended June 30, 2001 Revenues: Gaming $ 0 $212,463 $ 9,782 $ 0 $222,245 Food and beverage 0 14,362 731 0 15,093 Equity in subsidiaries 16,784 2,712 0 (19,496) 0 Other 3,000 25,208 64 0 28,272 --------- -------- ------- --------- -------- 19,784 254,745 10,577 (19,496) 265,610 --------- -------- ------- --------- -------- Expenses: Gaming 0 126,824 2,712 0 129,536 Food and beverage 0 18,762 553 0 19,315 Administrative and other 7,978 71,704 3,088 0 82,770 Depreciation and amortization 1,352 21,610 703 558 24,223 --------- -------- ------- --------- -------- 9,330 238,900 7,056 558 255,844 --------- -------- ------- --------- -------- Operating income (loss) 10,454 15,845 3,521 (20,054) 9,766 Interest expense, (income) net 22,414 (939) (133) 0 21,342 --------- -------- ------- --------- -------- Income (loss) before taxes (11,960) 16,784 3,654 (20,054) (11,576) Income tax (benefit) expense (5,110) 0 942 0 (4,168) --------- -------- ------- --------- -------- Net income (loss) ($6,850) $ 16,784 $ 2,712 ($20,054) ($7,408) ========= ======== ======= ========= ======== Statement of Cash Flows - ----------------------- For the six months ended June 30, 2001 Net cash provided by (used in) operating activities ($17,664) $ 15,454 $ 1,978 $ 558 $ 326 Net cash provided by (used in) investing activities (77) (16,479) (1,312) 0 (17,868) Net cash provided by (used in) financing activities (8,041) (410) 0 0 (8,451)
17 Pinnacle Entertainment, Inc. Consolidating Condensed Financial Information For the three and six months ended June 30, 2001 and 2000 and balance sheets as of June 30, 2001 and December 31, 2000 (in thousands - unaudited)
(b) (a) Wholly Wholly Owned Consolidating Pinnacle Pinnacle Owned Non- And Entertainment, Entertainment, Guarantor Guarantor Eliminating Inc. Inc. Subsidiaries Subsidiaries Entries Consolidated ---- ------------ ------------ ------- ------------ Balance Sheet - ------------- As of June 30, 2000 Current assets $183,950 $170,167 $ 38,583 $ 0 $ 392,700 Property, plant and equipment, net 55,354 388,001 87,017 0 530,372 Other non-current assets 26,524 40,318 42,911 55,721 165,474 Investment in subsidiaries 427,237 114,203 0 (541,440) 0 Inter-company 205,285 149,075 31,489 (385,849) 0 -------- -------- -------- ---------- ---------- $898,350 $861,764 $200,000 ($871,568) $1,088,546 ======== ======== ======== ========== ========== Current liabilities $ 79,595 $ 52,376 $126,886 $ 0 $ 258,857 Notes payable, long term 495,724 3,027 0 0 498,751 Other non-current liabilities (7,081) 0 20,113 (12,206) 826 Inter-company 0 359,351 26,499 (385,850) 0 Equity 330,112 447,010 26,502 (473,512) 330,112 -------- -------- -------- ---------- ---------- $898,350 $861,764 $200,000 ($871,568) $1,088,546 ======== ======== ======== ========== ========== Statement of Operations - ----------------------- For the three months ended June 30, 2000 Revenues: Gaming $ 0 $ 85,823 $ 40,506 $ 0 $ 126,329 Racing 3,309 0 0 0 3,309 Food and beverage 335 7,679 971 0 8,985 Equity in subsidiaries 19,111 3,834 0 (22,945) 0 Other 1,578 13,051 659 0 15,288 -------- -------- -------- ---------- ---------- 24,333 110,387 42,136 (22,945) 153,911 -------- -------- -------- ---------- ---------- Expenses: Gaming 0 44,358 24,739 0 69,097 Racing 1,475 0 0 0 1,475 Food and beverage 304 8,519 1,020 0 9,843 Administrative and other 6,557 30,552 5,542 0 42,651 Gain on disposition of assets (35,923) 336 0 0 (35,587) Depreciation and Amortization 943 7,846 2,506 369 11,664 -------- -------- -------- ---------- ---------- (26,644) 91,611 33,807 369 99,143 -------- -------- -------- ---------- ---------- Operating income (loss) 50,977 18,776 8,329 (23,314) 54,768 Interest expense, net 9,665 (2,655) 4,069 0 11,079 -------- -------- -------- ---------- ---------- Income (loss) before minority interests and taxes 41,312 21,431 4,260 (23,314) 43,689 Income tax expense 17,031 0 426 0 17,457 -------- -------- -------- ---------- ---------- Net income (loss) $ 24,281 $ 21,431 $ 3,834 ($23,314) $ 26,232 ======== ======== ======== ========== ==========
18 Pinnacle Entertainment, Inc. Consolidating Condensed Financial Information For the three and six months ended June 30, 2001 and 2000 and balance sheets as of June 30, 2001 and December 31, 2000 (in thousands - unaudited)
(b) (a) Wholly Wholly Owned Consolidating Pinnacle Pinnacle Owned Non- and Entertainment Entertainment Guarantor Guarantor Eliminating Inc. Inc. Subsidiaries Subsidiaries Entries Consolidated ---- ------------ ------------ ------- ------------ Statement of Operations - ----------------------- For the six months ended June 30, 2000 Revenues: Gaming $ 0 $170,438 $83,102 $ 0 $253,540 Racing 9,452 0 0 0 9,452 Food and beverage 1,056 14,200 1,980 0 17,236 Equity in subsidiaries 43,269 9,209 0 (52,478) 0 Other 3,157 25,611 1,570 0 30,338 --------- -------- ------- --------- -------- 56,934 219,458 86,652 (52,478) 310,566 --------- -------- ------- --------- -------- Expenses: Gaming 0 88,566 48,834 0 137,400 Racing 4,133 0 0 0 4,133 Food and beverage 892 16,061 2,067 0 19,020 Administrative and other 12,813 58,599 11,988 0 83,400 Gain on disposition of assets (59,777) 336 0 0 (59,441) Depreciation and amortization 1,945 16,566 5,006 738 24,255 --------- -------- ------- --------- -------- (39,994) 180,128 67,895 738 208,767 --------- -------- ------- --------- -------- Operating income (loss) 96,928 39,330 18,757 (53,216) 101,799 Interest expense, net 19,367 (3,939) 8,531 0 23,959 --------- -------- ------- --------- -------- Income (loss) before minority interests and Taxes 77,561 43,269 10,226 (53,216) 77,840 Income tax expense 28,679 0 1,017 0 29,696 --------- -------- ------- --------- -------- Net income (loss) $ 48,882 $ 43,269 $ 9,209 ($53,216) $ 48,144 ========= ======== ======= ========= ======== Statement of Cash Flows - ----------------------- For the six months ended June 30, 2000 Net cash provided by (used in) operating activities ($90,438) $ 84,587 $ 9,965 $ 743 $ 4,857 Net cash provided by (used in) investing activities 175,750 (83,187) (816) 0 91,747 Net cash provided by (used in) financing activities (670) (1,738) (357) 0 (2,765)
Balance Sheet - ------------- As of December 31, 2000 Current assets $146,941 $ 67,931 $ 9,985 $ 0 $224,857 Property, plant and equipment, net 23,969 567,714 2,035 0 593,718 Other non-current assets 24,309 70,927 5,693 41,971 142,900 Investment in subsidiaries 560,204 6,539 0 (566,743) 0 Inter-company 162,213 100,074 0 (262,287) 0 --------- -------- ------- ---------- -------- $917,636 $813,185 $17,713 ($787,059) $961,475 ========= ======== ======= ========== ======== Current liabilities $ 43,115 $ 50,683 ($423) $ 0 $ 93,375 Notes payable, long term 494,729 2,433 0 0 497,162 Other non-current liabilities 18,615 (2,447) 5,800 (12,206) 9,762 Inter-company 0 256,490 5,797 (262,287) 0 Equity 361,177 506,026 6,539 (512,566) 361,176 --------- -------- ------- ---------- -------- $917,636 $813,185 $17,713 ($787,059) $961,475 ========= ======== ======= ========== ========
(a) The following subsidiaries are treated as guarantors of both the 9.5% Notes and 9.25% Notes for all periods presented: Turf Paradise, Inc. (through June 13, 2000), Belterra Resorts LLC, Boomtown, Inc., Boomtown Hotel & Casino, Inc., Bay View Yacht Club, Inc. (through August 8, 2000), Louisiana - I Gaming, Louisiana Gaming Enterprises, Inc., Boomtown Hoosier, Inc., HP Casino, Inc., HP Yakama, Inc., HP Consulting, Inc. , HP/Compton, Inc., Casino Magic Corp., Mardi Gras Casino Corp. (through August 8, 2000), Biloxi Casino Corp., Bay St. Louis Casino Corp., Casino Magic Finance Corp., Casino Magic American Corp., and Casino One Corporation. Crystal Park Hotel and Casino Development Company, LLC and Mississippi - I Gaming L.P. (through August 8, 2000). Jefferson Casino Corporation and Casino Magic of Louisiana, Corp. were treated as wholly owned guarantors as of September 30, 2000 upon the redemption of the Casino Magic 13% Notes in August 2000 (see Note 11). (b) Prior to the redemption of the Casino Magic 13% Notes on August 15, 2000, (see Note 11), Jefferson Casino Corporation and Casino Magic of Louisiana, Corp. were wholly owned non-guarantors of the 9.5% and 9.25% Notes. Upon redemption of the Casino 19 Magic 13% Notes, Jefferson Casino Corporation and Casino Magic of Louisiana, Corp. became guarantors of the 9.5% and 9.25% Notes (see note (a) above). Prior to October 1999, Casino Magic Neuquen S.A. and its subsidiary Casino Magic Support Services were non-wholly owned non- guarantors to the 9.5% and 9.25% Notes. In October 1999, Casino Magic Neuquen S.A. and its subsidiary Casino Magic Support Services became wholly owned subsidiaries of the Company, but remain non-guarantors of the 9.5% and 9.25% Notes. Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations ------------- Forward-Looking Statements and Risk Factors Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Such forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company's management. Factors that may cause actual performance of the Company to differ materially from that contemplated by such forward-looking statements include, among others: the effect of future weather conditions and other natural events; the performance of the Belterra Casino Resort, which has a limited operating history and is in a new market for the Company; the failure to sell the surplus land in Inglewood, California (see Note 8 to the Condensed Notes to Consolidated Financial Statements); the failure to complete (on time or otherwise) or successfully operate planned expansion and development projects, (see Note 4 to the Condensed Notes to Consolidated Financial Statements); the failure to obtain adequate financing to meet strategic goals; the failure to obtain or retain gaming licenses or regulatory approvals; increased competition by casino operators who have more resources and have built or are building competitive casino properties, particularly at Boomtown New Orleans, Casino Magic Biloxi and Casino Magic Bossier City; the failure to meet Pinnacle Entertainment, Inc.'s debt service obligations; overall economic conditions, including currency risks at the Company's Argentina operations; change in gaming legislation in Indiana; and other adverse changes in the gaming markets in which Pinnacle Entertainment, Inc. operates (particularly in the southeastern United States). The Private Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. For more information on the potential factors which could affect the Company's financial results, please review the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Factors Affecting Future Operating Results Belterra Casino Resort On October 27, 2000, the Company opened to the public the Belterra Casino Resort located on 315 acres adjacent to the Ohio River in Switzerland County, Indiana, which is approximately 45 miles southwest of downtown Cincinnati, Ohio. The Belterra Casino Resort features a 15-story, 308- room hotel, a cruising riverboat casino (the "Miss Belterra") with approximately 1,800 gaming positions, an 18-hole Tom Fazio-designed championship golf course, which opened in July 2001, six restaurants, a 1,500-seat entertainment venue, a spa, retail areas and other amenities. Prior to August 2001, the Company owned a 97% interest in the Belterra Casino Resort, which opened in October 2000, with the remaining 3% held by a non-voting local partner. In November 2000, when the Company entered into an agreement with the local partner whereby the local partner had the right to require the Company to purchase, for a purchase price determined in accordance with the agreement, its entire ownership interest in the Belterra Casino Resort at any time on or after January 1, 2001. A $100,000 deposit toward such ultimate purchase price was made by the Company to the partner at that time. The agreement also provided that the Company had the option to require the local partner to sell to the Company, for a purchase price determined in accordance with the agreement, his ownership interest in the Belterra Casino Resort. In July 2001, the local partner exercised the right to require the Company to purchase the remaining 3% ownership held by the partner for approximately $1.6 million as was calculated in accordance with the agreement. In August 2001, the remaining payment of approximately $1.5 million was made to the partner and the Belterra Casino Resort is now wholly owned by the Company. 20 Legislation Regarding Dockside Gaming in Louisiana In March 2001, the governor of Louisiana called a special session of the state legislature (the "2001 Special Session") to address new gaming legislation. In the 2001 Special Session, a law was passed requiring riverboat casinos to remain dockside at all times and increasing the gaming taxes paid to the state of Louisiana from 18.5% to 21.5% of net gaming proceeds effective April 1, 2001 for the nine riverboats in the southern region of the state, including the Company's Boomtown New Orleans property. The gaming tax increase to 21.5% of net gaming proceeds will be phased in over an approximately two-year period for the riverboats operating in parishes bordering the Red River, including the Company's Casino Magic Bossier City property. The Company believes this change in the law will benefit its Boomtown New Orleans operations in the long-term, as increased revenues are expected from casino patrons who will no longer be required to arrange their plans to coincide with a cruising schedule. However, increased revenues at Boomtown New Orleans from the benefit of permanent dockside gaming during the initial three months of the new legislation were not sufficient to cover the additional 3.0% gaming tax. The Company believes the benefit of permanent dockside gaming will be realized to a greater degree during the summer months of 2001, as the riverboat casino traditionally cruised more frequently during summer months when weather conditions were more favorable. To take advantage of the benefits of dockside gaming, the Company renovated the third floor of its dockside riverboat casino during the second quarter of 2001, including adding 325 slot machines (while still conforming to the state of Louisiana's 30,000 square foot gaming limitation). In addition, during the quarter, the Company began renovations and improvements of its land-based facility, which are expected to be completed in the third quarter of 2001. The Company also believes, if the Company is awarded the license for the proposed Lake Charles project, the new legislation would benefit the proposed project (see below), as it would enable the Company to build a riverboat casino that would remain dockside at all times and thus compete more effectively with existing operators. Finally, during the three months ended June 30, 2001, the Company believes the increased gaming taxes had a negative impact at Casino Magic Bossier City, as gaming was already being conducted on a dockside riverboat casino prior to the new legislation. However, the Company believes that, in the long term, a proposed expansion of the property, including a new larger dockside riverboat and land based amenities, and the related additional revenue to be derived from such enhanced operations, will help to offset such increased gaming taxes. Lake Charles In November 1999, the Company filed an application for the fifteenth and final gaming license to be issued by the Louisiana Gaming Control Board. In July 2000, the Company was one of three groups that presented their proposed projects to the Louisiana Gaming Control Board. The Company's application is seeking the approval to construct and operate a dockside riverboat casino, hotel and golf course resort complex in Lake Charles, Louisiana (the Company amended the original application to reflect dockside legislation recently enacted in Louisiana - see above). The Louisiana Gaming Control Board has not awarded such license and there is no assurance such license will be issued to the Company or to any other applicant. At the July 2000 meeting, the Louisiana Gaming Control Board indicated that another meeting to address the applications for the license would be held at such time as the Louisiana State Police shall have completed its suitability investigations of the applicants. The Louisiana State Police is in the process of completing its investigations, with a report to the Louisiana Gaming Control Board expected after such completion. In connection with the application, Pinnacle Entertainment entered into an option agreement with the Lake Charles Harbor and Terminal District (the "District") to lease 225 acres of unimproved land from the District upon which such resort complex would be constructed. The initial lease option was for a six-month period ending January 2000, with three six-month renewal options (all of which have been exercised), at a cost of $62,500 per six-month renewal option. The District has agreed to extend the option period for one additional six-month term at a cost of $62,500 for such additional period. These lease option payments are expensed over the option periods. If the lease option were exercised, the annual rental payment would be $815,000, 21 with a maximum annual increase of 5%. The term of the lease would be for a total of up to 70 years, with an initial term of 10 years and six consecutive renewal options of 10 years each. The lease would require the Company to develop certain on- and off-site improvements at the location. If awarded the license by the Louisiana Gaming Control Board, the Company anticipates building a resort similar in design and scope to the Belterra Casino Resort and incorporating the benefits of dockside gaming legislation recently enacted in Louisiana (see above). All costs incurred by the Company related to obtaining this license have been expensed as incurred. HP Yakama In 1998, the Company, through its wholly owned subsidiary HP Yakama, Inc. ("HP Yakama"), loaned approximately $9,618,000 to the Tribal Gaming Corporation (the "Tribal Corporation") to construct the Legends Casino in Yakima, Washington. The Tribal Corporation gave HP Yakama a promissory note for the $9,618,000, payable in 84 equal monthly installments at a 10% rate of interest. Pursuant to a seven year Master Lease between HP Yakama and the Confederated Tribes and Banks of the Yakama Indian Nation (the "Tribes"), HP Yakama must pay the Tribes monthly rent of $1,000. HP Yakama and the Tribal Corporation concurrently entered into a corresponding seven-year Sublease, under which the Tribal Corporation owes rent to HP Yakama. Such rent under the Sublease was initially set at 28% of Net Revenues (as defined in the relevant agreements), and decreases to 22% over the seven-year term of the lease. In June 2001, the Company received an early pay-off of the promissory note (which amount was approximately $6,300,000 at such time) and payment for the early termination of the Master Lease and Sublease for a cumulative amount of approximately $8,490,000. After deducting for cash participation receivables through June 30, 2001, and certain closing costs, the Company's pre-tax gain from the transaction (which was recorded in the second quarter of 2001) was approximately $639,000. Effective with the early termination of the promissory note and related lease agreement, the Company will no longer receive cash participation income from the Sublease agreement. Assets Held for Sale Assets held for sale of $12,160,000 and $12,164,000 as of June 30, 2001 and December 31, 2000, respectively, consist of 97 acres of surplus land in Inglewood, California. In April 2000, the Company announced it had entered into an agreement with Casden Properties Inc. for the sale of the 97 acres for $63,050,000 in cash. On April 18, 2001, the Company announced that Casden Properties Inc. had elected to terminate the agreement. The Company continues to market the property to prospective buyers. California Card Clubs By California state law, a corporation may operate a gambling enterprise in California only if every officer, director and shareholder holds a state gambling license. Only 5% or greater shareholders of a publicly traded racing association, however, must hold a state gambling license. As a practical matter, therefore, public corporations that are not qualified racing associations may not operate gambling enterprises in California. As a result, the Hollywood Park-Casino and Crystal Park Hotel and Casino, are leased to, and operated by, an unrelated third party. In May 2001, the California Senate passed a bill, the effect of which would be to permit the Company to operate the Hollywood Park-Casino in Inglewood, California. The bill is currently pending before the California State Assembly. If passed and subsequently signed by the Governor, the bill would be effective January 1, 2002 at which time the Company would no longer sublease the property to a third party operator, but would assume operations of the Hollywood Park-Casino. Results of Operations Accounting for Customer "Cash-back" Loyalty Programs In January 2001, the Emerging Issues Task Force ("EITF") reached consensus on Issue 3 addressed in Issue No. 00-22 Accounting for "Points" and Certain Other Time-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future. This EITF pronouncement requires that the cost of the cash back component of the Company's customer loyalty programs be treated as a reduction in revenues. The Company rewards customers with cash, based upon their level of play on certain casino games (primarily slot machines). These costs were previously recorded as a casino expense. The consensus reached on Issue 3 is effective beginning in fiscal quarters ending after February 15, 2001 and was adopted by the Company in the quarter ended March 31, 2001. In connection with 22 the adoption of Issue 3, the Company reclassified (i.e., reduced gaming revenue and gaming expenses) the cash back component of its customer loyalty programs in the amount of $4,993,000 and $9,881,000 related to the three months and six months ended June 30, 2000 to be consistent with the three and six months ended June 30, 2001. Terminated Merger Agreement On April 17, 2000, the Company entered into a definitive agreement with PH Casino Resorts ("PHCR"), a newly formed subsidiary of Harveys Casino Resorts, and Pinnacle Acquisition Corporation ("Pinnacle Acq Corp"), a newly formed subsidiary of PHCR, pursuant to which PHCR would have acquired by merger (the "Merger") all of the outstanding capital stock of Pinnacle Entertainment (the "Merger Agreement"). Consummation of the Merger was subject to numerous conditions, including PHCR obtaining the necessary financing for the transaction and regulatory approvals, as well as other conditions. On January 23, 2001, the Company announced that it had been notified by PHCR that PHCR did not intend to extend further the outside closing date (previously extended to January 31, 2001) of the Merger. Since all of the conditions to consummation of the Merger would not be met by such date, the Company, PHCR and Pinnacle Acq Corp mutually agreed that the Merger Agreement would be terminated. The Company does not expect to incur additional costs relating to the terminated Merger Agreement. Redemption of Casino Magic 13% Notes and Extraordinary Item On August 15, 2000, the Company redeemed all $112,875,000 in aggregate principal amount of its then outstanding Casino Magic 13% Notes at the redemption price of 106.5%. Upon deposit of principal, premium and accrued interest for such redemption, Casino Magic Bossier City satisfied all conditions required to discharge its obligations under the indenture. In connection with the redemption, the Company recorded an extraordinary loss, net of federal and state income taxes, of $2,653,000. The extraordinary loss represents the payment of the redemption premium and the write-off of deferred finance and premium costs, net of the related federal and state income tax benefits (see Note 10 to the Condensed Notes to Consolidated Financial Statements). Assets Sold On August 8, 2000, the Company completed the sale of Casino Magic Bay St. Louis and Boomtown Biloxi (the "Mississippi Casinos") and on June 13, 2000, the Company completed the sale of Turf Paradise (see Note 7 to the Condensed Notes to Consolidate Financial Statements). The results of operations of the Mississippi Casinos and Turf Paradise are included in the results of operations only until such respective dates. Future revenue, operating results and interest expense will be materially different due to the sale of the Mississippi Casinos and Turf Paradise, the redemption of the Casino Magic 13% Notes, the opening of the Belterra Casino Resort and the early termination of the HP Yakama promissory note and related lease agreements. Three months ended June 30, 2001 compared to the three months ended ------------------------------------------------------------------- June 30, 2000 ------------- Total revenues for the three months ended June 30, 2001 decreased by $22,308,000, or 14.5%, as compared to the three months ended June 30, 2000. Contribution to revenues in the three months ended June 30, 2000 from the Mississippi Casinos and Turf Paradise was $41,595,000. When excluding such revenue for the three months ended June 30, 2000, total revenues in the three months ended June 30, 2001 increased by $19,287,000, or 17.2%, when compared to the three months ended June 30, 2000 due primarily to the revenue at the Belterra Casino Resort, which was not opened in the 2000 year three month period. Gaming revenues decreased by $18,346,000, or 14.5%, including $33,272,000 due to the timing of the sale of the Mississippi Casinos in August 2000. When excluding the results of the Mississippi Casinos from the three-month results ended June 30, 2000, gaming revenues increased by $14,926,000, or 16.0%. Gaming revenues increased at Belterra Casino Resort by $22,652,000 and at Boomtown New Orleans by $642,000, while gaming revenues declined at Casino Magic Bossier City by $7,915,000. The increase in gaming revenues at Belterra Casino Resort is due to the opening of the property in October 2000 and therefore no results of operations in the three months ended June 30, 2000. The increase in gaming revenues at Boomtown New 23 Orleans is primarily attributed to increased coin-in and resultant slot revenue in the three months ended June 30, 2001, compared to the prior year. The decrease in Casino Magic Bossier City gaming revenue was due primarily to lower table game drop and coin-in (volume of play in the casino) attributable to increased competition from the opening of a new casino hotel in December 2000 and the opening of a new hotel tower at another competitor in January 2001, as well as severe winter rainfall in late February and March, which flooded the first level of the property's multi-level parking garage, and remodeling of the third deck of the casino in June 2001. The first level of the parking structure was not useable for approximately 45 days during the second quarter of 2001. In addition, on June 11, 2001 the casino began relocating slot machines and renovating the third deck, which resulted in disruption to this part of the casino and such remodeling was not completed until mid-July. Food and beverage revenues decreased by $1,255,000, or 14.0%, including $2,809,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise. When excluding the results of the sold operations from the three-month results ended June 30, 2000, food and beverage revenue increased $1,554,000, or 25.2%. A majority of the increase, $1,996,000, is attributed to Belterra Casino Resort, which increase is due to the opening of the property in October 2000. Hotel and recreational vehicle park revenues increased by $472,000, or 13.4%, including $532,000 due to the timing of the sale of Casino Magic Bay St. Louis in August 2000. When excluding the results of Casino Magic Bay St. Louis from the three- month results ended June 30, 2000, hotel and recreational vehicle park revenues increased $1,004,000, or 33.5%. A majority of the increase, $980,000, is attributed to the opening of the Belterra Casino Resort in October 2000. Truck stop and service station revenue increased by $365,000, or 6.9%, primarily due to increased fuel prices at the Boomtown Reno truck stop and service station. Other income decreased by $235,000, or 3.6%, including $1,674,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise. When excluding the results of the sold operations from the three-month results ended June 30, 2000, other income increased by $1,439,000, or 30.1%. The increase in other revenue was due primarily to the payment of percentage rent by the casino in Yakama Washington (see Note 6 of Condensed Notes to Consolidated Financial Statements). Racing revenues declined by $3,309,000, or 100.0%, entirely due to the sale of Turf Paradise in June 2000. Total expenses for the three months ended June 30, 2001 increased by $29,839,000, or 30.1%, as compared to the three months ended June 30, 2000. Included in the results of operations for the three months ended June 30, 2000 is a gain on the sale of Turf Paradise Race Track in Phoenix, Arizona (see Note 7 to the Condensed Notes to Consolidated Financial Statements) of $35,587,000, as well as expenses of the Mississippi Casinos and Turf Paradise of $33,555,000. Excluding the Turf Paradise gain and the results of operations from properties sold in 2000, total expenses for the three months ended June 30, 2001 increased by $27,807,000, or 27.5%, as compared to the three months ended June 30, 2000. Gaming expenses decreased by $5,823,000, or 8.4%, including $17,603,000 due to the timing of the sale of the Mississippi Casinos in August 2000. When excluding the results of the Mississippi Casinos from the results of operations for the three months ended June 30, 2000, gaming expenses increased by $11,780,000, or 22.9%. Gaming expenses increased $12,784,000 at Belterra Casino Resort, and $1,317,000 at Boomtown New Orleans partially offset by decrease at the Company's other casinos. The increase in gaming expenses at Belterra Casino Resort is due to the property opening in October 2000, and therefore no results of operations in the three months ended June 30, 2000. The increase in gaming expenses at Boomtown New Orleans is consistent with the increased gaming revenues and increased gaming taxes discussed above. Food and beverage expenses decreased by $21,000 or less than 1%, including $3,238,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise in 2000. When excluding the results of the sold operations from the results of operations for the three months ended June 30, 2000, food and beverage expenses increased $3,217,000, or 48.7%, the majority of which, $3,972,000, is due to the Belterra Casino Resort, which opened in October 2000. Hotel and recreational vehicle park expenses increased by $642,000, or 41.0%, including $301,000 due to the timing of the sale of Casino Magic Bay St. Louis. When excluding the results of Casino Magic Bay St. Louis from the results of operations for the three months ended June 30, 2000, hotel and recreational vehicle park expenses increased by $943,000, or 74.7%, the majority of which is attributed to Belterra Casino Resort, which opened in October 2000. Truck stop and service station expenses at Boomtown Reno increased by $354,000, or 7.2%, due primarily to increased fuel costs. Racing expenses decreased by $1,475,000, or 100.0%, entirely due to the sale of Turf Paradise in June 2000. General and administrative 24 expenses increased by $6,335,000, or 23.3%, including $8,000,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise. When excluding the results of the sold operations from the results of operations for the three months ended June 30, 2000, general and administrative expenses increased $14,335,000, or 74.5%, of which, $8,750,000, was attributed to Belterra Casino Resort and $4,319,000 was attributed to Casino Magic Bossier. Significant marketing costs were incurred at Belterra to introduce the new property and to increase the property's database. During the second quarter of 2001, Casino Magic Bossier took a charge of approximately $2.6 million for certain reserves and write-downs related to inventory, accounts receivable and other working capital valuation matters. Depreciation and amortization increased by $471,000, or 4.0%, primarily due to the sale of the Mississippi Casinos and Turf Paradise in 2000, more than offset by the additional depreciation expense from Belterra Casino Resort, which opened in October 2000. Other operating expenses decreased $385,000, or 10.4%, including $981,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise in 2000. When excluding the results of the sold operations from the results of operations for the three months ended June 30, 2000, other operating expenses increased $596,000, or 22.0%, including $1,703,000 related to the Belterra Casino Resort. Pre-opening expenses decreased $3,301,000 or 88.9% for the three months ended June 30, 2001 from the same period in 2000. Ongoing pre-opening costs in 2001 for the Belterra Casino Resort are due to the continuing construction of the Tom Fazio-designed championship golf course, which opened in July 2001. The gain on disposition of assets of $35,587,000 in the second quarter of 2000 is due to the sale of Turf Paradise Race Track in June 2000 (see Note 7 to the Condensed Notes to Consolidated Financial Statements). Terminated merger costs of $1,500,000 for the three months ended June 30, 2000 relate to the terminated merger with PHCR (see Note 9 to the Condensed Notes to Consolidated Financial Statements). Purported class action lawsuits related to the terminated merger for the three months ended June 30, 2001 were settled in the second quarter of 2001 resulting in a reversal of accrued expenses of $464,000 for these lawsuits (see Note 12 to the Condensed Notes to Consolidated Financial Statements). Interest income decreased by $1,755,000, or 55.1% primarily due to lower investable funds and lower interest rates during the three months ended June 30, 2001 compared to the same period of 2000. Interest expense, net of capitalized interest decreased by $1,951,000, or 13.7%, due primarily to the redemption of the Casino Magic 13% Notes in August 2000 (see Note 11 to the Condensed Notes to Consolidated Financial Statements). Due to the pre-tax losses in the three months ended June 30, 2001, the Company recorded an income tax benefit of $2,975,000, compared to an income tax expense of $17,457,000 for the three months ended June 30, 2000 (which 2000 amount includes taxes associated with the Turf Paradise sale in June 2000 - see Note 7 to the Condensed Notes to Consolidated Financial Statements). Six months ended June 30, 2001 compared to the six months ended --------------------------------------------------------------- June 30, 2000 ------------- Total revenues for the six months ended June 30, 2001 decreased by $44,956,000, or 14.5%, as compared to the six months ended June 30, 2000. Contribution to revenues in the six months ended June 30, 2000 from the Mississippi Casinos and Turf Paradise was $88,547,000. When excluding such revenue for the six months ended June 30, 2000, total revenues in the six months ended June 30, 2001 increased by $43,591,000, or 19.6%, when compared to the six months ended June 30, 2000 due primarily to the revenue at the Belterra Casino Resort, which was not opened in the 2000 year six month period. Gaming revenues decreased $31,295,000, or 12.3%, including $67,528,000 due to the timing of the sale of the Mississippi Casinos in August 2000. When excluding the results of the Mississippi Casinos from the six-month results ended June 30, 2000, gaming revenues increased by $36,233,000, or 19.5%. Gaming revenues increased at Belterra Casino Resort by $45,775,000 and at Boomtown New Orleans by $1,877,000, while gaming revenues declined at Casino Magic Bossier City by $10,949,000. The increase in gaming revenues at Belterra Casino Resort is due to the opening of the property in October 2000 and therefore no results of operations in the six months ended June 30, 2000. The increase in gaming revenues at Boomtown New Orleans is primarily attributed to increased coin-in and resultant slot revenue in the six months ended June 30, 2001, compared to the prior year. The decrease in Casino Magic Bossier City gaming revenue was due primarily to lower table game drop and coin-in (volume of play in the casino) attributable to increased competition from the opening of a new casino hotel in December 2000 and the opening of a new hotel tower 25 at another competitor in January 2001, as well as severe winter rainfall in late February and March, which flooded the first level of the property's multi-level parking garage and remodeling of the third deck of the casino in June 2001. The first level of the parking structure was not useable for approximately 45 days during the second quarter of 2001. In addition, on June 11, 2001 the casino began relocating slot machines and renovating the third deck, which resulted in disruption to this part of the casino and such remodeling was not completed until mid-July. Food and beverage revenues decreased by $2,143,000, or 12.4%, including $6,086,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise. When excluding the results of the sold operations from the six-month results ended June 30, 2000, food and beverage revenue increased $3,943,000, or 35.4%. A majority of the increase, $4,042,000, is attributed to Belterra Casino Resort, which increase is due to the opening of the property in October 2000. Hotel and recreational vehicle park revenues increased by $782,000, or 12.3%, including $1,053,000 due to the timing of the sale of Casino Magic Bay St. Louis in August 2000. When excluding the results of Casino Magic Bay St. Louis from the six-month results ended June 30, 2000, hotel and recreational vehicle park revenues increased $1,835,000, or 34.7%. A majority of the increase, $1,718,000, is attributed to the opening of the Belterra Casino Resort in October 2000. Truck stop and service station revenue increased by $551,000, or 5.9%, primarily due to increased fuel prices at the Boomtown Reno truck stop and service station. Other income decreased by $3,399,000, or 23.3%, including $4,428,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise. When excluding the results of the sold operations from the six-month results ended June 30, 2000, other income increased by $1,029,000, or 10.1%. The increase in other revenue was due primarily to the payment of percentage rent by the casino in Yakama Washington (see note 6 of Condensed Notes to Consolidated Financial Statements). Racing revenues declined by $9,452,000, or 100.0%, entirely due to the sale of Turf Paradise in June 2000. Total expenses for the six months ended June 30, 2001 increased by $47,077,000, or 22.6%, as compared to the six months ended June 30, 2000. Included in the results of operations for the six months ended June 30, 2000 is a gain on the sale of Turf Paradise Race Track in Phoenix, Arizona and a gain on sale of land in Inglewood, California to Home Depot, Inc. (see Note 7 to the Condensed Notes to Consolidated Financial Statements) of $59,441,000, as well as expenses of the Mississippi Casinos and Turf Paradise of $70,791,000. Excluding the Turf Paradise gain and the results of operations from properties sold in 2000, total expenses for the six months ended June 30, 2001 increased by $58,427,000, or 29.6%, as compared to the six months ended June 30, 2000. Gaming expenses decreased by $7,864,000, or 5.7%, including $36,061,000 due to the timing of the sale of the Mississippi Casinos in August 2000. When excluding the results of the Mississippi Casinos from the results of operations for the six months ended June 30, 2000, gaming expenses increased by $28,197,000, or 27.8%. Gaming expenses increased $24,987,000 at Belterra Casino Resort, and $2,133,000 at Boomtown New Orleans partially offset by decreases at the Company's other casinos. The increase in gaming expenses at Belterra Casino Resort is due to the property opening in October 2000, and therefore no results of operations in the six months ended June 30, 2000. The increase in gaming expenses at Boomtown New Orleans is consistent with the increased gaming revenues and increased marketing expenses. Food and beverage expenses increased by $295,000, or 1.6%, including $6,677,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise in 2000. When excluding the results of the sold operations from the results of operations for the six months ended June 30, 2000, food and beverage expenses increased $6,972,000, or 56.5%, the majority of which, $7,604,000, is due to the Belterra Casino Resort, which opened in October 2000 and partially offset by decreases at the Company's other casinos. Hotel and recreational vehicle park expenses increased by $1,768,000, or 57.0%, including $586,000 due to the timing of the sale of Casino Magic Bay St. Louis. When excluding the results of Casino Magic Bay St. Louis from the results of operations for the six months ended June 30, 2000, hotel and recreational vehicle park expenses increased by $2,354,000, or 93.5%, the majority of which is attributed to Belterra Casino Resort, which opened in October 2000. Truck stop and service station expenses at Boomtown Reno increased by $608,000, or 7.0%, due primarily to increased fuel costs. Racing expenses decreased by $4,133,000, or 100.0%, entirely due to the sale of Turf Paradise in June 2000. General and administrative expenses increased by $4,594,000, or 7.9%, including $16,458,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise. When excluding the results of the sold operations from the results of operations for six months ended June 30, 2000, general and administrative 26 expenses increased $21,052,000, or 50.7%, of which, $16,023,000, is attributed to Belterra Casino Resort and $4,031,000 was attributed to Casino Magic Bossier. Significant marketing costs were incurred at Belterra to introduce the new property and to increase the property's database. During the second quarter of 2000, Casino Magic Bossier took a charge of approximately $2.6 million for certain reserves and write-downs related to inventory, accounts receivable and other working capital valuation matters. Depreciation and amortization decreased by $32,000, or less than 1%, primarily due to the sale of the Mississippi Casinos and Turf Paradise in 2000, offset by the additional depreciation expense from Belterra Casino Resort, which opened in October 2000. Other operating expenses increased $416,000, or 6.9%, including $2,118,000 due to the timing of the sale of the Mississippi Casinos and Turf Paradise in 2000. When excluding the results of the sold operations from the results of operations for the six months ended June 30, 2000, other operating expenses increased $2,534,000, or 64.4%, including $2,825,000 related to the Belterra Casino Resort. Pre-opening expenses decreased by $4,846,000, or 88.8%, for the six months ended June 30, 2001 from the same period in 2000. Ongoing pre-opening costs in 2001 for the Belterra Casino Resort are due to the continuing construction of the Tom Fazio- designed championship golf course, which opened in July 2001. The gain on disposition of assets of $59,441,000 in the first six months of 2000 is due to the sale of Turf Paradise Race Track in June 2000 and the land sales in March 2000 (see Note 7 to the Condensed Notes to Consolidated Financial Statements). Terminated merger costs of $2,125,000 in the first six months of 2000 relate to the terminated merger with PHCR (see Note 9 to the Condensed Notes to Consolidated Financial Statements). Purported class action lawsuits related to the terminated merger were settled in the second quarter of 2001 resulting in a reversal of accrued expenses of $464,000 for these lawsuits (see Note 12 to the Condensed Notes to Consolidated Financial Statements). Interest income decreased by $3,096,000, or 48.6%, primarily due to lower investable funds and lower interest rates during the six months ended June 30, 2001 compared to the same period of 2000. Interest expense, net of capitalized interest decreased by $5,713,000, or 18.8%, due primarily to the redemption of the Casino Magic 13% Notes in August 2000 (see Note 10 to the Condensed Notes to Consolidated Financial Statements). Due to the pre-tax losses in the six months ended June 30, 2001, the Company recorded an income tax benefit of $4,168,000, compared to an income tax expense of $29,696,000 for the six months ended June 30, 2000 (which 2000 amount includes taxes associated with the Turf Paradise sale in June 2000 - see Note 7 to the Condensed Notes to Consolidated Financial Statements). Liquidity, Capital Resources and Other Factors Influencing Future Results At June 30, 2001, the Company had cash and cash equivalents, all of which had original maturities of less than ninety days, of $146,875,000 compared to $172,868,000 at December 31, 2000. The Condensed Consolidated Statements of Cash Flows detailing changes in the cash balances is on page 3. Operating activities generated net cash of $326,000 in the six months ended June 30, 2001 compared with $4,857,000 in the first six months of 2000. In the six- month period ending June 30, 2001, cash was used for the net loss of $7,408,000 to reduce accrued liabilities and accounts payable. These uses were offset by depreciation and amortization, as well as a reduction of receivables. In the same six-month period last year, the net income of $48,144,000 plus depreciation and a reduction of receivable was partially offset, primarily by the gain on the sale of Turf Paradise and approximately 42 acres of surplus land in Inglewood, California, resulting in the net cash generated by operating activities of $4,857,000. Net cash used by investing activities of $17,868,000 in the six months ended June 30, 2001 is primarily attributed to the addition of property, plant and equipment of $25,037,000. The additions during the three months ended June 30, 2001 include continued construction of the Tom Fazio-championship golf course at Belterra Casino Resort (which is opened in July 2001), construction costs associated with the build out of the high-end Asian Room at Boomtown New Orleans, initial payments for the purchase of a player tracking system at Casino Magic Biloxi and the purchase of approximately 14 acres of leased land at Crystal Park Casino. Net cash provided by investing activities of $91,747,000 in the six months ended June 30, 2000 includes proceeds of $123,428,000 from the maturity of short term investments and the receipt of $76,528,000 from the sale of property, plant and equipment (such receipts primarily from the sale of surplus land in March 27 2000 and the sale of Turf Paradise-see Note 7 to the Condensed Notes to Consolidated Financial Statements), offset by the use of cash of $105,833,000 for the additions of property, plant and equipment (the primary additions attributed to the Belterra Casino Resort, which opened in October 2000). The net cash used in financing activities of $8,451,000 in the six months ended June 30, 2001 is due primarily to the payment of $6,849,000 for the purchase of the Company's common stock (see Note 5 to the Condensed Notes to Consolidated Financial Statements). The net cash used in financing activities in the first six months of 2000 of $2,765,000 reflects payments on notes payable of $3,650,000, offset by proceeds from the exercise of common stock options of the Company. The Company believes that its available cash, cash equivalents, cash to be generated by assets held for sale and cash flow from operations will be sufficient to finance operations and capital requirements for the foreseeable future, and in any event for at least the next twelve months. The Company has substantial cash resources and in July 2001, amended its unused bank credit facility to allow the necessary capital spending, should the Company be awarded the casino license in Louisiana to build the Lake Charles project. In addition, the Company may use a portion of these resources to (i) reduce its outstanding debt obligations prior to their scheduled maturities, (ii) make significant capital improvements at other existing properties, and/or (iii) develop or acquire other casino properties or companies, including the proposed Lake Charles, Louisiana project. To the extent cash is used for these purposes, the Company's cash reserves will also be diminished and the Company may require additional capital to finance any such activities. Additional capital may be generated through internally generated cash flow, future borrowings (including amounts available under the bank credit facility) and/or lease transactions. There can be no assurance, however, that such capital will be available on terms acceptable to the Company. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------ At June 30, 2001, the Company did not hold any investments in market-risk-sensitive instruments of the type described in Item 305 of Regulation S-K. Part II Other Information Item 1. Legal Proceedings - As Reported in the March 31, 2001 Form 10-Q - ----------------------------------------------------------------------- Astoria Entertainment Litigation In November 1998, Astoria Entertainment, Inc. - -------------------------------- filed a complaint in the United States District Court for the Eastern District of Louisiana. Astoria, an unsuccessful applicant for a license to operate a riverboat casino in Louisiana, attempted to assert a claim under the Racketeer Influenced and Corrupt Organizations ("RICO") statutes, seeking damages allegedly resulting from its failure to obtain a license. Astoria named several companies and individuals as defendants, including Hollywood Park, Inc. (the predecessor to Pinnacle Entertainment), Louisiana Gaming Enterprises, Inc. ("LGE"), and an employee of Boomtown, Inc. The Company believed the RICO claim against it had no merit and, indeed, Astoria voluntarily dismissed its RICO claim against Hollywood Park, LGE, and the Boomtown employee. On March 1, 2001, Astoria amended its complaint. Astoria's amended complaint added new legal claims, and named Boomtown, Inc. and LGE as defendants. Astoria claims that the defendants (i) conspired to corrupt the process for awarding licenses to operate riverboat casinos in Louisiana, (ii) succeeded in corrupting the process, (iii) violated federal and Louisiana antitrust laws, and (iv) violated the Louisiana Unfair Trade Practices Act. The amended complaint asserts that Astoria would have obtained a license to operate a riverboat casino in Louisiana, but for these alleged improper acts. While the Company cannot predict the outcome of this action, the Company asserts that it has no liability in this matter, and it intends to vigorously defend the action. Actions by Greek Authorities For a discussion of the background of the Greek - ---------------------------- matters, see the description of litigation under the heading "Actions by Greek Authorities" in Part 1, Item 3. Legal Proceedings of the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 28 During the first quarter of 2001, the Greek taxing authorities appealed the December 11, 2000 decision by the Administrative Court of Thessaloniki overturning the assessment of the fine against PCC. No hearing date on such appeal has been set. On March 30, 2001, appeals on behalf of Marlin Torguson and Robert Callaway were filed. The hearing before the three-member Court of Misdemeanors of Thessaloniki has been set for January 15, 2002. Purported Class Action Lawsuits For a discussion of the background of the - ------------------------------- purported class action lawsuits relating to the Company's now terminated Merger Agreement with PHCR and Pinnacle Acq Corp, see the description of the litigation under the heading "Purported Class Action Lawsuits" in Part I, Item 3. Legal Proceedings of the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The parties executed a definitive agreement to settle the purported Hilliard class action litigation. The settlement was subject to court approval. As part of the settlement, the Company agreed to pay attorney's fees and costs to the plaintiff's counsel, subject to court approval. As of June 30, 2001, the Company had incurred estimated costs of approximately $2,000,000 in connection with the negotiation and settlement of this lawsuit, including monies paid to plaintiff's counsel for fees and costs. In view of the fact that the Merger Agreement had been terminated, the parties to the litigation filed a stipulated dismissal of the case with prejudice, incorporating the Company's agreement to pay attorney's fees and costs to the plaintiff's counsel as provided in the settlement agreement, though at a reduced level. The defendants' agreement to the settlement/ stipulated dismissal does not constitute, and should not be construed as, an admission that the defendants have any liability to or acted wrongfully in any way with respect to the plaintiff or any other person. Final judgment and order of dismissal with prejudice was entered on May 18, 2001. Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- At an Annual Meeting of Stockholders, held May 22, 2001, the company's stockholders approved the following: Proposal One: Proposal to elect nine (9) directors. Nominee For votes Against votes ------- ---------- ------------- R.D. Hubbard 23,340,645 734,731 Paul R. Alanis 23,356,394 718,982 Robert T. Manfuso 23,357,754 717,622 James L. Martineau 23,357,307 718,069 Gary G. Miller 23,359,855 715,521 Michael Ornest 23,360,025 715,351 Timothy J. Parrott 21,523,639 2,551,737 Lynn P. Reitnouer 23,357,182 718,194 Marlin Torguson 23,357,873 717,503 Proposal Two: Proposal to approve the Company's 2001 Stock Option Plan. Shares % of Shares Outstanding ------ ----------------------- For votes 19,770,210 75.90% Against votes 4,089,494 15.70% Abstain votes 215,672 0.83% Broker non-votes 1,971,368 7.57% 29 Item 5. Other Information - ------------------------- On July 11, 2000 the Company announced the resignation of J. Michael Allen as Chief Operating Officer of the Company. Paul Alanis, Chief Executive Officer and President of the Company assumed the responsibilities of Chief Operating Officer. Pursuant to the terms of Mr. Allen's employment agreement, the Company will continue to pay to Mr. Allen his salary through the expiration of such contract on December 31, 2001. The description of the Company's Common Stock set forth in Amendment No. 1 to the Company's Registration Statement on Form 8-A filed August 10, 2001 is hereby incorporated by reference. Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- (a) Exhibits Exhibit Number Description of Exhibit - ------- ---------------------- 3.1 * Restated By-Laws of Pinnacle Entertainment, Inc. 10.1 * Amendment No. 5, dated July 23, 2001, to Amended and Restated Reducing Revolving Loan Agreement and Waiver, dated October 14, 1998, among Pinnacle Entertainment, Inc. and the banks named therein, Societe Generale and Bank of Scotland (as Managing Agents), First National Bank of Commerce (as Co-Agent), and Bank of America, N.A. (as Administrative Agent). 10.2 * Termination of Master Lease and Sublease Agreements dated as of June 28, 2001, by and between the Confederated Tribes and Bands of the Yakama Nation, the Yakama Tribal Gaming Corporation and HP Yakama, Inc. 11.0 * Statement re Computation of Per Share Earnings. 99.1 * Amendment No. 1 to the Company's Registration Statement on Form 8-A. _______ * Filed herewith (b) Reports on Form 8-K: None 30 PINNACLE ENTERTAINMENT, INC. Selected Financial Data by Property (in thousands, except per share data - unaudited)
For the three For the six months months ended June 30, ended June 30, ------------------------- ------------------------- 2001 2000 2001 2000 -------- -------- -------- -------- (in thousands, except per share data - unaudited) Revenues: Belterra Casino & Resort $ 25,994 $ 0 $ 52,189 $ 0 Boomtown Reno 24,833 24,849 43,945 43,370 Boomtown New Orleans 24,839 24,437 50,581 48,901 Casino Magic Biloxi 21,548 21,449 44,263 44,274 Casino Magic Bossier City 25,431 33,834 57,959 69,923 Casino Magic Argentina 5,384 5,368 10,577 11,054 Card clubs and other 3,574 2,379 6,096 4,497 Pinnacle Entertainment, Inc. - Corporate 0 0 0 0 -------- -------- -------- -------- 131,603 112,316 265,610 222,019 Operations sold or disposed Boomtown Biloxi 0 15,871 0 32,732 Casino Magic Bay St. Louis 0 22,002 0 45,150 Turf Paradise Race Track 0 3,722 0 10,665 -------- -------- -------- -------- 131,603 153,911 265,610 310,566 -------- -------- -------- -------- Expenses: Belterra Casino & Resort 28,196 0 54,008 0 Boomtown Reno 18,745 18,626 35,490 34,571 Boomtown New Orleans 18,518 17,321 36,854 34,986 Casino Magic Biloxi 17,369 17,481 35,653 34,223 Casino Magic Bossier City 27,180 24,906 54,637 50,423 Casino Magic Argentina 3,169 3,461 6,353 6,791 Card clubs and other 45 101 203 197 Pinnacle Entertainment, Inc. - Corporate 4,258 4,360 8,858 9,148 -------- -------- -------- -------- 117,480 86,256 232,056 170,339 -------- -------- -------- -------- Operations sold or disposed Boomtown Biloxi 0 12,628 0 26,373 Casino Magic Bay St. Louis 0 16,224 0 32,552 Turf Paradise Race Track 0 2,745 0 7,108 -------- -------- -------- -------- 117,480 117,853 232,056 236,372 -------- -------- -------- -------- Non-recuring income (expenses): Gain on disposition of assets, net 581 35,587 581 59,441 Pre-opening costs, Belterra Casino Resort (412) (3,713) (610) (5,456) Proposed merger costs 464 (1,500) 464 (2,125) -------- -------- -------- -------- 633 30,374 435 51,860 -------- -------- -------- -------- Subtotal $ 14,756 $ 66,432 $ 33,989 $126,054 Depreciation and amortization: Belterra Casino Resort 3,075 43 6,065 81 Boomtown Reno 1,940 1,910 3,937 3,810 Boomtown New Orleans 1,447 1,421 2,860 2,922 Casino Magic Biloxi 1,670 1,842 3,335 3,694 Casino Magic Bossier City 2,134 2,110 4,256 4,204 Casino Magic Argentina 344 396 703 802 Card clubs and other 953 982 1,921 1,968 Pinnacle Entertainment, Inc. - Corporate 572 1,002 1,146 2,016 -------- -------- -------- -------- 12,135 9,706 24,223 19,497 Operations sold or disposed Boomtown Biloxi 0 942 0 1,841 Casino Magic Bay St. Louis 0 783 0 2,397 Turf Paradise Race Track 0 233 0 520 -------- -------- -------- -------- 12,135 11,664 24,223 24,255 -------- -------- -------- -------- Operating income 2,621 54,768 9,766 101,799 Interest income 1,428 3,183 3,276 6,372 Interest expense, net of capitalized interest (12,311) (14,262) (24,618) (30,331) -------- -------- -------- -------- (Loss) income before income taxes (8,262) 43,689 (11,576) 77,840 Income tax (benefit) expense (2,975) 17,457 (4,168) 29,696 -------- -------- -------- -------- Net income ($5,287) $ 26,232 ($7,408) $ 48,144 ======== ======== ======== ======== Net income per common share: Net income - basic ($0.20) $1.00 ($0.28) $1.83 Net income - diluted ($0.20) $0.96 ($0.28) $1.76 Number of shares: Basic 25,996 26,303 26,141 26,281 Diluted 25,996 27,345 26,141 27,326
31 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Pinnacle Entertainment, Inc. (Registrant) By: /s/ Paul R. Alanis Dated: August 13, 2001 ------------------------------------ Paul R. Alanis President, Chief Executive and Operating Officer (Principal Executive Officer) By: /s/ Bruce C. Hinckley Dated: August 13, 2001 ------------------------------------ Bruce C. Hinckley Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 32 EX-3.1 3 dex31.txt RESTATED BY-LAWS EXHIBIT 3.1 PINNACLE ENTERTAINMENT, INC. RESTATED BYLAWS AS OF APRIL 13, 1998 (as Amended 3/29/99, 9/15/00 and 2/16/01) TABLE OF CONTENTS ----------------- Page ---- ARTICLE I - STOCKHOLDERS............................................... 1 Section 1. Annual Meeting..................................... 1 Section 2. Special Meetings: Notice.......................... 3 Section 3. Notice of Meetings................................. 3 Section 4. Quorum............................................. 3 Section 5. Organization....................................... 4 Section 6 Conduct of Business................................ 4 Section 7. Proxies and Voting................................. 4 Section 8. Stock List......................................... 5 Section 9. Consent of Stockholders in Lieu of Meeting......... 5 ARTICLE II - BOARD OF DIRECTORS........................................ 6 Section 1. Number, Election and Term of Directors............. 6 Section 2. Newly Created Directorships and Vacancies.......... 6 Section 3. Regular Meetings................................... 7 Section 4. Special Meetings................................... 7 Section 5. Quorum............................................. 7 Section 6. Participation in Meetings By Conference Telephone.. 7 Section 7. Conduct of Business................................ 7 Section 8. Powers............................................. 8 Section 9. Compensation of Directors.......................... 8 Section 10. Director Emeritus.................................. 9 ARTICLE III - COMMITTEES............................................... 9 Section 1. Committees of the Board of Directors............... 9 Section 2. Conduct of Business................................ 10 Section 3. Standing Executive Committee....................... 10 Section 4. Audit Committee.................................... 11 Section 5. Compensation Committee............................. 12 ARTICLE IV- OFFICERS................................................... 12 Section 1. Generally.......................................... 12 Section 2. Chairman of the Board.............................. 12 Section 3. Vice Chairman of the Board......................... 13 Section 4. President.......................................... 13 Section 5. Chief Operating Officer............................ 14 Section 6. Vice Presidents.................................... 14 Section 7. Treasurer.......................................... 14 Section 8. Assistant Treasurer................................ 15 Section 9. Secretary.......................................... 15 -i- Page ---- Section 10. Assistant Secretary................................ 15 Section 11. Controller......................................... 15 Section 12. Delegation of Authority............................ 16 Section 13. Removal............................................ 16 Section 14. Resignations....................................... 16 Section 15. Action with Respect to Securities of Other Corporations....................................... 16 ARTICLE V - STOCK...................................................... 16 Section 1. Certificates of Stock.............................. 16 Section 2. Transfers of Stock................................. 16 Section 3. Record Date........................................ 17 Section 4. Lost, Stolen or Destroyed Certificates............. 18 Section 5. Regulations........................................ 18 ARTICLE VI - NOTICES................................................... 18 Section 1. Notices............................................ 18 Section 2. Waivers............................................ 18 ARTICLE VII - MISCELLANEOUS............................................ 19 Section 1. Facsimile Signatures............................... 19 Section 2. Corporate Seal..................................... 19 Section 3. Reliance upon Books, Reports and Records........... 19 Section 4. Fiscal Year........................................ 19 Section 5. Time Periods....................................... 19 ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS............... 19 Section 1. Right to Indemnification........................... 19 Section 2. Right to Advancement of Expenses................... 20 Section 3. Right of Indemnitee to Bring Suit.................. 20 Section 4. Non-Exclusivity of Rights.......................... 21 Section 5. Insurance.......................................... 21 Section 6. Indemnification of Employees and Agents of the Corporation........................................ 22 ARTICLE IX - AMENDMENTS................................................ 22 -ii- RESTATED BYLAWS OF HOLLYWOOD PARK, INC. -------------------- (hereinafter referrced to as the "Corporation") ARTICLE I - STOCKHOLDERS --------- ------------ Section 1. Annual Meeting. ---------- -------------- (1) An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within 13 months of the last annual meeting of stockholders. (2) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this bylaw, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this bylaw. (3) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (2) of this bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (4) Notwithstanding anything in the second sentence of paragraph (3) of this bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (5) Only such persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these Bylaws. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposed nomination or business shall be disregarded. (6) For purposes of these Bylaws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (7) Notwithstanding the foregoing provisions of this bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this bylaw. Nothing in this bylaw shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. -2- Section 2. Special Meetings: Notice. ---------- ------------------------- Special meetings of the stockholders, other than those required by statute, may be called at any time by the Chairman of the Board or by a majority of directors then in office pursuant to a resolution approved by the Board of Directors. Notice of every special meeting, stating the place, date, time and purpose, shall be given by mailing, postage prepaid, at least 10 but not more than 60 days before each such meeting, a copy of such notice addressed to each stockholder of the Corporation at his post office address as recorded on the books of the Corporation. The Board of Directors may postpone or reschedule any previously scheduled special meeting. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Section 3. Notice of Meetings. ---------- ------------------ Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. ---------- ------ At any meeting of the stockholders, the holders of one-third (1/3) of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law or the rules of the principal stock exchange upon which the Corporation's securities are listed. Where a separate vote by a class or classes is required, one-third (1/3) of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter unless or except to the extent that the presence of a larger number may be required by law or the rules of the principal stock exchange upon which the Corporation's securities are listed. -3- If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, date, or time. Section 5. Organization. ---------- ------------ Such person as the Board of Directors may have designated or, in the absence of such a person, the Chairman of the Board or, in his or her absence, the Chief Executive Officer of the Corporation or, in his or her absence, the President of the Corporation or, in his or her absence, such person as may be designated by the Chairman of the Board or the President or, in the absence of such a person, any other officer of the Corporation or, in the absence of such a person, such person as may be chosen by the holders of one-third (1/3) of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the person acting as chairman of the meeting appoints. Section 6. Conduct of Business. ---------- ------------------- The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The chairman shall have the power to adjourn the meeting to another place, date and time. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Section 7. Proxies and Voting. ---------- ------------------ At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. -4- The Corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. Every vote taken by ballots shall be counted by a duly appointed inspector or inspectors. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively. Section 8. Stock List. ---------- ---------- A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 9. Consent of Stockholders in Lieu of Meeting. ---------- ------------------------------------------ Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery -5- made to the Corporation's registered office shall be made by hand or certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date of the earliest dated consent delivered to the Corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Corporation in the manner prescribed in the preceding paragraph. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II - BOARD OF DIRECTORS ---------- ------------------ Section 1. Number, Election and Term of Directors. ---------- -------------------------------------- The Board of Directors shall consist of one (1) or more members. Except as required by law, and subject to the rights of the holders of any series of preferred stock to elect directors under specified circumstances, the number of directors shall be fixed and may be changed from time to time exclusively by the Board of Directors or the Executive Committee thereof pursuant to a resolution duly adopted by the Board of Directors or the Executive Committee. Directors shall be elected by the holders of record of a plurality of the votes cast at annual meetings of stockholders, and each director so elected shall hold office until the next annual meeting and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. Section 2. Newly Created Directorships and Vacancies. ---------- ----------------------------------------- Except as required by law, and subject to the rights of the holders of any series of preferred stock with respect to such series of preferred stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director. -6- Section 3. Regular Meetings. ---------- ---------------- A regular meeting of the Board of Directors shall be held without other notice than this bylaw, immediately following and at the same place as the annual meeting of stockholders, unless otherwise provided by the Board of Directors. Additional regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. ---------- ---------------- Special meetings of the Board of Directors may be called by the Chairman of the Board, or by the President or by a majority of directors then in office and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given each director by whom it is not waived by mailing written notice not less than four (4) days before the meeting or by hand delivery to the recipient thereof or by recognized overnight delivery service or by telephone or by telegraphing or telexing or by facsimile transmission of the same not less than 24 hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 5. Quorum. ---------- ------ At any meeting of the Board of Directors, a quorum for all purposes shall consist of the greater of (i) a majority of directors then in office or (ii) one-third (l/3) of the total number of directors including vacancies. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 6. Participation in Meetings By Conference Telephone. ---------- ------------------------------------------------- Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. ---------- ------------------- At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors -7- without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 8. Powers. ---------- ------ The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non- negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (6) To adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and (8) To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the Corporation's business and affairs. Section 9. Compensation of Directors. ---------- ------------------------- Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of the directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the -8- Board of Directors or paid a stated salary or paid other compensation as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefore. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Director Emeritus. ----------- ----------------- The Board of Directors, may designate any person who has served as a director of this Corporation as Director Emeritus, upon resignation or other retirement or termination of any such director's tenure of office. Any Director Emeritus shall be extended thereafter all of the incidental courtesies of Hollywood Turf Club usually extended to active directors, and so long as such person shall desire the same, each such person shall be known as a Director Emeritus. Such courtesies shall include the use of a director's badge, together with the use of the Director's Lounge and similar incidental privileges. The Director Emeritus shall not, however, be entitled to attend any meetings of the Board of Directors or of any committee thereof without special invitation nor shall such Director Emeritus have any vote or voice in management other than merely as a stockholder, if he be such a stockholder. The privileges and position of a Director Emeritus hereunder shall be personal, non-transferable and shall cease entirely upon his death and may be revoked by the Board of Directors with or without cause at any time. ARTICLE III - COMMITTEES ----------- ---------- Section 1. Committees of the Board of Directors. ---------- ------------------------------------ The Board of Directors may designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the Corporation appointed by the Board of Directors or the Chairman of the Board. The Board of Directors or the Chairman of the Board may appoint one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by Delaware General Corporation Law to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation. -9- Section 2. Conduct of Business. ---------- ------------------- Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 3. Standing Executive Committee. ---------- ---------------------------- The Board of Directors shall appoint at least three (3) members of the Board to comprise an Executive Committee. The Executive Committee shall have and exercise all the powers and authority of the full Board of Directors in the management of the business and affairs of the Corporation to the fullest extent authorized by the Delaware General Corporation Law, and these Bylaws. For a period of three (3) years after the effective date of the Merger, the Executive Committee of the Corporation's Board of Directors will consist of six (6) members, comprised of four (4) Parent Directors (the "Parent Committee Members") and two (2) Boomtown Directors (the "Boomtown Committee Members"); provided that if one of the initial Parent Committee Members ceases to be a member of the Executive Committee for any reason or for no reason, the Executive Committee will consist of five (5) members, comprised of three (3) Parent Committee Members and two (2) Boomtown Committee Members. The number of members of the Executive Committee shall not be greater than six (6) members (or five (5) members if one of the initial Parent Committee Members ceases to be a member of the Executive Committee) at any time during such three (3) year period without the consent of the majority of the Boomtown Committee Members. The initial Boomtown Committee Members will be Timothy J. Parrott and Richard J. Goeglein. If either Messrs. Parrott or Goeglein shall be unavailable to serve, any replacement Boomtown Committee Members shall be selected by a majority of the Boomtown Directors then on the Corporation's Board of Directors. The initial Parent Committee Members shall be R.D. Hubbard and three (3) other Parent Directors selected by a majority of the Parent Directors then on the Corporation's Board of Directors. Subject to the proviso set forth in the first sentence of this paragraph, if either Mr. Hubbard or one or more of such other initial Parent Committee Members shall be unavailable to serve, any replacement Parent Committee Member shall be selected by a majority of the Parent Directors then on the Corporation's Board of Directors. Notice of meetings of the Executive Committee shall state the place, date and hour of the meeting and shall be given to each member of the Executive Committee personally, by mail, courier, telephone, telecopy or telegram on not less than 24 hours' notice. -10- Members of the Executive Committee may participate in such meetings by means of conference telephone. Meetings of the Executive Committee may be held without notice if all the members thereof are present or if all those not present waive such notice in writing whether before or after the meeting. This Section 3 may not be amended for a period of three (3) years from the effective date of the Merger without the approval of a majority of Boomtown Directors then on the Corporation's Board of Directors. Section 4. Audit Committee. ---------- --------------- The Corporation's Board of Directors shall have an Audit Committee comprised of at least three (3) members, all of whom shall consist solely of non-officer directors who shall meet the standards for membership as set forth in Rule 303.00 of the New York Stock Exchange ("NYSE") Company Guide or any successor rule adopted by the NYSE with respect to such membership. In addition to such other responsibilities as may be delegated to the Audit Committee from time to time, the Audit Committee shall: (i) review and approve all related party transactions between the Corporation or any of its subsidiaries and any officer or director (or their affiliates) having a total value of more than $60,000 (or such higher amount as may be specified from time to time by applicable rules and regulations of the Securities and Exchange Commission ("SEC") as the threshold at which disclosure of such transactions is required in the Corporation's annual report, proxy statement or other periodic filing), other than compensation arrangements, incentive plans, stock options plans or similar plans or arrangements, and transactions that are subject to approval by another committee of the Board of Directors consisting of a majority of directors who are disinterested in the subject transaction; (ii) require the Corporation's internal audit department to review, at least annually, all such related party transactions and report thereon to the Audit Committee; (iii) report annually on all related party transactions as required by the SEC's proxy rules and shall, at least quarterly, report on any related party transaction involving $2 Million or more, either in the Corporation's quarterly report on Form 10-Q or in its quarterly shareholders report; (iv) recommend an independent firm of certified public accountants to conduct the audit of the Corporation's annual financial statements, and confer with the selected firm as to the scope and procedures of its audit; (v) require the Corporation's independent auditors, as a part of their engagement, to render to the Corporation a "Report to Management" as to the Corporation's system of internal financial and accounting controls. The Audit Committee shall review that report and any response thereto by management. At the conclusion of the annual audit, the Audit Committee shall receive a copy of the report of the independent auditors, and review that report as well as any concerns, comments or suggestions that the auditors may provide; (vi) on at least an annual basis, review the Corporation's internal financial and accounting controls with the Corporation's financial and accounting officers, and report thereon to the -11- Corporation's Board of Directors with any recommendations for improvement or correction as the Audit Committee may determine appropriate. Thereafter, the Audit Committee shall supervise the implementation of any recommendations of the Board with respect thereto; and (vii) review, at least annually, the adequacy and competency of the Corporation's accounting and financial staff and internal audit department. The Audit Committee may retain independent experts, including legal counsel and investment counsel, at its discretion and at the Corporation's expense. Section 5. Compensation Committee. ---------- ---------------------- The Corporation's Board of Directors shall have a Compensation Committee comprised of at least one (1) member. In addition to such other responsibilities and authority as may be delegated to the Compensation Committee from time to time, the Compensation Committee shall have the authority to (i) assist with the administration of the Corporation's compensation plans including recommendations to the Board of Directors with respect to the establishment of such plans and the terms and provisions thereof, (ii) make recommendations to the Board of Directors with respect to the annual salaries and other compensation of the officers of the Corporation, and (iii) provide assistance and recommendations to the Board of Directors with respect to the compensation policies and practices of the Corporation. ARTICLE IV - OFFICERS ---------- -------- Section 1. Generally. ---------- --------- The officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chairman of the Board, one or more Vice Chairmen of the Board, a President, one or more Vice Presidents, a Secretary, and a Treasurer. The Board of Directors may also appoint an Executive Vice President, a Controller, one or more Assistant Secretaries and Assistant Treasurers, a Chief Operating Officer, a General Manager of the Corporation's racing operations and such other officers as it shall deem necessary from time to time. The principal officers of the Corporation shall be chosen annually by the Board and shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any number of offices may be held by the same person unless the Certificate of Incorporation or these Bylaws otherwise provide. Section 2. Chairman of the Board. ---------- --------------------- The Chairman of the Board shall be the Chief Executive Officer of the Corporation and shall, if present, preside at all meetings of the stockholders and of the Board of Directors. If the Chairman of the Board is unable or declines to act as Chief Executive Officer, then the Vice Chairman of the Board shall be Chief Executive Officer. If there is more than one Vice Chairman of the Board appointed, -12- then the Vice Chairman with the longest continuous service on the Board shall assume the duties of Chief Executive Officer in the absence of the Chairman of the Board. If both the Chairman of the Board and any Vice Chairman of the Board are unable or decline to act as Chief Executive Officer, then the President shall become the Chief Executive Officer of the Corporation. The Chief Executive Officer shall be the principal executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation. He shall preside at all meetings of the stockholders and of the Board of Directors and shall see that orders and resolutions of the Board of Directors are carried into effect. He may sign bonds, mortgages, certificates for shares and all other contracts and documents whether or not under the seal of the Corporation except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation. He shall have general powers of supervision and shall be the final arbiter of all differences between officers of the Corporation and his decision as to any matter affecting the Corporation shall be final and binding between the officers of the Corporation subject only to actions of the Board of Directors. He may also delegate such of his duties to the Vice Chairman of the Board or the President or such other officers as the Chairman of the Board from time to time deems appropriate. Section 3. Vice Chairman of the Board. ---------- --------------------------- The Board of Directors may appoint one or more Vice Chairman of the Board any of whom shall, in the absence of the Chairman of the Board or in the event of his inability or refusal to act, perform the duties of the Chairman of the Board and Chief Executive Officer and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board and Chief Executive Officer. If more than one Vice Chairman is appointed the Vice Chairman shall assume the duties of the Chairman of the Board in order of their continuous service on this Board with the person having the longest continuous service being the first to act. The Vice Chairman shall perform such other duties as the Chief Executive Officer or the Board of Directors shall prescribe. Section 4. President. ---------- --------- In the absence of any Chief Executive Officer as the succession to that position is prescribed in these Bylaws or in the event of the inability or refusal of any such Chief Executive Officer to act, the President shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. He shall, at all times, have concurrent power with the Chief Executive Officer to sign bonds, mortgages, certificates for shares and other contracts and documents whether or not under the seal of the Corporation except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors, or by these Bylaws to some other officer or agent of the Corporation. The President shall also perform such other -13- duties as the Chief Executive Officer or the Board of Directors may from time to time prescribe. Section 5. Chief Operating Officer. ---------- ----------------------- The Chief Operating Officer shall be an employee of this Corporation and shall serve at the pleasure of the Board of Directors. The Chief Operating Officer may, but need not be, a member of the Board of Directors, but in either event, shall be reportable to and act under the direction of the Chairman of the Board and Board of Directors. The Chief Operating Officer shall supervise the daily operations and affairs of the Corporation under the direction of the Chairman of the Board or such other persons as the Chairman of the Board may appoint from time to time for that purpose and shall, within the limits specified in this Section, control all of this corporation's racing activities, supervise its employees and personnel, administer this Corporation's operating policies, and make such daily operating decisions as are reasonably necessary for effective management. The Chief Operating Officer shall have no authority to sign bonds, mortgages, certificates for shares or other documents or to obligate this Corporation for any sum in excess of $25,000.00 except as shall be expressly delegated by the Board of Directors or by these Bylaws. The Chief Operating Officer shall make such reports to the Board of Directors and to the Chairman of the Board as may be directed by those entities and shall make a detailed report to the Chairman of the Board and to the Board of Directors on the results of racing operations and on the financial affairs of this Corporation no less frequently than monthly. Section 6. Vice Presidents. ---------- --------------- In the absence of the President or in the event of his inability or refusal to act, the Vice President, if one has been elected by the Board, (or in the event there be more than one Vice President, the Executive Vice President or in the event there is no Executive Vice President, the Vice President with the longest continuous service on the Board of Directors of this Corporation) shall perform the duties of the President, and when so acting, shall have all the power of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties as the Chief Executive Officer or the Board of Directors may from time to time prescribe. Section 7. Treasurer. ---------- --------- The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board and the Board of -14- Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 8. Assistant Treasurer. ---------- ------------------- The Assistant Treasurer shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Chairman of the Board or the Board of Directors may from time to time prescribe or perform such duties of the Treasurer as the Treasurer of this Corporation may delegate from time to time. Section 9. Secretary. ---------- --------- The Secretary (or Assistant Secretary if appropriately delegated) shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book for that purpose and shall perform like duties for the standing committee when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer. He shall have custody of the corporate seal of the Corporation, and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or such Assistant Secretary. The Chairman of the Board or the Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 10. Assistant Secretary. ----------- ------------------- The Assistant Secretary shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Chairman of the Board or the Board of Directors, or the Secretary may from time to time prescribe. Section 11. Controller. ----------- ---------- The Controller shall keep or cause to be kept correct records of the business and transactions of the Corporation and shall, upon request, at all reasonable times exhibit or cause to be exhibited such records to any of the directors of the Corporation at the place where such records are maintained. He shall perform such other duties as from time to time may be assigned to him by the Chairman of the Board or the Board of Directors. -15- Section 12. Delegation of Authority. ----------- ----------------------- The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 13. Removal. ----------- ------- Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors. Section 14. Resignations. ----------- ------------ Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Board or the Chairman of the Board or the Secretary. Any such resignation shall take effect at the time specified therein, or if the time when it shall become effective shall not be specified therein, then it shall take effect immediately upon its receipt by the Board or the Chairman of the Board or Secretary; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 15. Action with Respect to Securities of Other Corporations. ----------- ------------------------------------------------------- Unless otherwise directed by the Board of Directors, the Chairman of the Board or the President or any officer of the Corporation authorized by the Chairman of the Board or the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V - STOCK --------- ----- Section 1. Certificates of Stock. ---------- --------------------- Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile. Section 2. Transfers of Stock. ---------- ------------------ Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in -16- accordance with Section 4 of this Article V, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore. Section 3. Record Date. ---------- ----------- (1) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than 60 nor less than 10 days before the date of any meeting of stockholders, nor more than 60 days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (2) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner prescribed by Article I, Section 9 -17- of these Bylaws. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. Section 4. Lost, Stolen or Destroyed Certificates. ---------- -------------------------------------- In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5. Regulations. ---------- ----------- The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI - NOTICES ---------- ------- Section 1. Notices. ---------- ------- Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, recognized overnight delivery service or by sending such notice by facsimile, receipt acknowledged, or by prepaid telegram or mailgram. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or transmitted or dispatched, if delivered through the mails or by facsimile, telegram or mailgram, shall be the time of the giving of the notice. Section 2. Waivers. ---------- ------- A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting to the timeliness of notice. -18- ARTICLE VII - MISCELLANEOUS ----------- ------------- Section 1. Facsimile Signatures. ---------- -------------------- In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. ---------- -------------- The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 3. Reliance upon Books, Reports and Records. ---------- ---------------------------------------- Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director, committee member, or officer reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Fiscal Year. ---------- ----------- The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 5. Time Periods. ---------- ------------ In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS ------------ ----------------------------------------- Section 1. Right to Indemnification. ---------- ------------------------ Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, -19- administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is an alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 3 of this Article VIII with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Section 2. Right to Advancement of Expenses. ---------- -------------------------------- The right to indemnification conferred in Section 1 of this Article VIII shall include the right to be paid by the Corporation the expenses (including attorney's fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section 2 or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections 1 and 2 of this Article VIII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. Section 3. Right of Indemnitee to Bring Suit. ---------- --------------------------------- If a claim under Section 1 or 2 of this Article VIII is not paid in full by the Corporation within 60 days after a written claim has been received by the -20- Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be paid the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation. Section 4. Non-Exclusivity of Rights. ---------- ------------------------- The rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation or Bylaws, any agreement, or by vote of the Corporation's stockholders or disinterested directors or otherwise. Section 5. Insurance. ---------- --------- The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. -21- Section 6. Indemnification of Employees and Agents of the Corporation. ---------- ---------------------------------------------------------- The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. ARTICLE IX - AMENDMENTS ---------- ---------- In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized to make, alter, amend and repeal these Bylaws subject to the power of the holders of capital stock of the Corporation to alter, amend or repeal the Bylaws; provided, however, that, with respect to the powers of holders of capital stock to make, alter, amend and repeal Bylaws of the Corporation, notwithstanding any other provision of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, these Bylaws or any preferred stock, the affirmative vote of the holders of at least 66 % of the voting power of all of the then-outstanding shares entitled to vote generally in the election of directors, voting together as a single class, shall be required to make, alter, amend or repeal any provision of these Bylaws. -22- EX-10.1 4 dex101.txt RESTATED REDUCING REVOLVING LOAN AGREEMENT EXHIBIT 10.1 AMENDMENT NO. 5 TO AMENDED AND RESTATED REDUCING REVOLVING LOAN AGREEMENT AND WAIVER This Amendment No. 5 to Amended and Restated Reducing Revolving Loan Agreement and Waiver (this "Amendment") is entered into with reference to the Amended and Reducing Revolving Loan Agreement dated as of October 14, 1998 among Pinnacle Entertainment, Inc. (acting under its former name, Hollywood Park, Inc. and referred to herein as "Borrower"), the Banks party thereto, Societe Generale and Bank of Scotland, as Managing Agents, First National Bank of Commerce, as Co-Agent, and Bank of America, N.A. (under its former name, Bank of America National Trust and Savings Association), as Administrative Agent (the "Loan Agreement"). Capitalized terms used but not defined herein are used with the meanings set forth for those terms and in the Loan Agreement. Borrower and the Administrative Agent, acting with the consent of the Requisite Banks pursuant to Section 11.2 of the Loan Agreement, agree as ---- follows: 1. Additional and Amended Definitions: Section 1.1 of the Loan ---------------------------------- Agreement is hereby amended to add the following defined terms thereto: "Argentina Distributable Income" means, for any fiscal period, that ------------------------------ portion of the net income of Casino Magic Neuquen, S.A., an Argentina corporation, for that period which in accordance with all applicable Laws, contracts and other restrictions binding upon Borrower and its Subsidiaries, may be distributed to Borrower and its Restricted Subsidiaries during that period in cash, after deduction of all withholding and other domestic and foreign taxes and other amounts limiting such distribution, whether or not so distributed. "Incremental Commitment Fee" means, during each Pricing Period for -------------------------- which the Funded Debt Ratio, as of the last day of the Fiscal Quarter most recently ended prior to the commencement of that Pricing Period, was in excess of 4.50:1.00, an additional commitment fee equal to 12.5 basis points per annum. "Incremental Letter of Credit Fee" means, during each Pricing Period, -------------------------------- an additional letter of credit fee which is equal to any Incremental Margin for that Pricing Period. -1- "Incremental Margin" means, during each Pricing Period for which the ------------------ Funded Debt Ratio, as of the last day of the Fiscal Quarter most recently ended prior to the commencement of that Pricing Period, was (a) in excess of 4.50:1.00, but equal to or less than 5.00:1.00, an additional component of interest equal to 25.00 basis points per annum, (b) in excess of 5.0:1.00, but equal to or less than 5.50, an additional component of interest equal to 50.00 basis points per annum (c) in excess of 5.50:1.00, an additional component of interest equal to 75.00 basis points per annum. "Net Available Cash" means, as of each date of determination, the net ------------------ balance of the consolidated Cash and Cash Equivalents of Borrower and its Restricted Subsidiaries as of that date, minus $45,000,000. ----- "Net Funded Debt Ratio" means, as of each date of determination, ratio --------------------- which results from subtracting Net Available Cash from the numerator of the Funded Debt Ratio as of that date. "Restricted Period" means the period from July 1, 2001 through and ----------------- including the later date upon which the Borrower delivers a Compliance Certificate to the Administrative Agent demonstrating that the Funded Debt Ratio for the then most recently ended Fiscal Quarter is less than 4.00:1.00. and to amend the following defined terms to read in full as follows: "Adjusted EBITDA" means, with respect to any fiscal period, EBITDA for --------------- that fiscal period plus (a) any pre-opening and related promotional ---- expenses recorded during that fiscal period for a new Gaming Property, plus (b) any transactional expenses incurred in connection with the ---- acquisition of a new Gaming Property plus (c) the amount by which ---- EBITDA for such fiscal period would have been increased if the Merger had occurred on the first day of the fiscal period, but excluding --------- EBITDA attributable to any Foreign Subsidiary except to the extent ------ actually received in Dollars in the United States of America by Borrower, net of all taxes thereon imposed by the Laws of a jurisdiction other than the United States of America or a State ---------- thereof , but in any event including Argentina Distributable Income for that fiscal period. EBITDA of a Foreign Subsidiary shall be deemed "received" by Borrower (y) to the extent a dividend is paid to Borrower by the Foreign Subsidiary, when such dividend is received in Dollars in -2- the United States of America by Borrower and (z) to the extent that amounts are advanced as a loan to Borrower by the Foreign Subsidiary, when such advance is received in Dollars in the United States of America by Borrower provided that (A) the aggregate outstanding -------- amount of such advances shall at no time exceed the aggregate EBITDA of the Foreign Subsidiary attributable to Borrower's proportionate ownership of such Foreign Subsidiary which has not previously been dividended to Borrower and (B) the Indebtedness of Borrower to the Foreign Subsidiary arising from such advances is canceled and offset by a dividend (which dividend shall not be deemed "received" for purposes of clause (y) above) paid by the Foreign Subsidiary to Borrower with respect to each Fiscal Year within three (3) months following the end of that Fiscal Year. 2. New Section 3.18 Incremental Pricing. The Loan Agreement is ------------------------------------ hereby amended to add thereto a new Section 3.18, to read in full as follows: "3.18 Incremental Pricing. During the entirety of each Pricing ------------------- Period which begins two months following the last day of a Fiscal Quarter for which Funded Debt Ratio is in excess of 4.00:1.00, Borrower shall pay additional interest, letter of credit fees and commitment fees in an amount equal to the Incremental Margin, Incremental Letter of Credit Fee and the Incremental Commitment Fee. The Incremental Margin shall be added to the Applicable Alternative Base Rate Margin and the Applicable Eurodollar Rate Margin, as appropriate, in determining the interest rates applicable during that Pricing Period. The Incremental Letter of Credit Fee shall be added to the Applicable Standby Letter of Credit Fees in determining the letter of credit fees applicable during that Pricing Period. The Incremental Commitment Fee shall be added to the Applicable Commitment Fee Rate in determining the commitment fees applicable during that Pricing Period." 3. Capital Expenditures - Section 6.14. Section 6.14 of the Loan ----------------------------------- Agreement is amended to add the following sentence at the end thereof: "Notwithstanding any other provision of this Section, during the Restricted Period, Borrower shall not, and shall not permit any of the Restricted Subsidiaries to, make any Capital Expenditure other than (i) Maintenance Capital Expenditures, (ii) Capital Expenditures associated with the capital projects identified on Schedule A hereto (and in amounts which, following July 1, 2001, -3- are not in excess of the amounts set forth on that schedule), and (iii) Capital Expenditures in an amount not to exceed $225,000,000 made following July 1, 2001 with respect to the Lake Charles, Louisiana project. 4. Amendment to Interest Coverage Ratio - Section 6.11. Section --------------------------------------------------- 6.11 of the Loan Agreement is hereby amended so that the following are the required ratios as of the dates set forth below:
Fiscal Quarter or Period Minimum Interest Coverage Ratio ------------------------ ------------------------------- September 30, 2001 through March 31, 2002 1.10:1.00 June 30, 2002 through December 31, 2002 1.25:1.00 March 31, 2003 and June 30, 2003 1.50:1.00 Thereafter 2.00:1.00
5. Amendment to Funded Debt Ratio - Section 6.13. Section 6.13 of the Loan Agreement is hereby amended to read in full as follows [with the word added to the preamble emphasized for the convenience of the reader]: "Permit the Net Funded Debt Ratio, as of the last day of any Fiscal --- Quarter ending after the Closing Date, to be greater than the ratio set forth below opposite such Fiscal Quarter or the period during which such Fiscal Quarter ends: Fiscal Quarter or Period Maximum Net Funded Debt Ratio ------------------------ ----------------------------- September 30, 2001 and 5.45:1.00 December 31, 2001 March 31, 2002 through June 30, 5.35:1.00 2003 -4- Thereafter 4.50:1.00" 6. Waiver of Interest Coverage Ratio as of June 30, 2001. Compliance ----------------------------------------------------- with Section 6.11 of the Loan Agreement is hereby waived in respect of the Fiscal Quarter ended June 30, 2001; provided, that the Interest Coverage Ratio in effect for such Fiscal Quarter is not less than 2.00:1.00. 7. Waiver of Funded Debt Ratio as of June 30, 2001. Compliance ----------------------------------------------- with Section 6.13 of the Loan Agreement is hereby waived in respect of the Fiscal Quarter ended June 30, 2001; provided, that the Funded Debt Ratio in -------- effect for such Fiscal Quarter is not greater than 4.00:1.00. 8. Waiver of Intercompany Notes. The Loan Documents heretofore ---------------------------- required that notes evidencing intercompany indebtedness owed by the Restricted Subsidiaries to the Borrower be pledged to the Administrative Agent as security for the obligations. Pursuant to Amendment No. 1 the Banks authorized the Administrative Agent to return these notes to the Borrower. For the avoidance of doubt, the Administrative Agent and the Banks hereby waive any requirement (formerly expressed in the Loan Documents) that any such notes be pledged to the Administrative Agent and the Banks. 9. Representations and Warranties. Borrower represents and warrants ------------------------------ that as of the date hereof and giving effect to this Amendment, no Default or Event of Default exists. 10. No Other Waivers. The waivers contained in Section 6 and ---------------- Section 7 of this Amendment are expressly limited to the facts and circumstances referred to therein and shall not operate as a waiver of or a consent to non- compliance with any other section of the Loan Agreement or any of the other Loan Documents. The waivers contained in Section 6 and Section 7 are only effective for the specific instances, for the specific purposes and for the specific period for which given. 11. Activation Fee. In consideration of the execution of this -------------- Amendment by the Administrative Agent and the Required Lenders, Borrower agrees that if as of the first day following the date of this Amendment upon which it requests Loans under the Loan Agreement, the Funded Debt Ratio is effect as of the last day of the then most recently ended Fiscal Quarter for which Borrower has delivered a Compliance Certificate is in excess of 4.00:1.00, then Borrower shall concurrently pay to each of the Lenders through the Administrative Agent an -5- activation fee of 1% (100 basis points) times the Pro Rata Share of the Commitment held by each Lender. 12. Conditions Precedent. The effectiveness of this Amendment is -------------------- conditioned upon the receipt by the Administrative Agent of the following, each properly executed by a Responsible Official of each party thereto and dated as of the date hereof: (1) Counterparts of this Amendment executed by all parties hereto; (2) Written consent of the Requisite Banks as required under Section 11.2 of the Loan Agreement in the form of Exhibit A to this Amendment; (3) Written consent of the Subsidiary Guarantors in the form of Exhibit B to this Amendment; and (4) A fee, for the account of each Bank which has approved this Amendment on or prior to July 23, 2001, in an amount equal to 10 basis points times its Pro Rata Share of the Commitment. 13. Confirmation. In all respects, the terms of the Loan Agreement ------------ (as amended hereby) are hereby confirmed. IN WITNESS WHEREOF, Borrower and the Administrative Agent have executed this Amendment as of July 23, 2001 by their duly authorized representatives. PINNACLE ENTERTAINMENT, INC. By: Bruce C. Hinckley Chief Financial Officer BANK OF AMERICA, N.A., as Administrative Agent By: Janice Hammond, Vice President -6- Exhibit A To Amendment No. 5 to Amended and Restated Reducing Revolving Loan Agreement and Waiver CONSENT OF BANK Reference is hereby made to the Amended and Restated Reducing Revolving Loan Agreement dated as of October 14, 1998 (as heretofore amended, the "Loan Agreement") among Pinnacle Entertainment, Inc. (then known as "Hollywood Park, Inc." and herein, "Borrower"), the Banks party thereto, Societe Generale and Bank of Scotland, as Managing Agents, First National Bank of Commerce, as Co-Agent, and Bank of America, N.A. (then known as "Bank of America National Trust and Savings Association"), as Administrative Agent. The undersigned Bank hereby consents to the execution and delivery of Amendment No. 5 to Amended and Restated Reducing Loan Agreement and Waiver by the Administrative Agent on its behalf, substantially in the form of the most recent draft thereof presented to the undersigned Bank. Date: July 23, 2001. BANK OF AMERICA, N.A. By: George V. Hausler, Managing Director BANK OF SCOTLAND By: Joseph Fratus, Vice President CIBC Inc. By: Paul Chakmak, Managing Director HIBERNIA BANK By: Ross Wales, Vice President Societe Generale By: Thomas Day, Managing Director -7- Exhibit B To Amendment No. 5 to Amended and Restated Reducing Revolving Loan Agreement and Waiver CONSENT OF SUBSIDIARY GUARANTORS Reference is hereby made to the Amended and Restated Reducing Revolving Loan Agreement dated as of October 14, 1998 (as heretofore amended, the "Loan Agreement") among Pinnacle Entertainment, Inc. (then known as "Hollywood Park, Inc." and herein, "Borrower"), the Banks party thereto, Societe Generale and Bank of Scotland, as Managing Agents, First National Bank of Commerce, as Co-Agent, and Bank of America, N.A. (then known as "Bank of America National Trust and Savings Association"), as Administrative Agent. Each of the undersigned Subsidiary Guarantors hereby consent to Amendment No. 5 to Amended and Restated Reducing Revolving Loan Agreement and Waiver in the form executed by Borrower and confirms that the Subsidiary Guaranty (General) and the Subsidiary Guaranty (Crystal Park), as applicable, and all Collateral Documents to which it is a party remain in full force and effect. Date: July 23, 2001 HP YAKAMA, INC., HP/COMPTON, INC., a Delaware corporation a California corporation By: Bruce C. Hinckley Chief Financial By: Bruce C. Hinckley Chief Financial Officer Officer CRYSTAL PARK HOTEL AND CASINO BOOMTOWN, INC., DEVELOPMENT COMPANY LLC, a Delaware corporation a California limited liability company By: HP/COMPTON, INC., By: Bruce C. Hinckley Chief Financial a California corporation, Officer its manager By: Bruce C. Hinckley Chief Financial Officer MISSISSIPPI-I GAMING, L.P., BOOMTOWN HOTEL & CASINO, INC., a Mississippi limited partnership a Nevada corporation By: BAYVIEW YACHT CLUB, INC., By: Bruce C. Hinckley Chief Financial -8- a Mississippi corporation, Officer its general partner By: Bruce C. Hinckley Chief Financial Officer LOUISIANA-I GAMING, L.P., BAYVIEW YACHT CLUB, INC., a Louisiana partnership in commendam, a Mississippi corporation By: LOUISIANA GAMING ENTERPRISES, By: Bruce C. Hinckley Chief Financial INC., a Louisiana corporation, Officer its general Partner By: Bruce C. Hinckley Chief Financial Officer BELTERRA RESORT INDIANA, LLC LOUISIANA GAMING ENTERPRISES, INC., (formerly known as Indiana Ventures LLC), a Louisiana corporation a Nevada limited liability company By: PINNACLE ENTERTAINMENT, INC., By: Bruce C. Hinckley Chief Financial (successor to Boomtown Hoosier, Inc.), Officer a Delaware corporation, as Manager Member By: Bruce C. Hinckley Chief Financial Officer CASINO MAGIC CORP., MARDI GRAS CASINO CORP., a Minnesota corporation a Mississippi corporation By: Bruce C. Hinckley Chief Financial By: Bruce C. Hinckley Chief Financial Officer Officer -9- BILOXI CASINO CORP., CASINO MAGIC FINANCE CORP., a Mississippi corporation a Mississippi corporation By: Bruce C. Hinckley Chief Financial By: Bruce C. Hinckley Chief Financial Officer Officer BAY ST. LOUIS CASINO CORP., CASINO ONE CORPORATION, a Mississippi corporation a Mississippi corporation By: Bruce C. Hinckley Chief Financial By: Bruce C. Hinckley Chief Financial Officer Officer JEFFERSON CASINO CORPORATION, CASINO MAGIC OF LOUISIANA CORP., a Louisiana corporation a Louisiana corporation By: Bruce C. Hinckley Chief Financial By: Bruce C. Hinckley Chief Financial Officer Officer CASINO MAGIC MANAGEMENT SERVICES CORP, a Minnesota corporation. By: Bruce C. Hinckley Chief Financial Officer -10- Schedule A CAPITAL EXPENDITURES SCHEDULE (000=s)
June 30, September 30, December 31, March 31, In Process 2001 2001 2001 2002 Total - --------------------------------------------------------------------------------------------------- Belterra $4,124 $2,500 $ 6,624 Boomtown $4,500 $4,500 $ 9,000 New Orleans Casino $2,500 $5,000 $5,000 $12,500 Magic Biloxi Boomtown $2,000 $ 2,000 Reno Casino Magic Bossier City $1,000 $4,000 $ 5,000
-11- EX-10.2 5 dex102.txt TERMINATION OF MASTER LEASE & SUBLEASE AGREEMENTS EXHIBIT 10.2 (recording information) - -------------------------------------------------------------------------------- TERMINATION OF MASTER LEASE AND SUBLEASE AGREEMENTS THIS TERMINATION AGREEMENT is made and entered into as of June 28, 2001, and is by and between the Confederated Tribes and Bands of the Yakama Nation, a federally recognized American Indian Tribe (the "Tribe"), the Yakama Tribal Gaming Corporation, a corporation organized under the laws of the Tribe (the "Corporation") (the Tribe and the Corporation herein collectively the "Borrower"), and H.P. Yakama, Inc., a Delaware corporation ("H.P. Yakama"). WHEREAS, the Tribe entered into a lease agreement ("Master Lease") with H.P. Yakama dated September 11, 1997 between the Tribe as lessor and H.P. Yakama as lessee; and WHEREAS, the Corporation entered into a sublease agreement ("Sublease") of the Master Lease dated September 11, 1997 between H.P. Yakama as sublessor and the Corporation as sublessee; and WHEREAS, the Borrower has entered into a certain Loan Agreement dated as of the date hereof (the "Loan Agreement"), pursuant to which National City Bank of Michigan/Illinois (the "Lender") will lend to the Borrower the principal amount of $8,725,000 to pay in full certain existing debt of the Corporation in favor of H.P. Yakama and to purchase the interest of H.P. Yakama in the Master Lease and Sublease: AGREEMENT NOW, THEREFORE, in consideration for the payment in full of existing obligations, and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged by all parties hereto, it is hereby agreed as follows: 1. The rights and obligations of the Tribe, H.P. Yakama, and the Corporation under the Master Lease and Sublease respectively, are terminated. 2. This Agreement shall be governed by and construed in accordance with the provisions of the Master Lease and Sublease respectively. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Termination Agreement to be executed as of the date first above written. Confederated Tribes and Bands of the Yakama Nation, a federally recognized American Indian Tribe By: /s/ Lonnie Selam, Sr. ------------------------------------------- Its: Chairman By: /s/ Patricia Martin ------------------------------------------- Its: Secretary H.P. Yakama, Inc., a Delaware, corporation By: /s/ Loren S. Ostrow ------------------------------------------- Its: Secretary Yakama Tribal Gaming Corporation, a corporation organized under the laws of the Tribe By: /s/ Juanita Neitling ------------------------------------------- Its: Chair STATE OF WASHINGTON ) ) COUNTY OF YAKIMA ) The foregoing instrument was acknowledged before me this 28th day of June, 2001, by Lonnie Selam, Sr., Chairman, Confederated Tribes and Bands of the Yakama Nation. /s/ Leona John -------------------------------------- Notary Public STATE OF CALIFORNIA ) ) COUNTY OF LOS ANGELES ) The foregoing instrument was acknowledged before me this 28th day of June, 2001, by Loren S. Ostrow, H.P. Yakama, Inc., a Delaware corporation. SUZANNE R. NORDBERG Commission #1277602 [SEAL] Notary Public - California /s/ Suzanne R. Nordberg Los Angeles County -------------------------------------- My Comm. Expires Oct 18, 2004 Notary Public STATE OF WASHINGTON ) ) COUNTY OF YAKIMA ) The foregoing instrument was acknowledged before me this 28th day of June, 2001, by Juanita Neitling, Chair, Yakama Tribal Gaming Corporation, a corporation organized under the laws of the tribe. /s/ Leona John -------------------------------------- Notary Public The undersigned hereby confirms and acknowledges that, pursuant to 25 U.S.C. & 81 and 25 C.F.R. & 162.1 et Seq., he has reviewed and approved the foregoing Termination of Master Lease and Sublease. United States of America Department of Interior Bureau of Indian Affairs By: /s/ Clarence Holford ------------------------------------ Its: Superintendent ----------------------------------- /s/ Leona John Subscribed to before me this 28 day of June, 2001 NOTARY PUBLIC in and for the State of Washington, Residing at Toppenish, WA My Commission Expires: April 29, 2002 EX-11.0 6 dex110.txt STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.0 Pinnacle Entertainment, Inc. Computation of Per Share Earnings
For the three months ended June 30, ------------------------------------------------------------- Basic Diluted (a) ------------------------- --------------------------- 2001 2000 2001 2000 ------- -------- -------- -------- (in thousands, except per share data - unaudited) Average number of common shares outstanding 25,996 26,303 25,996 26,303 Average common shares due to assumed conversion of stock options 0 0 90 1,042 -------- -------- -------- -------- Total shares 25,996 26,303 26,086 27,345 ======== ======== ======== ======== Net (loss) income ($ 5,287) $ 26,232 ($ 5,287) $ 26,232 ======== ======== ======== ======== Net (loss) income per share ($ 0.20) $ 1.00 ($ 0.20) $ 0.96 ======== ======== ======== ======== For the six months ended June 30, ------------------------------------------------------------ Basic Diluted (a) -------------------------- -------------------------- 2001 2000 2001 2000 -------- -------- -------- -------- (in thousands, except per share data - unaudited) Average number of common shares outstanding 26,141 26,281 26,141 26,281 Average common shares due to assumed conversion of stock options 0 0 139 1,045 -------- -------- -------- -------- Total shares 26,141 26,281 26,280 27,326 ======== ======== ======== ======== Net (loss) income ($ 7,408) $ 48,144 ($ 7,408) $ 48,144 ======== ======== ======== ======== Net (loss) income per share ($ 0.28) $ 1.83 ($ 0.28) $ 1.76 ======== ======== ======== ========
- ---------- (a) When the computed diluted values are anti-dilutive, the basic per share values are presented on the face of the consolidated statements of operations. EX-99.1 7 dex991.txt AMENDMENT NO. 1 TO FORM 8-A EXHIBIT 99.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 8-A/A (Amendment No. 1) FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 PINNACLE ENTERTAINMENT, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-3667491 - ------------------------------------------------------ ---------------------- (State of incorporation or organization) (IRS Employer Identification No.) 330 North Brand Blvd., Ste. 1100, Glendale, California 91203-2308 - ------------------------------------------------------ ---------------------- (Address of principal executive offices) (Zip Code) - -------------------------------------------------------------------------------- If this form relates to the registration If this form relates to the of a class of securities pursuant to registration of a class of securities Section 12(b) of the Exchange Act and is pursuant to Section 12(g) of the effective pursuant to General Exchange Act and is effective pursuant Instruction A.(c), check the following to General Instruction A.(d), check box. [X] the following box. [_] - -------------------------------------------------------------------------------- Securities Act registration statement file number to which this form relates: Not applicable. -------------- Securities to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which to be so registered each class is to be registered - ------------------- ------------------------------ Common Stock, par value $.10 New York Stock Exchange Securities to be registered pursuant to Section 12(g) of the Act: None - -------------------------------------------------------------------------------- (Title of Class) Page 1 of 5 Pages This Amendment No. 1 to the undersigned registrant's Registration Statement on Form 8-A is being filed to amend the description of such registrant's common stock, which currently is listed on the New York Stock Exchange. Accordingly, the undersigned registrant hereby amends and restates in its entirety the registrant's Registration Statement on Form 8-A filed November 21, 1997: Item 1. Description of Registrant's Securities to be Registered. ------------------------------------------------------- The capital stock of Pinnacle Entertainment, Inc. (formerly Hollywood Park,Inc.), a Delaware corporation (the "Company" or "Registrant"), registered is the Company's common stock, par value $.10 per share ("Common Stock"), which currently is listed on the New York Stock Exchange. The authorized capital stock of the Company consists of 40,000,000 shares of Common Stock and 250,000 shares of preferred stock, par value $1.00 per share ("Preferred Stock"). COMMON STOCK The holders of the Common Stock are entitled to one vote for each share of the Common Stock on all matters voted on by stockholders of the Company, including elections of directors and, except as otherwise required by law or provided in any resolution adopted by the Company's Board of Directors with respect to any series of Preferred Stock, the holders of the Common Stock exclusively possess all voting power. Subject to any preferential rights of any outstanding series of Preferred Stock designated by the Board of Directors from time to time, the holders of the Common Stock are entitled to dividends from the funds legally available therefor, and upon liquidation are entitled to receive pro rata all assets of the Company available for distribution to such holders after distribution in full of the preferential amount to be distributed to holders of shares of Preferred Stock. All outstanding shares of the Common Stock are validly issued, fully paid and nonassessable. The Common Stock has no preemptive or conversion rights or other subscription rights and there are no sinking fund or, except as described in "Gaming Approval; Redemption of Shares" below, redemption provisions applicable to the Common Stock. PREFERRED STOCK The Board of Directors of the Company is authorized to provide for the issuance of up to 250,000 shares of Preferred Stock in one or more series, and to fix, without limitation or restriction, for each unissued series of Preferred Stock such rights, preferences, privileges and restrictions as are stated in a resolution adopted by the Board of Directors providing for the issuance of such series. In addition, any such Preferred Stock would be subject to the redemption provisions described in "Gaming Approval; Redemption of Shares" below. The Board of Directors is further authorized, within the limits stated in any resolution of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of such series. Thus, without stockholder approval, the Company could authorize the issuance of Preferred Stock with voting, conversion and other rights that could dilute the voting power and other rights of the holders of Common Stock. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders. There are currently no shares of Preferred Stock outstanding. ANTI-TAKEOVER PROVISIONS IN CERTIFICATE OF INCORPORATION AND BY-LAWS Page 2 of 5 Pages The Company's Certificate of Incorporation and By-laws, each as amended, contain certain provisions that might have the effect of delaying, deferring or preventing a change in control of the Company in the event of an extraordinary corporate transaction such as a merger, reorganization, tender offer, sale or transfer of substantially all of the Company's assets or liquidation. See "Gaming Approval; Redemption of Shares" below with respect to such provisions in the Certificate of Incorporation. The Company's By-laws require stockholders who wish to present proposals for action, or to nominate directors, at any annual meeting of stockholders of the Company to give written notice thereof to the Secretary of the Company at the Company's principal executive offices not more than 120 days nor less than 90 days prior to the first anniversary of the preceding year's annual meeting. If, however, the Company advances the date of the next annual meeting by more than 30 days or delays such date by more than 60 days, notice by the stockholder must be given not earlier than 120 days and not later than 90 days in advance of such meeting or, if later, the tenth day following the first public announcement of the date of such meeting. Under the Company's By-laws, the Company's stockholders have no right to request or call a special meeting of stockholders. GAMING APPROVAL; REDEMPTION OF SHARES Article XIII of the Company's Certificate of Incorporation requires the Company and all persons owning or controlling securities of the Company or its affiliated companies to comply with the gaming laws of all jurisdictions in which the Company and its affiliated companies conduct gaming activities. All securities of the Company shall be held subject to the requirements of, and no such securities (nor any interest, claim or charge thereon or thereto) shall be issued or transferred except in accordance with, such gaming laws, including any requirement that holders of such securities file applications with or provide information to applicable gaming authorities and any requirement that any transfer of such securities may be subject to prior approval by such gaming authorities. Any purported transfer of securities in violation of any such approval requirement shall be void ab initio. -- ------ Securities of the Company owned or controlled by an Unsuitable Person (as defined below) or an Unsuitable Person's affiliate are redeemable by the Company to the extent required by the relevant gaming authority or to the extent deemed necessary or advisable by the Company. The per share redemption price of any such securities of the Company would be the price (if any) required to be paid by the relevant gaming authority, or if not specified by the gaming authority, the price deemed reasonable by the Company, which in no event may exceed the closing sales price on the date the notice of redemption is given by the Company. It is unlawful for an Unsuitable Person to receive any dividends or interest with regard to the Company's securities, to exercise any voting rights conferred by such securities, or to receive any remuneration from the Company or any of its affiliated companies for services rendered or otherwise. An "Unsuitable Person" is generally defined in the Certificate of Incorporation as a person who owns or controls securities of the Company or its affiliated companies (a) who is determined by a gaming authority to be unsuitable to own or control such securities or unsuitable to be connected with an entity engaged in gaming activities in the relevant jurisdiction, or (b) who causes the Company or any of its affiliated companies to Page 3 of 5 Pages lose or to be threatened with the loss of, or who, in the sole discretion of the Board of Directors, is deemed likely to jeopardize the Company's right to use or be entitled to, any necessary gaming license. Any Unsuitable Person or its affiliates are required to indemnify the Company and its affiliated companies for any and all costs incurred by the Company and its affiliated companies as a result of such Unsuitable Person's or its affiliates' continuing ownership or control or failure to promptly divest itself of any securities of the Company. Item 2. Exhibits. -------- 1. Certificate of Incorporation of Pinnacle Entertainment, Inc. (including, without limitation, the transfer restrictions and compliance with gaming law provisions of Article XIII, thereof) is hereby incorporated by reference to Exhibit 3.1 of the Registrant's Amendment No. 1 to Registration Statement on Form S-4, filed March 26, 1999 (File No. 333- 73235). 2 Restated By-laws of Pinnacle Entertainment, Inc. is hereby incorporated by reference to Exhibit 3.2 of the Registrant's Amendment No. 1 to Registration Statement on Form S-4, filed March 26, 1999 (File No. 333- 73235). Page 4 of 5 Pages SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. PINNACLE ENTERTAINMENT, INC. By /s/ Bruce C. Hinckley ----------------------------------- Name: Bruce C. Hinckley Title: Vice President, Chief Financial Officer and Treasurer Date: August 10, 2001 Page 5 of 5 Pages -----END PRIVACY-ENHANCED MESSAGE-----