-----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, HimueoIbPweEzFoPuhO6rM7hv4oa4wr/WCrUxAiQ9qm6rX396gDIGwshE5Wpbqve UTenNvpOSf5V08p7jRNdWw== 0000950150-99-000376.txt : 19990331 0000950150-99-000376.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950150-99-000376 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FITZGERALDS GAMING CORP CENTRAL INDEX KEY: 0000948087 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880329170 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26518 FILM NUMBER: 99578872 BUSINESS ADDRESS: STREET 1: 301 FREMONT ST CITY: LAS VEGAS STATE: NV ZIP: 89101 BUSINESS PHONE: 7023882400 MAIL ADDRESS: STREET 1: 301 FREMONT ST CITY: LAS VEGAS STATE: NV ZIP: 89101 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from _________ to _________. Commission file number: 0-26518 FITZGERALDS GAMING CORPORATION (Exact name of registrant as specified in its charter) NEVADA 88-0329170 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 301 FREMONT STREET, LAS VEGAS NV 89101 (Address of principal executive offices)(Zip Code) (702) 388 - 2400 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Cumulative Redeemable Preferred Stock, $.01 par value Common Stock Purchase Warrants Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of March 15, 1999, the number of outstanding shares of the Registrant's Common Stock was 4,012,846. As of March 15, 1999, approximately 285,000 shares of the Registrant's Common Stock was held by non-affiliates of the Registrant. The Registrant's Common Stock is not listed or traded on any exchange. For purposes of determining the number of shares held by non-affiliates, all directors, officers, employees and five percent or greater owners of the Registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such persons are, in fact, affiliates of the Registrant. DOCUMENTS INCORPORATED BY REFERENCE Exhibit Index located on Page 51 2 FITZGERALDS GAMING CORPORATION 1998 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
ITEM PAGE ---- ---- PART I.........................................................................................1 ITEM 1. BUSINESS............................................................................1 General...................................................................................1 Operating Strategy........................................................................1 Historical Development....................................................................2 Properties................................................................................2 Other Gaming Assets.......................................................................5 Competition...............................................................................6 Employees.................................................................................8 Trade Names, Trademarks and Service Marks.................................................8 Governmental Regulation...................................................................8 ITEM 2. PROPERTIES.........................................................................19 ITEM 3. LEGAL PROCEEDINGS..................................................................20 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................22 PART II.......................................................................................23 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...............23 ITEM 6. SELECTED FINANCIAL DATA............................................................24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................................................26 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................................................................36 PART III......................................................................................37 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT....................................37 ITEM 11. EXECUTIVE COMPENSATION............................................................41 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................46 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................47 PART IV.......................................................................................48 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...................48 SIGNATURES....................................................................................49
3 PART I ITEM 1. BUSINESS GENERAL Fitzgeralds Gaming Corporation (the "Company") is a diversified multi-jurisdictional gaming holding company that owns and operates four Fitzgeralds-brand casino-hotels, located in downtown Las Vegas, Nevada ("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica, Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds Black Hawk"). The Company markets its properties primarily to middle-market customers, emphasizing its Fitzgeralds brand and its "Fitzgeralds Irish Luck" theme. As of December 31, 1998, the Company operated a total of 3,712 slot machines, 107 table games and approximately 1,500 hotel rooms at its Fitzgeralds-brand properties. In December 1997, the Company issued $205.0 million of 12 1/4% Senior Secured Notes due 2004 (the "Senior Secured Notes") secured by a lien on substantially all of the assets of the Company. In October 1998, the Company established a $15.0 million line of credit (the "Credit Facility") with a lending institution, of which $5.0 million may be used for capital projects at Fitzgeralds Black Hawk. The Credit Facility is secured by a lien on substantially all of the assets of the Company, which lien is senior to the lien securing the Senior Secured Notes. The Company currently conducts substantially all of its business through wholly owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds South, Inc. ("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly owns and operates Fitzgeralds Reno; FSI owns and operates Fitzgeralds Las Vegas and Fitzgeralds Tunica through wholly owned subsidiaries; and FI owns and operates Fitzgeralds Black Hawk through wholly-owned subsidiaries, including 101 Main Street Limited Liability Company ("101 Main"). Unless the context otherwise requires, the "Company" refers to Fitzgeralds Gaming Corporation and its subsidiaries. The Company was incorporated in Nevada in 1994 to serve as a holding company. The executive office of the Company is located at 301 Fremont Street, Las Vegas, Nevada 89101; telephone (702) 388-2400; facsimile (702) 382-5562. OPERATING STRATEGY The Company's ongoing operating strategy is to increase profitability by utilizing its national gaming brand and fully integrated player tracking system (the "Fitzgeralds Card") to further penetrate the middle-market customer base and to capitalize on the competitive strengths of its four Fitzgeralds-brand properties. The Company's operating strategy is characterized by several principal elements including: Development of National Gaming Brand The Company has developed a national gaming brand by using a consistent Irish Luck theme throughout the casinos, hotels, restaurants and bars at all of its properties. The Irish Luck theme incorporates various aspects of Irish folklore, such as leprechauns, horseshoes, four-leaf clovers, the Blarney Stone and a pot of gold at the end of a rainbow, as well as Irish music. The Company believes that its theme creates an exciting and comfortable environment together with a distinctive brand identity for customers. The Irish Luck theme allows the Company to capitalize on its belief that every casino guest wants to feel lucky and, by associating luck with the Fitzgeralds name, "Fitzgeralds Irish Luck" becomes unique. -1- 4 Middle Market Customer Focus The Company provides a high-quality casino entertainment experience at an affordable price to attract the middle market guests which it believes constitute the largest segment of potential gaming customers whom the Company can then identify, qualify and target for direct marketing activities. The importance of friendly and efficient service is stressed continuously through extensive employee training. The Company's approach to business includes personal contact with trained hosts, moderately priced food, beverages and lodging, and the use of the Fitzgeralds Card as part of a frequent player recognition program. The Company believes that such an approach to business provides a comfortable, "Lucky" environment designed to promote customer loyalty, a high rate of repeat business and the basis for the further development of its national brand. Emphasis on Slot Play The Company emphasizes slot machine play, which it believes to be the fastest growing and most profitable segment of the casino entertainment business. The increasing popularity of slot machines is due, in part, to the continuing rapid technological development that is resulting in the replacement of mechanical devices with advanced interactive electronic games. These newer games offer greater variety, higher payouts and longer periods of play for the casino entertainment dollar relative to simple mechanical devices. Subject to the availability of financing, as to which there can be no assurance, the Company intends to continue investing in state-of-the-art machines and related equipment and systems, such as bill acceptors, player tracking, and continue replacing older models with the most current product offerings in an effort to maximize revenue. HISTORICAL DEVELOPMENT The Company and its senior management have been active in the development of facilities in new gaming jurisdictions. The Company's senior management team has an aggregate of over 60 years of diversified multi-jurisdictional gaming experience in competitive markets. The Company's ability to expand in the future will depend upon a number of factors including, but not limited to: (i) the identification and availability of suitable locations, and the negotiation of acceptable purchase, lease, joint venture or other terms; (ii) the securing of required state and local licenses, permits and approvals, which in some jurisdictions may be limited in number; (iii) political factors; (iv) the risks typically associated with any new construction; (v) the availability of adequate financing on acceptable terms, particularly in light of restrictive covenants in certain debt instruments which may limit the Company's ability to obtain such financing; and (vi) the financial condition and results of operations of the Company. In addition, the Company is highly leveraged and lacks financial flexibility. The lack of financial flexibility may severely limit the Company's ability to take advantage of expansion opportunities. As a result, there can be no assurance that the Company will be able to expand to any additional locations or, if such expansion occurs, that it will be successful. PROPERTIES The Company currently owns and operates two Nevada properties (Fitzgeralds Las Vegas and Fitzgeralds Reno), one Mississippi property (Fitzgeralds Tunica) and one Colorado property (Fitzgeralds Black Hawk). Fitzgeralds Las Vegas Fitzgeralds Las Vegas is located on the city block bounded by Fremont, Carson, Third and Fourth Streets at the Fremont Street Experience in downtown Las Vegas. The property is accessible via Interstate 15 and US 95 and markets to Las Vegas tourists, numbering approximately 30.6 million in 1998 and, to a -2- 5 lesser extent, to the approximately 1.3 million residents of the Las Vegas valley. The 34-story building underwent a refurbishment of the hotel and remodeling expansion of the casino which was substantially completed in December 1996 at a cost of approximately $19.4 million. At December 31, 1998, the facility contained a 638-room hotel (including 14 suites) and a casino offering 1,067 slot machines, 25 table games, a 45-seat keno lounge and a sports book (operated by a third party). Fitzgeralds Las Vegas amenities include five restaurants, three bars, an ice cream parlor, a special events center, a gift shop and an entertainment area. Fitzgeralds Las Vegas includes a 323-space parking structure and an adjacent surface parking area with an additional 76 spaces. In September 1995, the Company entered into a 13-year franchise license agreement with Holiday Hospitality Franchising, Inc., ("HHFI") to operate the Fitzgeralds Las Vegas hotel as a Holiday Inn commencing in July 1996. Subject to the terms and conditions of the agreement, the Fitzgeralds Las Vegas hotel has been included in the Holiday Inn Worldwide Reservation System and has use of Holiday Inn copyrights, trademarks and similar proprietary rights used by other Holiday Inn licensees. The Company is the exclusive licensee of Holiday Inn-branded hotels within the defined territory encompassing downtown Las Vegas. The Company pays a monthly royalty based on a percentage of Fitzgeralds Las Vegas revenues from room rentals after deduction of sales and room taxes and a portion of complimentary rooms. The Company also pays marketing, reservation and similar fees based on such revenues or the number of rooms. Las Vegas continues to grow rapidly and is one of the world's largest tourist destinations. In order to more fully participate in that growth, eight downtown gaming companies, including the Company, opened the Fremont Street Experience in November 1995 to revitalize the central core of the downtown Las Vegas gaming district. The Fremont Street Experience converted five blocks of Fremont Street into a "must see" attraction that restores and enhances the intimacy and visual excitement of downtown Las Vegas. The Fremont Street Experience includes a pedestrian mall, shops, restaurants and entertainment beneath an approximately 1,500-foot long, 90-foot high Space Frame, which incorporates approximately 2.1 million lights to offer a number of "Sky Parade Light Shows," as well as a number of special events and festivals. In addition, there have been extensive sidewalk and street improvements, and the construction of an approximately 1,400-space parking structure. A retail shopping facility is currently under construction on an adjacent lot and is expected to open by the summer of 2000. With its appeal to adults, together with its location on Fremont Street, the Fremont Street Experience is distinguishable from other Las Vegas attractions and draws both locals and tourists who might not otherwise visit the downtown area. To maintain and enhance its competitive position, it will be necessary to incur capital expenditures at Fitzgeralds Las Vegas, such as the addition of a swimming pool, to improve the appeal of the property. Because the Company is highly leveraged, lacks financial flexibility and may not generate sufficient funds internally, there can be no assurance that the Company will be able to undertake any such capital improvements. Fitzgeralds Tunica Fitzgeralds Tunica is located in north Tunica County, Mississippi, approximately 30 miles from downtown Memphis, Tennessee. Fitzgeralds Tunica is designed as an Irish castle and is the focal point of a heavily wooded, 121-acre Company-owned site situated by the Mississippi River. The Fitzgeralds Tunica casino opened in June 1994 at a cost of approximately $46.0 million. The facility was expanded to include a hotel and related amenities, which improvements were substantially completed in October 1996 at a cost of approximately $34.0 million. At December 31, 1998, the facility included a 507-room hotel, a special events center, an indoor swimming pool and a casino offering 1,175 slot machines and 34 table games, two bars, three restaurants and a gift shop. The Company has developed Fitzgeralds Tunica into a full-service entertainment destination and has been able to increase and diversify its customer base by attracting, in addition to its local customers, independent travelers, tour-and-travel customers and guests for special events and conventions. In -3- 6 October 1998, a new inter-casino connector road was completed which has increased accessibility to Fitzgeralds Tunica. To maintain and enhance its competitive position, it will be necessary to incur capital expenditures at Fitzgeralds Tunica, such as the addition of covered parking to add to the appeal of the property, and dock facilities to take advantage of its relatively isolated location adjacent to the Mississippi River. Because the Company is highly leveraged, lacks financial flexibility and may not generate sufficient funds internally, there can be no assurance that the Company will be able to undertake any such capital improvements. Fitzgeralds Reno Fitzgeralds Reno is located in downtown Reno on the corner of Virginia Street and Commercial Row next to the landmark Reno Arch. In 1997, Fitzgeralds Reno renovated its front entrance and continues to renovate and upgrade its hotel rooms. At December 31, 1998, the facility consisted of a 16-story, 351-room hotel and a casino offering 894 slot machines, 32 table games, a 100-seat keno lounge and a sports book (operated by a third party). Amenities include three restaurants, three bars, an entertainment lounge and a gift shop. Fitzgeralds Reno leases a portion of a nearby 850-space parking garage to provide 345 parking spaces for guests. The lease expires on December 31, 1999. Although the Company has historically been able to renew the lease on an annual basis, the loss of the use of such parking facilities would put Fitzgeralds Reno at a disadvantage with its competitors who have parking facilities. The Fitzgeralds marketing strategy is to capitalize on the high level of pedestrian traffic surrounding Fitzgeralds Reno, which is located in the heart of downtown Reno adjacent to the landmark Reno Arch. Fitzgeralds Reno maintains active sidewalk marketing programs aimed at attracting pedestrians into the casino. To further increase Fitzgeralds Reno's appeal and convenience, the Company constructed an enclosed temperature-controlled, themed pedestrian bridge (the "Rainbow Skyway"), which connects the sidewalk located across the railroad tracks near the entrance to the Eldorado Hotel and Casino to the upgraded second floor casino of Fitzgeralds Reno. Fitzgeralds Reno guests entering via the Rainbow Skyway step into a themed "Lucky Forest" and are greeted at the Fitzgeralds Card Center. The second floor of the casino has been further upgraded with the addition of new slot machines, specialty table gaming products and a renovated restaurant in anticipation of increased traffic flow from the Rainbow Skyway. The cost of the Rainbow Skyway was approximately $2.3 million, of which $1.0 million was funded by the Union Pacific Railroad with the balance being borne by the Company. The Rainbow Skyway was opened to the public on February 7, 1998. The Rainbow Skyway was constructed over air rights which were acquired by the Company from the Southern Pacific Railroad. Such air rights may be subject to a claim of ownership (or claim of an ownership interest) by the United States of America. Although the Company believes it is unlikely that the United States of America would, in a manner adverse to the Company, exercise any right, title, or interest it may hold or obtain in the air rights parcel, no assurance can be made that such an exercise will not occur. The Company believes that the renovation of the front entrance and hotel rooms will increase visibility and improve operations. In addition, the Company continues to upgrade its slot and specialty table game products in conjunction with its fully integrated player tracking system. To maintain and enhance its competitive position, it will be necessary to continue to incur capital expenditures at Fitzgeralds Reno to improve the appeal of the property. Because the Company is highly leveraged, lacks financial flexibility and may not generate sufficient funds internally, there can be no assurance that the Company will be able to undertake any such capital improvements. With regard to the impact of the Reno Transportation Rail Access Corridor (ReTRAC) Project, see Item 3 - Legal Proceedings. Fitzgeralds Black Hawk Fitzgeralds Black Hawk is located adjacent to the entrance to the downtown gaming area of Black Hawk, Colorado, next to the Gilpin Casino and across the street from Bullwhackers. Fitzgeralds Black Hawk consists of a two-story building, the interior of which features high ceilings and other architectural details which sets it apart visually from many other Black Hawk casinos. At December 31, 1998, the main floor casino offered 576 slot machines, 6 table games, a restaurant, a bar and an entertainment area. The second floor is mostly unfinished and is being partially used for offices and storage. Fitzgeralds Black Hawk also has a 400-space, all valet parking garage, adjacent to the casino. -4- 7 The Company has revised the expansion plans for its existing Fitzgeralds Black Hawk facility. Current revised plans include expanding the existing casino and related administration areas as well as modifying the garage. The expansion will utilize the adjoining empty lot and two existing office buildings owned by the Company and add approximately 250 slot machines. Construction on the expansion project is expected to start in the third quarter of 1999, subject to receipt of all requisite permits, licenses and approvals. Although final plans, specifications and a detailed budget are not currently available, construction costs are estimated at $6.9 million for the casino expansion and garage modifications, plus an additional $2.5 million for gaming equipment. The Company's existing Credit Facility currently would permit borrowings of up to $5.0 million for capital improvements at Fitzgeralds Black Hawk. The Company is in the process of obtaining the requisite permits, licenses and approvals necessary for the expansion project; however, no assurance can be given that such approvals will be received. Cliff Castle Casino Cliff Castle Casino ("Cliff Castle") is a Class II and Class III gaming facility owned and operated by the Yavapai-Apache Nation (the "Nation") on Tribal land in Camp Verde, Arizona, located approximately 90 miles north of Phoenix. In May 1995, Fitzgeralds Arizona Management, Inc. ("FAMI"), an 85% owned subsidiary of the Company, entered into an exclusive agreement (the "Cliff Castle Management Agreement") to manage Cliff Castle for five years. In June 1998, FAMI agreed to terminate the Cliff Castle Management Agreement, in consideration for which FAMI received $8.0 million. Turning Stone Casino In consideration of work performed by the Company pursuant to an agreement with the Oneida Indian Nation to manage Turning Stone Casino in Verona, New York, the Company received monthly payments of $133,333 through September 1998. Certain Hotel Operating Information The following table on Fitzgeralds hotel operations is provided as additional supplemental information:
DECEMBER 31, 1998 - ---------------------------------------------------------------------------------------------- Room Number Average Average Revenue/ Year Date of Renovation Renovation Occupancy Room Available Hotel Built Acquired Rooms Year Amount Rate Rate Rooms - ----- ----- --------- ------ ---------- ---------- --------- ------- --------- Las Vegas 1979 Nov. 1987 638 1996 $3,475,835 88.8% $38.51 $33.71 Tunica 1996 N/A 507 N/A $ -- 94.3% $45.51 $42.93 Reno 1978 Dec. 1986 351 1998 $ 673,000* 89.7% $47.28 $42.43
- --------------- * During the period from 1999 to 2004, the Company currently anticipates expending approximately $2.0 million for additional renovation at Fitzgeralds Reno. OTHER GAMING ASSETS Nevada Club The Nevada Club is located on Virginia Street across the street from Fitzgeralds Reno. The Company, through its wholly owned subsidiary, Nevada Club, Inc. ("NCI"), has owned and operated the Nevada Club since 1988. Due to the Company's desire to focus its Reno activities on its Fitzgeralds-brand property, the Company has actively sought a buyer for the Nevada Club since early 1995. In the fall of -5- 8 1997, the Company received an offer to purchase the Nevada Club from an unaffiliated party and closed the casino in December 1997 in anticipation of the pending sale. Although it is currently anticipated that the sale will close in the second quarter of 1999, no assurance can be given that the sale will be completed. See Item 3 - Legal Proceedings. COMPETITION There is intense competition among companies in the gaming industry, many of which have greater name recognition and financial and marketing resources than the Company. In addition to the regional competitors described below, the Company competes with gaming facilities nationwide, including land-based casinos in Nevada and Atlantic City, not only for customers but also for employees and potential future gaming sites. The Company also competes, to some extent, with other forms of gaming on both a local and a national level, including state-sponsored lotteries, on and off-track wagering and card parlors. The recent and continuing expansion of legalized casino gaming to new jurisdictions throughout the United States has affected competitive conditions faced by the Company and will continue to do so in the future. Nevada Operations Fitzgeralds Las Vegas competes primarily with other downtown casino properties, casino properties located near the Nevada/California state line and certain facilities located on the Las Vegas Strip. The Company also believes that it competes, to a lesser extent, with the local neighborhood casinos and casino-hotels on the Boulder Strip and in the Laughlin market. The Las Vegas market is highly competitive. The Company has experienced competition from new and existing Las Vegas casino-hotels which have sought to attract some of the same "middle-market" players, and tour and travel visitors targeted by Fitzgeralds Las Vegas. The Company anticipates continuing increased competition for these customers. Moreover, on the Las Vegas Strip, Bellagio, with approximately 3,000 rooms, opened in September 1998; Mandalay Bay, with approximately 3,700 rooms, opened in March 1999; and two additional mega resort properties, with a total of approximately 5,000 rooms, are also scheduled to open in 1999. In addition, casinos catering to local residents also compete for business from the Company's targeted segment. These new properties, as well as any other major additions, expansions or enhancements to existing properties by the Company's competitors, could have a material adverse effect on the Company's business. Fitzgeralds Reno encounters strong competition from other hotel and casino facilities in the Reno area as well as competition from gaming establishments in other areas of Nevada and, to a lesser extent, other jurisdictions in the United States where gaming has been legalized (including Indian gaming establishments). Fitzgeralds Reno competes with other properties principally on the basis of location and direct marketing. Additional competition may come from the expansion or construction of other hotel and casino properties or the upgrading of other existing facilities in the Reno area. There can be no assurance that such growth will not adversely affect the pricing policies at Fitzgeralds Reno, including the room pricing policies. In addition, the unaffiliated purchaser who has offered to purchase the Nevada Club may elect to open a new gaming facility on the site of the Nevada Club. See Item 3 - Legal Proceedings - Harolds Club. In addition, management believes that the introduction of casino gaming, or the expansion of presently conducted gaming activities (particularly at Indian establishments) in areas in or close to Nevada, such as California, Oregon, Washington, Arizona and western Canada, could have an adverse effect on operations at the Company's Las Vegas and Reno properties and, depending on the nature, location and extent of such operations, such effect could be material. -6- 9 In November 1998, Proposition 5, an initiative relating to Indian gaming, was adopted in the State of California. Proposition 5 would permit Indian gaming in California, subject to specified limitations. The limitations include provisions requiring that Indian casinos: (i) may be located only on Tribal lands; (ii) may only continue to offer games in effect prior to the adoption of Proposition 5; and (iii) may only offer lottery-style gaming in which prizes come from a pool of wagered money rather than the casino. As a result, casino gaming permitted under Proposition 5 would include player-pool card games, pari-mutual betting on horse racing and video gaming machines with lottery style prize structures; however, slot machines that take and dispense coins and are operated by a handle, or games such as craps, roulette or baccarat, would not be permitted by Proposition 5. Following the adoption of Proposition 5, several lawsuits have been filed in the California Supreme Court challenging the constitutionality of the initiative. Although the Company cannot predict the outcome of the challenges to Proposition 5, there are currently in excess of 16,000 gaming devices operating in Indian casinos in California. The continued operation of such machines and the validation of Proposition 5 by the California Supreme Court will have an adverse effect on casino gaming in Nevada. Moreover, in the event that Proposition 5 is validated by the California Supreme Court, it is likely to lead to substantial expansion of Indian gaming in California which will have a material adverse effect on casino gaming in Nevada, particularly in Reno. The Company's ability to maintain its competitive position in Las Vegas and Reno will require the expenditure of sufficient funds for such items as updating slot machines to reflect changing technology, periodic refurbishing of rooms and public service areas, and replacing obsolete equipment on an ongoing basis. Because the Company is highly leveraged, lacks financial flexibility and may not generate sufficient funds internally, there can be no assurance that the Company will be able to complete any such capital improvements. There can be no assurance that the Company will generate sufficient internal funds or obtain sufficient additional financing to fund such expenditures. Mississippi Operations Fitzgeralds Tunica competes primarily with eight other dockside gaming facilities in the Tunica area, five of which are approximately one mile north of Fitzgeralds Tunica and three of which are approximately four miles south of Fitzgeralds Tunica. A fourth gaming facility located approximately four miles south of Fitzgeralds Tunica, originally operated by Harrah's and closed in 1997, was recently acquired by an experienced casino operator and is expected to re-open in the summer of 1999. In addition to the substantial competition in the immediate vicinity of Fitzgeralds Tunica, the Company competes with other Mississippi operations and may have to compete with surrounding areas for customers in Memphis, Tennessee and Little Rock, Arkansas. There can be no assurance that the State of Tennessee or the State of Arkansas will not legalize casino gaming in the future. In November 1992, and again in November 1996, De Soto County, the northwestern-most Mississippi county and the one nearest to Memphis, voted against authorizing gaming activities. Arkansas voters also voted against gaming in the November 1996 election. Because Fitzgeralds Tunica is heavily dependent upon the patronage of Memphis residents and tourists, the opening of gaming casinos in Tennessee or in other locations closer to Memphis could have a material adverse effect on the Company's operations. Colorado Operations Competition is intensifying in Black Hawk with the opening of the Lodge and the Isle of Capri in 1998. Two additional projects are scheduled to open in the latter part of 1999 or early 2000. All of these projects are larger than Fitzgeralds Black Hawk, will be operated by companies with greater resources and will be located at the eastern (closest to Denver) end of Black Hawk at the first major intersection off State Highway 119, which may give such projects a competitive advantage over Fitzgeralds Black Hawk since they will have the initial opportunity to capture visitors to Black Hawk and Central City from the -7- 10 Denver metropolitan area. The increased competition may have a material adverse effect on Fitzgeralds Black Hawk operations and may continue to do so; moreover the concentration of these properties on the south end of the street has shifted the center of gaming activity away from Fitzgeralds Black Hawk, which is located on the north end of the street. The Company will be required to make substantial capital expenditures to increase the attractiveness of Fitzgeralds Black Hawk in the face of increasing competition. Because the Company is highly leveraged, lacks financial flexibility and may not generate sufficient funds internally, there can be no assurance that the Company will be able to undertake any such capital improvements. Moreover, there is a fundamental issue concerning the size of the Black Hawk market and the ability to expand the market because of its mountain location and the availability of adequate roads and other infrastructure. Although initiatives to expand gaming venues in Colorado have thus far been unsuccessful, initiatives, legislation or regulations could be introduced in the future. The enactment of any initiative, legislation or regulation legalizing gaming elsewhere in Colorado could and, if such legalized gaming was closer to Denver, would have a material adverse effect on Fitzgeralds Black Hawk. EMPLOYEES As of December 31, 1998, the Company employed approximately 3,259 people. Fitzgeralds Las Vegas employed approximately 983 people, approximately 432 of whom are represented by the Culinary Workers Union, Local No. 226 and the Bartenders Union, Local No. 165, under a five-year contract expiring on May 31, 2002. In addition, three employees are represented by the United Brotherhood of Carpenters and Joiners of America, Southern California-Nevada Regional Council of Carpenters and Its Affiliated Local No. 1780, under a three-year contract expiring on July 31, 2001. Fitzgeralds Tunica, Fitzgeralds Reno and Fitzgeralds Black Hawk employed approximately 1,098, 813 and 365 people, respectively, none of whom is represented by a union. In addition, the Company also employed 35 people in its corporate offices. TRADE NAMES, TRADEMARKS AND SERVICE MARKS The Company believes that its distinctive trade names, trademarks and service marks are important to its efforts to develop a distinctive national brand identity. Because of their importance, the Company expends considerable effort to conceptualize, obtain, utilize and protect its trade names, trademarks and service marks. The Company has proprietary rights in approximately 82 registered trade names, trademarks and service marks used in connection with its businesses and created to enhance its Irish luck theme, its gaming activities and its association with the Fremont Street Experience, including the marks "Fitzgeralds," "Fitz" and the "Mr. O'Lucky" character design. Registered marks usually have perpetual life, provided that they are renewed on a timely basis and continue to be used properly as marks. The Company also has several non-exclusive licenses and supply agreements permitting it to utilize and offer at its facilities a variety of casino games, gaming devices, and related software and technology which are subject to certain third-party patent, trademark and copyright rights. GOVERNMENTAL REGULATION General The ownership and operation of the Company's casino gaming facilities are subject to various state and local regulations in the jurisdictions where they are located. In Nevada, the Company's gaming operations are subject to the Nevada Gaming Control Act, and to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board and various local ordinances and regulations, including, without limitation, applicable city and county gaming and liquor licensing authorities. In Mississippi, the Company must register under the Mississippi Gaming Control Act and its gaming operations are subject primarily to the licensing and regulatory control of the Mississippi Gaming Commission, the Mississippi State Tax Commission and various local, city and county regulatory agencies. In Colorado, the Company's gaming operations are subject to the Limited Gaming Act of 1991, which created the Division of Gaming within the Colorado Department of Revenue, and the Colorado Limited Gaming Control Commission to license, implement, regulate and supervise the conduct of limited gaming. The Company's operations are also subject to the Colorado Liquor Code, the state liquor licensing authority and local liquor licensing authorities. -8- 11 The Company holds all licenses and permits it needs to operate its gaming facilities. Directors, officers and key employees of the Company are required to hold individual licenses, which requirements vary from jurisdiction to jurisdiction. Licenses and permits of gaming operations and of individual licensees are subject to revocation or non-renewal for cause. Holders of the Company's securities are required to secure independent licenses and permits under certain circumstances. In August 1996, President Clinton signed a bill creating the National Gambling Impact Study Commission ("NGISC"), composed of individuals with ties to the gaming industry as well as individuals who are openly opposed to legalized gaming, to examine the economic and social impact of gaming. The NGISC began a series of hearings on June 20, 1997, and is scheduled to release a report on its findings, together with recommended legislation and administrative action, in 1999. Any additional regulation of the gaming industry resulting from the NGISC's recommendations could have a material adverse effect on the gaming industry, including the Company. Nevada Gaming Regulation The ownership and operation of casino gaming facilities in Nevada are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (the "Nevada Act") and to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and various local ordinances and regulations, including, without limitation, applicable city and county gaming and liquor licensing authorities (collectively, the "Nevada Gaming Authorities"). The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and filing periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations. The Company's direct and indirect subsidiaries that conduct gaming operations are required to be licensed by the Nevada Gaming Authorities. The gaming licenses require the periodic payment of fees and taxes and are not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation (a "Registered Corporation") and has been found suitable to own the stock of FSI and FRI. FSI is registered as an intermediary company (an "Intermediary Company") and has been found suitable to own the stock of FLVI, which has been licensed as a manufacturer and distributor of gaming devices and to conduct nonrestricted gaming operations at Fitzgeralds Las Vegas. FRI has been licensed as a manufacturer and distributor of gaming devices and to conduct nonrestricted gaming operations at Fitzgeralds Reno. FLVI and FRI are each a corporate gaming licensee (a "Corporate Licensee" or individually a "Nevada Gaming Subsidiary" and collectively the "Nevada Gaming Subsidiaries") under the terms of the Nevada Act. No person may become a stockholder of, or receive any percentage of profits from, an Intermediary Company or a Nevada Gaming Subsidiary without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company, FSI and the Nevada Gaming Subsidiaries have obtained from the Nevada Gaming Authorities the various registrations, findings of -9- 12 suitability, approvals, permits and licenses required in order to engage in gaming activities in Nevada. The following regulatory requirements are currently applicable to the Company, FSI and the Nevada Gaming Subsidiaries, including requirements applicable to the Company as a Registered Corporation. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company, FSI or the Nevada Gaming Subsidiaries in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of the Nevada Gaming Subsidiaries must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company or FSI who are actively and directly involved in gaming activities of the Nevada Gaming Subsidiaries may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company, FSI or the Nevada Gaming Subsidiaries, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company, FSI or the Nevada Gaming Subsidiaries to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company, FSI and the Nevada Gaming Subsidiaries are required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. Substantially all material loans, leases, sales of securities and similar financing transactions by the Nevada Gaming Subsidiaries must be reported to or approved by the Nevada Commission. If it were determined that the Nevada Act was violated by FSI or any Nevada Gaming Subsidiary, the registration or gaming licenses they hold could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, FSI, the Nevada Gaming Subsidiaries and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate Fitzgeralds Las Vegas and Fitzgeralds Reno and, under certain circumstances, earnings generated during the supervisor's appointment (except for reasonable rental value of the casino) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of the gaming licenses of the Nevada Gaming Subsidiaries or the appointment of a supervisor could (and revocation of any gaming license would) have a material adverse effect on the Company's gaming operations. Any beneficial holder of a Registered Corporation's voting securities (or rights to acquire such securities), regardless of the number of shares owned, may be required to file an application, be investigated and have his or her suitability as a beneficial holder of the Registered Corporation's voting securities determined if the Nevada Commission has reason to believe that such ownership would -10- 13 otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires beneficial ownership of more than 5% of a Registered Corporation's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of a Registered Corporation's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of a Registered Corporation's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Registered Corporation, any change in the corporate charter, bylaws, management, policies or operations of the Registered Corporation, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Registered Corporation's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company will be subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company or the Nevada Gaming Subsidiaries, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities including, if necessary, the immediate purchase of said voting securities for cash at fair market value. Additionally, the City of Las Vegas and the City of Reno have the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming licensee. The Nevada Commission may, in its discretion, require the holder of any debt or similar security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without -11- 14 the prior approval of the Nevada Commission, it (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company will also be required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. To date, the Nevada Commission has not imposed such a requirement on the Company. The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. Changes in control of a Registered Corporation through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada corporate gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to (i) assure the financial stability of corporate gaming licensees and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Registered Corporation can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Registered Corporation's Board of Directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purposes of acquiring control of the Registered Corporation. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and -12- 15 taxes are payable either monthly, quarterly or annually and are based upon either (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling or serving of food or refreshments or the selling of merchandise. Nevada licensees that hold a manufacturer's license or a distributor's license, such as the Nevada Gaming Subsidiaries, also pay certain fees and taxes to the State of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board for their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, foreign Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Such licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the grounds of personal unsuitability. The sale of alcoholic beverages at Fitzgeralds Las Vegas and at Fitzgeralds Reno are subject to licensing, control and regulation by the City of Las Vegas and the City of Reno, respectively. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect on the operations of the Nevada Gaming Subsidiaries. Mississippi Gaming Regulation The ownership and operation of casino gaming facilities in Mississippi are subject to extensive state and local regulations, but primarily the licensing and regulatory control of the Mississippi Commission (the "Mississippi Commission") and the Mississippi State Tax Commission. The Company must register under the Mississippi Gaming Control Act (the "Mississippi Act") and its gaming operations are subject to the licensing and regulatory control of the Mississippi Commission and various local, city and county regulatory agencies. The Mississippi Act, which legalized dockside casino gaming in Mississippi, was enacted on June 29, 1990. Although not identical, the Mississippi Act is similar to the Nevada Act. Effective October 29, 1991, the Mississippi Commission adopted regulations in furtherance of the Mississippi Act which are also similar in many respects to the Nevada gaming regulations. Under Mississippi law, gaming vessels in Tunica County must be located on the Mississippi River or on navigable waters emptying into the Mississippi River. Fitzgeralds Tunica was constructed on barges situated in a specially constructed basin made a part of the Mississippi River by a navigable inlet. On May 24, 1993, the Mississippi Commission granted site approval to the Fitzgeralds Tunica site. On April 21, 1994, FMI dba Fitzgeralds Tunica received a gaming operator's license from the Mississippi Commission. At the same meeting, certain key principals of FMI were found suitable. The license was most recently renewed on March 26, 1998, effective April 21, 1998, and will expire on April 21, 2000. All related findings of suitability have been maintained and are current. A condition placed on this license by the Mississippi Commission is that the barge placement continue to meet the statutory requirements of navigability. Fitzgeralds Tunica opened on June 6, 1994. -13- 16 The laws, regulations and supervisory procedures of Mississippi and the Mississippi Commission seek to: (i) prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity; (ii) establish and maintain responsible accounting practices and procedures; (iii) maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and safeguarding of assets and revenues, providing reliable record keeping and making periodic reports to the Mississippi Commission; (iv) prevent cheating and fraudulent practices; (v) provide a source of state and local revenues through taxation and licensing fees; and (vi) ensure that gaming licensees, to the extent practicable, employ Mississippi residents. The regulations are subject to amendment and interpretation by the Mississippi Commission. The Mississippi Act provides for legalized dockside gaming at the discretion of the 14 counties that either border the Gulf Coast or the Mississippi River, but only if the voters in such counties have not voted to prohibit gaming in that county. As of November 20, 1997, dockside gaming was permitted in nine of the 14 eligible counties in the State and gaming operations have commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. The law permits unlimited stakes gaming on permanently moored vessels on a 24-hour basis and does not restrict the percentage of space which may be utilized for gaming. There are no limitations on the number of gaming licenses which may be issued in Mississippi. The legal age for gaming in Mississippi is 21. The Company and FMI are required to submit detailed financial, operating and other reports to the Mississippi Commission. Substantially all loans, leases, sales of securities and similar financing transactions entered into by the Company and FMI must be reported to or approved by the Mississippi Commission. FMI is also required to periodically submit detailed financial and operating reports to the Mississippi Commission and to furnish any other information required thereby. Each of the directors, officers and key employees of the Company who are actively and directly engaged in the administration or supervision of gaming, or who have any other significant involvement with the activities of the Company, and each of the officers and directors and certain employees of FMI, must be found suitable therefor, and may be required to be licensed, by the Mississippi Commission. The finding of suitability is comparable to licensing, and both require submission of detailed personal financial information followed by a thorough investigation. In addition, any individual who is found to have a material relationship to, or material involvement with, the Company or FMI may be required to be investigated in order to be found suitable or to be licensed as a business associate of the Company or FMI. Key employees, controlling persons or others who exercise significant influence upon the management or affairs of the Company or FMI may also be deemed to have such a relationship or involvement. There can be no assurance that such persons will be found suitable by the Mississippi Commission. An application for licensing may be denied for any cause deemed reasonable by the Mississippi Commission. Changes in licensed positions must be reported to the Mississippi Commission. In addition to its authority to deny an application for a license, the Mississippi Commission has jurisdiction to disapprove a change in corporate position. If the Mississippi Commission were to find a director, officer or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company or FMI, the Company or FMI would have to suspend, dismiss and sever all relationships with such person. The Company or FMI would have similar obligations with regard to any person who refuses to file appropriate applications. Each gaming employee must obtain a work permit which may be revoked upon the occurrence of certain specified events. -14- 17 Mississippi statutes and regulations give the Mississippi Commission the discretion to require a suitability finding with respect to anyone who acquires any security of the Company or FMI, regardless of the percentage of ownership. The current practice of the Mississippi Commission is to require anyone acquiring 5% or more of any voting securities of a licensee, or a public or private company with a licensed subsidiary, to be found suitable. If the owner of voting securities who is required to be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any owner of voting securities found unsuitable and who holds, directly or indirectly, any beneficial ownership of equity interests in the Company or FMI beyond such period of time as may be prescribed by the Mississippi Commission may be guilty of a misdemeanor. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Mississippi Commission may be found unsuitable. The Company or FMI is subject to disciplinary action if, after it receives notice that a person is unsuitable to be an owner of or to have any other relationship with it, the Company or FMI: (i) pays the unsuitable person any dividends or interest upon any of its securities or any payments or distributions of any kind whatsoever; (ii) recognizes the exercise, directly or indirectly, of any voting rights in its securities by the unsuitable person; or (iii) pays the unsuitable person any remuneration in any form for services rendered or otherwise, except in certain limited and specific circumstances. In addition, if the Mississippi Commission finds any owner of voting securities unsuitable, such owner must immediately surrender all securities to the Company or FMI, as applicable, and the Company or FMI must purchase the securities so offered for cash at fair market value within 10 days. The Company and FMI will be required to maintain current ownership ledgers in the State of Mississippi which may be examined by the Mississippi Commission at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Mississippi Commission. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company and FMI also are required to render maximum assistance in determining the identity of the beneficial owner. In addition, the Mississippi Commission under the Mississippi Act may, in its discretion: (i) require holders of debt securities of registered corporations to file applications; (ii) investigate such holders; and (iii) require such holders to be found suitable to own such debt securities. Although the Mississippi Commission generally does not require the individual holders of such obligations to be investigated and found suitable, the Mississippi Commission retains the discretion to do so for any reason, including, but not limited to, a default, or where the holder of the debt instrument exercises a material influence over the gaming operations of the entity in question. Any holder of debt securities required to apply for a finding of suitability must pay all investigation fees and costs of the Mississippi Commission in connection with such an investigation. The regulations provide that a change in control of the Company or FMI may not occur without the prior approval of the Mississippi Commission. Mississippi law prohibits the Company from making a public offering or private placement of its securities without the approval of or waiver of approval by the Mississippi Commission if any part of the proceeds of the offering is to be used to finance the construction, acquisition or operation of gaming facilities in Mississippi, or to retire or extend obligations incurred for one or more of such purposes. Mississippi law also prohibits the Company from pledging or otherwise placing restrictions on the stock of FMI without the prior approval of the Mississippi Commission. The Mississippi Act requires that certificates representing securities of the Company or FMI bear a legend to the general effect that the securities are subject to the Mississippi Act and regulations of the -15- 18 Mississippi Commission. The Mississippi Commission, through the power to regulate licensees, has the power to impose additional restrictions on the holders of the Company's or FMI's securities at any time. As Mississippi licensees, neither the Company nor FMI may engage in gaming activities outside Mississippi without approval of the Mississippi Commission. Such approvals were initially granted on April 21, 1994, and additional approvals have been granted on a jurisdiction-by-jurisdiction basis. The licenses obtained by the Company and FMI are not transferable and new licenses must be obtained every two years. There can be no assurance that any subsequent application will be approved. Each issuing agency may at any time dissolve, suspend, condition, limit or restrict a license or approval to own equity interests in the Company or FMI for any cause deemed reasonable by such agency. Substantial fines for each violation of gaming laws or regulations may be levied against the Company or FMI in Mississippi. A violation under any gaming license held by the Company or FMI may be deemed a violation of all the other licenses held by the Company or FMI. Suspension or revocation of any of the foregoing licenses or of the approval of the Company or FMI would have a material adverse effect upon the business of the Company. License fees and taxes, computed in various way depending on the type of gaming involved, are payable to the State of Mississippi and to the counties and cities in which FMI's operations will be conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon: (i) the percentage of the gross gaming revenues received by the casino operation; (ii) the number of slot machines operated by the casino; (iii) the number of table games operated by the casino; or (iv) the number of casino patrons. The foregoing license fees are allowed as a credit against FMI's Mississippi income tax liability for the year paid. In October 1994, the Mississippi Commission adopted a regulation requiring, as a condition of licensure or license renewal, that a gaming establishment's site development plan include an approved 500-car parking facility in close proximity to the casino complex and infrastructure facilities which will amount to at least 25% of the casino cost. Such facilities may include any of the following: a 250-room hotel of at least a two-star rating (as defined by the current edition of the Mobil Travel Guide), a theme park, a golf course, marinas, a tennis complex, entertainment facilities or any other such facility as approved by the Mississippi Commission as infrastructure. Parking facilities, roads, sewage and water systems or facilities normally provided by governmental entities are excluded. The Mississippi Commission may, in its discretion, reduce the number of hotel rooms and parking spaces required where it is shown, to the satisfaction of the Mississippi Commission, that sufficient rooms are available to accommodate the anticipated visitor load. Such reduction in the number of rooms does not impact the 25% investment requirement imposed by the regulation. The number of parking spaces may also be reduced to accommodate smaller casinos. The Company met such requirements with the opening of the Fitzgeralds Tunica Hotel and related facilities in 1996. On January 21, 1999, the Mississippi Commission amended this regulation to increase the minimum level of infrastructure investment from 25% to 100% of the casino cost; however, the 100% infrastructure investment amendment applies only to new casino developments and existing casino developments that are not operating at the time of their acquisition or purchase, and would therefore not apply to Fitzgeralds Tunica. The sale of alcoholic beverages, including beer and wine, at Fitzgeralds Tunica is subject to licensing, control and regulation by the Alcoholic Beverage Control Division (the "ABC") of the Mississippi State Tax Commission. The ABC requires that all equity owners and managers file personal record forms and fingerprint forms for their licensing process. In addition, owners of more than 5% of FMI's equity and FMI's officers and managers must submit detailed financial information to ABC for licensing. All such -16- 19 licenses are revocable and are non-transferable. The Mississippi State Tax Commission has full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect on the operations of Fitzgeralds Tunica. Colorado Gaming Regulation Colorado legalized limited gaming by constitutional amendment approved by Colorado voters on November 6, 1990. The Colorado legislature thereafter enacted the Limited Gaming Act of 1991 (the "Colorado Act") to implement the provisions of the constitutional amendment and limited gaming commenced in Colorado on October 1, 1991. The Colorado Act authorizes limited gaming only in certain designated commercial districts of Central City, Black Hawk and Cripple Creek, Colorado. Limited gaming consists of poker, blackjack and slot machines, all with maximum single bets of five dollars. Only persons aged 21 or older may participate in limited gaming, and limited gaming is prohibited between the hours of 2:00 a.m. and 8:00 a.m. Limited gaming is only allowed on premises licensed for that purpose, and the licensed premises of any building may not exceed 35% of the square footage of the building and no more than 50% of any floor of such building. Pursuant to the Colorado Act and the rules and regulations promulgated thereunder (collectively, the "rules"), the ownership and operation of limited gaming facilities in Colorado, however acquired, are subject to extensive regulation. The Colorado Act created the Division of Gaming (the "Colorado Division") within the Colorado Department of Revenue and the Colorado Limited Gaming Control Commission (the "Colorado Gaming Commission") to license implement, regulate, and supervise the conduct of limited gaming. The Director of the Colorado Division (the "Colorado Director"), under the general supervision of the Colorado Gaming Commission, is granted broad powers to ensure compliance with the Colorado Act and the rules. The Colorado Act now provides that the provisions which established the Colorado Division are repealed effective July 1, 2003, unless continued by act of the General Assembly. If the repeal takes effect, Colorado law provides a procedure for winding up the affairs of the Colorado Division, public hearings, analysis and evaluation, and for determining claims by or against the Colorado Division. The potential effect of the possible repeal is unknown, and no replacement for the regulatory scheme has been proposed. The Colorado Gaming Commission has authority to issue retail gaming, operator, key employee and support licenses for slot machine manufacturers and distributors. The Colorado Director also has the authority to issue key employee and support licenses. All such licenses are for renewable one-year periods. The Colorado Gaming Commission has broad discretion to condition, suspend, revoke, limit or restrict a license at any time. The Colorado Gaming Commission may issue temporary licenses with a duration of up to six months. The Colorado Gaming Commission also has authority to impose fines against licensees. All license applicants must demonstrate to the Colorado Gaming Commission that they are suitable for licensing and are of good moral character. Applicants who are career offenders, have certain criminal convictions, have associations with career offender cartels or have certain pending criminal charges are disqualified from licensure. Licensure by the Colorado Gaming Commission or the Colorado Director is a revocable privilege and not a vested interest or property right. All licenses are non-transferable. A retail gaming license is required for all persons permitting or conducting limited gaming on their premises. In addition, an operator license is required for all persons who permit slot machines on their premises or who engage in the business of placing and operating slot machines on the premises of a retail gaming licensee. No person may have an ownership interest in more than three retail licenses. With -17- 20 certain exceptions for licensed operators, a slot machine manufacturer or distributor license is required for all persons who manufacture, import, distribute, sell or lease for a fixed or flat fee, slot machines in Colorado. All natural persons employed in the field of limited gaming and all gaming employees must hold either a support or key employee license. A key employee is an executive, employee or agent of a gaming licensee having the power to exercise a significant influence over decisions concerning any part of the operation of a gaming licensee. The Colorado Gaming Commission may determine that any employee of a licensee is a key employee and, therefore, require that such person apply for licensing as a key employee. All applicants for Colorado gaming licenses must complete comprehensive applications, forms, pay required fees, and provide all information required by the Colorado Gaming Commission and the Colorado Division. The Colorado Division conducts a thorough background investigation of each applicant or any persons or entities associated with the applicant. The investigation may cover the background, personal history, financial associations, character, record and reputation of the applicant. The applicant pays the full cost of the background investigation. There is no limit on the cost or duration of the background investigation. Applicants who do not provide all requested information during a background investigation may be denied a gaming license. The practice of the Colorado Division and the Colorado Gaming Commission, which may change at any time, is to require every officer and director, or equivalent office holders for non-corporate applicants, and 5% or greater beneficial owners of an applicant or licensee to complete background investigation forms, provide comprehensive information and submit to a full background investigation conducted by the Colorado Division and Colorado Gaming Commission. The Colorado Division may, and sometimes does, require information from and conducts background investigations of persons holding less than a 5% beneficial interest in an applicant or licensee. In addition, all persons loaning monies, goods, or real or personal property to a licensee or applicant, or having any interest in a licensee or applicant, or entering into any agreement with a licensee or applicant, must provide any information requested by the Colorado Division or Colorado Gaming Commission; and in the discretion of the Colorado Division or the Colorado Gaming Commission, these persons must supply all information relevant to a determination of any such person's suitability for licensure and must submit to a full background investigation if ordered by the Colorado Gaming Commission. Failure promptly to provide all information requested, or to submit to a suitability or background investigation, may result in the denial of a license application, suspension or revocation of an existing license, termination of any lease, note arrangement, or agreement between the applicant or licensee and the person requested to provide the information, and other sanctions. Applicants and licensees may be required by the Colorado Gaming Commission to pay the costs of background, suitability, or other investigations of persons associated with the applicant or licensee. Investigations for suitability, background, or any other reason may delay license application or the operation under any agreement with a licensee. All agreements, contracts, leases or arrangements in violation of the Colorado Act or the rules are void and unenforceable. Persons found unsuitable by the Colorado Gaming Commission may be required immediately to terminate any interest in, association or agreement with, or relationship to a licensee. A finding of unsuitability with respect to any officer, director, employee, associate, lender or beneficial owner of a licensee or applicant may also jeopardize the licensee's license or applicant's license application. Licenses may be conditioned upon termination of any relationship with unsuitable persons. -18- 21 The Colorado Act and the rules require licensees to maintain detailed books and records which accurately account for all monies and business transactions. Books and records must be furnished upon demand to the Colorado Gaming Commission, the Colorado Division and other law enforcement authorities. The rules also establish extensive playing procedures, standards, requirements and rules of play for poker, blackjack and slot machines. Retail gaming licensees must, in addition, adopt comprehensive internal control procedures governing their limited gaming operations. Such procedures include the areas of accounting, internal fiscal control, surveillance, security, cashier operations, key control, reporting procedures, personnel procedures and fill and drop procedures, among others. Such procedures must be approved in advance by the Colorado Division. Licensees are prohibited from engaging in fraudulent acts which include, among other things, misrepresenting the probabilities of pay out, improperly canceling a bet, conducting limited gaming without a valid license and employing an unlicensed person in a position which requires a licensed employee. Licensees must report to the Colorado Division all licenses, and all applications for licenses, in foreign jurisdictions. With limited exceptions applicable to licensees that are publicly traded entities, no person, including persons who may acquire an interest in a licensee pursuant to a foreclosure, may sell lease, purchase, convey or acquire any interest in a retail gaming or operator license or business without the prior approval of the Colorado Gaming Commission. The rules impose certain additional restrictions and reporting and filing requirements on publicly traded entities holding gaming licenses in Colorado and on gaming licensees in Colorado owned directly or indirectly, 5% or more, by publicly traded entities. Such rules apply to the Company. In addition, gaming licensees, affiliated companies, and controlling persons thereof, must comply with notice requirements upon the filing of registration statements with the Securities and Exchange Commission. Such entities also must include certain provisions in their charter or other organization documents restricting the transfer of interests in the entity except in compliance with the Colorado Act. The Colorado Gaming Commission may require persons affiliated with, and certain direct or indirect owners of, such transferees to apply for a finding of suitability. If found unsuitable, such persons must terminate their relationship with the entity and such owners must sell their interest back to the issuer or to a suitable person approved by the Colorado Gaming Commission. Black Hawk also imposes taxes and fees on other aspects of the businesses of gaming licensees, such as parking, liquor license and other municipal taxes and fees. It is not unreasonable to expect substantial increases in these fees or the imposition of new taxes and fees. The State of Colorado has enacted an annual tax on the adjusted gross proceeds ("AGP") from limited gaming. AGP is generally defined as the amounts wagered minus payments to players. For poker, AGP means those sums wagered on a hand retained by the licensee as compensation. Currently, the gaming tax on AGP ranges between 2% and 20%. The gaming tax is paid monthly, with licensees required to file returns by the 15th of the following month. Effective July 1 of each year, the Colorado Gaming Commission establishes the gaming tax rates for the following 12 months. Under the Colorado Constitution, the Colorado Gaming Commission may increase the gaming tax rate to as much as 40% of AGP. Violations of the Colorado Act, or any of the rules, is a criminal offense. Persons violating the Colorado Act or the rules may, in addition to any gaming license suspension or revocation, be subject to criminal prosecution resulting in incarceration, fines or both. -19- 22 The sale of alcoholic beverages in gaming establishments is subject to strict licensing, control and regulation by state and local authorities. Alcoholic beverage licenses are revocable and non-transferable. State and local licensing authorities have full power to limit, condition, suspend or revoke any such licenses. Violation of these state alcoholic beverage laws is a criminal offense, and violators are subject to criminal prosecution, incarceration and fines. ITEM 2. PROPERTIES Reference is made to the information contained under Item 1. Business - Properties in Part I of this Report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS HAROLDS CLUB On May 31, 1995, FRI sold the closed Harolds Club in Reno to an unrelated publicly-traded company which subsequently conveyed Harolds Club to a company whose assets are now under control of the United States Bankruptcy Court for the Northern District of New York. Under the terms of certain indemnification agreements executed by FRI in connection with the sale of Harolds Club, as of December 31, 1998, FRI is contingently obligated for certain land lease payments to two lessors in the amount of approximately $0.28 million annually plus certain property-related costs, such as taxes and insurance, if said lease payments and costs are not paid by the current owner of Harolds Club. As of December 31, 1998, the current owner of Harolds Club was approximately $1.4 million in arrears in land lease payments and approximately $0.26 million in arrears in property taxes and assessments. The current owner of Harolds Club has not met its obligations with respect to the land leases, and in August 1996 each of the five land lessors filed separate actions in the Second Judicial District Court, Washoe County, State of Nevada, against the current owner, FRI and other non-related prior lessees under the land leases, seeking past due rent, taxes and other property-related expenses as well as attorneys' fees and costs. Cross-claims and third party complaints for indemnification have been asserted against FRI by the entity from which it assumed the land leases, and FRI has asserted cross-claims or third party complaints against the entities that are obligated to indemnify FRI under the various indemnification, assignment and assumption, and guarantee agreements. In addition, in December 1997 one of the land lessors filed an additional action seeking rent, taxes and assessments accruing from October 1997 through March 1998. On June 3, 1998, the current owner of Harolds Club entered into an asset purchase agreement (the "Asset Purchase Agreement") to convey its fee simple interest in Harolds Club and improvements thereon to an undisclosed purchaser, which undisclosed purchaser has also entered into an agreement with FRI and NCI to purchase the Nevada Club. FRI and four land lessors have executed an asset purchase agreement (the "Land Lessors Asset Purchase Agreement") to convey their fee simple interests in Harolds Club and the improvements thereon to the undisclosed purchaser. Due to unresolved title issues, as of December 31, 1998, the undisclosed purchaser had not executed the Land Lessors Asset Purchase Agreement. The Company believes those title issues have since been resolved. The current owner of Harolds Club, the undisclosed purchaser and an unrelated entity are currently negotiating their respective rights and -20- 23 obligations under a certain agreement that is to be assigned to the undisclosed purchaser concurrently with the closing of the Harolds Club asset purchase transaction. The undisclosed purchaser has offered to extend the closing date for the transaction while such negotiations are pending. It is anticipated that all parties to the Land Lessors Asset Purchase Agreement will execute amendments to extend the closing date, among other things; however, no assurance can be given that the parties will consent to extend the closing date. FRI, four of the land lessors and the current and prior Harolds Club land lessees have executed Settlement Agreements, pursuant to which FRI has agreed to pay four of the land lessors approximately $1.7 million cash, less the cumulative amount of interim monthly rental payments ($28,977 per month through December 31, 1998), concurrently with the closing of the sale of Harolds Club in exchange for dismissal with prejudice of all claims and cross-claims against FRI arising out of FRI's purchase and subsequent sale of Harolds Club. To accommodate the requirement of the fifth Harolds Club land lessor that the transfer of its parcel (the "Campbell Parcel") be structured as a tax-free exchange, on August 24, 1998, FRI purchased the Campbell Parcel for a purchase price of approximately $1.0 million. Approximately, $0.45 million of the purchase price and the closing costs were paid by a prior owner of Harolds Club. FRI intends to terminate the lease encumbering the Campbell Parcel and convey said parcel to the undisclosed purchaser of Harolds Club for approximately $0.34 million. As a part of the transaction for the purchase of the Campbell Parcel, the lawsuits filed by the owners of the Campbell Parcel against the current owner, FRI and other non-related prior lessees were dismissed with prejudice. Because the assets of the current owner of Harolds Club are under the control of the United States Bankruptcy Court for the Northern District of New York, the Court must approve the Asset Purchase Agreement. An order approving the sale was issued on October 8, 1998. It is anticipated that a motion to modify the order to, among other things, extend the closing date, will be filed in April 1999. The closing of the sale of Harolds Club is subject to the closing of the sale of Nevada Club and the undisclosed purchaser's acquisition of other parcels of land adjacent to Harolds Club. Although it is currently anticipated that the Harolds Club and related transactions will close in the second quarter of 1999, no assurance can be given that the transactions will be completed. Moreover, in the event that such transactions are consummated, it is likely that the unaffiliated purchaser may utilize the land for gaming facilities that will compete with Fitzgeralds Reno. TREASURE BAY In October 1993, FMI, the manager of Fitzgeralds Tunica, executed a road contract (the "Contract") with Treasure Bay Gaming and Resorts, Inc. ("Treasure Bay") to share equally the cost of developing a road leading to the two properties (the "Roadway") and of the acquisition of a 3.67-acre tract of land (the "Tract"). Subsequently, FMI filed an adversary proceeding against Treasure Bay and others to quiet title in the Roadway and the Tract. The complaint sought, among other relief, a declaratory judgment that FMI owns an unencumbered, undivided one-half interest in the Roadway and Tract and the avoidance of all liens on the Roadway and the Tract. Treasure Bay asserted a counterclaim alleging that FMI owed Treasure Bay approximately $0.3 million for the costs of acquiring and developing the Roadway and Tract. On January 29, 1999, FMI and Treasure Bay entered into a Settlement Agreement (the "Settlement Agreement") pursuant to which FMI paid Treasure Bay $0.25 million and Treasure Bay conveyed to FMI an unencumbered, undivided one-half interest in the Roadway and Tract. In accordance with the Settlement Agreement and the Contract, the Roadway will be dedicated to Tunica County. RENO TRANSPORTATION RAIL ACCESS CORRIDOR (RETRAC) PROJECT -21- 24 In October 1998, the Reno City Council approved a special assessment district to finance a portion of the costs to lower the railroad tracks that run through downtown Reno, Nevada (the "ReTRAC Project"). Preliminary plans for the ReTRAC Project provide for the construction of a temporary rail bypass that will be used to divert rail traffic around the main railroad during construction. The City estimates that a period of thirty to thirty-two months will be required to complete the ReTRAC Project. The southern boundary of the bypass will extend out into the middle of Commercial Row, the street adjacent to the Fitzgeralds Reno hotel entrance, valet parking area and hotel loading zone. On November 30, 1998, the Company filed a lawsuit against the City of Reno to challenge the method by which the special assessment to be levied against the Company was determined. Based on preliminary plans prepared by the City of Reno, Fitzgeralds Reno would expect to lose several parking spaces, the current valet parking area, an outdoor billboard structure advertising available rooms and a building used to house administrative offices, and be required to relocate the hotel entrance on Commercial Row. The City of Reno has also subsequently indicated that the ReTRAC Project might require the demolition of the Fitzgeralds Reno Rainbow Skyway. Implementation of the ReTRAC Project as currently proposed would cause the Company to suffer significant and permanent loss in business revenue and income; certain operating efficiencies from demolished or impaired physical structures; and a portion of its existing customer base as a result of the construction and operation of the proposed rail bypass. The Company has received no assurance as to whether and when the City of Reno will negotiate mitigation measures and whether such measures could or would fully compensate the Company for the fair market value of its property and anticipated operating losses. OTHER MATTERS The Company is a party to various lawsuits relating to routine matters incidental to its business. The Company does not believe that the outcome of such litigation, individually or in the aggregate, will have any material adverse effect on its financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -22- 25 PART II ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is not listed or traded on any exchange. As of February 26, 1999, there were approximately 12 holders of the Company's Common Stock. In December 1995, as part of a public offering of $123.0 million senior secured notes (the "1995 Notes") and preferred stock, the Company issued 2,675,237 warrants, each exercisable for one share of the Company's Common Stock, at an exercise price of $.01 per share (the "Warrants"). In December 1997, concurrently with the redemption of the 1995 Notes, the Company canceled 703,402 of the Warrants. The remaining Warrants had an expiration date of December 19, 1998. The Warrant Agent timely received notice of exercise for 1,495,236 Warrants and 476,599 Warrants expired. The Company advised each exercising Warrant holder that the exercise of the Warrants and issuance of the underlying Common Stock might be subject to certain Nevada, Colorado and Mississippi gaming licensure requirements, and that no such Common Stock would be issued without compliance with or exemption from applicable gaming requirements. The Company has recently been advised by the applicable gaming authorities for each such jurisdiction that, based on the information provided by the Warrant Agent, no licensure will be required by virtue of the exercise of the Warrants or issuance of the underlying Common Stock. It is anticipated that the 1,495,236 shares of Common Stock issuable on exercise of the Warrants will be issued in the near future to the exercising Warrant holders in reliance on the exemption from registration contained in Section 4(2) of the Securities Act of 1933 on the basis that there was no public offering of the shares of Common Stock underlying the Warrants. Assuming that 1,495,236 shares of Common Stock will be issued, the Company will receive $14,952, representing the exercise price of the Warrants, which amount is currently being held by the Warrant Agent. The Company has not paid any cash dividends on its Common Stock to date. The Company intends to retain all future earnings for use in the development of its business and does not anticipate paying cash dividends (including with respect to its preferred stock) in the foreseeable future. The payment of all dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, the general financial condition of the Company and general business conditions. The ability of the Company or its subsidiaries to pay dividends is restricted by the indenture governing the Senior Secured Notes, the terms of the Credit Facility and, with respect to the Common Stock, the certificate of designation for the preferred stock. If a holder of securities is disqualified by any gaming authorities from owning such securities, such holder will not be permitted to receive any dividends if, and when, declared by the Company's Board of Directors with respect to such securities. See Item 1--Business - Governmental Regulation. -23- 26 ITEM 6. SELECTED FINANCIAL DATA FITZGERALDS GAMING CORPORATION (IN THOUSANDS)
DECEMBER 31 ------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------------------------------------------------- Statement of Operations Data: Net Operating Revenues $ 207,125 $ 179,702 $ 140,530 $ 141,397 $ 131,834 Income from Operations(1) 21,680 13,622 3,871 13,768 1,997 Interest Expense, Net 26,646 25,033 18,187 14,706 10,256 Net Loss (8,667) (31,542) (13,494) (4,255) (5,979) OTHER DATA: EBITDA:(2) Fitzgeralds Las Vegas $ 2,682 $ 2,651 $ 1,656 $ 4,084 $ 4,926 Fitzgeralds Tunica 8,051 11,744 3,790 9,934 1,505 Fitzgeralds Reno 4,805 5,462 4,596 7,009 8,345 Fitzgeralds Black Hawk 10,863 4,842 -- -- Other(3) 9,622 4,111 2,874 1,667 (1,526) ------------------------------------------------------------- Total Properties 36,023 28,810 12,916 22,694 13,250 Nevada Club (561) (1,282) (148) 392 506 Harolds Club (111) (1,853) -- (1,307) (3,489) ------------------------------------------------------------- Total EBITDA 35,351 25,675 12,768 21,779 10,267 Adjustments to EBITDA(4) (5,328) 4,924 742 1,337 8,304 ------------------------------------------------------------- Adjusted EBITDA $ 30,023 $ 30,599 $ 13,510 $ 23,116 $ 18,571 ============================================================= EARNINGS TO FIXED CHARGES:(5) -- -- -- -- -- NET CASH PROVIDED BY (USED IN): Operating activities $ 12,189 $ 1,287 $ 759 $ 8,468 $ 7,738 Investing activities (5,451) (24,657) (6,368) (50,404) (34,736) Financing activities (8,509) 24,830 (885) 49,894 30,302 DEPRECIATION AND AMORTIZATION 13,671 12,054 8,897 8,010 8,271 CAPITAL EXPENDITURES 9,352 3,944 57,026 14,957 46,046 BALANCE SHEET DATA: Cash $ 13,039 $ 14,810 $ 13,349 $ 19,844 $ 11,886 Total Assets 209,197 215,695 191,179 197,213 137,660 Short-Term Debt 4,940 7,591 27,750 11,226 11,619 Long-Term Debt 208,204 206,191 127,882 139,467 100,849 Preferred stock, net of Offering Costs and Discounts 24,401 19,631 15,489 11,953 -- Stockholders' Equity (Deficiency) (51,300) (37,863) (2,043) 16,061 11,087
- ---------- (1) The Company recorded allowances of $0.2 million and $2.2 million in 1998 and 1997, respectively, against the book value of Nevada Club assets held for sale to write such assets down to estimated net realizable value, and recorded expenses of $0.1 million and $1.9 million in 1998 and 1997, respectively, for the anticipated net settlement obligation relating to certain land lease payments and property-related costs arising out of the Company's purchase and subsequent sale in 1995 of Harolds Club. The Company sold Harolds Club on May 31, 1995 and, accordingly, at December 31, 1994, recorded an allowance of $1.4 million against the book value of assets sold to write such assets down to estimated realized value. -24- 27 (2) EBITDA, or "earnings before interest, taxes on income, depreciation, and amortization," is a supplemental financial measurement used by the Company in the evaluation of its gaming business and by many gaming industry analysts. EBITDA is calculated by adding depreciation and amortization expense to income from operations. At any property, EBITDA is calculated after the allocation of corporate costs. However, EBITDA should only be read in conjunction with all of the Company's financial data summarized above and its financial statements prepared in accordance with GAAP appearing elsewhere herein, and should not be construed as an alternative either to income from operations (as determined in accordance with GAAP) as an indication of the Company's operating performance or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. This presentation of EBITDA may not be comparable to similarly titled measures reported by other companies. (3) Other includes (i) management fees from Fitzgeralds Black Hawk for 1997, 1996, and 1995; (ii) management fees from Cliff Castle for 1998, 1997, 1996 and 1995; (iii) settlement fees from Turning Stone for all periods presented; (iv) non-recurring revenue of $8.0 million for the termination of the Cliff Castle Management Agreement in 1998; and (v) corporate costs not allocated to the core properties. (4) Adjustments to EBITDA include (i) exclusion of EBITDA for Harolds Club and Nevada Club for all periods presented; (ii) exclusion of business development expenses of Sugar Creek, Missouri of $0.4 and $0.5 million for 1995 and 1994, respectively; (iii) exclusion of pre-opening expenses of Fitzgeralds Tunica of $4.9 million for 1994; (iv) exclusion of write down of Nevada Club assets of $0.2 million and $2.2 million for 1998 and 1997, respectively; (v) exclusion of Harolds Club lease settlement of $0.1 million and $1.9 million for 1998 and 1997, respectively; (vi) inclusion of $1.0 million for 1997 and $0.6 million for 1996 in cash received by the Company as a result of its 22% membership in 101 Main; and (vii) exclusion of $6.0 million of the $8.0 million received in connection with the termination of the Cliff Castle Management Agreement in 1998. (5) For the Ratio of Earnings to Fixed Charges, earnings are defined as earnings before income taxes, interest on indebtedness, imputed interest on capital lease obligations and the portion of rent expense deemed to represent interest. Fixed charges consist of interest on indebtedness, imputed interest on capital lease obligations, and the portion of rent expense deemed to represent interest. Earnings were insufficient to cover fixed charges by $10.0 million, $10.6 million, $15.5 million, $0.6 million, and $8.2 million for the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively. -25- 28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with, and is qualified in its entirety by, the Company's Consolidated Financial Statements, including the notes thereto, listed in Item 14(a). OVERVIEW Fitzgeralds Reno, Fitzgeralds Las Vegas and Fitzgeralds Tunica have been owned and operated by the Company or its affiliates since 1985, 1987 and 1994, respectively. Between December 1994 and February 1995, a business combination was effected, resulting in the existing single ownership structure for the companies operating Fitzgeralds-brand casinos. In May 1995, the Company, under exclusive management contracts, opened two properties outside of Nevada -- Fitzgeralds Black Hawk and Cliff Castle, and in December 1995, the Company acquired those portions of Fitzgeralds Tunica (20%) and Fitzgeralds Inc. (2%) which it did not own. In August 1997, the Company acquired the 78% membership interest in 101 Main not previously owned. On a consolidated basis, net operating revenues (excluding Nevada Club) increased to $207.1 million in 1998 from $173.5 million in 1997, primarily as a result of the inclusion of Fitzgeralds Black Hawk operating revenues in the Company's consolidated results subsequent to the acquisition in August 1997 of the 78% membership interest in 101 Main not previously owned. In 1998 and 1997, casino operations (excluding Nevada Club) provided an average of approximately 78.5% and 78.3% of the Company's net revenues, respectively, and substantially all of its income from operations. Slot machine income has been the primary component of the Company's gaming revenues, providing an average of approximately 82.7% and 79.6% of such revenues (excluding Nevada Club) during 1998 and 1997, respectively. Unless otherwise noted, the narrative discussion below is focused on the principal ongoing operating properties of the Company which include Fitzgeralds Las Vegas, Fitzgeralds Tunica, Fitzgeralds Reno and, commencing August 15, 1997, Fitzgeralds Black Hawk, and management fees received by FI (the "Properties"). -26- 29 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain Statement of Operations Data and Other Data for the Company's properties.
YEAR ENDED DECEMBER 31 ----------------------------------- Statement of Operations Data 1998 1997 1996 --------- --------- --------- (IN THOUSANDS) NET OPERATING REVENUES: Fitzgeralds Las Vegas $ 50,987 $ 46,540 $ 43,483 Fitzgeralds Tunica 68,349 68,734 48,748 Fitzgeralds Reno 39,729 39,803 37,076 Fitzgeralds Black Hawk(1) 36,256 12,692 -- Other(2) 11,742 5,695 4,791 --------- --------- --------- Total Properties 207,063 173,464 134,098 Nevada Club 62 6,238 6,432 --------- --------- --------- Total $ 207,125 $ 179,702 $ 140,530 ========= ========= ========= INCOME (LOSS) FROM OPERATIONS: Fitzgeralds Las Vegas $ (594) $ (498) $ (330) Fitzgeralds Tunica 2,063 6,013 (597) Fitzgeralds Reno 2,400 3,211 2,318 Fitzgeralds Black Hawk(1) 9,074 4,215 -- Other(2) 9,414 4,011 2,861 --------- --------- --------- Total Properties 22,357 16,952 4,252 Nevada Club (566) (1,477) (381) Harolds Club (111) (1,853) -- --------- --------- --------- Total(2) $ 21,680 $ 13,622 $ 3,871 ========= ========= ========= OTHER DATA EBITDA(3): Fitzgeralds Las Vegas $ 2,682 $ 2,651 $ 1,656 Fitzgeralds Tunica 8,051 11,744 3,790 Fitzgeralds Reno 4,805 5,462 4,596 Fitzgeralds Black Hawk(1) 10,863 4,842 -- Other(2) 9,622 4,111 2,874 --------- --------- --------- Total Properties 36,023 28,810 12,916 Nevada Club (561) (1,282) (148) Harolds Club (111) (1,853) -- --------- --------- --------- Total EBITDA 35,351 25,675 12,768 Adjustments to EBITDA (5,328) 4,924 742 --------- --------- --------- Adjusted EBITDA $ 30,023 $ 30,599 $ 13,510 ========= ========= ========= NET CASH PROVIDED BY (USED IN) Operating Activities $ 12,189 $ 1,287 $ 759 Investing Activities (5,451) (24,657) (6,368) Financing Activities (8,509) 24,830 (885) DEPRECIATION AND AMORTIZATION 13,671 12,054 8,897 CAPITAL EXPENDITURES 9,352 3,944 57,026 EARNINGS TO FIXED CHARGES(4) -- -- --
- --------------- (1) Includes Fitzgeralds Black Hawk operating results for 1998 and commencing August 15, 1997. -27- 30 (2) Other includes (i) management fees from Fitzgeralds Black Hawk for 1997 and 1996; (ii) management fees from Cliff Castle for 1998, 1997 and 1996; (iii) settlement fees from Turning Stone for all periods presented; (iv) non-recurring revenue of $8.0 million for the termination of the Cliff Castle Management Agreement in 1998; and (v) corporate costs not allocated to the core properties. (3) For a definition of EBITDA and Adjusted EBITDA, see Notes 2 and 4 of Notes to "Selected Financial Data." (4) For the Ratio of Earnings to Fixed Charges, earnings are defined as earnings before income taxes, interest on indebtedness, imputed interest on capital lease obligations and the portion of rent expense deemed to represent interest. Fixed charges consist of interest on indebtedness, imputed interest on capital lease obligations, and the portion of rent expense deemed to represent interest. Earnings were insufficient to cover fixed charges by $10.0 million, $10.6 million and $15.5 million, for the years ended December 31, 1998, 1997 and 1996, respectively. FISCAL 1998 COMPARISON TO FISCAL 1997 During 1998, the Company experienced minimal revenue growth after taking into account completion of the Company's acquisition of Fitzgeralds Black Hawk in August 1997 and the non-recurring fees from termination of the Cliff Castle Management Agreement. To maintain market share in each of its four existing markets, the Company has found it necessary to increase its promotional and complimentary expenses to meet the challenges of the intense competition, resulting in reduced operating margins. Operating Revenues Total revenues for the Properties were $224.4 million and net operating revenues for the Properties were $207.1 million for 1998, representing increases of 19.2% and 19.4%, respectively, over the Properties' total revenues of $188.2 million and net operating revenues of $173.5 million for 1997. Such increases were largely the result of the consolidation of operating results of Fitzgeralds Black Hawk for the full year 1998. The Company's business can be separated into four operating departments: casino, food and beverage, rooms and other. Casino revenues for the Properties (of which approximately 82.7% and 79.6% are derived from slot machine revenues for 1998 and 1997, respectively) increased 19.6% to $162.5 million for 1998 from the $135.9 million recorded for 1997, primarily due to the inclusion of operating results of Fitzgeralds Black Hawk for the full year 1998. Room revenues for the Properties (at 9.5% and 11.3% of total revenues for the Properties for 1998 and 1997, respectively) decreased 0.5% from 1997 as slight revenue increases in Tunica and Reno were offset by a decrease in Las Vegas revenues. Tunica room revenues increased 0.7% due to an increase in occupancy rates to 94.3% in 1998 from 89.3% in 1997, while its average daily rate decreased 6.0%. Fitzgeralds Reno room revenues increased 0.1%, as a decrease in occupancy to 89.7% in 1998 from 90.2% in 1997 was offset by a 1.5% increase in the average daily rate. Las Vegas room revenues decreased 2.0% due to a decrease in occupancy to 88.8% in 1998 from 89.7% in 1997 as well as a decrease of 1.1% in the average daily rate. Food and beverage revenues for the Properties (at 11.2% of total revenues for the Properties for both 1998 and 1997) increased $3.8 million or 18.2% from 1997 to 1998. This increase was the result of the inclusion of Fitzgeralds Black Hawk revenues of approximately $1.6 million as well as increased food revenues at Fitzgeralds Reno, Fitzgeralds Las Vegas and Fitzgeralds Tunica, which posted gains of 9.9%, 6.5% and 18.8%, respectively. Other revenues for the Properties increased $5.8 million or 58.0% for the year, primarily due to the proceeds from the termination of the Cliff Castle Management Agreement. -28- 31 Promotional allowances for the Properties showed a net increase of $2.5 million or 17.0% for the year. This increase resulted primarily from an increase of approximately $1.9 million for Fitzgeralds Tunica as well as an increase in Fitzgeralds Black Hawk promotional allowances of approximately $1.0 million. Operating Costs and Expenses Total operating costs and expenses for the Properties increased 18.0%, to $184.7 million for 1998 from $156.5 million for 1997, primarily due to an increase in Fitzgeralds Black Hawk operating expenses of approximately $18.7 million. Casino expenses for the Properties were $81.4 million for 1998, a 23.3% increase from the $66.0 million for 1997, primarily due to increased volume and increased personnel as well as the increase of expenses from Fitzgeralds Black Hawk for the full year. Food and beverage expenses for the Properties increased 13.1%, to $18.3 million for 1998 from $16.2 million for 1997, primarily as the result of an increase in Fitzgeralds Black Hawk food and beverage expenses of approximately $0.8 million. Room expenses for the Properties increased 0.5% to $12.6 million for 1998 from $12.5 million for 1997. Selling, general and administrative expense for the Properties increased 19.1% to $56.6 million for 1998 from $47.5 million for 1997, due mostly to increases in personnel and marketing expenses as explained further below. Personnel expenses for the Properties increased 14.1%, to approximately $77.4 million for 1998 from approximately $67.8 million for 1997. This increase resulted primarily from the inclusion of Fitzgeralds Black Hawk personnel expenses for the full year 1998 as well as a 12.2% increase for Fitzgeralds Tunica. Marketing expenses for the Properties, which include advertising, promotional material, special events and the operations of the Fitzgeralds Card, increased 26.6% for the year. The increase reflects more intensive marketing efforts at each property undertaken in response to increasing competitive activity in each of the markets in which the Company operates, particularly in Tunica, and the inclusion of Fitzgeralds Black Hawk marketing expenses for the full year 1998. The Company's strategy is to utilize its expanded and renovated facilities as additional marketing elements and to continue to adjust marketing expense levels as needed to respond to competition. Depreciation and amortization expense of the Properties increased 15.2%, to $13.7 million for 1998 from $11.9 million for 1997. The increase was primarily due to the inclusion of Fitzgeralds Black Hawk depreciation and amortization for the full year 1998. Income from Operations As a result of the foregoing, income from operations for the Properties increased 31.9%, to $22.4 million for 1998 from $17.0 million in 1997. Net Interest Expense Interest expense for the Properties (net of interest income), increased 6.7%, to $26.4 million for 1998 from $24.7 million for 1997, due primarily to increased debt as a result of the acquisition of the remaining 78% membership interest in 101 Main in August 1997. -29- 32 Loss Before Income Taxes and Extraordinary Item For the reasons described above, the Properties recorded a loss before income taxes and extraordinary item of $8.0 million in 1998 compared to an $8.4 million loss before taxes recorded in 1997. Extraordinary Item and Net Loss In connection with the Company's issuance of the Senior Secured Notes in December 1997, an extraordinary loss of $19.2 million was recorded to reflect the cost associated with the early retirement of certain debt of the Company. Net loss for the Properties decreased to $8.0 million in 1998 compared to $27.6 million in 1997, reflecting the impact of the extraordinary item. FISCAL 1997 COMPARISON TO FISCAL 1996 Operating Revenues Total revenues for the Properties were $188.2 million and net operating revenues for the Properties were $173.5 million for 1997, representing increases of 28.9% and 29.4%, respectively, over the Properties' total revenues of $146.0 million and net operating revenues of $134.1 million for 1996. Such increases were largely the result of the consolidation of operating results of Fitzgeralds Black Hawk commencing August 15, 1997, as well as the fact that the 507-room hotel tower at Fitzgeralds Tunica (the "Tunica Hotel") did not commence operations until August 1996 and was not fully operational until October 1996. Therefore, 1997 results include the full year benefit of hotel revenue and subsequent improved casino revenue at Fitzgeralds Tunica. The Company's business can be separated into four operating departments: casino, food and beverage, rooms and other. Casino revenues for the Properties (of which approximately 79.6% and 76.5% are derived from slot machine revenues for 1997 and 1996, respectively) increased 28.5% to $135.9 million for 1997 from the $105.8 million recorded for 1996, due primarily to the consolidation of operating results of Fitzgeralds Black Hawk and to the opening of the Tunica Hotel which occurred in phases from August to October 1996. Casino revenues increased 32.0% at Fitzgeralds Tunica, due to the opening of the Tunica Hotel, and 4.8% at Fitzgeralds Reno, due primarily to increased traffic from the Women's International Bowling Congress (the "Bowling Tournament") held in Reno during the first and second quarters of 1997. Casino revenue increased 6.8% at Fitzgeralds Las Vegas due mostly to the fact that Fitzgeralds Las Vegas was largely under construction from May through November of 1996. Casino revenue for the Properties represented 72.2% and 72.4% of total revenues for the Properties for 1997 and 1996, respectively. This decrease in casino revenues as a percentage of total revenues is largely attributed to greater increases in rooms and food and beverage revenues due to the opening of the Tunica Hotel. Room revenues for the Properties (at 11.3% and 10.9% of total revenues for the Properties for 1997 and 1996, respectively) increased 34.3% from 1996 due primarily to the opening of the Tunica Hotel. Room revenues at Fitzgeralds Tunica, at $7.8 million for 1997 are not comparable to 1996 since the Tunica Hotel did not commence operations until August 1996 and was not fully operational until October 1996. The Tunica Hotel operated at an average occupancy rate of 89.3% and 81.3% for 1997 and 1996, respectively. Room revenues increased by 2.6% at Fitzgeralds Las Vegas due to a decrease in tour-and-travel customers who were replaced by free independent travelers typically paying a higher average daily room rate, partially offset by lower occupancy rates, at 89.7% and 93.9% for 1997 and 1996, respectively. At Fitzgeralds Reno, room revenues increased 7.2% due to a combination of higher daily -30- 33 room rates and an increase in average occupancy rates, at 90.2% and 88.8% for 1997 and 1996, respectively. These increases were largely due to the Bowling Tournament and the fully integrated player tracking system. Food and beverage revenues for the Properties (at 11.2% and 11.7% of total revenues for the Properties for 1997 and 1996, respectively) increased $4.1 million or 23.8% from 1996 to 1997. This increase was the result of the inclusion of Fitzgeralds Black Hawk results of approximately $0.92 million, as well as the additional food venues at Fitzgeralds Las Vegas and Fitzgeralds Tunica, which posted gains of 16.6% and 37.9%, respectively. Food and beverage revenues at Fitzgeralds Reno were essentially unchanged. Other revenues for the Properties increased 34.7% for the year, primarily due to the opening of the Tunica Hotel, which also resulted in increases in TV movie, telephone and gift shop revenues and credit card commissions, and to increases in operating performance at Cliff Castle. Promotional allowances for the Properties increased 23.6% for the year, as a result of increases in volumes, partially offset by improved methods to award complimentary goods and services. Operating Costs and Expenses Total operating costs and expenses for the Properties increased 20.5%, to $156.5 million for 1997 from $129.8 million for 1996, primarily due to the inclusion of operating expenses of Fitzgeralds Black Hawk of approximately $8.5 million, increases in volume, increases in payroll costs related to the start of operations of the Tunica Hotel and additional food venues at Fitzgeralds Las Vegas and Fitzgeralds Tunica. Total operating expenses for the Properties were also affected by a 36.9% increase in depreciation and amortization expense for the Properties as renovated and expanded facilities at Fitzgeralds Las Vegas and Fitzgeralds Tunica were put into service and a $0.76 million non-recurring write down of NCI assets held for sale to estimated realizable value. Casino expenses for the Properties were $66.0 million for 1997, a 21.4% increase from the $54.4 million for 1996 primarily as a result of increased volume and increased personnel as well as the inclusion of expenses from Fitzgeralds Black Hawk during 1997. Food and beverage expenses for the Properties increased 32.0%, to $16.2 million for 1997 from $12.3 million for 1996, primarily as the result of additional restaurants at Fitzgeralds Las Vegas and Fitzgeralds Tunica. Room expenses for the Properties increased 29.7%, to $12.5 million for 1997 from $9.6 million for 1996, primarily as the result of the start of operations at the Tunica Hotel. Room expense increased a modest 1.4% at Fitzgeralds Las Vegas and decreased by 0.7% at Fitzgeralds Reno. Selling, general and administrative expense for the Properties increased 9.6%, to $47.5 million for 1997 from $43.3 million for 1996, due mostly to increases in personnel and marketing expenses as explained further below. Personnel expenses for the Properties increased 15.4%, to approximately $67.8 million for 1997 from approximately $58.8 million for 1996. This increase resulted from the start of operations at the Tunica Hotel, as well as the need for larger staff at the expanded Las Vegas and Tunica facilities and the inclusion of Fitzgeralds Black Hawk personnel expenses in 1997. Marketing expenses for the Properties, which include advertising, promotional material, special events and the operations of the Fitzgeralds Card, increased 11.8% for the year. The increase reflects more intensive marketing efforts at each property undertaken in response to increasing competitive activity in each of the markets in which the Company operates, particularly in Tunica, and the inclusion of Fitzgeralds Black Hawk marketing expenses in 1997. The Company's strategy is to utilize its expanded -31- 34 and renovated facilities as additional marketing elements and to continue to adjust marketing expense levels as needed to respond to competition. Depreciation and amortization expense of the Properties increased 36.9%, to $11.9 million for 1997 from $8.7 million for 1996. The increase was primarily the result of the start of depreciation of the expanded and renovated facilities at Fitzgeralds Las Vegas and Fitzgeralds Tunica, as well as the addition of Fitzgeralds Black Hawk depreciation and amortization. Income from Operations As a result of the foregoing, income from operations for the Properties increased 298.7%, to $17.0 million for 1997 from $4.3 million for 1996. Net Interest Expense Interest expense for the Properties (net of interest income), increased 39.6%, to $24.7 million for 1997 from $17.7 million for 1996, due in part to an increase in interest expense resulting from the issuance in December 1996 of $5.9 million aggregate principal amount of Priority Notes, as well as the issuance in August 1997 of $38.0 million aggregate principal amount of 13% First Mortgage Notes due 2000 (the "101 Main Notes") by 101 Main. During 1996, interest of $1.8 million was capitalized on the construction of Fitzgeralds Las Vegas and Fitzgeralds Tunica. No interest was capitalized during 1997. Loss Before Income Taxes and Extraordinary Item For the reasons described above, the Properties recorded a loss before income taxes and extraordinary item of $8.4 million in 1997, compared to a $14.1 million loss before taxes recorded for 1996. Loss before income taxes and extraordinary item increased at each property other than Fitzgeralds Tunica, which recorded a $4.8 million improvement due to the benefits from the hotel becoming fully operational in the 4th quarter of 1996. While the Properties recorded $1.5 million in income tax benefit for 1996, no income tax benefit or provision was recorded for 1997. Loss Before Extraordinary Item Loss before extraordinary item for the Properties improved to $8.4 million for 1997 from $12.7 million for 1996. This reflects a substantial improvement in operating income at the Properties, especially Fitzgeralds Tunica, offset by an increase in interest expense, the non-recurring write down of NCI assets held for sale, and the absence of an income tax benefit for 1997. Extraordinary Item and Net Loss In connection with the Company's issuance of the Senior Secured Notes in December 1997, an extraordinary loss of $19.2 million was recorded to reflect the cost associated with the early retirement of certain debt of the Company. Net loss for the properties increased to $27.6 million in 1997 as compared to $12.7 million in 1996 reflecting the impact of the extraordinary item. -32- 35 LIQUIDITY AND CAPITAL RESOURCES In December 1997, the Company issued $205.0 million 12 1/4% Senior Secured Notes due 2004. Of the $202.6 million net proceeds, the Company used $123.0 million to retire its 13% Senior Secured Notes due 2002 with Contingent Interest, $5.4 million to retire its 13% Priority Secured Notes due 1998, $39.7 million to retire the 101 Main Notes, and approximately $20.1 million to retire other secured indebtedness. Of the remaining proceeds, $8.7 million was used for expenses of the offering and $5.7 million was applied to accrued interest totaling approximately $10.6 million at December 31, 1997. At December 31, 1998, the Company had unrestricted cash of $13.0 million compared to $14.8 million at December 31, 1997. The Company's primary sources of liquidity and cash flows during 1998 were operations of $12.2 million (which includes $8.0 million received for the termination of the Cliff Castle Management Agreement) and $3.0 million drawn on its Credit Facility. Uses of liquidity during 1998 included acquisition of property and equipment of $5.2 million, repayment of long term debt of $8.1 million and payment of debt offering costs of $1.5 million. Net cash used in investing activities was $5.5 million for 1998 compared to $24.7 million for 1997. Net cash used in financing activities was $8.5 million for 1998 compared to $24.8 million provided during 1997, which was primarily the result of the acquisition of the remaining 78% membership interest in 101 Main. During 1997, the Company recorded an expense of $1.9 million for the Harolds Club anticipated net settlement obligation, including related legal fees. In anticipation of the Nevada Club transaction, the Company reclassified $6.2 million from Property and Equipment to Estimated Realizable Value of Nevada Club Assets Held for Sale in the consolidated balance sheet as of December 31, 1997, and recorded an allowance of $2.2 million against the book value of the assets held for sale to write such assets down to the estimated net realizable value in the consolidated statement of operations for the year ended December 31, 1997. For 1998, the assets held for sale were written down an additional $0.2 million to the net realizable value of the Nevada Club Asset Purchase Agreement executed on June 8, 1998. See Item 3 - Legal Proceedings. A $2.4 million note payable by NCI to a bank, secured by Nevada Club assets and guaranteed by the Chairman and Chief Executive Officer of the Company, was retired in September 1998. Since December 1997, the Company had not been in compliance with certain financial covenants of the note. Although no action was taken, the lender stated that it had not waived such non-compliance and indicated that it would not renew the note when it matured in December 1998. A note payable by FRI to a trust which is also secured by Nevada Club assets will also be retired upon the sale of Nevada Club which is anticipated to close in the second quarter of 1999. As of December 31, 1998, such note payable had a principal balance of approximately $0.78 million. There can be no assurance, however, that Nevada Club will be sold and the Harolds Club settlement will be consummated. See Item 3 - Legal Proceedings. The Company's principal sources of capital will consist of cash from operations, the existing Credit Facility, and vendor and third party financing of gaming and other equipment. In October 1998, the Company established the $15.0 million Credit Facility with a lending institution, of which up to $5.0 million may be used for capital projects at Fitzgeralds Black Hawk and up to $10.0 million of which may be used for general corporate purposes. The Credit Facility is secured by a lien on substantially all of the assets of the Company, which lien is senior to the lien securing the Senior Secured Notes. However, the operating results for 1998 were substantially less than anticipated which -33- 36 has significantly impacted the Company's ability to satisfy its anticipated cash requirements including debt service, working capital and fixed charges as well as capital expenditures. It will be necessary for the Company to make substantial expenditures to maintain and enhance the competitive position of its properties. The Company's high degree of leverage and debt service relative to its cash flow will make it difficult to make these needed strategic expenditures. It is quite possible that the Company may attempt to restructure its financial obligations to enhance its financial flexibility. All previously approved projects requiring capital expenditures are being deferred where possible and future projects requiring capital expenditures are being reviewed, in each case to assess feasibility. If future operating results do not improve, cash provided by operations may not be sufficient to satisfy its cash requirements for 1999, or thereafter. There can be no assurance as to the actual level of operating cash requirements or of the amount of cash flows from operations. EBITDA AND ADJUSTED EBITDA The Company's earnings before interest, income taxes, depreciation and amortization ("EBITDA") was $35.4 million for 1998 and $25.7 million for 1997. EBITDA is calculated by adding depreciation and amortization expenses to income from operations. The Company's Adjusted EBITDA was $30.0 million for 1998 (which does not include $6.0 million of the $8.0 million received in connection with the termination of the Cliff Castle Management Agreement) and $30.6 million for 1997. Adjusted EBITDA is determined based on the adjustments described in Note 4 to "Statement of Operations Data." However, EBITDA should only be read in conjunction with all of the Company's financial data summarized above and its financial statements prepared in accordance with GAAP appearing elsewhere herein, and should not be construed as an alternative either to income from operations (as determined in accordance with GAAP) as an indication of the Company's operating performance or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. This presentation of EBITDA may not be comparable to similarly titled measures reported by other companies. RATIO OF EARNINGS TO FIXED CHARGES The ratio of earnings to fixed charges measures the extent by which earnings, as defined, exceed certain fixed charges. Earnings are defined as earnings before income taxes, interest on indebtedness, imputed interest on capital lease obligations and the portion of rent expense deemed to represent interest. Fixed charges consist of interest on indebtedness, imputed interest on capital lease obligations, and the portion of rent expense deemed to represent interest. Earnings were insufficient to cover fixed charges by $10.0 million and $10.6 million for the years ended December 31, 1998 and 1997, respectively. BUSINESS SEASONALITY The gaming operations of the Company in certain locations may be seasonal and, depending on the location and other circumstances, the effects of such seasonality could be significant. At Fitzgeralds Las Vegas, business levels are generally weaker from Thanksgiving through the middle of January (except during the week between Christmas and New Year's) and throughout the summer, and generally stronger from mid-January through Easter and from mid-September through Thanksgiving. At each of the three other Fitzgeralds-brand properties, business levels are typically weaker from Thanksgiving through the end of the winter and typically stronger from mid-June to mid-November. The Company's results are also affected by inclement weather in relevant markets. The Fitzgeralds Black Hawk site, located in the Rocky Mountains of Colorado, and the Fitzgeralds Reno site, located in the foothills of the Sierra Nevada mountains in Nevada, are subject to snow and icy road conditions during the winter months. Any such severe weather conditions may discourage potential customers from visiting the Company's facilities. -34- 37 COMPUTERIZED OPERATIONS AND THE YEAR 2000 During recent years, there has been significant global awareness raised regarding the potential disruption to business operations worldwide resulting from the inability of current technology to process properly the change from the year 1999 to 2000. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. In 1997, the Company initiated an investigation to identify and ensure that all significant applications will be Year 2000 compliant. The Company is conducting its investigation and is in the process of obtaining assurance from its vendors that timely updates will be made available to ensure that all purchased applications are Year 2000 compliant. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The Company will utilize both internal and external resources to test, program and/or replace applications to ensure that they are Year 2000 compliant. Completion of this project is anticipated by October 31, 1999. The costs associated with the Year 2000 project are expected to be approximately $1.1 million; however, the Company has not finalized its investigation. The Company has incurred approximately 32% of such costs through 1998 and anticipates that the remaining portion of the estimated cost will be incurred through October 31, 1999. Approximately $0.8 million of the cost is expected to be capitalized with the remaining amount expensed as incurred. Such costs are expected to be funded through operating cash flows as well as vendor and third party financing. Costs of hardware and software required to be purchased as a result of the Year 2000 issue will be capitalized in accordance with normal policy. Personnel and all other costs related to the project will be expensed as incurred. The conversion of most purchased applications will be completed under the terms of maintenance agreements which provide for the conversion of such applications at no additional cost. All equipment and other operating systems are currently being evaluated to determine if Year 2000 issues have an effect on their ability to perform their respective functions. The Company has not established a comprehensive contingency plan at this time, although its primary alternative is to operate with manual systems. As the Company pursues the implementation of its Year 2000 compliance plan, it will continue to evaluate the need for contingency plans for those areas which might be at risk for being Year 2000 compliant. Although, based on its investigation to date, the Company does not believe that it will experience any significant adverse effects or material unbudgeted costs associated with the Year 2000 project. The Company cannot provide any assurance in this regard, and any such cause or effect could have a material adverse effect on the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to changes in interest rates primarily as a result of its borrowing activities, which include borrowings under its Credit Facility and third party financing. These sources of credit, along with cash flow from operations, are used to maintain liquidity and fund business operations. Ten million dollars of the Credit Facility was established for enhancing the Company's liquidity and is primarily to be used for fluctuations in cash flow from operations and for general corporate purposes. The -35- 38 Company typically replaces borrowings under its third party vendor financing, as necessary, with shorter termed variable rate financing generally secured by the assets being acquired. The nature and amount of the Company's debt may vary as a result of future business requirements, market conditions and other factors. The definitive extent of the Company's interest rate risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements, but the Company does not believe such risk is material. The Company does not currently use derivative instruments to adjust the Company's interest rate risk profile. The table below presents principal amounts and related weighted-average interest rates by year of maturity for the Company's debt obligations at December 31, 1998 (in thousands):
YEAR ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------------- FMV@ 1999 2000 2001 2002 2003 Thereafter Total December 31, 1998 ---------- --------- --------- -------- ---- ----------- ---------- ----------------- Fixed $ 3,211 $ 763 $ 286 $ 106 $ 117 $ 203,280 $ 207,763 $119,648 Average int. rate 3.92% 8.67% 10.44% 11.22% 11.18% 12.25% 12.10% -- Variable $ 1,424 $ 564 $ 88 $ -- $3,000 $ -- $ 5,076 $ 5,076 Average Int. rate 11.35% 11.10% 11.29% 0.00% 7.68% 0.00% 9.15% --
The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments. On the basis of the fair value of the Company's market sensitive instruments at December 31, 1998, the Company does not consider the potential near-term losses in future earnings, fair values and cash flows from reasonably possible near-term changes in interest rates to be material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is listed under Item 14 of Part IV of this Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -36- 39 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The following tables set forth certain information with respect to the officers, directors and significant employees of the Company as of December 31, 1998: DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION(S) HELD ---- --- ---------------- Philip D. Griffith 53 Chairman, President, Chief Executive Officer and Director Michael A. Ficaro 51 Director Patricia W. Becker 47 Director Max L. Page 49 Director; Executive Vice President and a director of Fitzgeralds Reno, Inc., and General Manager of Fitzgeralds Reno Michael E. McPherson 47 Senior Vice President, Chief Financial Officer, Treasurer and Secretary
SIGNIFICANT EMPLOYEES
NAME AGE POSITION(S) HELD ---- --- ---------------- Paul H. Manske 58 Senior Vice President of Marketing; Executive Vice President of Fitzgeralds Reno, Inc. Cara L. Brown 36 Vice President and General Counsel William J. Noonan, III 47 Vice President and a director of Fitzgeralds Las Vegas, Inc., and General Manager of Fitzgeralds Las Vegas Domenic Mezzetta 63 Vice President and a director of Fitzgeralds Mississippi, Inc., and General Manager of Fitzgeralds Tunica Joe C. Collins 59 Vice President and a director of Fitzgeralds Black Hawk, Inc. and Fitzgeralds Black Hawk II, Inc., and General Manager of Fitzgeralds Black Hawk
PHILIP D. GRIFFITH, one of the Company's founders, has been President, Chief Executive Officer and a Director of the Company since its inception in 1984, an officer and director of certain of its subsidiaries since 1984 and has been Chairman of the Board since August 1997. Mr. Griffith serves as President and Chief Executive Officer of each significant subsidiary of the Company. Prior to his involvement with the Fitzgeralds group of companies, Mr. Griffith was active in the gaming industry in a variety of positions, serving as Chief Financial Officer and then President of Harolds Club in Reno from 1973 to 1984 and President of the Sands Hotel and Casino in Las Vegas from 1982 to 1984. From 1968 to 1973, Mr. Griffith was a Certified Public Accountant with the St. Louis, Missouri and Las Vegas offices of Deloitte Haskins & Sells. MICHAEL A. FICARO joined the Company as a Director in December 1995. Mr. Ficaro has been a partner in the Chicago law firm of Hopkins & Sutter since 1989. Mr. Ficaro has been an adjunct faculty member at John Marshall Law School since 1986 and the National College of District Attorneys since 1978. From 1990 to 1992, Mr. Ficaro was appointed to the position of Special States Attorney of Cook County, -37- 40 Illinois. From 1981 to 1989, Mr. Ficaro served in the office of the Attorney General of Illinois as First Assistant Attorney General (1987-1989) and Director of Enforcement (1986-1989). From 1982 to 1984, he was appointed Special Assistant United States Attorney. From 1978 to 1981, Mr. Ficaro was Deputy States Attorney of Cook County, after serving since 1972 as Assistant States Attorney of Cook County. PATRICIA W. BECKER joined the Company as a Director in December 1995. Ms. Becker is a self-employed consultant and served as Chief of Staff to Nevada Governor Bob Miller from October 1993 to January 1995. From September 1984 to October 1993, Ms. Becker was a Senior Vice President, General Counsel and Secretary for Harrah's Casino Hotels, where she was responsible for all legal affairs and was a member of the senior strategic management group. From January 1983 to September 1984, Ms. Becker was a member of the Nevada State Gaming Control Board. From July 1979 to January 1983, Ms. Becker was a Deputy and Chief Deputy Attorney General assigned to the Nevada Gaming Division. Ms. Becker is a Vice Chair for the Gaming Law Section of the American Bar Association, a past President of the Nevada Trial Lawyers Association of Gaming Attorneys and a director of Powerhouse Technologies, Inc. MAX L. PAGE, one of the Company's founders, has served as Executive Vice President and a director of certain subsidiaries of the Company since September 1986 and as General Manager of Fitzgeralds Reno since November 1994. Mr. Page was elected a Director of the Company in January 1998. Mr. Page holds a B.A. in Political Science and a Masters in Public Administration from Brigham Young University. MICHAEL E. MCPHERSON was named Senior Vice President, Chief Financial Officer and Treasurer of the Company in August 1997, was appointed Secretary in September 1997 and serves as Senior Vice President, Chief Financial Officer, Treasurer and Secretary of each significant subsidiary of the Company. Mr. McPherson joined the Company in March 1985 and has served in various executive positions in the Company, including Senior Vice President of Operations from September 1995 to July 1997, Vice President of Finance from November 1994 to September 1995, as well as Vice President and Treasurer for certain subsidiaries of the Company and Director of Finance for Fitzgeralds Reno. Mr. McPherson holds a degree in Business Administration from the University of Nevada Reno and is an associate member of the Nevada Society of Certified Public Accountants. PAUL H. MANSKE, one of the Company's founders, has served as Executive Vice President of a subsidiary of the Company since 1988 and was appointed Senior Vice President of Marketing for the Company in January 1997. Prior to joining the Company, Mr. Manske served as Vice President of Marketing for Harolds Club and the Sands Hotel and Casino with the Howard Hughes organization from 1978 to 1984, and prior to that, as a marketing executive with the Ford Motor Company from 1964 to 1978. Mr. Manske holds a degree in Business Administration from Jacksonville University. CARA L. BROWN joined the Company as Vice President and General Counsel in May 1996. For the three years prior to May 1996, she was an associate counsel at Harrah's Las Vegas and for the three years prior thereto, she was a staff attorney at Jones, Jones, Close & Brown in Las Vegas. Ms. Brown has a degree from the University of North Carolina at Chapel Hill and holds a law degree from the Marshall-Wythe School of Law at the College of William and Mary in Williamsburg, Virginia. WILLIAM J. NOONAN, III was named Vice President and a director of FLVI, and General Manager of Fitzgeralds Las Vegas in May 1994. He was first employed by a subsidiary of the Company in January 1994 as Vice President of that subsidiary. Prior to joining the Company, Mr. Noonan served over 11 years as a city manager: (i) in Perry, Florida from 1982 to September 1987; (ii) in Cape Coral, Florida -38- 41 from September 1987 to January 1991; and (iii) in Las Vegas, Nevada from February 1991 to July 1993. Mr. Noonan was also engaged in business and gaming consulting services from August 1993 to February 1994. Mr. Noonan holds a Master's degree in Public Administration from the University of Kansas and a degree in Public Administration and Economics from Southwest Missouri State University. DOMENIC MEZZETTA was named Vice President and a director of FMI, and General Manager of Fitzgeralds Tunica in May 1998. Mr. Mezzetta has over 27 years of experience in the gaming industry. Prior to joining the Company, Mr. Mezzetta served as Vice President and General Manager of Hollywood Casino and Hotel in Tunica from January 1994 to May 1998; as Vice President and General Manager of Island Fantasy Casino in Tunica from August 1993 to January 1994; as General Manager of El Capitan in Hawthorne, Nevada from May 1990 to August 1993; as Assistant General Manager of the Stardust Hotel and Casino in Las Vegas from May 1986 to May 1990; as General Manager of Cactus Pete's Resort Hotel and Casino in Elko, Nevada from October 1983 to May 1985; and in various executive level positions at Harvey's Resort Hotel and Inn Casino at Lake Tahoe, Nevada, from July 1971 to October 1983. JOE C. COLLINS was named Vice President and a director of FBHI and General Manager of Fitzgeralds Black Hawk in January 1995, and was named Vice President and a director of FBHI-II in July 1997. Prior to that time, Mr. Collins had been hotel director at Fitzgeralds Reno from April 1985 to December 1994. Mr. Collins currently serves on the executive board of the Black Hawk Casino Owners Association and on the Board of the Black Hawk Business Improvement District. BOARD OF DIRECTORS Directors are elected at the annual meeting of stockholders and each director is elected to serve until a successor is elected and qualified. The number of directors which constitutes the whole Board may not be less than three or more than nine, except that in cases where all the shares of the Company are owned beneficially or of record by either one or two stockholders, the number may be less than three but not less than the number of stockholders. The most recent annual meeting of stockholders was held on August 27, 1998. The Board of Directors has established an Audit Committee and a Compensation Committee. The Audit Committee reviews reports of the Company's independent certified public accountants and makes recommendations to the full Board on matters concerning the Company's audits and the selection of independent certified public accountants. The members of the Audit Committee are Patricia W. Becker and Michael A. Ficaro, as chairperson. The Compensation Committee reviews and makes recommendations to the Board of Directors with respect to salaries, bonuses and other compensation of the Company's executive officers. The members of the Compensation Committee are Michael A. Ficaro and Patricia W. Becker, as chairperson. Directors who are also employees of the Company do not receive any compensation for their services as directors. Non-employee directors are paid fees of $40,000 per year and $1,000 per Board meeting attended in person or telephonically. The two non-employee directors of the Company have each received five-year options to purchase 14,000 shares of the Common Stock of the Company, exercisable at a price equal to the fair market value of the Common Stock on the date of grant. No fee is payable for participation in Board committee meetings. However, Ms. Becker as chairperson of the Company's Gaming Compliance Committee (a non-Board committee) is paid an additional fee of $30,000 per year and participates in all health insurance plans generally available to the Company's employees. The Company reimburses each director for reasonable out-of-pocket expenses incurred in his or her capacity as a member of the Board of Directors. No payments are made for actions taken in writing. Each -39- 42 director attended 100% of the total number of meetings of the Board and the committees on which he or she served during the fiscal year ended December 31, 1998. The Company has no nominating committee or committee performing similar functions. OTHER COMMITTEES The Executive Committee (a non-Board committee), comprised of Michael E. McPherson, Max L. Page and Philip D. Griffith, as chairperson, provides a forum for interaction and discussion among its senior executives. The Gaming Compliance Committee (a non-Board committee), comprised of Cara L. Brown, Kathleen Bryant, Michael E. McPherson and Patricia W. Becker, as chairperson, establishes procedures for and monitors compliance with gaming regulations. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and persons who own more than ten (10) percent of a registered class of the Company's equity securities (collectively, "Insiders"), to file initial reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission"). Insiders are also required by regulation of the Commission to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it with respect to 1998, or written representation from certain reporting persons, the Company believes that its Insiders complied with all Section 16(a) filing requirements, except Mr. Turk who filed a late Form 5 reporting one transaction which should have been reported on Form 4. -40- 43 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth a summary of the compensation paid by the Company in the three fiscal years ended December 31, 1998, 1997 and 1996 to the Company's Chief Executive Officer and each of its other most highly compensated executive officers (collectively "named executive officers"). The named executive officers include: (i) each person who served as Chief Executive Officer during 1998 (one person); (ii) each person who (a) served as an executive officer at December 31, 1998, (b) was among the four most highly paid executive officers of the Company, not including the Chief Executive Officer, during 1998, and (c) received over $100,000 in compensation in 1998 (one person); (iii) up to two persons who would be included under clause (ii) above had they served as an executive officer at December 31, 1998 (one person); and (iv) certain persons who served as executive officers of a subsidiary of the Company (two persons). Titles refer to Company unless otherwise indicated. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION(1) COMPENSATION ------------------------------- ------------------------------------ OTHER SECURITIES ALL OTHER FISCAL ANNUAL UNDERLYING COMPENSATION NAME & POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($)(3) OPTIONS/SARS(#) ($)(4) --------------- ------ --------- -------- ------------------ --------------- ------------ Philip D. Griffith 1998 511,125 -- -- -- 126,877 Chairman, President & 1997 510,008 225,000 -- 100,000 114,448 Chief Executive Officer 1996 465,000 -- -- -- 69,292 Michael E. McPherson 1998 222,115 -- -- 11,854 3,675 Senior Vice President, 1997 169,327 82,500 -- 19,000 3,207 Chief Financial Officer, 1996 128,077 15,000 -- -- 1,714 Treasurer & Secretary Paul H. Manske 1998 249,313 -- -- -- 11,448 Senior Vice President 1997 224,192 75,000 -- 19,000 10,701 Marketing 1996 195,000 2,500 -- -- 10,938 Max L Page 1998 224,423 -- -- -- 7,575 Director; Executive Vice 1997 207,308 20,000 -- 9,000 9,976 President of FRI & General 1996 200,000 5,000 -- -- 7,009 Manager of Fitzgeralds Reno Domenic Mezzetta(5) 1998 109,616 -- -- -- 1,180 Vice President of FMI & General -- -- -- -- -- -- Manager of Fitzgeralds Tunica -- -- -- -- -- --
- ---------- (1) Amounts shown include cash compensation earned for the periods reported whether paid or accrued in such periods. (2) Amounts shown in 1997 represent bonus compensation earned in 1997 and not calculable at the time of filing the Form 10-K for the fiscal year ending December 31, 1997. The Company has accrued $430,000 as of December 31, 1998 for payment of bonuses pursuant to the Executive Bonus Plan for 1998; however, individual amounts have not yet been determined and approved by the Compensation Committee. (3) During 1998, 1997 and 1996, the named executive officers received personal benefits, the aggregate amounts of which for each named executive officer did not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus reported for such named executive officer in such years. (4) Amounts represent premiums for life insurance and long-term disability policies, medical benefits and the Company's Profit Sharing and 401(k) contributions. In fiscal 1998, the Company's Profit Sharing and 401(k) contributions were $2,500, $2,275, $2,500 and $2,496 for Messrs. Griffith, McPherson, Manske and Page, respectively. During 1998, the Company paid $14,785, $3,408 and $2,620 in medical benefits for Messrs. Griffith, Manske and Page, respectively. During 1998, the Company paid $109,592 in premiums for split dollar, term life insurance and long-term disability policies for Mr. Griffith; and $1,400, $5,540, $2,460 and $1,180 in premiums for term life insurance and long-term disability policies for Messrs. McPherson, Manske, Page and Mezzetta, respectively. See Employment Agreements with Executive Officers and Key Employees. (5) Mr. Mezzetta was appointed Vice President of FMI and General Manager of Fitzgeralds Tunica on May 25, 1998, at an annual salary of $190,000. -41- 44 OPTION/SAR GRANTS TABLE The following table sets forth, with respect to the named executive officers, the information concerning the grant of stock options during the fiscal year ended December 31, 1998. During 1998, a total of 55,524 stock options were canceled and a total of 55,524 were re-granted, of which 11,854 stock options were re-granted to named executive officers. The Company has never granted stock appreciation rights ("SARs").
OPTION/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS - --------------------------------------------------------------------------- PERCENT OF POTENTIAL REALIZABLE NUMBER OF TOTAL VALUE AT ASSUMED SECURITIES OPTIONS/SARS EXERCISE ANNUAL RATE OF STOCK UNDERLYING GRANTED TO OR BASE PRICE APPRECIATION OPTIONS/SARS EMPLOYEES PRICE EXPIRATION FOR OPTION TERM(1) NAME GRANTED#(2) IN FISCAL YEAR ($/SH) DATE 5% 10% - ---- ------------ -------------- -------- ---------- ------- ------- Philip D. Griffith 0 0 0 -- 0 0 Michael E. McPherson 11,854 21.3% 1.00 6/30/99 $12,447 $13,039 Paul H. Manske 0 0 0 -- 0 0 Max L. Page 0 0 0 -- 0 0 Domenic Mezzetta(3) 0 0 0 -- 0 0
- ------------------ (1) The Company's Common Stock is not publicly traded. Amounts shown represent the potential value of granted options if the assumed annual rates of stock appreciation are maintained over the 10-year term of the granted options. The assumed rates of appreciation are established by regulation and are not intended to be a forecast of the Company's performance or to represent management's expectations with respect to the appreciation, if any, of the Common Stock. (2) In May 1998, the Board of Directors canceled 55,524 stock options and re-granted options to purchase 55,524 shares of the Company's Common Stock with a term of one year to expire on June 30, 1999, provided the optionees were employed by the Company or any of its subsidiaries on June 30, 1998, the date on which the canceled stock options would have normally expired. (3) Mr. Mezzetta was appointed Vice President of FMI and General Manager of Fitzgeralds Tunica on May 25, 1998. OPTION/SAR EXERCISES TABLE The following table sets forth, with respect to the named executive officers, information concerning the exercise of stock options during the fiscal year ended December 31, 1998 and the number of unexercised stock options held as of December 31, 1998. AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY SHARES OPTIONS/SARS AT FISCAL OPTIONS/SARS ACQUIRED ON VALUE YEAR END(#) AT FISCAL YEAR END NAME EXERCISED# REALIZED EXERCISABLE UNEXERCISABLE ($)(1) - ---- ----------- -------- ----------- ------------- ------------------- Philip D. Griffith 0 0 141,666 33,334 0/0 Michael E. McPherson 0 0 34,520 6,334 0/0 Paul H. Manske 0 0 20,166 6,334 0/0 Max L. Page 0 0 16,000 3,000 0/0 Domenic Mezzetta(2) 0 0 0 0 0/0
- -------------------- (1) The exercise price of the unexercised options exceeds the assigned value of the Common Stock. The Company's Common Stock is not publicly traded. (2) Mr. Mezzetta was appointed Vice President of FMI and General Manager of Fitzgeralds Tunica on May 25, 1998. -42- 45 EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS AND KEY EMPLOYEES The Company has entered into employment agreements with Mr. Manske and Ms. Brown to serve in their present offices for terms expiring on December 31, 1999 and April 30, 1999, respectively. As of February 26, 1999, Mr. Manske and Ms. Brown receive annual salaries of $275,000 and $107,500, respectively, and are eligible to receive annual merit increases. Such persons are entitled to participate in the Company's Executive Bonus Plan, health plan and any benefit plan established for selected officers of the Company and, in the event of a termination of employment without "good cause" (as defined in the agreements), to receive any unpaid salary in a specified percentage through the remainder of the term of their respective agreements. The Company was a party to employment agreements with Messrs. Griffith and McPherson, which expired on June 30, 1998 and February 28, 1999, respectively. Messrs. Griffith and McPherson are currently employed on a month-to-month basis under the same terms and conditions of such agreements, and are in the process of negotiating new agreements. As of February 26, 1999, Messrs. Griffith and McPherson receive annual salaries of $496,125 and $225,000, respectively. FRI has entered into an employment agreement with Mr. Page, under which he was appointed Vice President of FRI and General Manager of Fitzgeralds Reno for a term expiring on December 31, 1999. As of February 26, 1999, Mr. Page receives an annual salary of $240,000, participates in FRI's bonus plan and in a health plan, and may participate in any other benefit plan established by FRI for its executives. FRI also maintains a $500,000 life insurance policy for the benefit of Mr. Page. Mr. Page is entitled to certain severance payments in the event of a termination of employment by reason of disability or death. FMI has entered into an employment agreement with Mr. Mezzetta under which he was appointed Vice President of FMI and General Manager of Fitzgeralds Tunica for a term expiring on May 24, 2001. As of February 26, 1999, Mr. Mezzetta receives a salary of $190,000, participates in FMI's bonus plan and in a health plan and may participate in any other benefit plan established by Fitzgeralds Tunica for its executives. FMI also maintains a $100,000 life insurance policy for the benefit of Mr. Mezzetta. In accordance with industry practice, the Company has entered into employment agreements with certain of its other vice presidents and departmental directors. EXECUTIVE BONUS PLAN The Company has established an Executive Bonus Plan to provide the senior executive officers of the Company with a performance-based compensation program. Effective January 1, 1999, the Company revised the threshold established for bonus consideration to take into account the termination of management and consulting services provided to Native American operations in Arizona and New York. The new threshold is $25.0 million in EBITDA, prior to accruing bonus expense and adjusted for extraordinary, non-recurring items that are deemed non-operational in nature ("Adjusted EBITDA"). The bonus amount will start at 1.4% of Adjusted EBITDA at the $25.0 million level and increase by one-tenth of one percent for each $1.0 million of Adjusted EBITDA above $25.0 million up to a maximum of 3%. Each percentage increase achieved would be on a first dollar basis and computed on the entire adjusted EBITDA. The Executive Bonus Plan in 1998 was based upon an Adjusted EBITDA threshold -43- 46 of $30.0 million, which the Company exceeded. The Compensation Committee will have full discretion concerning the payment of executive bonuses. STOCK OPTIONS Stock Option Incentive Plan The Company has adopted the Stock Option Incentive Plan (the "Stock Option Plan") which was approved by stockholders in August 1997. The following is a description of the Stock Option Plan. The Stock Option Plan provides for the grant of options to purchase Common Stock of the Company that are intended either to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or not intended to qualify ("non-qualified stock options"). All officers, directors, employees, consultants, advisers, independent contractors and agents are eligible to receive options under the Stock Option Plan, except that only employees may receive incentive stock options. The maximum number of shares available for issuance under the Stock Option Plan is 1,000,000. At December 31, 1998, there were 564,524 stock options outstanding under the Stock Option Plan. The Stock Option Plan is administered by the Board of Directors or, in its discretion by a committee of the Board appointed for that purpose (the "Stock Option Plan Committee"), which, subject to the terms of the Stock Option Plan, has the authority in its sole discretion to determine: (i) the individuals to whom options shall be granted; (ii) the time or times at which options may be exercised; (iii) the number of shares subject to each option; (iv) the option price and the duration of each option granted; and (v) all of the other terms and conditions of options granted under the Stock Option Plan. The exercise price of incentive options granted under the Stock Option Plan must be at least equal to the fair market value of the shares on the date of grant (110% of the fair market value in the case of participants who own shares possessing more than 10% of the total combined voting power of all classes of stock of the Company) and may not have a term in excess of 10 years from the date of grant (five years in the case of participants who own shares possessing more than 10% of the combined voting power all classes of stock of the Company). In no event, may the aggregate fair market value (determined at the time the option is granted) of the shares with respect to which incentive stock options (granted under the Stock Option Plan and all other plans of the Company or any of its subsidiaries) are exercisable for the first time by an optionee in any calendar year exceed $100,000. Options granted under the Stock Option Plan are not transferable other than by will or the laws of descent and distribution. Unless otherwise determined by the Board of Directors or the Stock Option Plan Committee, all stock options granted under the Stock Option Plan terminate (i) immediately upon the optionee's termination of employment (or other relationship) with the Company for cause, (ii) one year after the optionee's termination of employment (or other relationship) by reason of death or permanent disability, and (iii) 90 days after the optionee's termination of employment (or other relationship) for any other reason (unless the optionee has resumed a continuing relationship with the Company), but in no case later than the scheduled expiration date of the option. Unless otherwise determined by the Board of Directors or Stock Option Plan Committee, the number of shares with respect to which an option may be exercised following the optionee's termination of employment or other relationship is limited to that number of shares which could have been purchased pursuant to the option had the option been exercised by the optionee on the date of such termination. -44- 47 Payment of the exercise price upon exercise of an option must be made in cash or, in the discretion of the Board of Directors or the Stock Option Plan Committee, in shares of Common Stock. Where payment is made in Common Stock, such Common Stock shall be valued for such purpose at the fair market value of such shares (determined as specified in the Stock Option Plan) on the date of exercise. If the number of outstanding shares of Common Stock is increased or decreased, or if such shares are exchanged for a different number or kind of shares through reorganization, merger, recapitalization, stock dividend, stock split, or other transaction where the Board determines that an adjustment is appropriate, the aggregate number of shares available for issuance under the Stock Option Plan, the number of shares subject to outstanding options, the per share exercise price of outstanding options and the aggregate number of shares with respect to which options may be granted to a single participant will be appropriately adjusted by the Board of Directors. No grant of options may be made under the Stock Option Plan after June 25, 2007, which is 10 years after its date of adoption. The Board of Directors has authority to terminate or to amend the Stock Option Plan. Amendments may be made without the approval of the Company's stockholders unless such approval is required by law or stock exchange requirement. No amendment or termination may impair the rights of any holder of outstanding options without the consent of such holder. The terms and conditions of outstanding options may be amended by written agreement between the optionee and the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Board of Directors of the Company is comprised of Michael A. Ficaro and Patricia W. Becker, as chairperson, neither of whom was an officer or employee of the Company during or prior to 1998. -45- 48 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following sets forth certain information as of February 26, 1999, with regard to the beneficial ownership of Common Stock by (i) each person who, to the knowledge of the Company, beneficially owned more that 5% of the outstanding Common Stock; (ii) each director of the Company; (iii) each other person named in the Summary Compensation Table (See Item 11 - Executive Compensation); and (iv) all executive officers and directors of the Company as a group. BENEFICIAL OWNERSHIP
NUMBER NAME OF SHARES PERCENTAGE - ---- --------- ---------- Philip D. Griffith(1) 2,718,203 65.4% 301 Fremont Street Las Vegas, NV 89101 Jerome H. Turk(2) 842,568 21.0% 9017 Greensboro Lane Las Vegas, NV 89134 Putnam Investment Management, Inc.(3) 384,561 8.7% One Post Office Square Boston, MA 02109 Max L. Page(4) 139,565 3.5% Michael A. Ficaro(5) 11,000 * Patricia W. Becker(6) 38,475 1.0% Paul H. Manske(7) 143,731 3.6% Michael E. McPherson(8) 34,520 * Domenic Mezzetta -- -- All directors and executive officers as a group 2,941,763 69.6% (five persons)
- ------------- (1) Mr. Griffith's stock is held by the Philip D. Griffith Gaming Trust of which Mr. Griffith is a trustee. Includes 141,666 shares issuable upon exercise of options that are exercisable within 60 days. (2) Mr. Turk's stock is held by the Jerome H. Turk Gaming Properties Trust of which Mr. Turk is a trustee. (3) Represents shares issuable upon exercise of warrants that are exercisable within 60 days. Held with shared depositive power and includes 216,863 shares owned by Putnam Diversified Income Trust, a Massachusetts business trust, which has shared depositive power. (4) Mr. Page's stock is held by the Max L. Page Trust of which Mr. Page is a trustee. Includes 16,000 shares issuable upon exercise of options that are exercisable within 60 days. (5) Represents shares issuable upon exercise of options that are exercisable within 60 days. (6) Ms. Becker's stock is held by the Patricia W. Becker Family Trust of which Ms. Becker is a trustee. Includes 11,000 shares issuable upon exercise of options that are exercisable within 60 days. (7) Mr. Manske's stock is held by the Paul H. Manske Family Trust of which Mr. Manske is a trustee. Includes 20,166 shares issuable upon exercise of options that are exercisable within 60 days. (8) Represents shares issuable upon exercise of options that are exercisable within 60 days. * Less than 1%. -46- 49 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS A fee is payable to executive officers of the Company, not to exceed $250,000 per year as to any such individual, who agree to provide any requested guarantee of Company borrowings and letters of credit. Such fee, which is set by the Board of Directors on a case-by-case basis, is generally equal to 2% to 4% of the amount guaranteed or the letter of credit. Mr. Griffith has guaranteed letters of credit and certain Company borrowings. Since January 1, 1998, Mr. Griffith has guaranteed borrowings, aggregating at any one time a maximum of $2,658,356, for which he received fees of $34,300 and has guaranteed letters of credit and surety bonds, aggregating at any one time a maximum of $781,000 for which he received fees of $7,650. The Company provided executive and administrative services to each of its significant subsidiaries and allocated a portion of its corporate overhead to each such significant subsidiary. This allocation does not necessarily reflect the costs incurred by the Company in connection with such support and accordingly, such allocation does not necessarily reflect that which could be obtained from an unaffiliated party. All future transactions between the Company and its affiliates in excess of $1.0 million, other than transactions entered into in the ordinary course of business on terms generally made available to third parties, will be reviewed and passed upon by a majority of disinterested directors. -47- 50 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements.The following financial statements are attached: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996 Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended December 31, 1998, 1997, and 1996 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996 Notes to Consolidated Financial Statements 2. Financial Statement Schedules. Schedule II -- Consolidated Valuation And Qualifying Accounts. 3. Exhibits. Refer to (c) below (b) Reports on Form 8-K. For the fiscal year ended December 31, 1998, the Company filed the following reports on Form 8-K: (i) Form 8-K, Item 5, filed as of October 30, 1998; (ii) Form 8-K, Item 5, filed as of December 4, 1998 (c) Exhibits. Reference is made to the Index to Exhibits immediately preceding the exhibits thereto. -48- 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 1999. Fitzgeralds Gaming Corporation By: /s/ MICHAEL E. McPHERSON -------------------------------------- Michael E. McPherson Senior Vice President, Chief Financial Officer, Treasurer and Secretary -49- 52 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Philip D. Griffith and Michael E. McPherson, and each of them, his or her own attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ PHILIP D. GRIFFITH Chairman, President, Chief March 30, 1999 - -------------------------------- Executive Officer and Philip D. Griffith Director (Principal Executive Officer) /s/ MICHAEL E. McPHERSON Senior Vice President, Chief March 30, 1999 - -------------------------------- Financial Officer, Treasurer Michael E. McPherson and Secretary (Principal Financial and Accounting Officer) /s/ MICHAEL A. FICARO Director March 30, 1999 - -------------------------------- Michael A. Ficaro /s/ PATRICIA W. BECKER Director March 30, 1999 - -------------------------------- Patricia W. Becker /s/ MAX L. PAGE Director March 30, 1999 - -------------------------------- Max L. Page
-50- 53 PRELIMINARY DRAFT - FOR DISCUSSION PURPOSES ONLY ---------------------------------------------------------------------------- FITZGERALDS GAMING CORPORATION Consolidated Financial Statements for the Years Ended December 31, 1998 and 1997 and Independent Auditors' Report 54 FITZGERALDS GAMING CORPORATION TABLE OF CONTENTS - --------------------------------------------------------------------------------
PAGE ITEM 8. FINANCIAL STATEMENTS Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 F-5 Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended December 31, 1998, 1997 and 1996 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-7 Notes to Consolidated Financial Statements F-9
55 INDEPENDENT AUDITORS' REPORT Fitzgeralds Gaming Corporation: We have audited the accompanying consolidated balance sheets of Fitzgeralds Gaming Corporation and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity (deficiency), and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying consolidated financial statements for the year ended December 31, 1998, have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations and stockholders' capital deficiency raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. DELOITTE & TOUCHE, LLP Las Vegas, Nevada February 26, 1999 F-2 56 FITZGERALDS GAMING CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 - --------------------------------------------------------------------------------
1998 1997 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 13,038,589 $ 14,809,617 Restricted cash 537,179 -- Accounts receivable, net of allowance for doubtful accounts of $345,540 and $411,881 1,437,095 2,060,045 Advances to affiliated companies 3,154 136,173 Inventories 1,375,443 1,313,611 Prepaid expenses: Gaming taxes 1,209,825 1,163,342 Other 2,487,170 1,734,186 ------------ ------------ Total current assets 20,088,455 21,216,974 ------------ ------------ PROPERTY AND EQUIPMENT, net 159,714,663 163,704,715 ------------ ------------ OTHER ASSETS: Estimated realizable value of Nevada Club assets held for sale 4,122,842 3,979,228 Restricted cash 1,459,000 1,393,987 Restricted investment 200,000 -- Investments -- 1,347,813 Debt offering costs 8,319,745 8,724,936 Line of credit costs 408,051 -- Goodwill, net 13,681,296 14,046,231 Other assets 1,046,155 1,206,356 ------------ ------------ Total other assets 29,237,089 30,698,551 ------------ ------------ MINORITY INTEREST 157,257 75,199 ------------ ------------ TOTAL $209,197,464 $215,695,439 ============ ============
See notes to consolidated financial statements. (Continued) F-3 57 FITZGERALDS GAMING CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED) DECEMBER 31, 1998 AND 1997 - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 1998 1997 ------------- ------------- CURRENT LIABILITIES: Current portion of long-term debt $ 4,634,747 $ 7,285,897 Notes payable - related parties 304,637 304,637 Accounts payable 8,139,479 7,236,856 Accrued and other: Payroll and related 5,010,169 4,061,565 Progressive jackpots 1,311,074 979,449 Outstanding chips and tokens 728,254 768,633 Interest 1,131,466 175,432 Other 6,632,472 6,923,515 ------------- ------------- Total current liabilities 27,892,298 27,735,984 LONG-TERM DEBT, net of current portion 208,204,024 206,191,485 ------------- ------------- Total liabilities 236,096,322 233,927,469 ------------- ------------- MINORITY INTEREST -- -- ------------- ------------- COMMITMENTS AND CONTINGENCIES (Notes 9 and 12) CUMULATIVE REDEEMABLE PREFERRED STOCK, $.01 par value; $25 stated value; 800,000 shares authorized, issued and outstanding; liquidation preference $20,000,000 stated value plus accrued dividends of $11,264,632 and $6,983,663 recorded at liquidation preference value, net of unamortized offering costs and discount of $6,863,461 and $7,352,266, respectively 24,401,171 19,631,397 ------------- ------------- STOCKHOLDERS' DEFICIENCY: Common stock, $.01 par value; 29,200,000 shares authorized; 4,012,846 shares issued and outstanding 40,128 40,128 Additional paid-in capital 23,649,582 23,649,582 Accumulated deficit (74,989,739) (61,553,137) ------------- ------------- Total stockholders' deficiency (51,300,029) (37,863,427) ------------- ------------- TOTAL $ 209,197,464 $ 215,695,439 ============= =============
See notes to consolidated financial statements. (Concluded) F-4 58 FITZGERALDS GAMING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
1998 1997 1996 ------------- ------------- ----------- OPERATING REVENUES: Casino $ 162,506,030 $ 141,215,071 $ 111,284,884 Food and beverage 24,936,289 22,499,113 18,551,978 Rooms 21,213,266 21,318,538 15,875,829 Other 15,745,882 9,965,508 7,405,998 ------------- ------------- ------------- Total 224,401,467 194,998,230 153,118,689 Less promotional allowances 17,276,879 15,296,497 12,588,342 ------------- ------------- ------------- Net 207,124,588 179,701,733 140,530,347 ------------- ------------- ------------- OPERATING COSTS AND EXPENSES: Casino 81,538,490 69,674,986 58,323,360 Food and beverage 18,295,526 17,214,885 13,330,471 Rooms 12,579,464 12,512,496 9,644,494 Other operating 2,162,019 1,681,063 1,543,516 Selling, general and administrative 56,856,342 48,933,178 44,920,756 Depreciation and amortization 13,670,796 12,053,777 8,896,951 Write down of assets and lease settlement 341,728 4,009,832 -- ------------- ------------- ------------- Total 185,444,365 166,080,217 136,659,548 ------------- ------------- ------------- INCOME FROM OPERATIONS 21,680,223 13,621,516 3,870,799 OTHER INCOME (EXPENSE): Interest income 527,378 383,469 1,822,964 Interest income - stockholders -- 78,708 237,524 Interest expense (27,154,145) (25,368,844) (20,208,230) Interest expense - stockholders (19,009) (126,259) (38,899) Impairment loss (798,607) -- -- Other expense (2,902,667) (882,182) (662,251) ------------- ------------- ------------- LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (8,666,827) (12,293,592) (14,978,093) INCOME TAX BENEFIT -- -- 1,484,167 ------------- ------------- ------------- LOSS BEFORE EXTRAORDINARY ITEM (8,666,827) (12,293,592) (13,493,926) EXTRAORDINARY ITEM - LOSS ON EARLY RETIREMENT OF DEBT -- (19,247,928) -- ------------- ------------- ------------- NET LOSS (8,666,827) (31,541,520) (13,493,926) PREFERRED STOCK DIVIDENDS (4,769,775) (4,142,615) (3,536,152) ------------- ------------- ------------- NET LOSS APPLICABLE TO COMMON STOCK $ (13,436,602) $ (35,684,135) $ (17,030,078) ============= ============= ============= NET LOSS PER COMMON SHARE: Before extraordinary item (3.35) (4.09) (4.26) Extraordinary item -- (4.80) -- ------------- ------------- ------------- NET LOSS PER COMMON SHARE - BASIC $ (3.35) $ (8.89) $ (4.26) ============= ============= ============= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,012,846 4,012,846 3,998,877 ============= ============= =============
See notes to consolidated financial statements. F-5 59 FITZGERALDS GAMING CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 - --------------------------------------------------------------------------------
TOTAL COMMON STOCK ADDITIONAL STOCKHOLDERS' ------------------------------ PAID-IN ACCUMULATED EQUITY SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY) ------------ ------------ ------------ ------------ ------------- BALANCE, JANUARY 1, 1996 3,956,816 $ 39,568 $ 24,455,175 $ (8,433,776) $ 16,060,967 Net loss -- -- -- (13,493,926) (13,493,926) Common stock dividends -- -- -- (405,148) (405,148) Preferred stock dividends -- -- -- (3,536,152) (3,536,152) Issuance of stock 56,030 560 790 -- 1,350 Issuance of stock options -- -- 63,666 -- 63,666 Adjustment to purchase price of treasury stock -- -- (734,028) -- (734,028) ------------ ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1996 4,012,846 40,128 23,785,603 (25,869,002) (2,043,271) Net loss -- -- -- (31,541,520) (31,541,520) Preferred stock dividends -- -- -- (4,142,615) (4,142,615) Adjustment to purchase price of treasury stock -- -- (136,021) -- (136,021) ------------ ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1997 4,012,846 40,128 23,649,582 (61,553,137) (37,863,427) Net loss -- -- -- (8,666,827) (8,666,827) Preferred stock dividends -- -- -- (4,769,775) (4,769,775) ------------ ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1998 4,012,846 $ 40,128 $ 23,649,582 $(74,989,739) $(51,300,029) ============ ============ ============ ============ ============
See notes to consolidated financial statements. F-6 60 FITZGERALDS GAMING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (8,666,827) $(31,541,520) $(13,493,926) ------------ ------------ ------------ Adjustments to reconcile net loss to net cash provided by operating activities, net of effects of acquisition: Depreciation and amortization 13,670,796 12,053,777 8,896,951 Amortization of note discount and offering costs 1,154,276 3,062,020 1,998,619 Write down of assets and lease settlement 281,250 3,982,000 -- Impairment loss 798,607 -- -- Recovery of bad debt from related party -- (510,439) -- Loss on early retirement of debt -- 17,537,928 -- Deferred income taxes -- -- (1,484,167) Equity in net loss of unconsolidated affiliates 1,352,693 680,023 681,208 Minority interest in (income) loss of subsidiaries 1,760,932 (44,393) 362,740 Other (489,709) (637) (48,890) Increase in restricted cash (1,196,179) -- -- Decrease in accounts receivable, net 622,950 92,655 369,954 (Increase) decrease in advances to affiliated companies 133,019 (74,173) (221,174) (Increase) decrease in inventories (61,832) 345,880 (177,431) (Increase) decrease in prepaid expenses (799,467) 283,887 (376,545) (Increase) decrease in other assets 160,201 204,922 (464,318) Increase (decrease) in accounts payable 902,623 (4,369,705) 5,579,952 Increase (decrease) in accrued and other liabilities 2,565,616 (414,968) (864,374) ------------ ------------ ------------ Net cash provided by operating activities 12,188,949 1,287,257 758,599 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 485,208 129,948 372,529 Repayments from related parties -- 2,518,805 86,664 Acquisition of property and equipment (5,151,859) (3,642,878) (53,263,739) Acquisition of assets to be held for sale (374,865) -- -- Decrease in restricted cash 393,987 1,860,336 46,845,677 Purchase of business, net of cash acquired -- (25,747,169) -- Other (803,488) 224,406 (408,999) ------------ ------------ ------------ Net cash used in investing activities (5,451,017) (24,656,552) (6,367,868) ------------ ------------ ------------
See notes to consolidated financial statements. (Continued) F-7 61 FITZGERALDS GAMING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
1998 1997 1996 ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit $ 3,000,000 $ -- $ -- Proceeds from 1997 Offering -- 202,634,300 -- Payment of line of credit costs (421,084) -- -- Payment of debt offering costs (1,116,742) (11,308,428) (275,625) Proceeds from issuance of stock -- -- 1,350 Proceeds from issuance of debt -- 38,221,811 9,643,064 Repayment of long-term debt (8,128,144) (202,573,620) (10,222,261) Common stock dividends and dividends to minority stockholders (1,842,990) (337,393) (405,148) Repayments to related parties -- (1,807,255) Increase in restricted cash -- -- 471,569 Other -- -- (98,007) ------------- ------------- ------------- Net cash provided by (used in) financing activities (8,508,960) 24,829,415 (885,058) ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,771,028) 1,460,120 (6,494,327) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,809,617 13,349,497 19,843,824 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,038,589 $ 14,809,617 $ 13,349,497 ============= ============= =============
See notes to consolidated financial statements. (Concluded) F-8 62 FITZGERALDS GAMING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND OPERATIONS Fitzgeralds Gaming Corporation (the "Company") is a diversified multi-jurisdictional gaming holding company that owns and operates four Fitzgeralds-brand casino-hotels, in downtown Las Vegas, Nevada ("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica, Mississippi ("Fitzgeralds Tunica") and Black Hawk, Colorado ("Fitzgeralds Black Hawk"). The Company currently conducts substantially all of its business through wholly-owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds South, Inc. ("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly owns and operates Fitzgeralds Reno; FSI owns and operates Fitzgeralds Las Vegas and Fitzgeralds Tunica through wholly owned subsidiaries; and FI owns and operates Fitzgeralds Black Hawk through wholly owned subsidiaries. Fitzgeralds Arizona Management, Inc. ("FAMI"), a subsidiary 85% owned by FI, had an exclusive agreement (the "Cliff Castle Management Agreement") to manage the Cliff Castle Casino ("Cliff Castle") a gaming facility in Camp Verde, Arizona, owned and operated by the Yavapai-Apache Indian Nation (the "Nation"). In June 1998, FAMI entered into a termination agreement with the Nation wherein the parties mutually agreed to terminate the Cliff Castle Management Agreement, in consideration for which FAMI received $8.2 million, which included $0.2 million in management fees. In addition, through its 85%-owned subsidiary, Fitzgeralds New York, Inc. ("FNYI"), FI had received monthly payments through September 1998 in consideration of work performed prior and subsequent to the opening of the Turning Stone casino in Verona, New York, owned by the Oneida Indian Nation. Nevada Club, Inc. ("NCI"), a wholly owned subsidiary of the Company, owned and operated the Nevada Club in Reno, Nevada. The Nevada Club has been closed pending completion of its sale. F-9 63 Separate net operating revenues and net income (loss) of the consolidated entities, net of intercompany eliminations, for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 ------------ ------------ ------------ Net Operating Revenues: Fitzgeralds Gaming Corporation $ -- $ -- $ -- FSI: Fitzgeralds Las Vegas 50,987,123 46,540,155 43,482,777 Fitzgeralds Tunica 68,348,747 68,734,152 48,747,813 FRI 39,729,061 39,803,326 37,076,390 NCI 61,815 6,237,697 6,432,276 FI: Fitzgeralds Black Hawk 36,256,371 12,691,475 -- Other 11,741,471 5,694,928 4,791,091 ------------ ------------ ------------ Consolidated net operating revenues $207,124,588 $179,701,733 $140,530,347 ============ ============ ============
1998 1997 1996 ------------ ------------ ------------ Net Income (Loss): Fitzgeralds Gaming Corporation $ 4,675,377 $(18,423,409) $ (410,264) FSI: Fitzgeralds Las Vegas (10,832,896) (8,980,159) (8,219,859) Fitzgeralds Tunica (10,355,336) (4,692,512) (9,462,003) FRI: Harolds Club -- (1,852,832) -- Fitzgeralds Reno (1,492,167) 3,377,213 2,604,333 NCI (582,402) (2,074,365) (842,312) FI: Fitzgeralds Black Hawk (80,943) (1,926,503) -- Other 10,001,540 3,031,047 2,836,179 ------------ ------------ ------------ Consolidated net loss $ (8,666,827) $(31,541,520) $(13,493,926) ============ ============ ============
The Company incurred net losses of $8.7 million, $31.5 million and $13.5 million in 1998, 1997 and 1996, respectively. The Company is also highly leveraged. Total indebtedness was $212.8 million and $213.5 million at December 31, 1998 and 1997, respectively. The Company's stockholders' deficiency was $51.3 million and $37.9 million at December 31, 1998 and 1997, respectively. Although EBITDA or "earnings before interest, taxes on income, depreciation and amortization" grew from $25.7 million for the year ended December 31, 1997 to $35.9 million for the year ended December 31, 1998, adjusted EBITDA remained virtually unchanged at $30.6 million for each such period. Adjusted EBITDA reflects, among other things, the completion of the Company's acquisition of 101 Main and exclusion of $6.0 million of the $8.0 million non-recurring payment in connection with the termination of the management agreement for Cliff Castle. Moreover, to maintain market share in each of its four existing markets, the Company has found it necessary to increase promotional and complimentary expenses to meet the challenges of intense competition. Substantial expansion and new development activity is occurring in each of the Company's markets which may be expected to intensify competitive pressures. The Company has expended substantial amounts in recent years to expand and improve its properties and to enhance its competitive position but it is anticipated that it will be necessary to continue to do so to remain competitive and there can be no assurance that the Company will have adequate resources for such purposes. The Company's objective is to increase profitability by utilizing its national gaming brand, and fully integrated player tracking system to further penetrate the middle market customer base and to capitalize on the competitive strengths of its Fitzgeralds-brand properties. However, there can be no assurance that the Company will be able to do so. F-10 64 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the Company conform to generally accepted accounting principles. The following is a summary of the more significant of such policies: CONSOLIDATION - The consolidated financial statements of the Company include the accounts of its wholly owned and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. MINORITY INTEREST - Minority interest represents the minority stockholders' share of equity in FAMI and FNYI. CASH AND CASH EQUIVALENTS - Cash includes cash required for gaming operations. The Company considers cash equivalents to include short-term investments with maturities at date of purchase of ninety days or less. At December 31, 1998 and 1997, the Company had bank deposits in excess of federally insured limits of approximately $2,474,000 and $7,764,000, respectively. INVENTORIES - consisting principally of food and beverages and operating supplies, are stated at the lower of first-in, first-out cost or market. The estimated cost of normal operating quantities (base stock) of china, silverware, glassware, linen, uniforms and utensils has been recorded as an asset and is not being depreciated. Costs of base stock replacements are expensed as incurred. Other assets in the accompanying consolidated balance sheets includes $678,382 and $699,989 of base stock inventories at December 31, 1998 and 1997, respectively. PROPERTY AND EQUIPMENT - are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated lives of the assets. Costs of major improvements are capitalized; costs of normal repairs and maintenance are charged to expenses as incurred. Gains or losses on disposals are recognized currently. CAPITALIZED INTEREST - No interest was capitalized during the years ended December 31, 1998 and 1997. F-11 65 RESTRICTED CASH - At December 31, 1998, the current portion of restricted cash represents funds held by the United States Bankruptcy Court for litigation in Tunica, Mississippi (see Note 12). Refer to the legal proceedings for a description of the litigation and the subsequent outcome. The long-term portion of restricted cash represents bonds to serve as collateral for various workers compensation and insurance plans and U.S. Treasury Notes of $1,000,000 held in an escrow account for the benefit of certain land lessors related to Fitzgeralds Las Vegas. Restricted cash at December 31, 1997, represents cash and cash equivalents to fund expansion projects at Fitzgeralds Las Vegas and Fitzgeralds Tunica held in collateral accounts pursuant to certain disbursement agreements, and U.S. Treasury Notes of $1,000,000 held in an escrow account for the benefit of certain land lessors related to Fitzgeralds Las Vegas. RESTRICTED INVESTMENT - At December 31, 1998, the restricted investments represents an investment with an insurance company that serves as collateral for a $2.5 million surety bond that was posted in September 1998 enabling FGC to remain a participant in the State of Nevada self insured worker's compensation program. INVESTMENTS - The Company's investments in limited liability corporations organized to construct certain improvements in downtown Las Vegas prior to the impairment (see Note 5), and to operate Fitzgeralds Black Hawk prior to the Company's purchase of 100% ownership in that casino are accounted for using the equity method (see Note 6). DEBT OFFERING COSTS AND LINE OF CREDIT COSTS - Costs associated with the issuance of debt and securing the line of credit are deferred and amortized over the life of the related indebtedness using the effective interest method. Debt offering costs and line of credit costs at December 31, 1998 and 1997 are presented net of accumulated amortization of $876,350 and $2,160, respectively. Unamortized debt offering costs of $8,148,910 related to debt retired from the proceeds of the 1997 Offering were expensed in December 1997. GOODWILL - represents the cost in excess of fair value of the net assets acquired in purchase transactions. Goodwill is being amortized on a straight-line method over 40 years and is recorded net of accumulated amortization of $497,865 and $132,930 at December 31, 1998 and 1997, respectively. CASINO REVENUE - is the net win from gaming activities, which is the difference between gaming wins and losses. PROMOTIONAL ALLOWANCES - Operating revenues include the retail value of rooms, food and beverage provided to customers without charge; corresponding charges have been deducted from revenue in the accompanying consolidated statements of operations as promotional allowances in the determination of net operating revenues. The estimated costs of providing the complimentary services are charged to the casino department and are as follows:
1998 1997 1996 ----------- ----------- ----------- Hotel $ 2,498,405 $ 2,104,907 $ 1,635,213 Food and beverage 11,383,379 10,684,329 9,543,492 Other 283,482 223,949 102,951 ----------- ----------- ----------- Total $14,165,266 $13,013,185 $11,281,656 =========== =========== ===========
F-12 66 INDIRECT EXPENSES - Certain indirect expenses of operating departments such as depreciation and amortization are shown separately in the accompanying consolidated statements of operations and are not allocated to departmental operating costs and expenses. FEDERAL INCOME TAXES - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carry forwards. FINANCIAL REPORTING PERIOD - The Company has adopted a "4-4-5" (weeks) financial reporting period which maintains a December 31 year-end. This method of reporting results in 13 weeks in each quarterly accounting period. The first and fourth accounting periods will have a fluctuating number of days resulting from the maintenance of a December 31 year-end, whereas the second and third periods will have the same number of days each year. FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based on current information, that the carrying value of the Company's cash and cash equivalents, restricted cash, accounts, notes and advances receivable, and accounts payable approximates fair value because of the short maturity of those instruments. The Senior Secured Notes were trading at approximately 56% of the face value as of December 31, 1998 and at book value as of December 31, 1997. The Company is unable to estimate the fair value of its Preferred Stock since no market quotes for such securities are readily available. The Company estimates the fair value of all other long-term debt and notes payable - related parties approximates their carrying value because interest rates on the debt approximate market rates. IMPAIRMENT OF LONG-LIVED ASSETS - The Company utilizes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. STOCK BASED COMPENSATION - The Company utilizes SFAS No. 123, Accounting for Awards of Stock-Based Compensation to account for stock-based employee compensation plans and for transactions where equity securities are issued for goods and services. This statement defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. Management's current intention is to continue to follow APB Opinion No. 25, and to adopt only the disclosure requirement of SFAS No. 123. EARNINGS PER SHARE - The Company utilizes SFAS No. 128, Earnings per Share, issued in 1997, to compute earnings per share (EPS). SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. F-13 67 During the years ended December 31, 1998, 1997, and 1996, there were no outstanding convertible securities that would result in dilutive potential common shares and, as such, diluted earnings per share are not applicable. Options to purchase 564,524 shares of common stock at prices ranging from $1.00 to $1.10, 676,974 shares of common stock at prices ranging from $1.00 to $1.10 per share and 450,051 shares of common stock at prices ranging from $1.00 to $4.50 per share and warrants to purchase 1,495,236, 1,971,835 and 2,675,237 shares of common stock at $.01 per share were outstanding at December 31, 1998, 1997 and 1996, respectively. Such options are not included in the computation of diluted earnings per share because to do so would have been antidilutive for the years presented. RECENTLY ISSUED ACCOUNTING STANDARDS - In 1998, the Company adopted SFAS 130, Reporting Comprehensive Income. This statement requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The adoption of SFAS 130 had no material impact on the financial position or results of operations of the Company since the Company does not have items of other comprehensive income. Also in 1998, the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information. SFAS 131 establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. Segment disclosure is provided at Note 15. On June 30, 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for the Company's fiscal year ending December 31, 1999. Management believes that adoption of this statement will not have a material impact on its financial condition or results of operations. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that all non-governmental entities expense costs of start-up activities (commonly referred to as pre-opening costs in the gaming industry) as those costs are incurred. The Company will be required to adopt SOP 98-5 beginning January 1, 1999. Management believes that adoption of the SOP will not have a material impact on its financial condition or results of operations. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS - Certain amounts in the 1996 and 1997 consolidated financial statements have been reclassified to conform to the 1998 method of presentation. 3. STATEMENTS OF CASH FLOWS INFORMATION The following supplemental disclosures are provided as part of the consolidated statements of cash flows for the years ended December 31, 1998, 1997 and 1996: F-14 68 Cash paid for interest, net of amounts capitalized, during the years ended December 31, 1998, 1997 and 1996 was $25,043,835, $22,590,718 and $22,363,448, respectively. Long-term contracts payable of $4,159,447 in 1998, $300,863 in 1997 and $3,762,425 in 1996, were incurred with the acquisition of new equipment. During 1998, 1997 and 1996, respectively, accumulated deficit was increased by $4,769,775, $4,142,615 and $3,536,152 for preferred stock dividends consisting of $4,280,969, $3,694,790, and $3,195,890 accrued dividends and $488,806, $447,825 and $340,262 accretion of discount on preferred stock. During 1997 and 1996, additional paid in capital decreased and the note payable to a former stockholder increased by $136,021 and $636,020, respectively, pursuant to an adjustment to the purchase price of treasury stock. In 1998, accrued offering costs of $455,966 were incurred in connection with the 1997 Offering of Senior Secured Notes and the $15 million line of credit. In 1997, accrued offering costs of $660,775 were incurred in connection with the 1997 Offering of Senior Secured Notes. During 1997, certain assets of Nevada Club with a book value totaling $6,157,227 were written down to their estimated realizable value of $4,000,227 and reclassified from Property and Equipment to Estimated Realizable Value of Nevada Club Assets Held for Sale. An additional write down of $231,250 occurred in 1998. During 1997, notes payable of $1,525,000 and accrued liabilities of $300,000 were incurred in connection with the Harolds Club lease settlement. During 1998 and 1997, the Company reclassified $453,798 and $985,216, respectively, of short term debt to other accrued liabilities. During 1997, the Company reclassified $281,250 of other assets to minority interest. During 1997, the Company acquired the remaining 78% membership interest in 101 Main with the allocation of the purchase price as follows: Working capital other than cash $ (3,218,233) Property and equipment 19,591,964 Goodwill 14,179,918 Long-term debt (4,806,480) ------------ Net $ 25,747,169 ============
During 1996, advances receivable of $2,500,000 were transferred to investments. F-15 69 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31:
ESTIMATED SERVICE LIFE 1998 1997 (YEARS) ------------- ------------- ------------ Land used in casino operations $ 17,766,327 $ 15,606,209 Buildings and improvements 118,379,468 116,588,374 7-40 Site improvements 15,416,474 14,383,100 20 Barge and improvements 12,896,235 12,896,235 15 Furniture, fixtures and equipment 61,997,703 61,974,234 3-12 ------------- ------------- 226,456,207 221,448,152 Less accumulated depreciation and amortization (67,241,809) (57,976,447) ------------- ------------- 159,214,398 163,471,705 Construction in progress 500,265 233,010 ------------- ------------- Total $ 159,714,663 $ 163,704,715 ============= =============
Substantially all property and equipment are pledged as collateral on long-term debt. 5. IMPAIRMENT LOSS The Company recorded an impairment loss related to its 17.65% ownership interest in the Fremont Street Experience, Limited Liability Company ("FSE"). This impairment loss is principally due to significant levels of operating loss reported by FSE. Management expects this trend to continue and, therefore, does not expect to recover its investment in this entity. 6. ACQUISITION OF 101 MAIN Effective February 16, 1996, the Company, through Fitzgeralds Black Hawk, Inc ("FBHI"), a wholly-owned subsidiary of FI, purchased a 22% membership interest in 101 Main, a limited liability company formed to construct, develop and operate a casino in Gilpin County, Colorado. In addition, FBHI entered into a Management Agreement with 101 Main to manage the casino operations for a period of 10 years and retained an option to purchase the remaining 78% interest in 101 Main. The first floor of the casino opened on May 23, 1995. F-16 70 The Company accounted for its 22% investment in 101 Main using the equity method. Condensed statement of operations information for 101 Main for the year ended December 31, 1996, and for the period from January 1, 1997 through August 15, 1997 (the date the remaining 78% interest in 101 Main was acquired by the Company) is summarized below:
PERIOD ENDED YEAR ENDED AUGUST 15, DECEMBER 31, 1997 1996 ------------ ------------ Summarized Statement of Operations Information Revenues $21,295,752 $27,944,135 Operating income 5,398,745 7,777,331 Income before extraordinary item 4,378,932 6,084,598 Net income 4,130,769 6,084,598
On August 15, 1997, the Company acquired the 78% membership interest in 101 Main not previously owned by FBHI, at a purchase price of approximately $27.3 million. Because of certain restrictions on the Company, as issuer, and FBHI, as a subsidiary guarantor, contained in existing loan documents, FBHI formed Fitzgeralds Black Hawk, Inc. - II ("FBHI-II") as a wholly-owned subsidiary of FBHI. FBHI then contributed substantially all of its assets including its 22% membership interest in 101 Main, its option to acquire the remaining 78% membership interest in 101 Main and the Management Agreement between FBHI and 101 Main, to FBHI-II. At the same time, 101 Main loaned approximately $27.3 million of the proceeds of its $38.0 million 13% First Mortgage Notes due 2000 (the "101 Main Notes") to FBHI-II for use in acquiring the additional 78% membership interest in 101 Main. FBHI-II, as the owner of all of the membership interests in 101 Main, and the Management Agreement, guaranteed the obligations of 101 Main under the 101 Main Notes. The remainder of the proceeds from the 101 Main Notes was used to retire certain existing indebtedness secured by assets of 101 Main and for general corporate purposes. The acquisition of the 78% membership interest in 101 Main has been recorded as a purchase. Prior to the acquisition, the Company's 22% membership interest in 101 Main was accounted for using the equity method. From August 15, 1997, the financial statements of 101 Main have been consolidated with those of the Company. The allocation of the purchase price is as follows: Purchase price $ 27,300,000 Cash acquired 1,552,831 ------------ Net $ 25,747,169 ============ Working capital other than cash $ (3,218,233) Property and equipment 19,591,964 Goodwill 14,179,918 Long-term debt (4,806,480) ------------ Net $ 25,747,169 ============
F-17 71 The table below reflects pro forma condensed financial information for the Company as if the 78% membership interest in 101 Main was acquired on January 1, 1996:
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------- ----------------- Net revenues $ 200,454,134 $ 167,893,638 Loss before extraordinary item (8,735,241) (8,478,690) Net loss (28,231,332) (8,478,690) Net loss applicable to common stock (32,373,947) (12,014,842) Net loss per common share - basic (8.07) (3.00)
F-18 72 7. LONG-TERM DEBT Long-term debt is as follows at:
DECEMBER 31, ---------------------------------- 1998 1997 ------------- ------------- Senior secured notes payable (the "Senior Secured Notes"); subject to certain exceptions, secured by a lien, subject to the lien securing the Credit Facility, on substantially all of the assets of the Company, including a pledge of the stock of the Company's subsidiaries, and a lien on substantially all of the assets of the Company's subsidiaries (other than FAMI, FNYI and NCI) except for certain excluded assets; due in semiannual installments of interest at 12.25% on June 15 and December 15; with a final payment of principal and interest due on December 15, 2004 (net of unamortized discount of $2,084,611 and $2,364,697) $202,915,389 $202,635,303 Note payable to a trust to acquire land used in casino operations; collateralized by deed of trust on the land; due in monthly installments of $32,681, including interest at 7.5%; remaining principal and interest due December 6, 2000 782,004 1,050,616 Advance against a line of credit established with a lending institution; subject to certain exceptions, secured by a first priority lien on substantially all of the assets of the Company, including a pledge of the stock of the Company's subsidiaries, and a lien on substantially all of the assets of the Company's subsidiaries (other than FAMI, FNYI and NCI) except for certain excluded assets; full payment due upon termination of the loan agreement in October 2003, interest payable at the designated bank's prime rate (7.75% at December 31, 1998) minus seven basis points 3,000,000 -- Note payable to a bank to acquire the Nevada Club; collateralized by a deed of trust on land and buildings, a security agreement on furniture, fixtures and equipment and a personal guarantee by certain stockholders; due in monthly installments of $55,839, including interest at the bank's prime rate plus 2% (10.5% at December 31, 1997); principal balance due December 1998 -- 2,658,356 Notes payable secured by gaming equipment; due in aggregate monthly installments of $108,708, including interest at 11.5%; remaining principal due August 1998 -- 833,294 Contract payable secured by gaming equipment, due in monthly principal installments of $133,333 plus interest at 10.83%; remaining principal due March 1998 -- 533,333 Contracts payable secured by gaming equipment, due in monthly principal installments of $21,151 plus interest at 10%; remaining principal balance due July 2000 369,957 --
F-19 73
DECEMBER 31, ------------------------------------- 1998 1997 ------------- ------------- Contracts payable secured by certain equipment, due in maximum aggregate monthly installments of $240,962, with varying maturity dates through 2001 $ 3,507,477 $ 3,810,696 Obligation for construction of water/sewer lines, secured by an irrevocable letter of credit, due in monthly installments of $14,294, including imputed interest of 9.5% 115,860 273,965 Other 2,148,084 1,681,819 ------------- ------------- Total long-term debt 212,838,771 213,477,382 Less current portion (4,634,747) (7,285,897) ------------- ------------- Long-term portion $ 208,204,024 $ 206,191,485 ============= =============
The scheduled maturities of long-term debt are as follows:
YEAR ENDING December 31, ------------ 1999 $ 4,634,747 2000 1,326,895 2001 374,697 2002 105,530 2003 3,116,722 Thereafter 203,280,180 ------------ Total $212,838,771 ============
A note payable by NCI to a bank, which is secured by Nevada Club assets and guaranteed by the Chairman and Chief Executive Officer of the Company in the amount of $2.4 million, was retired in September 1998. A note payable by FRI to a trust which is also secured by Nevada Club assets will also be retired upon the sale of Nevada Club which is anticipated to close in the second quarter of 1999. As of December 31, 1998, such note payable had a principal balance of approximately $0.8 million. There can be no assurance, however, that Nevada Club will be sold and that the Harolds Club settlement (as discussed in Note 9) will be consummated. On March 14, 1994, FSI issued $36 million of 13% senior secured notes due 1996. In connection with the issuance of these notes, FSI issued warrants (the "FSI Warrants") to purchase 100,559 shares of its common stock. No value was ascribed to the FSI Warrants. The FSI Warrants are exercisable at $.01 per share, expire five years from the closing of the offering for these notes and are subject to certain anti-dilution adjustments. FSI Warrants to purchase 54,384 shares of common stock of FSI were also issued to the sales agent. These FSI Warrants are exercisable at $32.18 per share and expire five years from the closing of the offering. All FSI Warrants issued in connection with this note offering are exercisable only for shares of common stock of FSI. The notes issued in 1994 by FSI were repaid from a portion of the proceeds from the 1995 Offering, at which time the Company repurchased approximately 59% of the $.01 FSI Warrants, leaving 73,250 FSI Warrants outstanding. F-20 74 As of December 31, 1998, the Company had a $15.0 million secured loan and security agreement (the "Credit Facility") with a lending institution of which $5.0 million may be utilized for capital expenditures at Fitzgeralds Black Hawk and with a $10.0 million line of credit which may be utilized for general corporate purposes. The obligations under the Credit Facility bear interest at an annual rate equal to the designated bank's prime rate minus 7 basis points, and the Company is charged a nominal fee for the undrawn amount of the outstanding line of credit. At December 31, 1998, $5.0 million was available for capital expenditures and $7.0 million was available under the Credit Facility for general corporate purposes. EXTRAORDINARY ITEM - In December 1997, the Company recorded an extraordinary loss on early retirement of debt of $19,247,928 consisting of the net write-off of unamortized discount and debt offering costs and early payment premium on debt retired with the proceeds of the Senior Secured Notes. 8. OFFERINGS THE 1997 OFFERING - On December 30, 1997, the Company completed a private placement of debt (the "1997 Offering"). The Company issued $205,000,000 aggregate principal amount of 12.25% Senior Secured Notes due December 15, 2004 (the "Senior Secured Notes"). A summary of the proceeds from the 1997 Offering is as follows: Face amount $ 205,000,000 Less discount (2,365,700) ------------- Proceeds 202,634,300 Less offering costs (8,727,096) ------------- Net proceeds $ 193,907,204 =============
The Senior Secured Notes bear interest at a fixed annual rate of 12.25% payable on June 15 and December 15 of each year, commencing June 15, 1998. The Senior Secured Notes will mature on December 15, 2004. The Senior Secured Notes are secured by a lien on substantially all of the assets of the Company, including a pledge of the stock of the Company's subsidiaries and a lien on substantially all of the assets of the Company's subsidiaries (other than FAMI, FNYI, and NCI), except for certain Excluded Assets, as defined in the indenture governing the Senior Secured Notes (the "Note Indenture"). The Senior Secured Notes are redeemable at the option of the Company, in whole or in part, on or after December 15, 2001, at the redemption prices defined in the indenture governing the Senior Secured Notes (the "Note Indenture"), plus accrued and unpaid interest to the date of redemption. Prior to December 15, 2001, the Company may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes at a redemption price of 112.5% of the principal amount thereof, plus accrued and unpaid interest through the applicable date of redemption, with the cash proceeds of one or more Public Equity Offerings (as defined), provided that at least $133,250,000 aggregate principal amount of the Senior Secured Notes remains outstanding immediately thereafter. Upon a Change of Control, as defined in the Note Indenture, the Company will be required to offer to repurchase all of the outstanding Senior Secured Notes at a cash price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. F-21 75 The Note Indenture contains covenants which, among other things, restrict the Company's ability to (i) make certain payments to, or investments in, third parties; (ii) incur additional indebtedness or liens on any assets; (iii) enter into transactions with affiliates; and (iv) sell assets or subsidiary stock. At December 31, 1998, the Company was in compliance with these provisions. PREFERRED STOCK - The Preferred Stock has a liquidation preference of $20 million dollars ($25 per share), plus accrued and unpaid dividends. Cash dividends on the Preferred Stock are payable out of funds legally available therefor (when and if declared by the Company's Board of Directors) in an amount equal to 15% of the liquidation preference. Dividends if not paid (whether or not declared) will be cumulative from December 19, 1995 and will be compounded quarterly. The Note Indenture restricts the Company's ability to pay dividends on the Preferred Stock, and the Company has no current intention to pay any dividends on the Preferred Stock. The Preferred Stock may be redeemed by the Company at any time at a redemption price equal to 100% of the liquidation preference plus accrued and unpaid dividends on the date of redemption subject to restrictions in the Note Indenture and Credit Facility. The Company will be obligated to redeem all of the Preferred Stock on December 31, 2005 at a redemption price equal to 100% of the liquidation preference plus accrued and unpaid dividends on the date of redemption. In the event that the Company consummates a Qualified Public Offering (Qualified Public Offering means a firm commitment underwritten public offering of Common Stock of the Company for which the Company receives net proceeds of at least $25 million, and after which the Common Stock is traded on a national securities exchange or quoted on the Nasdaq National Market), it will be required to offer to repurchase 35% of the Preferred Stock at a price equal to 100% of the liquidation preference on the date of repurchase. WARRANTS - In December 1995, as part of a public offering of $123.0 million senior secured notes (the "1995 Notes") and preferred stock, the Company issued 2,675,237 warrants, each exercisable for one share of the Company's Common Stock at an exercise price of $.01 per share (the "Warrants"). However, in connection with the 1997 Offering and the repayment of the 1995 Notes, the Company canceled 703,402 of the Warrants. The remaining warrants had an expiration date of December 19, 1998. The Warrant Agent timely received notice of exercise for 1,495,236 Warrants, and 476,599 Warrants expired. The Company advised each exercising Warrant holder that the exercise of the Warrants and issuance of the underlying Common Stock might be subject to certain Nevada, Colorado and Mississippi gaming licensure requirements, and that no such Common Stock would be issued without compliance with or exemption from applicable gaming requirements. The Company has recently been advised by the applicable gaming authorities for each such jurisdiction that, based on the information provided by the warrant agent, no licensure will be required by virtue of the exercise of the Warrants or issuance of the underlying Common Stock. It is anticipated that the 1,495,236 shares of Common Stock issuable on exercise of the Warrants will be issued in the near future to the exercising Warrant holders in reliance on the exemption from registration contained in Section 4(2) of the Securities Act of 1933 on the basis that there was no public offering of the shares of Common Stock underlying the Warrants. The Company has not paid any cash dividends on its Common Stock to date. The Company intends to retain all future earnings for use in the development of its business and does not anticipate paying cash dividends (including with respect to its preferred stock) in the foreseeable future. The payment of all dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, the general financial condition of the Company and general business conditions. The ability of the Company or its subsidiaries to pay dividends is restricted by the terms of the Note Indenture and the Credit Facility, and F-22 76 with respect to the Common Stock, the certificate of designation for the Preferred Stock. If a holder of securities is disqualified by any gaming authorities from owning such securities, such holder will not be permitted to receive any dividends if, and when, declared by the Company's Board of Directors with respect to such securities. 9. COMMITMENTS Future minimum rental payments under operating leases with noncancelable lease terms in excess of one year are as follows:
YEAR ENDING DECEMBER 31, ------------ 1999 $2,106,217 2000 1,624,278 2001 1,188,618 2002 1,119,598 2003 1,054,918 Thereafter 2,597,713 ---------- Total $9,691,342 ==========
Such operating lease commitments primarily relate to equipment, signs, warehouses and ground leases on which the Company's buildings and equipment reside. Rent expense for the years ended December 31, 1998, 1997 and 1996 was $1,719,876, $2,211,745 and $1,989,321, respectively. On May 31, 1995, FRI sold the closed Harolds Club in Reno to an unrelated publicly-traded company which subsequently conveyed Harolds Club to a company whose assets are now under control of the United States Bankruptcy Court for the Northern District of New York. Under the terms of certain indemnification agreements executed by FRI in connection with the sale of Harolds Club, as of December 31, 1998, FRI is contingently obligated for certain land lease payments to two lessors in the amount of approximately $0.28 million annually plus certain property-related costs, such as taxes and insurance, if said lease payments and costs are not paid by the current owner of Harolds Club. As of December 31, 1998, the current owner of Harolds Club was approximately $1.4 million in arrears in land lease payments and approximately $0.26 million in arrears in property taxes and assessments. The current owner of Harolds Club has not met its obligations with respect to the land leases, and in August 1996 each of the five land lessors filed separate actions in the Second Judicial District Court, Washoe County, State of Nevada, against the current owner, FRI and other non-related prior lessees under the land leases, seeking past due rent, taxes and other property-related expenses, as well as attorneys' fees and cost. Cross-claims and third party complaints for the indemnification have been asserted against FRI by the entity from which it assumed the land leases, and FRI has asserted cross-claims or third party complaints against the entities that are obligated to indemnify FRI under the various indemnification, assignment and assumption and guarantee agreements. In addition, in December 1997, one of the land lessors filed an additional action seeking rent, taxes and assessments accruing from October 1997 through March 1998. F-23 77 On June 3, 1998, the current owner of Harolds Club entered into an asset purchase agreement (the "Asset Purchase Agreement") to convey its fee simple interest in Harolds Club and improvements thereon to an undisclosed purchaser, which undisclosed purchaser has also entered into an agreement with FRI and NCI to purchase the Nevada Club. FRI and four land lessors have executed an asset purchase agreement (the "Land Lessors Asset Purchase Agreement") to convey their fee simple interest in Harolds Club and the improvements thereon to the undisclosed purchaser. Due to unresolved title issues, as of December 31, 1998 the undisclosed purchaser has not executed the Land Lessors Asset Purchase Agreement. The Company believes those title issues have since been resolved. The current owner of Harolds Club, the undisclosed purchaser and an unrelated entity are currently negotiating their respective rights and obligations under a certain agreement that is to be assigned to the undisclosed purchaser concurrently with the closing of the Harolds Club asset purchase transaction. The undisclosed purchaser has offered to extend the closing date for the transaction while such negotiations are pending. It is anticipated that all parties to the Land Lessors Asset Purchase Agreement will execute amendments to extend the closing date, among other things; however, no assurance can be given that the parties will consent to extend the closing date. FRI, four of the land lessors and the current and prior Harolds Club land lessees have executed Settlement Agreements, pursuant to which FRI has agreed to pay four of the land lessors approximately $1.7 million cash, less the cumulative amount of interim monthly rental payments ($28,977 per month through December 31, 1998), concurrently with the closing of the sale of Harolds Club in exchange for dismissal with prejudice of all claims and cross-claims against FRI arising out of FRI's purchase and subsequent sale of Harolds Club. To accommodate the requirement of the fifth Harolds Club land lessor that the transfer of its parcel (the "Campbell Parcel") be structured as a tax-free exchange, on August 24, 1998, FRI purchased the Campbell Parcel for a purchase price of approximately $1.0 million. Approximately, $0.45 million of the purchase price and the closing costs were paid by a prior owner of Harolds Club. FRI intends to terminate the lease encumbering the Campbell Parcel and convey said parcel to the undisclosed purchaser of Harolds Club for approximately $0.34 million. As a part of the transaction for the purchase of the Campbell Parcel, the lawsuits filed by the owners of the Campbell Parcel against the current owner, FRI and other non-related prior lessees were dismissed with prejudice. Because the assets of the current owner of Harolds Club are under the control of the United States Bankruptcy Court for the Northern District of New York, said Bankruptcy Court must approve the Asset Purchase Agreement. An order approving the sale was granted on October 8, 1998. It is anticipated that a motion to modify the order to, among other things, extend the closing date, will be filed in April 1999. The closing of the sale of Harolds Club is subject to the closing of the sale of Nevada Club and the undisclosed purchaser's acquisition of other parcels of land adjacent to Harolds Club. Although it is currently anticipated that the Harolds Club and related transactions will close in the second quarter of 1999, no assurance can be given that the transactions will be completed. Moreover, in the event that such transactions are consummated, it is likely that the undisclosed purchaser may utilize the land for gaming facilities that will compete with Fitzgeralds Reno. During 1997, the Company recorded an expense of $1,852,832 for the anticipated net settlement obligation, including related legal fees. In anticipation of the Nevada Club transaction, the Company has reclassified $6,157,227 from property and equipment to estimated realizable value of Nevada Club assets held for sale in the consolidated balance sheet as of December 31, 1997 and has recorded an allowance of $2,157,000 against the book value of the assets held for sale to write such assets down to the estimated net realizable value for the year ended December 31, 1997. An additional write-down of $231,250 was taken during 1998 upon a reduction of the sales price of the Nevada Club. F-24 78 EMPLOYMENT AGREEMENTS - The Company has entered into employment agreements with Mr. Manske and Ms. Brown to serve in their present offices for terms expiring on December 31, 1999 and April 30, 1999, respectively. As of February 26, 1999, Mr. Manske and Ms. Brown receive annual salaries of $275,000 and $107,500, respectively, and are eligible to receive annual merit increases. Such persons are entitled to participate in the Company's Executive Bonus Plan, health plan and any benefit plan established for selected officers of the Company and, in the event of a termination of employment without "good cause" (as defined in the agreements), to receive any unpaid salary in a specified percentage through the remainder of the term of their respective agreements. The Company was a party to employment agreements with Messrs. Griffith and McPherson, which expired on June 30, 1998 and February 28, 1999, respectively. Messrs. Griffith and McPherson are currently employed on a month-to-month basis under the same terms and conditions of such agreements, and are in the process of negotiating new agreements. As of February 26, 1999, Messrs. Griffith and McPherson receive annual salaries of $496,125 and $225,000, respectively. FRI has entered into an employment agreement with Mr. Page, under which he was appointed Vice President of FRI and General Manager of Fitzgeralds Reno for a term expiring on December 31, 1999. As of February 26, 1999, Mr. Page receives an annual salary of $240,000, participates in FRI's bonus plan and in a health plan, and may participate in any other benefit plan established by FRI for its executives. FRI also maintains a $500,000 life insurance policy for the benefit of Mr. Page. Mr. Page is entitled to certain severance payments in the event of a termination of employment by reason of disability or death. FMI has entered into an employment agreement with Mr. Mezzetta under which he was appointed Vice President and General Manager of FMI for a term expiring on May 24, 2001. As of February 26, 1999, Mr. Mezzetta receives a salary of $190,000, participates in FMI's bonus plan and in a health plan and may participate in any other benefit plan established by FMI for its executives. FMI also maintains a $100,000 life insurance policy for the benefit of Mr. Mezzetta. In accordance with industry practice, the Company has entered into employment agreements with certain of its other vice presidents and departmental directors. 10. RELATED PARTY TRANSACTIONS Advances to affiliated companies bear no interest and have no stated repayment terms. Notes payable-related parties consist of unsecured demand notes from shareholders that bear interest at 6.24%. Accrued interest payable on such notes, included in accrued interest payable, was $42,114 and $23,104 at December 31, 1998 and 1997, respectively. 11. PROFIT SHARING PLAN The Company has contributory profit-sharing plans for eligible employees. The Company's contribution to the plans for any year, as determined by the Board of Directors, is discretionary. Contributions to the plan are allocated among eligible participants in the proportion of their salaries to the total salaries of all participants. Effective January 1, 1989, the Company amended the plans to include a 401(k) savings plan whereby eligible employees may contribute up to 15% of their salary, which is matched by the Company at 25 cents per employee dollar contributed, up to a maximum of 6% of their salary. The Company's matching contributions were $329,217, $277,941 and $390,237 for the years ended December 31, 1998, 1997 and 1996, respectively. Each employee age 21 or older completing 1,000 or more hours of service during the twelve-month period preceding the entry dates, January 1 or July 1, is eligible to participate in the plans. F-25 79 In addition, the Company contributes to multi-employer defined contribution pension plans under various union agreements. Contributions, based on wages paid to covered employees, were $430,071, $386,975 and $322,405 for the years ended December 31, 1998, 1997 and 1996. 12. CONTINGENCIES FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK - In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk which are not reflected in the accompanying consolidated balance sheets. The Company has an irrevocable letter of credit with a bank in the amount of $159,000. Such letter, which expires on November 1, 1999, may be drawn upon by the State of Nevada Insurance Division in the event that FRI, NCI, or FLVI fails to pay to its employees worker's compensation benefits under a self-insurance program. The letter of credit is secured with a certificate of deposit for $159,000. The Company has an irrevocable letter of credit with a bank in the amount of $200,000 which expires on November 1, 1999, and may be drawn by a third party in the event Fitzgeralds Mississippi fails to pay its utility obligations. The letter of credit is secured by the personal guarantee of an officer of the Company. The Company has an irrevocable letter of credit with a bank in the amount of $300,000. Such letter, which expires on April 1, 1999, may be drawn by an insurance company in the event that Fitzgeralds Mississippi fails to pay to its employees worker's compensation benefits. The letter of credit is secured with a certificate of deposit for $300,000. The Company has an investment with an insurance company in the amount of $200,000. Such investment, which expires on September 30, 1999, serves as collateral for a $2.5 million surety bond that was posted in September 1998, enabling FGC to remain a participant in the State of Nevada self-insured worker's compensation program. The Company has a letter of credit with a bank in the amount of $105,000 that expires on December 31, 1999 and may be drawn upon by certain individuals in the event that FRI is unable to make certain rental payments on leased property. The letter of credit is secured by the personal guarantee of an officer of the Company. No amounts were drawn at December 31, 1998, on any of the above investment and letters of credit, and management does not expect any material losses to result from these off-balance sheet instruments. LEGAL MATTERS - In October 1993, FMI, the manager of Fitzgeralds Tunica, executed a road contract (the "Contract") with Treasure Bay Gaming and Resorts, Inc. ("Treasure Bay") to share equally the cost of developing a road leading to the two properties (the "Roadway") and of the acquisition of a 3.67-acre tract of land (the "Tract"). Subsequently, FMI filed an adversary proceeding against Treasure Bay and others to quiet title in the Roadway and the Tract. The complaint sought, among other relief, a declaratory judgment that FMI owns an unencumbered, undivided one-half interest in the Roadway and Tract and the avoidance of all liens on the Roadway and the Tract. Treasure Bay asserted a counterclaim alleging that FMI owed Treasure Bay approximately $0.3 million for the costs of acquiring and developing the Roadway and Tract. On January 29, 1999, FMI and Treasure Bay entered into a settlement agreement (the "Settlement Agreement") pursuant to which FMI paid Treasure Bay $0.25 million, F-26 80 and Treasure Bay conveyed to FMI an unencumbered, undivided one-half interest in the Roadway and Tract. In accordance with the Settlement Agreement and the Contract, the Roadway will be dedicated to Tunica County. RENO TRANSPORTATION RAIL ACCESS CORRIDOR (RETRAC) PROJECT - In October 1998, the Reno City Council approved a special assessment district to finance a portion of the costs to lower the railroad tracks that run through downtown Reno, Nevada (the "ReTRAC Project"). Preliminary plans for the ReTRAC Project provide for the construction of a temporary rail bypass that will be used to divert rail traffic around the main railroad during construction. The City estimates that a period of thirty to thirty-two months will be required to complete the ReTRAC Project. The southern boundary of the bypass will extend out into the middle of the Commercial Row, the street adjacent to the Fitzgeralds Reno hotel entrance, valet parking area and hotel loading zone. On November 30, 1998, the Company filed a lawsuit against the City of Reno to challenge the method by which the special assessment to be levied against the Company was determined. Based on preliminary plans prepared by the City of Reno, Fitzgeralds Reno would expect to lose several parking spaces, the current valet parking area, an outdoor billboard structure advertising available rooms and a building used to house administrative offices, and be required to relocate the hotel entrance on Commercial Row. The City of Reno has also subsequently indicated that the ReTRAC Project might require the demolition of the Fitzgeralds Reno Rainbow Skyway. Implementation of the ReTRAC Project as currently proposed would cause the Company to suffer significant and permanent loss in business revenue and income; certain operating efficiencies from demolished or impaired physical structures; and a portion of its existing customer base as a result of the construction and operation of the proposed rail bypass. The Company has received no assurance as to whether and when the City of Reno will negotiate mitigation measures and whether such measures could or would fully compensate the Company for the fair market value of its property and anticipated operating losses. The Company is party to various other legal actions and administrative proceedings and subject to various claims arising in the course of business. The Company believes that the disposition of these matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company. 13. STOCKHOLDERS' EQUITY STOCK REPURCHASE - On December 21, 1990, FRI entered into an agreement to repurchase certain of its outstanding common shares from a major stockholder. Such agreement also provided for the repurchase of similar ownership interests of such stockholder in NCI and a third entity. Pursuant to the terms of the agreement, the purchase price paid by the Company was subject to adjustment upon the occurrence of certain events. Accordingly, the purchase price was increased by $734,028 in 1996 and by $136,021 in 1997. The Company's obligation to the former shareholder was paid from proceeds of the 1997 Offering, and the Company has no further obligation to this former shareholder. ISSUANCES OF WARRANTS - The Company has outstanding common stock warrants issued in connection with its 1995 Offering (see Note 8). FSI has outstanding common stock purchase warrants issued in connection with an offering of notes in 1994, which notes were redeemed with the proceeds from the offering of the 1995 Notes (see Note 7). F-27 81 STOCK OPTIONS - In February 1995, the Company granted options to purchase 87,140 shares of common stock of the Company at $1.00 per share to certain employees of the Company. 50% of the options granted vested on June 30, 1995. The remaining 50% of the options vested on June 30, 1996. In December 1995, the Company granted options to purchase 75,000 shares to each of two officers and 50,000 shares to each of two additional officers. In addition, approximately 193,000 options were granted to Company employees concurrently with the closing of the 1995 Offering. In connection with the election of two non-employee directors concurrently with the 1995 Offering, the Company granted options to purchase 5,000 shares to each of such non-employee directors. During 1996, 6,000 options were granted and 82,510 options were forfeited. These options were exercisable at $4.50 per share, with the options vesting ratably over three years. In March 1997, the exercise price of all options then outstanding was reduced, to reflect the then current fair market value, from $4.50 per share to $1.00 per share, except for options granted to two controlling stockholders, the exercise price of which was reduced to $1.10 per share. In June 1997, the Company determined that its previously adopted stock option plans had never become effective because they were adopted subject to approvals which had not been obtained. Accordingly, the Company adopted a new Stock Option Incentive Plan (the "Stock Option Plan"), subject to stockholder approval, to replace the prior plans. The Stock Option Plan was approved by stockholders on August 1, 1997. The Stock Option Plan, as amended, provides for the grant of options to purchase Common Stock that are either intended to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or that are not intended to so qualify ("non-qualified options"). All officers, directors, employees, consultants, advisors, independent contractors and agents of the Company and its subsidiaries are eligible to receive options under the Stock Option Plan, except that only employees may receive incentive stock options. The Stock Option Plan also permits a one-time grant of options to certain former employees in substitution for options previously granted to them and having substantially the same terms and conditions. The maximum number of shares available for issuance under the Stock Option Plan is 1,000,000. In October 1997 the Board of Directors granted options to purchase 660,974 shares under the Stock Option Plan in full replacement of previously granted options. All of such options were granted subject to the optionee's agreement to the cancellation of all previously granted options. The replacement options were for the same number of shares, with substantially the same terms and conditions, as the then outstanding options they replaced. In February 1998 the Board of Directors authorized an amendment to the Stock Option Plan to eliminate the 100,000 share cap on the number of options which may be granted to a single option holder during any calendar year. In May 1998, the Board of Directors authorized a one year extension of 55,524 options which were due to expire on June 30, 1998 and the elimination of certain language concerning the treatment of options in the event of a reorganization, merger or consolidation. The extension is reflected as a cancellation and re-grant of new options in like amounts. No options had been exercised as of December 31, 1998. The Stock Option Plan is administered by the Board of Directors or, in its discretion, by a committee of the Board of Directors appointed for that purpose (the "Stock Option Plan Committee"), which, subject to the terms of the Stock Option Plan, has the authority in its sole discretion to interpret the Stock Option Plan and to determine: (a) the individuals to F-28 82 whom options shall be granted; (b) the time or times at which options may be exercised; (c) the number of shares subject to each option; (d) the option price and the duration of each option granted; and (e) all of the other terms and conditions of options granted under the Stock Option Plan. The exercise price of incentive stock options granted under the Stock Option Plan must be at least equal to the fair market value of the shares on the date of grant (110% of fair market value in the case of participants who own shares possessing more than 10% of the combined voting power of the Company or any of its subsidiaries) and may not have a term in excess of 10 years from the date of grant (five years in the case of participants who own shares possessing more than 10% of the combined voting power of the Company). In no event may the aggregate fair market value (determined as of the time the option is granted) of the shares with respect to which incentive stock options (granted under the Stock Option Plan and all other plans of the Company or any of its subsidiaries) are exercisable for the first time by an optionee in any calendar year exceed $100,000. A summary of the status of the Company's stock option grants as of December 31, 1998, 1997 and 1996 and changes during the years then ended is presented below:
WEIGHTED- AVERAGE EXERCISE SHARES PRICE -------- -------- Outstanding at January 1, 1996 526,561 $ 4.01 Granted 6,000 4.50 Forfeited (82,510) 4.22 -------- -------- Outstanding at December 31, 1996 450,051 3.98 Granted 981,974 1.03 Canceled (660,974) 1.03 Forfeited (94,077) 1.67 -------- -------- Outstanding at December 31, 1997 676,974 1.03 Canceled (55,524) 1.00 Re-granted 55,524 1.00 Forefeited (112,450) 1.00 -------- -------- Outstanding at December 31, 1998 564,524 $ 1.04 ======== ======== Options exercisable at year-end 468,522 ========
As of December 31, 1998, the 564,524 options outstanding under the Stock Option Plan have exercise prices of $1.00 and $1.10 and a weighted-average remaining contractual life of 3.2 years. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. The compensation cost that has been charged against income for its plans was $0, $0 and $63,666 for 1998, 1997 and 1996, respectively. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent F-29 83 with the method of SFAS No. 123, the Company's pro forma net loss and loss per common share - basic would have been the amounts indicated below:
1998 1997 1996 ----------- ------------ ------------ Net loss As reported $(8,666,827) $(31,541,520) $(13,493,926) Proforma $(8,669,735) $(31,598,880) $(13,599,207) Loss per common share - basic As reported $ (3.35) $ (8.89) $ (4.26) Proforma $ (3.35) $ (8.91) $ (4.29)
The fair value of each option grant for the pro forma disclosure was estimated on the date of grant using the minimum value method with the following weighted-average assumptions used for grants in 1998, 1997 and 1996; risk-free interest rates of 5.38 percent, 6.2 percent and 5.91 percent, respectively, with expected lives of three years, three years and three years, respectively. The weighted-average fair value of options granted during 1998, 1997 and 1996 were $1.00, $1.00 and $0.71, respectively. 14. INCOME TAXES The income tax benefit recognized in the consolidated financial statements consists of the following:
1998 1997 1996 ---------- ---------- ---------- Deferred benefit $ -- $ -- $1,484,167 ---------- ---------- ---------- Total $ -- $ -- $1,484,167 ========== ========== ==========
A reconciliation of the income tax benefit with amounts determined by applying the statutory U.S. Federal income tax rate to consolidated loss before taxes is as follows:
1998 1997 1996 ------------ ------------ ------------ Tax benefit at U.S. statutory rate $ 3,033,390 $ 11,073,695 $ 5,242,297 Increase in valuation allowance (2,696,503) (10,981,971) (3,567,514) Other (336,887) (91,724) (190,616) ------------ ------------ ------------ Total $ -- $ -- $ 1,484,167 ============ ============ ============
F-30 84 The following summarizes the effect of deferred income tax items and the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The tax items comprising the Company's net deferred tax liability as of December 31, 1998 are as follows:
CURRENT NONCURRENT TOTAL ----------- ----------- ----------- Deferred tax assets: Intangibles $ -- $ 577,696 $ 577,696 Accrued and other liabilities 1,088,867 -- 1,088,867 Bad debt reserve 120,939 -- 120,939 FICA credits not utilized -- 507,427 507,427 NOL carryforward -- 25,569,101 25,569,101 Differences from flow through entity -- 406,016 406,016 Other -- 32,548 32,548 ----------- ----------- ----------- 1,209,806 27,092,788 28,302,594 Deferred tax liabilities: Difference between book and tax basis of property -- 9,090,253 9,090,253 Prepaid expenses 839,315 -- 839,315 ------------ ------------ ------------ 839,315 9,090,253 9,929,568 ------------ ------------ ------------ 370,491 18,002,535 18,373,026 Less: valuation allowance (370,491) (18,002,535) (18,373,026) ------------ ------------ ------------ Net deferred tax liability $ -- $ -- $ -- ============ ============ ============
The tax items comprising the Company's net deferred tax liability as of December 31, 1997 are as follows:
CURRENT NONCURRENT TOTAL ----------- ----------- ----------- Deferred tax assets: Intangibles $ -- $ 2,017,568 $ 2,017,568 Accrued and other liabilities 1,163,568 -- 1,163,568 Bad debt reserve 144,159 -- 144,159 FICA credits not utilized -- 323,898 323,898 NOL carryforward -- 21,448,488 21,448,488 Differences from flow through entity -- 192,408 192,408 Other -- 24,082 24,082 ----------- ----------- ----------- 1,307,727 24,006,444 25,314,171 ----------- ----------- -----------
F-31 85
CURRENT NONCURRENT TOTAL ------------ ------------ ------------ Deferred tax liabilities: Difference between book and tax basis of property -- 9,000,954 9,000,954 Prepaid expenses 636,694 -- 636,694 ------------ ------------ ------------ 636,694 9,000,954 9,637,648 ------------ ------------ ------------ 671,033 15,005,490 15,676,523 Less: valuation allowance (671,033) (15,005,490) (15,676,523) ------------ ------------ ------------ Net deferred tax liability $ -- $ -- $ -- ============ ============ ============
Due to the uncertainty of the realization of certain tax carryforward items, a valuation allowance has been established in the amount of $18.4 million at December 31, 1998. Realization of a significant portion of the assets offset by the valuation allowance is dependent on the Company generating sufficient taxable income prior to expiration of the loss and credit carryforwards. As of December 31, 1998, the Company had a consolidated net operating loss carryforward of approximately $73.0 million and a tax credit carryforward of $0.5 million, which are available to offset future tax through 2018. Of the loss carryforwards, $3.7 million is available only to offset future taxable income of FMI. The availability of the loss and credit carryforwards may be subject to limitations under sections 382 and 383 of the Internal Revenue Code in the event of a significant change of ownership. 15. SEGMENT INFORMATION In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for reporting information about operating segments, geographic areas and major customers in annual financial statements and requires reporting of selected information about operating segments in interim financial reports. The adoption of SFAS No. 131 had no effect on the Company's consolidated financial position or consolidated results of operations. The Company is a diversified multi-jurisdictional gaming holding company that owns and operates four Fitzgeralds casino-hotels in downtown Las Vegas, Nevada; Reno, Nevada; Tunica, Mississippi; and Black Hawk, Colorado. The Company identifies its business in four segments based on geographic location. The Company markets in each of its segments primarily to middle-market customers, emphasizing its Fitzgeralds brand and its "Fitzgeralds Irish Luck" theme. The major products offered in each segment are: casino and hotel (except for Fitzgeralds Black Hawk) and food and beverage. The accounting policies of each business segment are the same as those described in the summary of significant accounting policies. There are minimal inter-segment sales. The Company evaluates business segment performance based on EBITDA. Corporate costs are allocated to the business segments through management fees. Corporate assets are principally cash and cash equivalents, goodwill related to the acquisition of the remaining 78% membership interest in 101 Main and debt offering cost related to the issuance of debt. No single customer accounts for more than 10% of revenue. F-32 86 A summary of the Company's operations by business segment for 1998, 1997 and 1996 is presented below:
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1998 1997 1996 --------- --------- --------- (IN THOUSANDS) Net operating revenues: Fitzgeralds Las Vegas $ 50,987 $ 46,540 $ 43,483 Fitzgeralds Tunica 68,349 68,734 48,748 Fitzgeralds Reno 39,729 39,803 37,076 Fitzgeralds Black Hawk(1) 36,256 12,692 -- Other(2) 11,742 5,695 4,791 --------- --------- --------- Total Properties 207,063 173,464 134,098 Nevada Club 62 6,238 6,432 --------- --------- --------- Total $ 207,125 $ 179,702 $ 140,530 ========= ========= ========= Income (loss) from operations: Fitzgeralds Las Vegas $ (594) $ (498) $ (330) Fitzgeralds Tunica 2,063 6,013 (597) Fitzgeralds Reno 2,400 3,211 2,318 Fitzgeralds Black Hawk(1) 9,074 4,215 -- Other(2) 9,414 4,011 2,861 --------- --------- --------- Total Properties 22,357 16,952 4,252 --------- --------- --------- Nevada Club (566) (1,477) (381) Harolds Club (111) (1,853) -- --------- --------- --------- Total(2) $ 21,680 $ 13,622 $ 3,871 ========= ========= =========
F-33 87 Reconciliation of total business segment operating income to consolidated net loss before income tax and extraordinary item:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1998 1997 1996 -------- -------- -------- (IN THOUSANDS) Total segment operating income $ 12,943 $ 12,941 $ 1,391 Nevada Club (566) (1,477) (381) Harolds Club (111) (1,853) -- Other(2) 9,414 4,011 2,861 Eliminations 9,112 9,407 9,790 Interest income 527 383 1,823 Interest income - shareholder and intercompany 32,110 17,636 16,245 Interest expense (27,154) (25,368) (22,023) Interest expense - shareholder and intercompany (32,057) (17,614) (16,023) Other income (expense) (12,885) (10,360) (8,661) -------- -------- -------- Net loss before income tax and extraordinary item $ (8,667) $(12,294) $(14,978) ======== ======== ========
F-34 88
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1998 1997 1996 --------- --------- --------- (IN THOUSANDS) EBITDA(3): Fitzgeralds Las Vegas $ 2,682 $ 2,651 $ 1,656 Fitzgeralds Tunica 8,051 11,744 3,790 Fitzgeralds Reno 4,805 5,462 4,596 Fitzgeralds Black Hawk(1) 10,863 4,842 -- Other(2) 9,622 4,111 2,874 --------- --------- --------- Total properties 36,023 28,810 12,916 Nevada Club (561) (1,282) (148) Harolds Club (111) (1,853) -- --------- --------- --------- Total EBITDA 35,351 25,675 12,768 Adjustments to EBITDA(4) (5,328) 4,924 742 --------- --------- --------- Adjusted EBITDA $ 30,023 $ 30,599 $ 13,510 ========= ========= ========= Segment depreciation and amortization: Fitzgeralds Las Vegas $ 3,276 $ 3,149 $ 1,987 Fitzgeralds Tunica 5,987 5,731 4,387 Fitzgeralds Reno 2,405 2,251 2,278 Fitzgeralds Black Hawk(1) 1,789 627 -- Other 214 296 245 --------- --------- --------- Total $ 13,671 $ 12,054 $ 8,897 ========= ========= ========= Segment assets: Fitzgeralds Las Vegas $ 48,535 $ 50,486 $ 57,263 Fitzgeralds Tunica 72,470 75,375 82,945 Fitzgeralds Reno 37,302 35,038 40,346 Fitzgeralds Black Hawk(1) 41,019 42,480 -- Other 9,871 12,316 10,624 --------- --------- --------- Total $ 209,197 $ 215,695 $ 191,178 ========= ========= ========= Expenditures for additions to long-lived assets: Fitzgeralds Las Vegas $ 1,832 $ 1,920 $ 17,971 Fitzgeralds Tunica 2,903 928 34,295 Fitzgeralds Reno 3,260 833 899 Fitzgeralds Black Hawk(1) 1,312 187 -- Other 8 76 99 --------- --------- --------- Total $ 9,315 $ 3,944 $ 53,264 ========= ========= =========
1 Includes operating results of Fitzgeralds Black Hawk for 1998 and commencing August 15, 1997. 2 Other includes (i) management fees from Fitzgeralds Black Hawk for 1997 and 1996; (ii) management fees from Cliff Castle for 1998, 1997 and 1996; (iii) settlement fees from Turning Stone for all periods presented; (iv) non-recurring revenue of $8.0 million for the termination of the Cliff Castle Management Agreement in 1998; and (v) corporate costs not allocated to the core properties. F-35 89 3. EBITDA, or "earnings before interest, taxes on income, depreciation and amortization," is a supplemental financial measurement used by the Company in the evaluation of its gaming business and by many gaming industry analysts. EBITDA is calculated by adding depreciation and amortization expense to income from operations. At any property, EBITDA is calculated after the allocation of corporate costs. However, EBITDA should only be read in conjunction with all of the Company's financial data summarized above and its financial statements prepared in accordance with GAAP appearing elsewhere herein, and should not be construed as an alternative either to income from operations (as determined in accordance with GAAP) as an indication of the Company's operating performance or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. This presentation of EBITDA may not be comparable to similarly titled measures reported by other companies. 4. Adjustments to EBITDA include (i) exclusion of EBITDA for Harolds Club and Nevada Club for all periods presented; (ii) exclusion of write down of Nevada Club assets of $0.2 million and $2.2 million for 1998 and 1997, respectively; (iii) exclusion of Harolds Club lease settlements of $0.1 million and $1.9 million for 1998 and 1997, respectively; (vi) inclusion of $1.0 million for 1997 and $0.6 million for 1996 in cash received by the Company as a result of its 22% membership in 101 Main; and (v) exclusion of $6.0 million of the $8.0 million received in connection with the termination of the Cliff Castle Management Agreement in 1998. 5. For the Ratio of Earnings of Fixed Charges, earnings are defined as earnings before income taxes, interest on indebtedness, imputed interest on capital lease obligations and the portion of rent expense deemed to represent interest. Fixed charges consist of interest on indebtedness, imputed interest on capital lease obligations, and the portion of rent expense deemed to represent interest. Earnings were insufficient to cover fixed charges by $10.0 million, $10.6 million and $15.5 million for the years ended December 31, 1998, 1997 and 1996, respectively. 16. GUARANTEE OF THE SENIOR SECURED NOTES AND CREDIT FACILITY The Company's obligations under the Senior Secured Notes and Credit Facility are fully and unconditionally guaranteed, jointly and severally, by all subsidiaries of the Company (other than FAMI, FNYI, and NCI). Subject to certain exceptions, the guarantee of the Senior Secured Notes is secured by a lien, subject to the lien securing the guarantee of the Credit Facility, on substantially all assets of the Guarantor Subsidiaries other than certain excluded assets, as defined. Such excluded assets include, among other things, (i) cash, deposit accounts and other cash equivalents of $12,792,707 and $13,337,368 at December 31, 1998 and 1997, respectively; (ii) furniture, fixtures and equipment with a net book value of $8,181,527 and $11,439,196 at December 31, 1998 and 1997, respectively, securing certain non-recourse indebtedness; and (iii) any agreements, permits, licenses or the like that cannot be subjected to a lien without the consent of third parties, which consent is not obtainable by the Company (including all gaming licenses of the Company and its restricted subsidiaries (as defined)), provided that excluded assets does not include the proceeds of the assets under clauses (ii) or (iii) or any other collateral to the extent such proceeds do not constitute excluded assets under clause (i) above. Condensed consolidating financial statement information for Fitzgeralds Gaming Corporation, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and Eliminating Entries (which consist principally of the elimination of intercompany loan and investment accounts) follows. F-36 90 FITZGERALDS GAMING CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION DECEMBER 31, 1998 - --------------------------------------------------------------------------------
FITZGERALDS NON GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED ASSETS Corporation Subsidiaries Subsidiaries Entries TOTAL ------------- ------------- ------------- ------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 1,832,514 $ 10,960,193 $ 245,882 $ -- $ 13,038,589 Accounts and notes receivable, net 34,243 1,406,006 -- -- 1,440,249 Inventories -- 1,375,443 -- -- 1,375,443 Prepaid and other current assets 973,686 3,175,892 84,596 -- 4,234,174 ------------- ------------- ------------- ------------- ------------- Total current assets 2,840,443 16,917,534 330,478 20,088,455 PROPERTY AND EQUIPMENT, Net 66,827 159,647,836 -- -- 159,714,663 OTHER ASSETS 194,914,141 36,178,966 3,156,192 (205,012,241)(b) 29,237,088 MINORITY INTEREST -- -- 157,257 -- 157,257 ------------- ------------- ------------- ------------- ------------- TOTAL $ 197,821,411 $ 212,744,360 $ 3,643,927 $(205,012,241) $ 209,197,464 ============= ============= ============= ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Current portion of long-term debt $ -- $ 4,939,384 $ -- $ -- $ 4,939,384 Accounts payable, accrued and other 4,287,831 20,254,990 58,574 (1,648,481)(c) 22,952,914 ------------- ------------- ------------- ------------- ------------- Total current liabilities 4,287,831 25,194,374 58,574 (1,648,481) 27,892,298 ------------- ------------- ------------- ------------- ------------- LONG TERM DEBT, Net of current portion 220,836,221 224,282,483 6,279,298 (243,193,978)(a) 208,204,024 ------------- ------------- ------------- ------------- ------------- Total liabilities 225,124,052 249,476,857 6,337,872 (244,842,459) 236,096,322 CUMULATIVE REDEEMABLE PREFERRED STOCK 24,401,171 24,401,171 STOCKHOLDERS' DEFICIENCY (51,703,812) (36,732,491) (2,693,945) 39,830,218(d) (51,300,029) ------------- ------------- ------------- ------------- ------------- TOTAL $ 197,821,411 $ 212,744,366 $ 3,643,927 $(205,012,241) $ 209,197,464 ============= ============= ============= ============= =============
- ----------- (a) To eliminate intercompany accounts and notes payable. (b) To eliminate intercompany accounts and notes receivable, investment in subsidiaries and other capitalized costs. (c) To eliminate intercompany deferred interest income. (d) To eliminate investment in subsidiaries, other capitalized costs, and intercompany deferred interest income. F-37 91 FITZGERALDS GAMING CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION DECEMBER 31, 1997 - --------------------------------------------------------------------------------
FITZGERALDS NON GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED ASSETS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL ------------- ------------- ------------- ------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 2,385,746 $ 10,951,622 $ 1,472,249 $ -- $ 14,809,617 Accounts and notes receivable, net 11,532 1,674,085 510,601 -- 2,196,218 Inventories -- 1,313,611 -- -- 1,313,611 Prepaid and other current assets 195,094 2,579,131 123,303 -- 2,897,528 ------------- ------------- ------------- ------------- ------------- Total current assets 2,592,372 16,518,449 2,106,153 -- 21,216,974 PROPERTY AND EQUIPMENT, Net 82,409 163,473,309 148,997 -- 163,704,715 OTHER ASSETS 189,355,896 29,211,119 4,833,754 (192,702,218)(b) 30,698,551 MINORITY INTEREST -- -- 75,199 -- 75,199 ------------- ------------- ------------- ------------- ------------- TOTAL $ 192,030,677 $ 209,202,877 $ 7,164,103 $(192,702,218) $ 215,695,439 ============= ============= ============= ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Current portion of long-term debt $ -- $ 4,932,178 $ 2,658,356 $ -- $ 7,590,534 Accounts payable, accrued and other 2,960,233 18,462,718 443,151 (1,720,652)(c) 20,145,450 ------------- ------------- ------------- ------------- ------------- Total current liabilities 2,960,233 23,394,896 3,101,507 (1,720,652) 27,735,984 ------------- ------------- ------------- ------------- ------------- LONG TERM DEBT, Net of current portion 209,023,127 207,873,263 5,709,140 (216,414,045)(a) 206,191,485 ------------- ------------- ------------- ------------- ------------- Total liabilities 211,983,360 231,268,159 8,810,647 (218,134,697) 233,927,469 CUMULATIVE REDEEMABLE PREFERRED STOCK 19,631,397 -- -- -- 19,631,397 STOCKHOLDERS' DEFICIENCY (39,584,080) (22,065,282) (1,646,544) 25,432,479(d) (37,863,427) ------------- ------------- ------------- ------------- ------------- TOTAL $ 192,030,677 $ 209,202,877 $ 7,164,103 $(192,702,218) $ 215,695,439 ============= ============= ============= ============= =============
- ----------- (a) To eliminate intercompany accounts and notes payable. (b) To eliminate intercompany accounts and notes receivable, investment in subsidiaries and other capitalized costs. (c) To eliminate intercompany deferred interest income. (d) To eliminate investment in subsidiaries, other capitalized costs, and intercompany deferred interest income. F-38 92 FITZGERALDS GAMING CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
FITZGERALDS NON GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL ------------ ------------- ------------- ------------ ------------- OPERATING REVENUES: Casino $ -- $ 162,506,030 $ -- $ -- $ 162,506,030 Food and beverage -- 24,936,289 -- -- 24,936,289 Rooms -- 21,213,266 -- -- 21,213,266 Other -- 4,639,429 11,106,453 -- 15,745,882 ------------- ------------- ------------- ------------- ------------- Total -- 213,295,014 11,106,453 -- 224,401,467 ------------- ------------- ------------- ------------- ------------- Less promotional allowances -- 17,276,879 -- -- 17,276,879 ------------- ------------- ------------- ------------- ------------- Net revenue -- 196,018,135 11,106,453 -- 207,124,588 OPERATING COSTS AND EXPENSES: Casino -- 81,439,540 98,950 -- 81,538,490 Food and beverage -- 18,290,363 5,163 -- 18,295,526 Rooms -- 12,579,464 -- -- 12,579,464 Other operating -- 2,162,019 -- -- 2,162,019 Selling, general and administrative 5,470,096 55,150,699 308,729 (4,073,182)(g) 56,856,342 Depreciation and amortization 23,502 13,456,510 190,784 -- 13,670,796 Write down of assets and lease settlement (260) 110,738 231,250 -- 341,728 ------------- ------------- ------------- ------------- ------------- Total 5,493,338 183,189,333 834,876 (4,073,182) 185,444,365 ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM OPERATIONS (5,493,338) 12,828,802 10,271,577 4,073,182 21,680,223 OTHER INCOME(EXPENSE): Interest income 32,352,261 194,057 80,266 (32,099,206)(h) 527,378 Interest expense (26,250,515) (32,675,237) (274,438) 32,027,036(e) (27,173,154) Other income(expense) (7,772,650) 16,415,898 (866,903) (11,477,619)(f) (3,701,274) ------------- ------------- ------------- ------------- ------------- Income(loss) (7,164,242) (3,236,480) 9,210,502 (7,476,607) (8,666,827) Provision for income taxes (185,715) -- 185,715 -- -- ------------- ------------- ------------- ------------- ------------- Income(loss) before extraordinary item (7,349,957) (3,236,480) 9,396,217 (7,476,607) (8,666,827) ------------- ------------- ------------- ------------- ------------- Extraordinary item -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- NET INCOME(LOSS) $ (7,349,957) $ (3,236,480) $ (9,396,217) $ (7,476,607) $ (8,666,827) ============= ============= ============= ============= =============
- ----------- (e) To eliminate intercompany interest expense. (f) To eliminate interest in loss of subsidiaries and intercompany management fee expense. (g) To eliminate intercompany management fee expense. (h) To eliminate intercompany interest income, intercompany management fee income, intercompany deferred interest income, and other intercompany income. F-39 93 FITZGERALDS GAMING CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1997 - --------------------------------------------------------------------------------
FITZGERALDS NON GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL ------------- ------------- ------------- ------------- ------------- OPERATING REVENUES: Casino $ -- $ 135,895,642 $ 5,319,429 $ -- $ 141,215,071 Food and beverage -- 21,094,261 1,404,852 -- 22,499,113 Rooms -- 21,318,538 -- -- 21,318,538 Other -- 4,774,324 5,191,184 -- 9,965,508 ------------- ------------- ------------- ------------- ------------- Total -- 183,082,765 11,915,465 -- 194,998,230 Less promotional allowances -- 14,770,306 526,191 -- 15,296,497 ------------- ------------- ------------- ------------- ------------- Net -- 168,312,459 11,389,274 -- 179,701,733 OPERATING COSTS AND EXPENSES: Casino -- 66,046,542 3,628,444 -- 69,674,986 Food and beverage -- 16,178,476 1,036,409 -- 17,214,885 Rooms -- 12,512,496 -- -- 12,512,496 Other operating -- 1,681,063 -- -- 1,681,063 Selling, general and administrative 4,354,305 46,909,116 1,804,025 (4,134,268)(g) 48,933,178 Depreciation and amortization 20,794 11,757,606 275,377 -- 12,053,777 Write down of assets and lease settlement 27,832 2,580,000 1,402,000 -- 4,009,832 ------------- ------------- ------------- ------------- ------------- Total 4,402,931 157,665,299 8,146,255 (4,134,268) 166,080,217 ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM OPERATIONS (4,402,931) 10,647,160 3,243,019 4,134,268 13,621,516 OTHER INCOME(EXPENSE): Interest income 17,438,078 349,823 11,163 (17,336,887)(h) 462,177 Interest expense (19,712,305) (22,729,426) (319,105) 17,265,733(e) (25,495,103) Other income(expense) (9,184,622) 2,693,840 (207,980) 5,816,580(f) (882,182) ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes and extraordinary item (15,861,780) (9,038,603) 2,727,097 9,879,694 (12,293,592) Income tax(provision) benefit 3,075,065 (1,413,031) (1,662,034) -- -- ------------- ------------- ------------- ------------- ------------- Income (loss) before extraordinary item (12,786,715) (10,451,634) 1,065,063 9,879,694 (12,293,592) Extraordinary item - Loss on early retirement of debt (18,683,651) (564,277) -- -- (19,247,928) ------------- ------------- ------------- ------------- ------------- NET INCOME(LOSS) $ (31,470,366) $ (11,015,911) $ 1,065,063 $ 9,879,694 $ (31,541,520) ============= ============= ============= ============= =============
- ---------- (e) To eliminate intercompany interest expense. (f) To eliminate interest in loss of subsidiaries and intercompany management fee expense. (g) To eliminate intercompany management fee expense. (h) To eliminate intercompany interest income, intercompany management fee income, intercompany deferred interest income, and other intercompany income. F-4O 94 FITZGERALDS GAMING CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1996 - --------------------------------------------------------------------------------
FITZGERALDS NON GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL ------------- ------------- ------------- ------------- ------------- OPERATING REVENUES: Casino $ -- $ 105,760,883 $ 5,524,001 $ -- $ 111,284,884 Food and beverage -- 17,043,731 1,508,247 -- 18,551,978 Rooms -- 15,875,829 -- -- 15,875,829 Other -- 3,476,265 4,258,163 (328,430) 7,405,998 ------------- ------------- ------------- ------------- ------------- Total -- 142,156,708 11,290,411 (328,430) 153,118,689 Less promotional allowances -- 11,951,259 637,083 -- 12,588,342 ------------- ------------- ------------- ------------- ------------- Net -- 130,205,449 10,653,328 (328,430) 140,530,347 ------------- ------------- ------------- ------------- ------------- OPERATING COSTS AND EXPENSES: Casino -- 54,497,530 3,910,240 (84,410) 58,323,360 Food and beverage -- 12,254,352 1,076,119 -- 13,330,471 Rooms -- 9,644,494 -- -- 9,644,494 Other operating 16 1,543,500 -- -- 1,543,516 Selling, general and administrative 4,965,042 43,055,896 2,103,578 (5,203,760) 44,920,756 Depreciation and amortization 13,071 8,651,374 232,506 -- 8,896,951 ------------- ------------- ------------- ------------- ------------- Total 4,978,129 129,647,146 7,322,443 (5,288,170) 136,659,548 ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM OPERATIONS (4,978,129) 558,303 3,330,885 4,959,740 3,870,799 OTHER INCOME (EXPENSE): Interest income 15,724,484 1,930,931 110,923 (15,705,850) 2,060,488 Interest expense (18,033,588) (19,126,739) (584,458) 17,497,656 (20,247,129) Other income (expense) (7,993,455) 2,885,233 (332,491) 4,778,462 (662,251) ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) BEFORE TAXES (15,280,688) (13,752,272) 2,524,859 11,530,008 (14,978,093) INCOME TAX (PROVISION) BENEFIT (5,044) 1,510,922 (21,711) -- 1,484,167 ------------- ------------- ------------- ------------- ------------- NET INCOME (LOSS) $ (15,285,732) $ (12,241,350) $ 2,503,148 $ 11,530,008 $ (13,493,926) ============= ============= ============= ============= =============
- ---------- (d) To eliminate intercompany rental income and expense. (e) To eliminate intercompany interest expense, interest income and deferred interest income. (f) To eliminate interest in loss of subsidiaries and intercompany management fee income. (g) To eliminate intercompany rental expense and inter company management fee expense F-41 95 FITZGERALDS GAMING CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
FITZGERALDS NON GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL ------------ ------------ ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (3,363,058) $ 2,186,708 $ 13,365,299 $ -- $ 12,188,949 ------------ ------------ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets -- 81,910 403,298 -- 485,208 Repayments from related parties -- -- -- -- -- Acquisition of property and equipment (7,920) (5,143,939) -- -- (5,151,859) Acquisition of assets to be held for sale -- (374,865) -- -- (374,865) Advances to related parties -- -- -- -- -- (Increase) decrease in restricted cash 355,572 38,415 -- -- 393,987 Investment in 101 main -- -- -- -- -- Purchase of business, net of capital acquired -- -- -- -- -- Dividends received 1,000,000 10,443,616 -- (11,443,616)(a) -- Other -- (803,488) -- -- (803,488) ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities 1,347,652 4,241,649 403,298 (11,443,616) (5,451,017) ------------ ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit 3,000,000 -- -- -- 3,000,000 Proceeds from issuance of c.s -- -- -- -- -- Payment of offering costs (1,116,742) -- -- -- (1,116,742) Payment of line of credit costs (421,084) -- -- -- (421,084) Advances from related parties -- -- -- -- -- Proceeds from issuance of debt -- -- -- -- -- Repayment of long-term debt -- (5,419,788) (2,708,356) -- (8,128,144) Payment of dividends -- (1,000,000) (12,286,606) 11,443,616(a) (1,842,990) Repayments to related parties (other) -- -- -- -- -- Other -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities 1,462,174 (6,419,788) (14,994,962) 11,443,616 (8,508,960) ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH (553,232) 8,569 (1,226,365) -- (1,771,028) CASH, BEGINNING OF YEAR 2,385,746 10,951,622 1,472,249 -- 14,809,617 ------------ ------------ ------------ ------------ ------------ CASH, END OF YEAR $ 1,832,514 $ 10,960,191 $ 245,884 $ -- $ 13,038,589 ============ ============ ============ ============ ============
- ---------- (a) To eliminate intercompany dividends. F-42 96 FITZGERALDS GAMING CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1997 - --------------------------------------------------------------------------------
FITZGERALDS NON GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (6,529,107) $ 4,074,467 $ 3,741,897 $ -- $ 1,287,257 ------------- ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets -- 109,012 20,936 -- 129,948 Repayments from related parties -- 2,518,805 -- -- 2,518,805 Acquisition of property and equipment (22,025) (3,566,861) (53,992) -- (3,642,878) Advances to related parties (61,500,446) -- -- 61,500,446(b) -- (Increase) decrease in restricted cash-construction (355,572) 2,215,908 -- -- 1,860,336 Purchase of business, net of cash acquired -- (25,747,169) -- -- (25,747,169) Dividends received 2,896,714 1,911,893 -- (4,808,607)(a) -- Other -- 224,406 -- -- 224,406 ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) investing activities (58,981,329) (22,334,006) (33,056) 56,691,839 (24,656,552) ------------- ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from 1997 Offering 202,634,300 -- -- -- 202,634,300 Payment of debt offering costs (9,225,656) (2,082,772) -- -- (11,308,428) Advances from related parties -- 61,500,446 -- (61,500,446)(b) -- Proceeds from issuance of debt -- 38,221,811 -- -- 38,221,811 Repayment of long-term debt (128,399,735) (73,757,422) (416,463) -- (202,573,620) Dividends -- (2,896,714) (2,249,286) 4,808,607(a) (337,393) Repayments to related parties -- (1,807,255) -- -- (1,807,255) ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities 65,008,909 19,178,094 (2,665,749) (56,691,839) 24,829,415 ------------- ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (501,527) 918,555 1,043,092 -- 1,460,120 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,887,273 10,033,067 429,157 -- 13,349,497 ------------- ------------- ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,385,746 $ 10,951,622 $ 1,472,249 $ -- $ 14,809,617 ============= ============= ============= ============= =============
- ---------- (a) To eliminate intercompany dividends. (b) To eliminate intercompany advances. F-43 97 FITZGERALDS GAMING CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1996 - -------------------------------------------------------------------------------
FITZGERALDS NON GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL ------------ ------------ ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $(11,572,491) $ 9,004,758 $ 3,326,332 $ -- $ 758,599 ------------ ------------ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets -- 334,798 37,731 -- 372,529 Repayments from related parties -- 86,664 -- -- 86,664 Acquisition of property and equipment (94,249) (53,164,997) (4,493) -- (53,263,739) Decrease in restricted cash - construction -- 46,845,677 -- -- 46,845,677 Dividends received -- 3,698,396 -- (3,698,396)(a) -- Other (408,999) -- -- (408,999) Net cash provided by (used in) investing activities (94,249) (2,608,461) 33,238 (3,698,396) (6,367,868) ------------ ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 1,350 -- -- -- 1,350 Payment of debt offering costs (275,625) -- -- -- (275,625) Proceeds from issuance of debt 5,654,211 3,988,853 -- -- 9,643,064 Repayment of long-term debt (523,332) (9,119,798) (579,131) -- (10,222,261) Dividends -- -- (4,103,544) 3,698,396(a) (405,148) Decrease in restricted cash -- 471,569 -- -- 471,569 Other -- (98,007) -- -- (98,007) ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities 4,856,604 (4,757,383) (4,682,675) 3,698,396 (885,058) ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,810,136) 1,638,914 (1,323,105) -- (6,494,327) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,697,409 8,394,153 1,752,262 -- 19,843,824 ------------ ------------ ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,887,273 $ 10,033,067 $ 429,157 $ -- $ 13,349,497 ============ ============ ============ ============ ============
- ---------- (a) To eliminate intercompany dividends. F-44 98 SCHEDULE I FITZGERALDS GAMING CORPORATION CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS - ------------------------------------------------------------------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
BEGINNING ENDING FYE BALANCE PROVISIONS RECOVERIES BALANCE - ------------------------------------------------------------------------------------- 12/31/96 343,230 373,978 (463,266) 253,942 12/31/97 253,942 560,462 (402,523) 411,881 12/31/98 411,881 388,573 (454,914) 345,540
ALLOWANCE FOR DOUBTFUL RELATED PARTY NOTES RECEIVABLE
BEGINNING ENDING FYE BALANCE PROVISIONS RECOVERIES BALANCE - ------------------------------------------------------------------------------------- 12/31/96 510,439 -- -- 510,439 12/31/97 510,439 -- (510,439) -- 12/31/98 -- -- -- --
ALLOWANCE TO WRITE ASSETS HELD FOR SALE TO ESTIMATED REALIZABLE VALUE
BEGINNING ENDING FYE BALANCE PROVISIONS RECOVERIES BALANCE - ------------------------------------------------------------------------------------- 12/31/96 -- -- -- -- 12/31/97 -- 2,157,000 -- 2,157,000 12/31/98 2,157,000 231,250 -- 2,388,250
****** 99 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DOCUMENT PAGE - ------ -------- ------------ 2(a) (i) Recapitalization Agreement, dated March 14, 1994, among Fitzgeralds South, Inc. (formerly Fitzgeralds Gaming Corporation), Fitzgeralds Las Vegas, Inc. and certain stockholders thereof; (ii) Plan of Reorganization and Stockholders Agreement, dated December 5, 1994, among Fitzgeralds Gaming Corporation and stockholders of Fitzgeralds Reno, Inc., Fitzgeralds South, Inc., Fitzgeralds Inc., Nevada Club, Inc.; and (iii) Supplement to Plan of Reorganization and Stockholders Agreement, dated December 30, 1994, between Fitzgeralds Gaming Corporation and the stockholders of Fitzgeralds Reno, Inc. and Nevada Club, Inc.(1) 3(a) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds Gaming Corporation.(1) 3(b) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds South, Inc.(1) 3(c) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds Reno, Inc., as amended.(1) 3(d) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds Incorporated.(1) 3(e) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Nevada Club, Inc.(1) 3(f) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds Las Vegas, Inc.(1) 3(g) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds Fremont Experience Corporation.(1) 3(h) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds Mississippi, Inc.(1) 3(i) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds Black Hawk, Inc.(1) 3(j) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds Black Hawk II, Inc.(3) 3(k) (i) Certificate of Organization, as amended and (ii) Second Amended and Restated Operating Agreement of 101 Main Street Limited Liability Company.(3) 4(a) Form of Indenture dated as of December 30, 1997, by and among Fitzgeralds Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont Experience Corporation, Fitzgeralds Mississippi, Inc., Fitzgeralds Black Hawk, Inc., Fitzgeralds Black Hawk II, Inc. and 101 Main Street Limited Liability Company, and The Bank of New York, as trustee.(2)
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SEQUENTIALLY EXHIBIT NUMBERED NUMBER DOCUMENT PAGE - ------ -------- ------------ 4(b) Form of Registration Rights Agreement dated as of December 30, 1997, by and among Fitzgeralds Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont Experience Corporation, Fitzgeralds Mississippi, Inc., Fitzgeralds Black Hawk, Inc., Fitzgeralds Black Hawk II, Inc. and 101 Main Street Limited Liability Company, and Jefferies & Company, Inc. and Merrill Lynch, Merrill, Lynch, Pierce, Fenner and Smith Incorporated, as initial purchasers.(2) 4(c) Form of Security and Pledge Agreement dated as of December 30, 1997, by and among Fitzgeralds Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds Reno, Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont Experience Corporation, Fitzgeralds Mississippi, Inc., Fitzgeralds Black Hawk, Inc., Fitzgeralds Black Hawk II, Inc., and 101 Main Street Limited Liability Company, as grantors, and The Bank of New York, as collateral agent.(2) 4(d) Forms of Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents, dated as of December 30, 1997, by each of Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc., and Fitzgeralds Reno, Inc., as trustor, the trustee named therein, as trustee, and The Bank of New York, as beneficiary.(2) 4(e) Form of First Preferred Vessel Mortgage on the Whole of the Fitzgeralds Tunica dated as of December 30, 1997, by and between Fitzgeralds Mississippi, Inc., as owner and mortgagor and The Bank of New York, as trustee.(2) 4(f) Form of Assignment of Rents, Leases and Property dated as of December 30, 1997, by each of Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company, each as an assignor, and The Bank of New York, as assignee.(2) 4(g) Form of Certificate of Designation of Preferences and Rights for the Preferred Stock.(1) 4(h) Form of Warrant Agreement between the Company and The Bank of New York, as successor in interest to First Interstate Bank of Nevada, N.A., as warrant agent.(1) 4(i) Form of First Amendment to Warrant Agreement by and between Fitzgeralds Gaming Corporation and The Bank of New York, as warrant agent.(2) 10(a) Lease-Purchase Agreement, dated December 31, 1993, between Murray P. Jacobs (Lessor-Seller) and each of Nevada Club, Inc. (Lessee) and Fitzgeralds Reno, Inc. (Purchaser).(1) 10(b) Purchase and Sale Agreement, dated November 29, 1994, and Amendment No. 1 to Purchase and Sale Agreement, dated November 29, 1994, each between Fitzgeralds Reno, Inc. and Gamma International, Ltd.(1) 10(c) (i) Agreement for Wastewater Service and (ii) Agreement for Water Service, each dated March 15, 1994, and (iii) Amendment to Agreements for Water and Wastewater Services, dated June 27, 1994, each between Fitzgeralds Mississippi, Inc. and River Bend Environmental Energy, Inc.(1)
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SEQUENTIALLY EXHIBIT NUMBERED NUMBER DOCUMENT PAGE - ------ -------- ------------ 10(d) Management Agreement, dated as of August 17, 1997, between 101 Main Street Limited Liability Company and Fitzgeralds Black Hawk II, Inc.(6) 10(e) Second Amended Management Agreement, dated May 13, 1995, between Fitzgeralds Arizona Management, Inc. and Yavapai-Apache Nation.(1) 10(f) Amended Interim Agreement, dated March 11, 1995, between Fitzgeralds Arizona Management, Inc. and Yavapai-Apache Nation.(1) 10(g) Technical Services and Casino Consulting Agreement, dated March 15, 1994, First Amendment to Technical Services and Casino Consulting Agreement, dated October 20, 1994, and Second Amendment to Technical Services and Casino Consulting Agreement, dated April 13, 1995, each between Fitzgeralds Arizona Management, Inc. and Yavapai-Apache Nation.(1) 10(h) Memorandum of Agreement, dated March 30, 1995, between Fitzgeralds Las Vegas, Inc. and the Culinary Workers and Bartenders Unions.(1) 10(i) (i) Lease, dated December 31, 1974, between Santino Oppio, as Lessor, and Center Street Properties Corp., as Lessee, and (ii) Sublease and Agreement, dated December 31, 1986, by Meta K. Fitzgerald, as Sublessor, and Lincoln Investments, Inc. (now known as Fitzgeralds Reno, Inc.), as Sublessee.(1) 10(j) (i) Lease Agreement and Interim Agreement Regarding Lease Agreement and (ii) Lease Agreement, dated September 5, 1995, both between John A. Kramer, Sr., Trustee, Helen M. Kramer, Elizabeth Thatcher Brooks and Betty Bennett, Executrix of the estate of John David Kramer, as Lessor, and Fitzgeralds Las Vegas, Inc., as Lessee.(1) 10(k) Lease Agreement, dated September 1, 1978, between Jewel F. Nolan and Julie L. Nolan, David Kramer and Betty Bennett and Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee. Amendment, dated December 20, 1982, between Julie L. Nolan, David Kramer, Betty Bennett and Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee. Lease Amendment, Estoppel Certificate and Consent to Assignment, dated October 18, 1987, to the named recipients and between Julie L. Nolan, David Kramer, Betty Bennett and Richard J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee.(1) 10(l) Lease Agreement, dated July 21, 1954, between Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John Gluskin, as Lessee. Amendment to Lease Agreement, dated July 26, 1954, between Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John Gluskin, as Lessee. Assignments, dated July 27, 1954, February 2, 1955, August 7, 1972 and September 1, 1973. Supplemental Agreement of October 14, 1994, between Las Vegas Lodge No. 32, Free & Accepted Masons and H. John Gluskin. Articles of Amendment, dated June 7, 1973, between Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and Frederic N. Richman and The Pullman Company, d/b/a Nevada Building Company. Amendment to Masonic Lodge Ground Lease, dated December 20, 1982. Lease Amendment, Estoppel Certificate and Consent to Assignment, dated October 23, 1987, to the named recipients and between Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John Gluskin, as Lessee.(1)
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SEQUENTIALLY EXHIBIT NUMBERED NUMBER DOCUMENT PAGE - ------ -------- ------------ 10(m) Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee, under wills of A.W. Ham and Alta M. Ham, as Lessor, and Nevada Building Company, as Lessee, Amendments to Lease, dated December 20, 1982 and December 30, 1982, between A.W. Ham, Jr., Trustee, as Lessor, and M.B. Dalitz, as Lessee. Lease Amendment, Estoppel Certificate and Consent to Assignment, dated October 18, 1987, to the named recipients and between A.W. Ham, Jr., Trustee, and M.B. Dalitz.(1) 10(n) Amended and Restated Operating Agreement of The Fremont Street Experience Limited Liability Company, a Nevada Limited Liability Company, dated June 6, 1995.(1) 10(o) Fitzgeralds Gaming Corporation Stock Option Incentive Plan, amended and restated as of May 1, 1998.(4) 10(p) Employment Agreements dated July 1, 1995 between Fitzgeralds Gaming Corporation and Philip D. Griffith and March 1, 1997 between Fitzgeralds Gaming Corporation and Michael E. McPherson.(1)(3) 10(q) Fitzgeralds Gaming Corporation Executive Bonus Plan, amended and restated as of January 1, 1999.(6) 10(r) License Agreement, dated September 11, 1995, between Holiday Inns Franchising, Inc. and Fitzgeralds Las Vegas, Inc.(1) 10(s) Warrant Agreement, dated December 19, 1994, between Fitzgeralds Gaming Corporation and Fitzgeralds Lucky Investor Partnership, as amended June, 1995.(1) 10(t) Warrant Agreement, dated March 14, 1994, between Fitzgeralds South, Inc. and First Interstate Bank of California.(1) 10(u) Irrevocable (Standby) Letter of Credit of Trustmark National Bank, dated June 24, 1994, and Amendment No. One to Irrevocable (Standby) Letter of Credit of Trustmark National Bank, dated December 29, 1994, with Fitzgeralds Mississippi, Inc. as Applicant and River Bend Environmental Energy, Inc. as Beneficiary.(1) 10(v) Registration Rights Agreement, dated March 14, 1994, by and among Fitzgeralds Gaming Corporation, Fitzgeralds Las Vegas Limited Partnership, Fitzgeralds Las Vegas Inc., Fitzgeralds Fremont Experience Corporation, Fitzgeralds Mississippi, Inc. and Donaldson, Lufkin, & Jenrette Securities Corporation.(1) 10(w) Indemnification Agreements, each dated July 14, 1995, between Fitzgeralds Gaming Corporation and each of Philip D. Griffith, Jerome H. Turk, Terrance W. Oliver, Fernando Bensuaski, Michael E. McPherson and Gerald C. Heetland.(1) 10(x) Shareholders' Agreement, dated December 19, 1995, among the Shareholders listed therein, Fitzgeralds Gaming Corporation and First Interstate Bank of Nevada, N.A.(6) 10(y) Loan and Security Agreement dated as of October 29, 1998, by and between the Company and Foothill Capital Corporation (5) 10(z) Inter-creditor Agreement dated as of October 29, 1998, by and between The Bank of New York and Foothill Capital Corporation.(5)
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SEQUENTIALLY EXHIBIT NUMBERED NUMBER DOCUMENT PAGE - ------ -------- ------------ 10(aa) Stock Pledge Agreement dated as of October 29, 1998, by and between the Company and Foothill Capital Corporation.(5) 10(bb) General Continuing Guaranty dated as of October 29, 1998, by and among certain Subsidiaries of the Company favor of Foothill Capital Corporation.(5) 10(cc) Pledge Agreement dated as of October 29, 1998, by and among the Subsidiaries of the Company party to the General Guaranty and Foothill Capital Corporation.(5) 10(dd) Security Agreement dated as of October 29, 1998, by and among the Subsidiaries of the Company party to the General Continuing Guaranty and Foothill Capital Corporation.(5) 10(ee) Trademark Security Agreement dated as of October 29, 1998, by and among the Company, the Subsidiaries of the Company party to the General Continuing Guaranty and Foothill Capital Corporation.(5) 10(ff) Copyright Security Agreement dated as of October 29, 1998, by and among the Company, the Subsidiaries of the Company party to the General Continuing Guaranty and Foothill Capital Corporation.(5) 10(gg) Environmental Indemnity as of October 29, 1998, by the Company and the Subsidiaries of the Company party to the General Continuing Guaranty in favor of Foothill Capital Corporation.(5) 10(hh) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents, dated as of October 29, 1998 (Fitzgeralds Las Vegas).(5) 10(ii) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents, dated as of October 29, 1998 (Fitzgeralds Reno).(5) 10(jj) Deed of Trust, Security Agreement and Fixture Filing with Financing Statement and Assignment of Rents, dated as of October 29, 1998 (101 Main Street).(5) 10(kk) Deed of Trust, Security Agreement and Fixture Filling with Assignment of Rents, dated as of October 29, 1998 (Fitzgeralds Mississippi).(5) 10(ll) First Preferred Vessel Mortgage on the Whole of the Fitzgeralds Tunica, dated as of October 29, 1998 (Fitzgeralds Mississippi).(5) 10(mm) Subordination Agreement dated as of October 29, 1998, by and among the Company, the Subsidiaries of the Company party to the General Continuing Guaranty and Foothill Capital Corporation.(5) 10(nn) Self Insurer's Surety Bond, dated as of September 10, 1998, executed by Frontier Insurance Company for $2.5 million, for Fitzgeralds Gaming Corporation to act as a self-insured employer in the State of Nevada.(6) 10(oo) Form of Management Agreement, dated March 17, 1999, between Fitzgeralds Gaming Corporation and each of Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc., Fitzgeralds Reno, Inc. and 101 Main Street Limited Liability Company.(6)
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SEQUENTIALLY EXHIBIT NUMBERED NUMBER DOCUMENT PAGE - ------ -------- ------------ 10(pp) Agreement, dated February 25, 1999, between Fitzgeralds Las Vegas, Inc. and Culinary Workers Union Local No. 226 and Bartenders Union Local No. 165.(6) 10(qq) Labor Agreement, dated February March 1, 1999, between Fitzgeralds Las Vegas, Inc. and the United Brotherhood of Carpenters and Joiners of America, Southern California-Nevada Regional Council of Carpenters and its Affiliated Local Union No. 1780, for the period August 1, 1998 through July 31, 2001.(6) 21 List of subsidiaries of the Company.(3) 27(c) Financial data schedule.(6)
- -------- (1) Incorporated by reference to the Company's Registration Statement on Form S-1, File No. 33-94624, which became effective on December 13, 1995. (2) Incorporated by reference to the Company's Report on Form 8-K, SEC File No. 000-26518, filed January 12, 1998. (3) Incorporated by reference to the Company's Report on Form 10-K, SEC File No. 000-26518, filed March 31, 1998. (4) Incorporated by reference to the Company's Report on Form 10-Q, Sec. File No. 000-26518, filed June 28, 1998. (5) Incorporated by reference to the Company's report on Form 8-K, Sec. File No. 000-26518, filed December 4, 1998. (6) Filed herewith. -56- EX-10.(D) 2 MANAGEMENT AGREEMENT 1 EXHIBIT 10d MANAGEMENT AGREEMENT THIS AGREEMENT is entered into this 17th day of August, 1997, by and between 101 MAIN STREET LIMITED LIABILITY COMPANY, a Colorado Limited Liability Company whose address is 101 Main Street, Black Hawk, CO 80422 ("Owner"), and FITZGERALDS BLACK HAWK II, INC., a Colorado Corporation ("Manager"), whose address is 101 Main Street, Black Hawk, CO 80422. Owner has a license to operate a casino at 101 Main Street in Black Hawk, Colorado pursuant to the Colorado Limited Gaming Act, and intends to operate a casino gambling business as permitted under the license and to carry on other related business activities. Owner has acquired or constructed, and installed, all the assets necessary to operate that business. Manager has represented to Owner that through its principals and affiliates it has extensive experience in the management of casino gaming operations. Owner, therefore, desires to engage Manager as the manager of the aforesaid business on the terms and conditions herein provided. IT IS, THEREFORE, AGREED: 1. DEFINITIONS. 1.1. ACT. The term "Act" shall refer to the Colorado Limited Gaming Act of 1991, Article 47.1, title 12, C.R.S. et seq., as the same may be amended from time to time after the Effective Date, and all the rules and regulations adopted from time to time by the Colorado Limited Gaming Control Commission pursuant to the Act. 1.2. ACCOUNTING PERIOD. The term "Accounting Period" shall refer to a period of not less than nor more than six full weeks, as shall be used by the Business in accounting for its operations consistent with the accounting practices adopted by the Manager. 1.3. BUSINESS. The term "Business" shall refer to the casino gaming operation operated by Owner pursuant to the License and all other related business activities, including food and beverage service, hotel accommodations, entertainment and parking carried on by Owner from time to time, all as determined from time to time by Owner. 1.4. COLORADO COMMISSION. The term "Colorado Commission" shall refer to the Colorado Limited Gaming Control Commission, as established and appointed under the Act, and any other successor body charged with the authority to carry out the requirement of the Act. 1.5. EFFECTIVE DATE. The term "Effective Date" shall refer to the date on which this Agreement is executed by the parties thereto. 1.6. EQUIPMENT. The term "Equipment" shall refer to all furniture, fixtures and equipment including gaming equipment, necessary or desirable to conduct the Business. 2 1.7. FISCAL YEAR. The term "Fiscal Year" shall refer to the calendar year commencing January 1 and ending December 31. 1.8. GENERAL MANAGER. The term "General Manager" is defined in Section 5.13. 1.9. LICENSE. The term "License" shall refer to the initial gaming license issued to Owner under the Act pursuant to which Owner is authorized to own and operate the casino gaming portion of the Business and all subsequent renewals or necessary modifications thereof. 1.10. MANAGEMENT FEE. The term "Management Fee" is defined in Section 4.1. 1.11. TERM. The term "Term" is defined in Section 3.1. 2. APPOINTMENT. Owner hereby appoints Manager for the Term to perform the duties and responsibilities specified in Section 5 and the other provisions of this Agreement. By signing this Agreement, Manager hereby accepts such appointment and agrees to perform such duties and responsibilities on the terms and conditions set forth in this Agreement. 3. TERM AND TERMINATION. 3.1. TERM. Subject to the provisions of Section 3.2 and 3.3, the term of Manager's appointment under this Agreement shall commence on the Effective Date and shall continue so long as the License continues in full force and effect but in no event beyond the tenth (10th) anniversary of the Effective Date, unless sooner terminated by mutual agreement of the parties in accordance with the terms of this Agreement (the "Term"). 3.2 EARLY TERMINATION BY OWNER. (a) Manager conducts the Business in a manner which materially violates the Act or any other law or regulation to which the Business is subject, or commits any act which would disqualify it under the Act from acting as manager of the Business, or loses any license or permit necessary for it to be able to continue to act as the manager of the Business, including any license or approval required by any other state or jurisdiction to allow Manager to engage in the gaming business in such state or jurisdiction provided that Manager shall have the right to cure such default for a thirty (30) day period following Manager's receipt of Owner's termination notice or such longer period not to exceed an additional thirty (30) days if Manager is diligently pursuing such cure, unless the exigencies of the Business do not allow such cure period; (b) Manager materially breaches or fails to perform its obligations under this Agreement or any other agreement with Owner provided that Manager shall have the right to cure such default for a thirty (30) day period following Manager's receipt of Owner's termination notice or such longer period not to exceed an additional thirty (30) days if Manager is diligently pursuing such cure, unless the exigencies of the business do not allow such extended cure period; -2- 3 (c) In the event the casino facilities are destroyed or suffer material damage, Owner shall not be obligated to restore such damage or destruction, and may elect by written notice to Manager, delivered within ninety (90) days after such casualty, to terminate Manager's appointment hereunder, effective as of the date of such notice. If after such casualty Owner elects not to terminate Manager's appointment pursuant to this provision, then Manager's appointment hereunder shall not be terminated but the accrual and payment of the Management Fee shall abate with respect to the period during which the operations of the business are closed to the public. In the event of a termination under this Section 3.2(d), Manager shall not be subject to the restrictive covenants contained in Section 7.2; (d) If the assets of the Business are taken by condemnation, or if Owner determines that a partial condemnation of any of the assets of the business make it impractical or unprofitable to maintain a viable operation, Owner may terminate manager's appointment hereunder, effective as of the date of any such condemnation. Manager shall have the right separately to pursue an application for an award from the condemning authority with respect to any interest it may have under this Agreement, but shall not otherwise have the right to participate in any action or proceeding taken or participated in by Owner with respect to such condemnation or in any award made to Owner thereunder. If there is a partial taking which Owner determines does not make continued operation of the Business impractical or unprofitable, Owner shall restore such assets to the extent practicable and to the extent there are condemnation proceeds available for such purpose, and Manager's appointment hereunder shall continue in full force and effect; (e) A petition in bankruptcy or reorganization shall be filed by Manager or shall be filed against Manager and shall not be discharged with ninety (90) days, or Manager shall make an assignment for the benefit of creditors or take advantage of any insolvency act, or Manager shall dissolve and discontinue its business; (f) Owner itself, or through Manager, defaults on any of its obligations to repay loans, mortgages or other accounts payable incurred in connection with the acquisition, construction or operation of the Business, which default is not cured or waived within ninety (90) days or such other cure period provided in the applicable document; (g) Owner sells all or substantially all of the facilities and assets used in the conduct of the business. (h) Fitzgeralds Black Hawk, Inc. (FBHI), the parent company of Manager, fails to staff or support Manager with sufficient reasonably qualified management personnel consistent with industry standards and prior practice, provided that such failure has not been cured by FBHI within thirty (30) days of Manager's receipt of Owner's -3- 4 termination notice or such longer period, not to exceed an additional thirty (30) days, if FBHI is diligently pursuing such cure; (i) Fitzgeralds Reno, Inc. ("FRI"), a Nevada corporation, a corporation affiliated with the Manager, materially breaches or fails to perform its obligations under the Fitzgerald Trademark License Agreement dated October __, 1994, between FRI and Owner, provided that Owner has given FRI written notice of such default and FRI has not cured such default within thirty (30) days following its receipt of notice of such default or such longer cure period not to exceed an additional thirty (30) days provided FRI is diligently pursuing such cure, unless the exigencies of the Business do not permit such extended cure period; or, (j) Dissolution of Owner. Owner shall provide Manager at least thirty (30) days prior written notice of its intent to terminate this Agreement under this Section 3.2. 3.3 EARLY TERMINATION BY MANAGER. Manager shall have the right to terminate its obligation to act as the manager of the Business pursuant to its appointment hereunder at any time for any one or more of the following reasons: (a) Owner's License is revoked and Owner is unable to have its License reinstated within thirty (30) days of receipt of Manager's termination notice, or such longer period, not to exceed an additional thirty (30) days if Owner is diligently pursuing such reinstatement. (b) Owner materially breaches or fails to perform its obligations under this Agreement provided that Owner shall have a right to cure for a period of thirty (30) days after receipt of manager's termination notice or such longer period, not to exceed an additional thirty (30) days, if Owner is diligently pursuing such cure; or, (c) A petition in bankruptcy or reorganization shall be filed by Owner or shall be filed against Owner and shall not be discharged within ninety (90) days, or Owner shall make an assignment for the benefit of creditors or take advantage of any insolvency act, or Owner shall dissolve and discontinue the Business. In the event of a termination under this Section 3.3(c), Manager shall not be subject to the restrictive covenant of Section 7.2. Manager shall provide Owner at least thirty (30) days prior written notice of its intent to terminate this Agreement under this Section 3.3. 3.4 OBLIGATIONS UPON TERMINATION. Upon termination of Manager's appointment as herein provided, each party shall promptly pay to the other, as soon as the same is determinable after the effective date of termination, all amounts due such other party under the terms of this Agreement. Upon the effective date of such termination, Manager shall deliver and surrender -4- 5 possession and control to Owner of all books and records, license, plans, leases, contracts and other documents pertaining to the Business, any insurance policies, bills of sale or other documents evidencing title or rights of Owner, and any other records or documents pertaining to the Business, whether or not enumerated herein, which are necessary or desirable for the ownership and operation of the Business. Manager further agrees to do all other things reasonably necessary to cause an orderly transition of the management of the Business without detriment to the rights of Owner or to the continued management of the Business. Nothing herein shall be construed to limit Manager's right to retain and control its business records, provided that Owner shall be provided with copies of same to the extent any such records are necessary or desirable for the ownership and operation of and pertain to the Business. Manager agrees and acknowledges that all names, marks, trademarks, service marks and other intangible assets developed or otherwise acquired by the business (other than pursuant to the terms of a license or other agreement authorizing Owner to utilize names, marks, trademarks or service marks registered, or for which registration is pending, in the name of owner) are and shall remain the sole and exclusive property of Owner. 4. MANAGER'S COMPENSATION 4.1 MANAGEMENT FEE. Beginning on the Effective Date, and for each Fiscal Year thereafter, as compensation for its services to Owner rendered under this Agreement, Manager shall be entitled to an annual management fee ("Management Fee") of ONE MILLION DOLLARS ($1,000,000.00) for the Fiscal Year, payable in installments as provided in Section 4.2. Should the casino at any time during the term of this Agreement operate for less than a full Fiscal Year, the Management Fee shall be prorated for any partial Fiscal Year and for any partial month during which the casino is operated. 4.2 METHOD OF PAYMENT. Manager may cause the payment of the Management Fee for each Fiscal Year to be paid to it in equal monthly installments under the procedure specified in Section 6.2. Should Owner for any reason fail, or be unable to fully pay the Management Fee when and as due, by reason of insufficient flow in any Accounting Period, the unpaid portion of the Management Fee shall be accrued and shall be payable from available cash flow in subsequent Accounting Periods. 5. DUTIES AND RESPONSIBILITIES OF MANAGER 5.1 MANAGEMENT OF THE BUSINESS. During the Term, Manager shall devote its best efforts to serving Owner as the sole and exclusive day-to-day manager of the Business, and shall perform its duties and responsibilities hereunder in the best interests of Owner and in a diligent, careful, lawful and vigilant manner so as to manage, direct, supervise, operate, maintain, repair and service the Business and all its assets in accordance with, and subject to, the policies and procedures of Owner and the other requirements of this Agreement, in full and ongoing compliance with any and all requirements of the Act, the License, the Colorado Commission, and any other licenses and legal requirements to which the Business is subject. The foregoing duties -5- 6 and obligations shall include, without limitation, full responsibility for the continual operation of the casino facilities, the Equipment, the conduct of gambling operations, determination of gaming credit, granting of discounts and complimentaries for accommodations, meals, and beverage service as is customary in the gaming business, all operational and gaming policies, operating standards, employment and labor policies and procedures, including the hiring, transfer and discharge of all employees, provided that any written employment contracts shall be subject to the approval of the Compensation Committee of Fitzgeralds Gaming Corporation ("FGC"), and entering into a contract or contracts with an applicable union or unions in Owner's name and with Owner's approval, all phases of sales, marketing, advertising, promotion and publicity relating to the Business, customer and employee relations and compliance with applicable gaming laws and regulations, except for those areas of compliance that Owner is not permitted to delegate under the Act, or any other applicable laws, regulations and standards. Subject to the provisions of this Agreement, in exercising such authority Manager may enter into such contracts, leases, concession agreements and other undertakings on behalf of Owner as Manager shall from time to time consider appropriate in Owner's name. So long as Manager shall perform its duties, obligations and responsibilities under this Agreement, and except to the extent expressly otherwise provided herein with respect to the rights and obligations of Owner, Owner shall not interfere with Manager in the exercise of its duties, obligations and responsibilities under this Agreement. 5.2 LIMITATIONS ON MANAGER'S AUTHORITY. In addition to any other limitation imposed upon Manager under this Agreement, Manager shall not, without the express written authorization of the Chief Executive Officer of FGC, have any power to take any action with respect to any of the following matters: (a) Incur any indebtedness or prepay, refinance, increase, modify, consolidate or extend any indebtedness of Owner other than leases in the normal course of business which are for no more than three (3) years or provided for a thirty (30) day cancellation clause or have an aggregate cost of no more than $50,000. (b) Except with respect to collection matters or other routine legal matters, retain any legal counsel at Owner's expense. Nothing herein shall preclude Manager from retaining legal counsel at Manager's expense. (c) Sell any asset of Owner other than in the ordinary course of business. (d) Lend any funds of Owner to any person, other than to patrons of the Business in connection with their gaming activities at the Business. (e) Commence any lawsuit or other legal action on behalf of Owner, other than to collect sums due to Owner from patrons of the Business incurred in doing business with Business. (f) Settle any lawsuit or other legal action commenced by or against Owner involving claims excess of Twenty Five Thousand Dollars ($25,000.00) arising out of -6- 7 the Business, except that the Manager may settle any legal action involving personal injury claims against Owner or collection claims by Owner for sums due from patrons of the Business incurred in doing business with the Business, provided that the amount involved in any such settlement does not exceed Twenty Five Thousand Dollars ($25,000.00), and further provided that such settlement does not violate any term or requirement of any insurance policy related to the Business. (g) Enter into any contract having a term of more than twelve (12) months, unless such contract is terminable, without cost, on thirty (30) days' notice. (h) Enter into any written employment contract with any person who will be or is an employee or Owner. 5.3 BOOKS AND RECORDS. Manager shall maintain a comprehensive system of office records, books and accounts (which records, books and accounts shall be and remain the property of Owner) in which shall be entered fully and accurately every financial transaction with respect to the operation of the Business. The Business books and records shall be maintained at the principal office of the business, and Owner shall at all reasonable times have access to such books, records and accounts and to all vouchers, files and other materials pertaining to the Business and the transactions contemplated by the Agreement. 5.4 Compliance with Laws, Contracts. Manager shall comply with and cause the Business and its assets to be kept, maintained, used and occupied in material compliance with the following as now in effect or as may hereafter be in effect: (a) All applicable laws, statutes, ordinances, and the rules, regulations, and orders of any governmental authority, including the Act and rules and regulations of the Colorado Commission. (b) Any director or occupancy certificate issued pursuant to any law regulation or rule by any public officer. (c) The provisions of any fire casualty and liability insurance policies insuring Owner's interest in the Business or its liability with respect to its operation thereof, so as not to affect the insurance coverage or increase the premium rate therefor. (d) The provisions of any lease, agreement including, but not limited to, the Fitzgeralds Trademark License Agreement, or other instrument affecting the Business. 5.5 LEGAL REQUIREMENTS. Manager shall execute and timely file all forms, reports and returns required by the Act and any rules or regulations promulgated thereunder. Manager shall execute and timely file all forms, reports and returns required by law relating to employment of personnel employed on behalf of Owner pursuant to this Agreement in connection with the Business. Manager shall cause to be filed each year -7- 8 appropriate and timely ad valorem tax returns related to the Business. Manager shall promptly cause the issuance or transfer, as the case may be, of necessary business licenses other than the License and permits to the name of Owner, and to take any action necessary to preserve the License and the good standing of Owner under the Act, the rules and regulations of the Colorado Commission and other applicable licenses, laws, regulations and standards. 5.6 EMPLOYMENT OF PERSONNEL. All employees required to operate the Business, including the general manager, who shall be the person designated by Manager to be responsible for the day-to-day operations of the business (the "General Manager"), shall be on the payroll of Owner, but shall be selected, hired, supervised, directed and discharged by Manager, except that the selection of any General Manager shall be made by Manager subject to the approval of Owner, which approval shall not be unreasonably withheld. The General Manager shall report exclusively to Manager. The compensation of employees shall be determined by Manager consistent and competitive with prevailing conditions in the area where the Business is being conducted, provided, however that determination of the compensation of any employee of Owner who base compensation shall be One Hundred Thousand Dollars ($100,000) shall require the prior approval of the Chief Executive Officer of FGC. Employees may be hired by manager for the business as permanent or temporary employees as circumstances may warrant. 5.7 THIRD PARTY CONTRACTS STANDARDS. The price, compensation or other consideration paid for all goods obtained for the benefit of the Business shall be competitive with the amount ordinarily paid for such goods and service in the area where the Business is located. 6. DUTIES AND RESPONSIBILITIES OF OWNER 6.1 EXPENSES OF OWNER. Except as otherwise expressly provided in this Agreement, any expenses incurred by Manager on behalf of Owner pursuant to its authority under this Agreement shall be deemed to have been incurred for the account of, on behalf of, and at the expense of Owner. Owner, to the extent any such expenses are incurred directly by Manager shall reimburse Manager for all such expenses in the manner provided in Section 6.2. Nothing herein shall be construed to authorize Manager to charge Owner, or be entitled to reimbursement with respect to, any overhead or similar expense of Manager or any affiliate of Manager incurred in its general offices, or for any salaries of any executives or supervisory personnel who are employees of Manager and not assigned to the Business full time or otherwise in accordance with this Agreement. Manager acknowledges that the Management Fee contemplates that Manager shall absorb any such expenses and any other expenses expressly allocated hereunder to Manager for its own account and without any right of reimbursement. Any expenses incurred by Manager which are not authorized pursuant to other provisions of this Agreement or by express written authorization of Owner, shall be borne by Manager. -8- 9 6.2 PROCEDURE FOR PAYMENT OF OWNER EXPENSE. Manager shall maintain an account or accounts in the name of Owner at such bank or banks as may be selected from time to time by Owner. During the Term, Manager shall pay all expenses incurred hereunder for the account of on or behalf of Owner. 6.3 DEBTS AND LIABILITIES OF OWNER. Except as provided herein, all debts and liabilities including employment related expenses and liabilities, to third persons incurred by Manager in the course of its operation and management of the Business shall be the debt and liabilities of Owner only and Manager shall not be liable for any such obligation by reason of its management, supervision, direction and operation of the business of Owner. Upon termination of this Agreement for any reason, all such Owner debts and liabilities, and any which may specifically arise by virtue of such termination, are expressly acknowledged to be the debts and liabilities of Owner alone. Manager may so inform third parties with whom it deals on behalf of Owner and may take any other reasonable steps to carry out the intent of this Section. 6.4 INSURANCE (a) Owner shall carry, but Manager shall recommend, arrange for, place and maintain on Owner's behalf, such insurance as is required under the Act to insure the casino facilities and the Equipment for full replacement value, insurance for business interruption, Protection and Indemnity, Workers Compensation, Fidelity, garage keepers legal liability and public liability coverage, single limit per occurrence, or such higher amount as may be required under the Act, with reasonable deductible levels, and any other insurance which Manager determines from time to time to be in the best interest of the Owner. Owner assumes all risks in connection with the adequacy of any insurance or self-insurance program required or permitted under this Section 6.4(a) and, so long as Manager complies with the requirements of this Section 6.4(a), waives any claim against Manager and affiliates for any liability, cost or expense arising out of any uninsured or underinsured claim, in part or in full, of any nature whatsoever. (b) All insurance shall be written on an "occurrence basis." Insurance carriers must be qualified in Colorado and rated at a level of at least B+ by Best's. All liability policies shall name Owner and Manager as named insured or additional insured, as appropriate under the circumstances. Each policy of insurance shall provide endorsements to the effect that the policy may not be canceled or materially changed without at least thirty (30) days' written notice to Owner and Manager and that no act or omission of Owner or Manager shall affect the obligation of the insurer to pay the full amount of any loss sustained. Manager shall at all times cooperate and assist Owner and the Owner's insurance carriers in settling of any insurance claims covered under any Owner insurance policy. Certificates of insurance evidencing the effectiveness of coverage required to be carried hereunder shall be delivered by Manager to Owner not later than the acquisition by Owner of material assets, with respect to which insurance is required to be carried hereunder. -9- 10 (c) Whenever (i) any loss, cost, damage or expense resulting from fire, explosion or any other casualty or occurrence is incurred by either Owner or Manager, or anyone claiming by, through, or under either of them, and (ii) such party is then covered by insurance with respect to such loss, cost damage or expense, then the party so insured hereby releases the other party from any liability said other party may have on account of such loss, cost, damage or expense, then the party so insured hereby releases the other party from any liability said other party may have on account of such loss, cost, damage or expense to the extent of any amount recovered by reason of such insurance and waives any right of subrogation which might otherwise exist in or accrue to any person on account thereof, provided that such release of liability and waiver of the right of subrogation shall not be operative in any case where the effect thereof is to invalidate such insurance coverage or increase the cost hereof (except that in the case of increased cost, the party benefiting from this provision shall have the right, within thirty (30) days following written notice to pay such increased cost, thereby keeping such release and waiver in full force and effect). (d) Owner acknowledges that Manager or any affiliated companies may at their sole expense, carry insurance coverage separate and distinct from those required under this Section 6, including any excess coverage protecting only their separate interests. 7. MISCELLANEOUS PROVISIONS 7.1 NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when either personally served or mailed by certified or registered mail, return receipt requested: To Owner: 101 Main Street Limited Liability Company 101 Main Street Black Hawk, CO 80422 Attn: Philip D. Griffith, President To Manager: Fitzgeralds Black Hawk II, Inc. 101 Main Street Black Hawk, CO 80422 Attn: Philip D. Griffith, President with copy to: Cara Brown, Esq. Vice President & General Counsel Fitzgeralds Gaming Corporation 301 Fremont Street -10- 11 Las Vegas, NV 89101 or such other address or to such persons as any party shall have last designated by written notice to the other party. 7.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and assigns. Notwithstanding the preceding sentence, except as otherwise expressly provided in this Agreement, neither party shall have the right to assign its rights or delegate its duties, obligations or responsibilities under this Agreement without the written consent of the other party. 7.3 FURTHER ASSURANCES. The parties agree that they at any time and from time to time after the Effective Date shall execute and deliver any and all additional, writings, instruments and other documents and shall take such further action as shall be reasonably required or requested by the other party to effectuate the transactions contemplated by this Agreement. 7.4 INTERPRETATION. The headings contained in this Agreement are for reference purpose only, and shall not affect the meaning or interpretation of this Agreement. All references made and pronouns used herein shall be construed in the singular or plural, and in such gender as the sense and circumstances require. 7.5 AMENDMENTS. This Agreement sets forth the entire understanding of the parties hereto and may not be amended, modified or supplemented at any time unless by a writing executed by the parties hereto or by their respective successors or assigns. 7.6 CUMULATIVE RIGHTS; WAIVERS. Each and every right granted to a party hereunder, or in any other document contemplated hereby or delivered hereunder or executed concurrently herewith, or by law or equity, shall be cumulative and may be exercised at any time, or from time to time. No failure on the part of any party to exercise, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by any party of any right preclude any other or future exercise thereof or the exercise of any other right. The failure of any party at any time, from time to time, to require performance by any other party of any term, condition or provision of this Agreement shall in no way alter or otherwise affect the right of such party at a later time to enforce the same. No waiver by any party of any condition or of the breach of any term, covenant or provision contained in this Agreement, whether by conduct or otherwise, at any time or from time to time, shall be deemed to be or construed as a further or continuing waiver of such condition or breach or as a waiver of any other condition or of any other or subsequent breach of the same of any other term, covenant or provision. 7.7 GOOD FAITH. Each of Manager and Owner agree to act in good faith when exercising any of their rights and responsibilities hereunder. -11- 12 7.8 INCORPORATION OF RECITALS. All recitals contained in this Agreement are incorporated herein by this reference as if fully set forth in the operative provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. OWNER: 101 MAIN STREET LIMITED LIABILITY COMPANY By: /s/ PHILIP D. GRIFFITH --------------------------------------------------- Philip D. Griffith President and Chief Executive Officer MANAGER: FITZGERALDS BLACK HAWK II, INC. By: /s/ PHILIP D. GRIFFITH --------------------------------------------------- Philip D. Griffith Chairman, President and Chief Executive Officer -12- EX-10.(Q) 3 EXECUTIVE BONUS PLAN 1999 1 EXHIBIT 10(q) EXECUTIVE BONUS PLAN 1999 Effective January 1, 1999, the Company revised the threshold established for bonus consideration to take into account the termination of management and consulting services provided to Native American operations in Arizona and New York. The new threshold is $25.0 million in EBITDA, prior to accruing bonus expense and adjusted for extraordinary, non-recurring items that are deemed non-operational in nature ("Adjusted EBITDA"). The bonus amount will start at 1.4% of Adjusted EBITDA at the $25.0 million level and increase by one tenth of one percent for each $1.0 million of Adjusted EBITDA above $25.0 million up to a maximum of 3%. Each percentage increase achieved would be on a first dollar basis and computed on the entire adjusted EBITDA. The compensation committee will have full discretion concerning the payment of executive bonuses.
EBITDA BONUS 1999 $(000,000) FACTOR BONUS POOL ---------- ------ ---------- 25 1.4% $ 350,000 26 1.5% 390,000 27 1.6% 432,000 28 1.7% 476,000 29 1.8% 522,000 30 1.9% 570,000 31 2.0% 620,000 32 2.1% 672,000 33 2.2% 726,000 34 2.3% 782,000 35 2.4% 840,000 36 2.5% 900,000 37 2.6% 962,000 38 2.7% 1,026,000 39 2.8% 1,092,000 40 2.9% 1,160,000 41 3.0% 1,230,000
EX-10.(X) 4 SHAREHOLDERS' AGREEMENT 1 EXHIBIT 10(x) SHAREHOLDERS' AGREEMENT THIS SHAREHOLDERS' AGREEMENT (this "Agreement") is entered into as of December 19, 1995, by and among the persons who are listed as "Shareholders" in Exhibit A (the "Management Shareholders") (including any Prospective Transferees, as defined in Section 3 hereof, the "Shareholders"), Fitzgeralds Gaming Corporation (the "Company") and First Interstate Bank of Nevada, N.A., a national banking association (the "Warrant Agent"), as warrant agent for the holders from time to time (the "Warrantholders") of the common stock purchase warrants (the "Warrants"), each initially to purchase one share of common stock, par value $.01 per share ("Common Stock"), of the Company issued pursuant to that certain Warrant Agreement, of even date herewith, (the "Warrant Agreement"), by and between the Company, and the Warrant Agent. R E C I T A L S WHEREAS, pursuant to that certain Underwriting Agreement, dated December 13, 1995, by and between the Company and Jefferies & Company, Inc., the Company will offer (the "Offering") to the public (i) 123,000 Note Units, each consisting of (A) $1,000 principal amount of 13% Senior Secured Notes due 2002 of the Company and (B) 13.59368 Warrants and (ii) 800,000 Preferred Stock Warrants, each consisting of (A) one share of Cumulative Redeemable Preferred Stock of the Company and (B) 1.25402 Warrants; WHEREAS, each of the Shareholders owns the number of shares of Common Stock set forth opposite his name on Exhibit A; and WHEREAS, in connection with the Offering, the Shareholders, the Company and the Warrant Agent desire to enter into this Agreement in order to establish certain rights of the Warrantholders, and of the holders of shares of Common Stock issuable upon exercise thereof ("Warrant Shares"), in the event of certain sales, transfers, exchanges or other dispositions of the capital stock of the Company by the Shareholders or their transferees. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Acknowledgment of Warrant Agreement Obligations. Each Shareholder hereby acknowledges, and on behalf of himself and his assignees, transferees and successors, agrees to be bound by: (i) the provisions of Section 16(a) of the Warrant Agreement, which provisions may, among other things, entitle the Warrantholders or the 1 2 holders of Warrant Shares to require a purchaser of Common Stock from a Significant Shareholder, as defined in the Warrant Agreement, to purchase Warrants or Warrant Shares from the Warrantholders or the holders of the Warrant Shares, and (ii) the provisions of Section 16(b) of the Warrant Agreement, which provisions may, among other things, entitle the Warrantholders to require an entity that will acquire more than 50% in value of the outstanding Common Stock of the Company from the Shareholders (as more specifically defined in the Warrant Agreement, a "Holding Company") to offer to each Warrantholder the right to exchange its Warrants for warrants exercisable for the number of shares of stock or other securities or property of the Holding Company to which a holder of the Warrant Shares deliverable upon exercise of such Warrants would have been entitled had such holder exercised its Warrants in full immediately prior to the Holding Company Transaction (as defined in the Warrant Agreement) and sold, exchanged or transferred all of such Warrant Shares in the Holding Company Transaction. The foregoing is only a summary of the provisions of Section 16 of the Warrant Agreement, and each of the Shareholders agrees, on behalf of himself and his assignees, transferees and successors, to be bound by the provisions of Section 16 of the Warrant Agreement as if set forth herein in full. The Company and the Warrant Agent agree to notify the holders of Warrants in writing promptly after obtaining actual knowledge of any transaction to which Section 16(a) or 16(b) of the Warrant Agreement may apply. 2. Stock Certificate Legend. (a) Endorsement of Stock Certificates. Each certificate representing shares of Common Stock of the Company now held by or hereinafter acquired by any Management Shareholder (other than Jerome H. Turk) (the "Legended Shares") shall be surrendered to the Company's transfer agent and substitute certificates shall be issued therefor, which certificates shall be endorsed with the following legend: "IN ACCORDANCE WITH THE SHAREHOLDERS' AGREEMENT (AS MAY BE AMENDED FROM TIME TO TIME, THE "SHAREHOLDERS' AGREEMENT"), DATED AS OF DECEMBER 19, 1995, BY AND AMONG THE SHAREHOLDERS OF FITZGERALDS GAMING CORPORATION (THE "COMPANY") PARTIES THERETO AND FIRST INTERSTATE BANK OF NEVADA, N.A., AS WARRANT AGENT (THE "WARRANT AGENT"), THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 16 OF THE WARRANT AGREEMENT (AS MAY BE AMENDED FROM TIME TO TIME, THE "WARRANT AGREEMENT"), DATED AS OF DECEMBER 19, 1995, BY AND BETWEEN THE COMPANY AND THE WARRANT AGENT. A COPY OF THE SHAREHOLDERS' AGREEMENT AND THE WARRANT AGREEMENT WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. 2 3 THESE SECURITIES MAY NOT BE RESOLD OR TRANSFERRED UNLESS SUCH CONDITIONS ARE COMPLIED WITH, IF APPLICABLE. A TRANSFEREE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE (A) WILL BE BOUND BY THE PROVISIONS OF SECTION 16(a) OF THE WARRANT AGREEMENT (IF SUCH TRANSFEREE IS, AT ANY TIME WHILE HOLDING SUCH SHARES, A "SIGNIFICANT SHAREHOLDER" AS DEFINED IN THE WARRANT AGREEMENT) AND (B) WILL BE BOUND BY THE PROVISIONS OF SECTION 16(B), IN EACH CASE UNLESS AND UNTIL A QUALIFIED PUBLIC OFFERING OR A QUALIFIED PUBLIC COMPANY MERGER (EACH AS DEFINED IN THE WARRANT AGREEMENT) OCCURS." Jerome H. Turk agrees that, promptly after becoming a Significant Shareholder, he will surrender all shares of Common Stock beneficially owned by him to the Company's transfer agent, and substitute certificates shall be issued therefor bearing the foregoing legend; and, after the placement of such legend on such certificates, the shares of Common Stock owned by Mr. Turk shall be "Legended Shares" for the purposes of this Agreement. (b) Removal of Legend from Stock Certificates. Upon the occurrence of a Qualified Public Offering or a Qualified Public Company Merger (each as defined in the Warrant Agreement), each holder of certificates representing Legended Shares shall be entitled to surrender such certificates to the Company for certificates not bearing the legend set forth in Paragraph 2(a). In addition, in connection with any sale by a Shareholder of Legended Shares pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, the Shareholder selling such shares shall be entitled to surrender the certificates representing such shares to the Company for certificates not bearing the legend set forth in Paragraph 2(a). 3. Transferees of Shareholders. (a) Transferees to Execute Agreement. No person holding Legended Shares shall sell, exchange, or in any other manner dispose of or transfer such shares unless, prior to the consummation of any such sale or exchange, or other disposition or transfer, the person to whom such sale, other disposition or transfer or with whom such exchange is proposed to be made (for purposes of this Paragraph 3, a "Prospective Transferee") executes and delivers to the Company and the Warrant Agent a copy of this Agreement. Upon the execution and delivery by such Prospective Transferee of this Agreement, such Prospective Transferee shall be subject to the provisions of this Agreement as though such Prospective Transferee were a "Shareholder" hereunder, and shall be deemed to have agreed to the provisions of Section 16(a) (to the extent applicable to such Prospective Transferee) and Section 16(b) of the Warrant Agreement with respect to any Legended Shares to be acquired. (b) Transfers in Violation Void Ab Initio. Any attempt to sell, exchange, or in any other manner dispose of or transfer shares of Common Stock not in 3 4 compliance with this Agreement shall be null and void ab initio and neither the Company nor any transfer agent shall give effect in the Company's stock records to such attempted sale, exchange or other disposition or transfer. 4. Warrantholders Third-Party Beneficiaries. The Warrantholders and holders of Warrant Shares from time to time are and shall be deemed to be intended third-party beneficiaries of this Agreement. It being agreed by the Shareholders that damages at law would be an insufficient remedy in the event of a breach of this Agreement by any Shareholder, each Warrantholder and holder of Warrant Shares shall be entitled to apply for and have injunctive or other equitable relief in any court of competent jurisdiction to restrain the breach or threatened breach of, or otherwise specifically to enforce, any of such Shareholder's covenants set forth in this Agreement. 5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Shareholders, the Warrantholders and holders of Warrant Shares, and their respective heirs, personal representatives, successors, transferees and assigns; provided, however, that nothing contained herein shall be construed either as (i) granting to any Shareholder bound by the provisions of Section 16(a) or 16(b) of the Warrant Agreement the right to transfer any shares of Common Stock without complying with Sections 16(a) and/or 16(b), as applicable, of the Warrant Agreement or (ii) causing any party hereto to be deemed a "Significant Shareholder" as defined in the Warrant Agreement who would not otherwise be a Significant Shareholder pursuant to the provisions of the Warrant Agreement. 6. Amendments and Waivers. No amendment to or waiver of any provision of this Agreement or to Section 16(a) of the Warrant Agreement that would materially and adversely affect the Warrantholders and/or the holders of Warrant Shares from time to time shall be made without the written consent of the Warrantholders and the holders of the Warrant Shares, voting together as a class, holding or having the right to acquire a majority of the Warrant Shares. No amendment to or waiver of any provision of Section 16(b) of the Warrant Agreement that would materially and adversely affect the Warrantholders from time to time shall be made without the written consent of Warrantholders having the right to acquire a majority of the Warrant Shares. 4 5 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. SHAREHOLDERS /s/ JEROME H. TURK ------------------------------------ Jerome H. Turk Philip D. Griffith Trust By: /s/ PHILIP D. GRIFFITH ---------------------------------- Philip D. Griffith, Trustee Oliver Special Trust By: /s/ TERRANCE W. OLIVER ---------------------------------- Terrance W. Oliver, Trustee FITZGERALDS GAMING CORPORATION By: /s/ PHILIP D. GRIFFITH ------------------------------------ Name: Title: FIRST INTERSTATE BANK OF NEVADA, N.A., A NATIONAL BANKING ASSOCIATION By: /s/ DAN ATFIELD ------------------------------------- Name: Dan Atfield Title: Vice-President PROSPECTIVE TRANSFEREES [To be executed at time of transfer pursuant to Section 3] Date: - --------------------------- --------------- Date: - --------------------------- --------------- 5 6 PROSPECTIVE TRANSFEREES [To be executed at time of transfer pursuant to Section 3] (Cont'd.) Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- Date: - ------------------------ ------------------- 6 7 EXHIBIT A SHAREHOLDERS
Name Address/Telecopy No. of Shares Owned ---- ---------------- ------------------- Jerome H. Turk 301 Fremont Street 833,948 Las Vegas, Nevada 89101 (702) 382-5562 Philip Griffith Trust 301 Fremont Street 2,558,222 Las Vegas, Nevada 89101 (702) 382-5562 Oliver Special Trust 300 E. Second Street, 135,571 Reno, Nevada 89501 (702) 382-5562
1 EX-10.(NN) 5 WORKERS COMPENSATION, SELF-INSURED SECTION 1 EXHIBIT 10nn STATE OF NEVADA DEPARTMENT OF INSURANCE WORKER'S COMPENSATION, SELF-INSURED SECTION NEVADA INDUSTRIAL INSURANCE ACT AND THE OCCUPATIONAL DISEASES ACT CHARTERS 616 AND 617 OF NRS SELF INSURER'S SURETY BOND Bond Number: 127248 $2,500,000.00 KNOW ALL PERSONS BY THESE PRESENTS, that Frontier Insurance Company A company admitted to transact surety business in the State of Nevada, hereinafter referred to as Surety, shall act as surety for Fitzgeralds Gaming Corporation, hereinafter "Employer", an employer certified by the Department of Insurance to act as a self-insured employer pursuant to Chapter 616 of NRS. Surety, its successors and assigns, shall become obligated under this bond if Employer does not pay or cause to be paid to its employees the compensation and medical expenses due or that may become due to employees and their dependents resulting from accidents, injuries or occupational diseases arising under the provisions of Chapter 616 and 617 of NRS occurring from the date of the execution of this bond to the date of its termination as required by NRS 616.292 and by Chapters 616 and 617 of NRS. Upon such event, the Commissioner of Insurance of the State of Nevada, hereinafter "Commissioner" may commence immediate and direct action on the bond, on behalf of said employees, to insure timely payment of said compensation to such employees. No defense against the action of the Commissioner may or shall be interposed by the Surety. Surety bond, executed by Frontier Insurance Company as surety shall be in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000.), payable in currency of the United States. Surety shall have the right to terminate this bond at any time by giving Employer and Commissioner intent to terminate, pursuant to subsection 2 of NRS 616.292. Surety shall give Commissioner 90 days notice of its intent to terminate, pursuant to NRS 616.292, however, such termination does not limit Surety's obligation under this bond for compensation due and medical expenses which may become due to employees and their dependents of Employee resulting from accidents, injuries or occupational disease which occurred during the time dating from the date of execution of this bond to the date of its termination. Signed, Sealed and Delivered this 10th day of September, 1998 THIS BOND SHALL BE EFFECTIVE AS OF September 10, 1998. Seal Seal Bonding Agent Employer FITZGERALDS GAMING CORPORATION --------------------------------------- By /s/ MICHAEL E. MC PHERSON --------------------------------------- Senior Vice President and Chief Financial Officer --------------------------------------- FRONTIER INSURANCE COMPANY --------------------------------------- By /s/ KATHY KOENIG --------------------------------------- Kathy Koenig, Attorney In Fact Countersigned by /s/ KATHLEEN A. HIDDLESON ------------------------- 2 [FRONTIER INSURANCE COMPANY LOGO] ROCK HILL, NEW YORK 12775-8000 (A Stock Company) PRINCIPAL'S ACKNOWLEDGMENT INDIVIDUAL VERIFICATION State of ______________________________ County of _____________________________ On this ___________ day of ___________ in the year 19____, before me personally came _________________________ to me known, and known to me to be the person(s) who is (are) described in and who executed the foregoing instrument, and acknowledges to me that he (they) executed the same. ___________________________________________________________ (Signature and title of official taking acknowledgment) PARTNERSHIP VERIFICATION State of ______________________________ County of _____________________________ On this ___________ day of ___________ in the year 19____, before me personally came _________________________ to me known, and known to me to be the person who is described in and who executed the foregoing instrument, and acknowledges to me that he executed the same, as and for the act and deed of the said co-partnership. ___________________________________________________________ (Signature and title of official taking acknowledgment) CORPORATE VERIFICATION State of Nevada County of Washoe ---------------------------- ----------------------------- On this 16th day of September in the year 1998, before me ------------ ------------- -- personally came Michael E. McPherson to me known, who, being by me ----------------------------- duly sworn, deposes and says that he resides in the City of Reno that he ----------- is the Senior Vice President and Chief Financial Officer of the ------------------------------------------------------ Fitzgeralds Gaming Corporation , the corporation described in and which - -------------------------------------- executed the foregoing instrument, that he knows the seal of the said corporation; that the seal affixed to the said instrument is such corporate seal; that is was so affixed by the order of the Board of Directors of said corporation, and that he signed his name thereto by like order. - ------------------------------------------------ CLIFFNE F. BATEMAN [SEAL] Notary Public - State of Nevada Appointment Recorded in Washoe County No: 93-4789-2 - EXPIRES OCT. 4, 2001 - ------------------------------------------------ /s/ CLIFFNE F. BATEMAN ----------------------------------------------------------- (Signature and title of official taking acknowledgment) SURETY COMPANY ACKNOWLEDGMENT State of New York County of Sullivan ---------------------------- ----------------------------- On this 10th day of September in the year 1998, before me ------------ ------------- -- personally came Kathy Koenig to me known to be the individual ----------------------------- described in and who executed the foregoing instrument and to be the Attorney-in-Fact of FRONTIER INSURANCE COMPANY, which is to me known to be the corporation described in the foregoing instrument, and which, by its said Attorney-in-Fact executed the same, and said Attorney-in-Fact duly acknowledged to me that he knows the Seal of said Corporation; that the Seal affixed to said instrument is such Corporate Seal; that it was so affixed by order of the Board of Directors of said Corporation; and that he executed the said instrument as the act and deed of said FRONTIER INSURANCE COMPANY therein described and for the uses and purposes therein mentioned, by virtue of a certain power of attorney executed by said FRONTIER INSURANCE COMPANY dated April 29, 1997, which said power has never been revoked and is still in full force and effect; and that the said corporation has received from the Superintendent of Insurance of the State of New York a certificate of solvency and of its sufficiency as surety or guarantor under Section 327, Chapter 882 of the Laws of [ILLEGIBLE] Chapter 28 of the Consolidated Laws of New York for the year 1939, and that such certification has not been revoked. GLORIA A. TAYLOR Notary Public, State of New York /s/ GLORIA A. TAYLOR [ILLEGIBLE] ------------------------------- 3 [FRONTIER INSURANCE COMPANY LOGO] Rock Hill, New York 12775 (A Stock Company) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The FRONTIER INSURANCE COMPANY, a New York Corporation, having its principal office in Rock Hill, New York, pursuant to the following resolution, adopted by the Board of Directors of the Corporation on the 4th day of November, 1985: "RESOLVED, that the Chairman of the Board, the President, or any Vice President be, and hereby is, authorized to appoint Attorneys-in-Fact to represent and act for and on behalf of the Company to execute bonds, undertakings, recognizances and other contracts of indemnity and writings obligatory in the nature thereof, and to attach thereto the corporate seal of the Company, in the transaction of its surety business; "RESOLVED, that the signatures and attestations of such officers and the seal of the Company may be affixed to any such Power of Attorney or to any certificate relating thereto by facsimile, and any such Power of Attorney or certificate bearing facsimile signatures or facsimile seal shall be valid and binding upon the Company when so affixed with respect to any bond, undertaking, recognizance or other contract of indemnity or writing obligatory in the nature thereof; "RESOLVED, that any such Attorney-in-Fact delivering a secretarial certification that the foregoing resolutions still be in effect may insert in such certification the date thereof, said date to be not later than the date of delivery thereof by such Attorney-in-Fact." This Power of Attorney is signed and sealed in facsimile under and by the authority of the above Resolution. DOES HEREBY MAKE, CONSTITUTE AND APPOINT: HARRY W. RHULEN LYNNE K. HUPKA DAVID E. CAMPBELL DAVID H. RHODES KATHY KOENIG ANDREA AMMENDOLA JENNIFER JACOBS CHRISTINE CAHILL of ROCK HILL, in the State of NEW YORK, its true and lawful Attorney(s)-in-Fact with full power and authority hereby conferred in its name, place and stead to sign, execute, acknowledge and deliver in its behalf, and as its act and deed, without power of redelegation, as follows: Bonds guaranteeing the fidelity of persons holding places of public or private trust; guaranteeing the performance of contracts other than insurance policies; and executing or guaranteeing bonds and undertakings required or permitted in all actions or proceedings or by law allowed; IN AN AMOUNT NOT TO EXCEED THREE MILLION FIVE HUNDRED THOUSAND ($3,500,000.00) DOLLARS; and to bind FRONTIER INSURANCE COMPANY thereby as fully and to the same extent as if such bond or undertaking was signed by the duly authorized officers of FRONTIER INSURANCE COMPANY, and all the acts of said Attorney(s)-in-Fact pursuant to the authority herein given are hereby ratified and confirmed. IN WITNESS WHEREOF, FRONTIER INSURANCE COMPANY of Rock Hill, New York, has caused this Power of Attorney to be signed by its President and its Corporate seal to be affixed this 29th day of APRIL, 1997. FRONTIER INSURANCE COMPANY [CORPORATE SEAL] BY: /s/ Harry W. Rhulen State of New York -------------------------- ss.: HARRY W. RHULEN, President County of Sullivan On this 29th day of APRIL, 1997, before the subscriber, a Notary Public of the State of New York and for the County of Sullivan, duly commissioned and qualified, came HARRY W. RHULEN of FRONTIER INSURANCE COMPANY to me personally known to be the individual and officer described herein, and who executed the preceding instrument, and acknowledged the execution of the same, and being by me duly sworn, deposed and said, that he is the officer of the Company aforesaid, and that the seal affixed to the preceding instrument is the Corporate Seal of the Company, and the Corporate Seal and signature as an officer were duly affixed and subscribed to the said instrument by the authority and direction of the Corporation, and that the resolution of the Company, referred to in the preceding instrument, is now in force. IN TESTIMONY WHEREOF, I have hereunto set my hand, and affixed by official seal at Rock Hill, New York, the day and year above written. [NOTARY PUBLIC SEAL] /s/ Nancy V. Pierro -------------------------------- NANCY V. PIERRO Notary Public State of New York Sullivan County Clerk's No. 2395 Commission Expires July 8, 1998 CERTIFICATION I, JOSEPH P. LOUGHLIN, Secretary of FRONTIER INSURANCE COMPANY of Rock Hill, New York, do hereby certify that the foregoing Resolution adopted by the Board of Directors of this Corporation and the Powers of Attorney issued pursuant thereto, are true and correct, and that both the Resolution and the Powers of Attorney are in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the facsimile seal of the corporation, this 10th day of September, 1998. [CORPORATE SEAL] /s/ Joseph P. Loughlin ------------------------- JOSEPH P. LOUGHLIN 4 [FRONTIER INSURANCE COMPANY LOGO] ROCK HILL, NEW YORK 12775-8000 FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 I CERTIFY THAT THE BELOW LISTED OFFICERS WERE DULY ELECTED BY THE BOARD OF DIRECTORS OF FRONTIER INSURANCE COMPANY AND CONTINUE TO HOLD THE OFFICE SET OPPOSITE THEIR NAMES.
OFFICERS HARRY W. RHULEN..............................President JOSEPH P. LOUGHLIN......................Vice President JOSEPH P. LOUGHLIN...........................Secretary JILL GOLD...............................Vice President MARK H. MISHLER..............................Treasurer R. LINDA MARKOVITS .....................Vice President PETER L. RHULEN.........................Vice President THOMAS J. DIETZ.........................Vice President MARK H. MISHLER.........................Vice President KEVIN F. JEFFERY........................Vice President JONATHAN M. FARROW......................Vice President GERALD HARTWICK.........................Vice President JOEL P. GELB............................Vice President PETER H. FOLEY..........................Vice President DAVID E. CAMPBELL.......................Vice President RICHARD F. SEYFARTH.....................Vice President JOANNE E. JENKINS.......................Vice President RICHARD M. MARSHALL.....................Vice President I FURTHER CERTIFY THAT THE FOLLOWING FINANCIAL STATEMENT OF THE COMPANY IS TRUE, AS TAKEN FROM THE BOOKS OF THE COMPANY AS OF DECEMBER 31, 1997:
ASSETS LIABILITIES AND POLICYHOLDER'S SURPLUS Bonds....................................... $571,014,466 Losses...................................... 291,713,403 Preferred stocks............................ 51,215,128 Loss adjustment expenses.................... 62,913,075 Common stocks............................... 103,741,249 Other expenses.............................. 5,730,109 Other Long Term Invested Assets............. 17,757,779 Reinsurance payable on paid losses.......... 1,365,272 Cash and short-term investments............. 30,127,714 Taxes, licenses and fees.................... 3,771,838 Mortgage Loans on Real Estate............... 367,823 Unearned premiums........................... 133,014,502 Premiums and agents' balances Funds held by Company under in course of collection................... 21,758,744 Reinsurance Treaties...................... 102,461,761 Premiums, agents' balances and installments Amounts withheld or retained by Company booked but deferred and not yet due....... 21,677,213 for account of others..................... 239,795 Reinsurance recoverable on loss payments.... 6,738,877 Provisions for reinsurance.................. 1,605,741 Electronic data processing equipment........ 1,267,598 Contingent commissions...................... 421,426 Aggregate write-ins for assets other than Aggregate Write-Ins for liabilities......... 449,051 invested assets........................... 2,652,742 Interest dividends and real estate TOTAL LIABILITIES................. $603,685,973 income due and accrued.................... 8,454,471 ------------ Real Estate................................. 29,682,471 Equities and deposits - pools Capital paid-up............................. 5,000,000 and associations.......................... (1,459) Paid-in and contributed surplus............. 150,974,591 Federal Income Tax recoverable.............. 9,104,609 Unassigned funds (surplus).................. 120,415,742 Receivable from parent, Subsidiaries and ------------ Affiliates................................ 4,516,881 ------------ Total policyholder's surplus........... 276,390,333 ------------ TOTAL ADMITTED ASSETS $880,076,306 TOTAL LIABILITIES & ============ POLICYHOLDER'S SURPLUS............ $880,076,306 ============
IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND AND AFFIXED THE FACSIMILE SEAL OF THE COMPANY THIS 10TH DAY OF APRIL, 1998. CORPORATE SEAL [SEAL] /s/ Harry W. Rhulen STATE OF NEW YORK ------------------------------ COUNTY OF SULLIVAN SS: HARRY W. RHULEN, President On this 10th day of April 1998, before the subscriber, a Notary Public of the State of New York in and for the County of Sullivan, duly commissioned and qualified, came HARRY W. RHULEN of FRONTIER INSURANCE COMPANY to me personally known to be the individual and officer described herein, and who executed the preceding instrument, and acknowledged the execution of the same, and being by me duly sworn, deposed and said, that he is the officer of the Company aforesaid, and that the seal affixed to the preceding instrument is the Corporate Seal of the Company, and the Corporate Seal and signature as an officer were duly affixed and subscribed to the said instrument by the authority and direction of the Corporation, and that the resolution of the Company, referred to in the preceding instrument, is now in force; and that said Corporation has received from the Superintendent of Insurance of the State of New York a Certificate of Solvency and of its sufficiency as surety or guarantor under Section 1111 of the Insurance Law of the State of New York. IN TESTIMONY WHEREOF, I have hereunto set my hand, and affixed my official seal at Rock Hill, New York, the day and year above written. NOTARY SEAL [SEAL] /s/ NANCY V. PIERRO ---------------------------------------- NANCY V. PIERRO Notary Public State of New York Sullivan County Clerk's No. 2395 Commission Expires July 8, 1998 EX-10.(OO) 6 FORM OF MANAGEMENT AGREEMENTS 1 EXHIBIT 10(OO) FORM OF MANAGEMENT AGREEMENTS Dated as of March 17, 1999 and substantially the same except as to the parties thereto, which are: FITZGERALDS GAMING CORPORATION and each of FITZGERALDS LAS VEGAS, INC. FITZGERALDS MISSISSIPPI, INC. FITZGERALDS RENO, INC. 101 MAIN STREET LIMITED LIABILITY COMPANY 2 MANAGEMENT AGREEMENT This Management Agreement is made and entered into as of the 17th day of March, 1999, by and between FITZGERALDS GAMING CORPORATION, a Nevada corporation (hereinafter "FGC") and FITZGERALDS LAS VEGAS, INC., a Nevada corporation (hereinafter "Operating Company"). WHEREAS, Operating Company engages in the business of operating a casino/hotel, and may, from time to time, engage in certain other business operations which are related to, or an adjunct to, such business; WHEREAS, the management of FGC is experienced in corporate administration and in developing, directing, managing and supervising such businesses, including services ancillary thereto; and WHEREAS, Operating Company desires to engage FGC to render management services to Operating Company, and FGC desires to be so engaged, on the terms and conditions set forth in this Management Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Management Services. 1.1 Operating Company hereby engages FGC to render the following management services (the "Management Services"): (a) Executive services, including review and evaluation of Operating Company's results of operations and development of appropriate strategies, programs and long-range plans designed to improve such results; (b) Financial services, including financial planning; development of policies for preparation and supervision of budgets, review and evaluation of budget preparation, and budget supervision; development of standards and procedures for internal audits and supervision, and review and evaluation of internal audits; development of policies, standards and procedures for accounting and supervision, and review and evaluation of all accounting work; retention and evaluation of independent auditors; investment of cash, securities and other funds not presently utilized in operations; development and implementation of capital financing plans, including retention of investment bankers, evaluation and implementation of proposals to raise capital through public or private offerings of securities and through banks or other institutional lenders and development and implementation of proposals to refinance, redeem or otherwise reconstitute existing indebtedness; 3 10(oo) (c) Data processing, including development of policies, standards and procedures governing data processing operations, creation and acquisition of software programs, supervision of all software and hardware acquisitions and review and evaluation of all data processing systems and operations; (d) Legal services, including rendering legal advice (of inside counsel, if any), retention and evaluation of outside legal counsel and consultation and assistance with respect to all legal and regulatory matters and supervision and evaluation of all legal matters; (e) Marketing services, including development and supervision of marketing, advertising and public relations programs; (f) Administrative services, including supervision of personnel matters, development and implementation of appropriate employee benefit plans; evaluation and acquisition, on behalf of Operating Company, of insurance policies and establishment of standards and policies related to all insurance and insurance-related matters; development of standards and policies related to safety programs and supervision of such programs; and such other administrative services as may be agreed to by the parties; (g) Development and construction services, including coordination and supervision of the design, development, construction and opening of properties. 1.2 Any Management Services to be performed by FGC hereunder may be performed, at its sole discretion, by any subsidiary of FGC. 1.3 The services to be performed pursuant to this Agreement may be modified, increased or decreased by an amendment to this Agreement, executed in accordance with Section 4.1 hereof. 1.4 Except to the extent that reimbursement to FGC shall be required pursuant to Section 2.2 hereof, FGC shall bear the cost of acquisition and maintenance of such capital equipment as may be necessary to perform the Management Services. FGC shall also bear the expense of all salaries, bonuses and other compensation to be paid to such personnel as may be engaged to render the Management Services. All such persons shall be deemed to be officers, employees, agents or contractors of FGC, and Operating Company shall not be responsible in any manner for their compensation or for withholding of federal or state income taxes in connection with their employment or engagement, unless otherwise expressly and specifically agreed in writing. To the extent that any such persons must be licensed or approved by the gaming authorities in the State of Nevada, Operating Company shall bear the expense of obtaining such regulatory approvals (in conjunction with any other Nevada gaming licensees managed by FGC) and FGC shall cooperate fully in order to obtain all necessary regulatory approvals. 15. FGC shall, to the extent feasible, perform the Management Services at its facilities 2 4 situated in the State of Nevada. Upon request of FGC, Operating Company shall make available its officers, employees, books and records as may be necessary for FGC to perform the Management Services. To the extent practicable, such persons and documents shall be made available to FGC at its facilities situated in the State of Nevada. 2. Management Fee. 2.1 In consideration of FGC's furnishing the Management Services, Operating Company shall pay to FGC a management fee (the "Management Fee") as provided in this Section 2.1 and shall reimburse FGC for expenses as provided in Section 2.2. The Management Fee shall be $1,000,000 per year. The management fee shall be paid on a monthly basis. At the option of Operating Company, it may make prepayments of the Management Fee to FGC. 2.2 In addition to the Management Fee, FGC shall be entitled to be reimbursed by Operating Company for all out-of-pocket expenses incurred in connection with rendering the Management Services. However, such out of pocket expenses shall not include payments of salaries, bonuses or other compensation to personnel or the cost of acquisition and maintenance of capital equipment, which expenses and costs shall be borne by FGC in accordance with Section 1.4 hereof; provided, that, to the extent FGC (or any subsidiary of FGC) shall make available to Operating Company its corporate computer hardware or software, Operating Company shall be obligated to reimburse FGC for the portion of its total costs, both direct and indirect, associated with such equipment and software which are allocable to such use by or for the benefit of Operating Company. All reimbursements pursuant to this Section 2.2 shall be made quarterly, at the same time as the Management Fee shall be paid. 3. Term. This Management Agreement shall continue in effect unless and until terminated by either party upon not less than 90 days' written notice to the other party. 4. Amendments. 4.1 This Management Agreement may be amended by an instrument in writing, approved by the Board of Directors of FGC and Operating Company, and executed by the principal executive officer or principal financial officer of each of the parties. 4.2 Notwithstanding anything herein to the contrary, the amount of the Management Fee set forth in Section 2.1 hereof may not be changed unless such amendment is approved by a majority of the independent members (if such exist) of the Board of Directors of each of FGC and Operating Company. 5. Miscellaneous Provisions. 5.1 Assignment. This Management Agreement may not be assigned by either party 3 5 without the express written consent of other party, but shall be binding on the successors and permitted assigns of the respective parties hereto. 5.2 Notices. Any notice or communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered in person sent by facsimile and confirmed telephonically or sent by first class mail (certified or registered, return receipt requested) postage prepaid, to the address of the executive offices of the other party. 5.3 Governing Law. This agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without giving effect to the choice of law or conflicts of law rules and laws of such jurisdiction. 5.4 Severability. In case any provision contained in this Management Agreement shall be held to be illegal, invalid or unenforceable, the legality, validity and enforceability of all remaining provisions shall not be in any way affecting or impaired thereby. 5.5 Counterparts. This Management Agreement may be executed in one or more counterparts, each of which shall be deemed to constitute an original, and all of which taken together shall constitute one and the same agreement. 5.6 Entire Agreement. This Management Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, arrangements and understanding with respect to the subject matter hereof. No breach of any covenant, agreement warranty or representation made herein shall be deemed waived unless expressly waived in writing by the party who might assert such breach. IN WITNESS WHEREOF, the parties have caused this Management Agreement to be executed as of the date first above written. FITZGERALDS GAMING CORPORATION By: /s/ PHILIP D. GRIFFITH ------------------------------------ Philip D. Griffith Chairman, President and C.E.O. FITZGERALDS LAS VEGAS, INC. By: /s/ PHILIP D. GRIFFITH ------------------------------------ Philip D. Griffith Chairman, President and C.E.O. 4 EX-10.(PP) 7 AGREEMENT 1 EXHIBIT 10pp AGREEMENT THIS AGREEMENT is made and entered into as of the 25th day of February, 1999 by and between FITZGERALDS LAS VEGAS, INC. dba FITZGERALDS CASINO/HOTEL (hereinafter, called the "Employer") and its successors and assigns, and the LOCAL JOINT EXECUTIVE BOARD OF LAS VEGAS, for and on behalf of CULINARY WORKERS UNION, LOCAL NO. 226 and BARTENDERS UNION, LOCAL NO. 165 (hereinafter, called the "Union"). WITNESSETH: WHEREAS, the parties have, by negotiations and collective bargaining, reached complete agreement on wages, hours of work, working conditions and other related, negotiable subjects to be incorporated into a new Labor Agreement which shall supersede all previous verbal or written agreements in conflict with or modified by this Agreement applicable to the employees in the bargaining unit defined herein which may have existed between the Employer and the Union or between the predecessor of the Employer, if any, and the predecessor of the Union, if any. NOW, THEREFORE, in consideration of the foregoing, the execution of this Agreement and the full and faithful performance of the covenants, representations and warranties contained herein, it is mutually agreed as follows: ARTICLE 2: HIRING OF EMPLOYEES 2.01. Hiring Procedure. Whenever the Employer finds it necessary to hire new employees for those classifications covered by this Agreement, it may recruit and procure applicants from any source. At its sole option, the Employer may notify the Union who shall assist the Employer in obtaining applicants who meet the qualifications required by the Employer. When applicable, the Union's selection of applicants for referral shall be on a nondiscriminatory basis, and shall not be based upon or in any way affected by membership in the Union or the Union's bylaws, rules, regulations, constitutional provisions or any other aspects or obligations of Union membership, policies, or requirements, or upon an applicant's race, color, religion, sex, age or national origin. The Employer shall be the sole judge of an applicant's suitability, competence and qualifications to perform the work of any job to be filled. The Employer may accept or reject any applicant for employment, in accordance with applicable laws. When the Employer considers applicants for employment who have not been referred to the Employer by the Union's dispatch office, the Employer shall, in order to maintain a consistent and orderly process, advise such applicants that in order to obtain employment they must be dispatched by the Union's dispatch office in accordance with the regular procedures of that office. The Employer agrees no employee will be hired or put to work without a referral slip from the Union's Dispatch Office except in the case of an emergency. The Employer may designate to the Union's dispatch office by name the employees that shall be dispatched for available positions. 1 2 The Union's referral service shall send applicants named by the Employer directly back to the Employer. Such applicants named by the Employer shall be processed by the Union's referral service in the same manner as all others processed by the Union's referral service without any discrimination. Any applicant named by the Employer shall be permitted by the Union's referral service to register in the same manner as others. If there are any problems with processing of applicants, the parties will review such problems and make such changes as may be necessary. The Employer shall provide the Union on a timely basis with copies of the names, social security numbers, departments, and job titles of all employees hired by the Employer. ARTICLE 9: WORK SHIFTS, WORKWEEK, AND OVERTIME 9.01 SHIFT AND WEEKLY OVERTIME. For the purposes of this Article, eight (8) hours shall constitute a work day and a full shift for employees scheduled for five (5) day workweeks, and ten (10) hours shall constitute a workday and full shift for employees scheduled for four (4) day workweeks. Six (6) hours or less shall constitute short shift. As used in this Article, the term "workweek" means five (5) consecutive days of work consisting of either full or short shifts or four (4) consecutive days of work scheduled for ten (10) hour shifts. All work performed in excess of eight (8) hours (or ten (10) if applicable) on one (1) workday, as defined above, or in excess of forty (40) hours in one (1) workweek, as defined above, shall constitute overtime and shall be paid at time and one-half (1-1/2X) the employee's straight time hourly rate of pay, except that work performed on an employee's sixth (6th) and seventh (7th) consecutive days of work shall be paid at one and one-half (1-1/2X) and two and one-half (2-1/2X) times the employee's straight time rate of pay respectively. For banquet employees, overtime is due only if the employee works in excess of eight (8) hours on one work day on a single job. Overtime shall not be paid under this Section for more than one reason for the same hours worked. Holidays not worked and paid at the straight time rate under Section 12.02(a) below, shall be considered in calculating weekly overtime if such holiday occurs on a regularly scheduled workday of the employee, and such a holiday shall also be considered as a shift worked for the purposes of Section 9.03(a) below. Ten (10) hour shifts may be scheduled for employees in all classifications, except for Cooks and Miscellaneous Kitchen Help and Housekeeping classifications who may voluntarily agree to be scheduled for ten (10) hour shifts. ALL WORK PERFORMED BY AN EMPLOYEE WITH A TEN (10) HOUR SHIFT ON THAT EMPLOYEE'S FIFTH (5TH) CONSECUTIVE DAY OF WORK WILL BE PAID AT TIME AND ONE-HALF (1-1/2X), ON THAT EMPLOYEE'S SIXTH (6TH) CONSECUTIVE DAY OF WORK WILL BE PAID AT TWO TIMES (2X), AND ON THE EMPLOYEE'S SEVENTH (7TH) CONSECUTIVE DAY OF WORK WILL BE PAID AT TWO AND ONE-HALF (2-1/2X) THE EMPLOYEE'S STRAIGHT-TIME HOURLY RATE OF PAY RESPECTIVELY. 2 3 ARTICLE 11: VACATIONS 11.03. TIME OF TAKING VACATION. Vacations are due on the employee's anniversary date of employment as set forth above and shall be granted at such time if the employee makes a written request therefore at least thirty (30) days prior to his anniversary date. If an employee does not so request his vacation, the Employer may assign the vacation for a period within three (3) months of the employee's anniversary date of employment; and under such circumstances the employee shall be given at least thirty (30) days' advance notice by the Employer of the vacation period. Employees with children who attend elementary or high school shall be granted their vacation, if eligible, during the school vacation period upon thirty (30) days' advance written application to the Employer. As an exception to the foregoing provisions of this Section, showroom employees shall have the option of taking their vacations when the showroom is closed for remodeling or renovation. Subject to the above provisions of this Section, preference for vacation periods shall be based on the seniority of the employees entitled to vacations, provided that the Employer shall have the right to schedule vacations of employees requesting the same vacation period so as not to interfere with the orderly, efficient and productive operation of the hotel-casino. The Employer may not deny an employee a requested vacation period under the preceding sentence if the Union can furnish a qualified replacement employee for the requested vacation period. An employee entitled to four (4) weeks vacation may split his vacation into two (2) segments of two (2) weeks each. AN EMPLOYEE ENTITLED TO TWO (2) OR MORE WEEKS OF VACATION MAY SPLIT HIS/HER VACATION TIME INTO SEGMENTS OF ONE (1) WEEK EACH. In all other cases, the full vacation to which an employee is entitled shall be given in consecutive days. An employee must take all vacation time before the end of the anniversary year following the anniversary year in which the vacation is earned. ARTICLE 12: HOLIDAYS 12.03. FAILURE TO REPORT. An employee scheduled by the Employer to work on a particular holiday who fails to report for such scheduled work shall not receive holiday pay for that holiday. IF THERE IS A PATTERN OF ABSENTEEISM ESTABLISHED ON THE WORK SHIFTS BEFORE AND/OR AFTER A HOLIDAY, THAT EMPLOYEE MAY BE REQUIRED TO PROVIDE DOCUMENTATION JUSTIFYING THE ABSENCE. IN THE ABSENCE OF THE REQUESTED DOCUMENTATION, HOLIDAY PAY MAY BE REFUSED. 3 4 ARTICLE 13: LEAVE OF ABSENCE 13.03. Reasons for Leaves of Absence. (b) Leaves of absence without pay for a bona fide medical condition or serious health conditions not compensable under the SIIS shall be granted for periods not to exceed six (6) months total during any twelve (12) month period except that an employee on a leave of absence under this subsection because of pregnancy related medical condition may supplement the six (6) month leave provided here with a borrowing of part of the leave to which the employee would become entitled under subsection 13.01(d) after birth of an employee's child. (d) Leaves of absence without pay for a period of up to twelve (12) months shall be granted for the birth and caring of employee's children or for the placement of a child with employee for adoption or foster care provided that 1) the employee shall be entitled to a minimum of twelve (12) weeks during any twelve (12) month period; 2) the leave ends when the child is one (1) year old or earlier; and 3) proof of the child's birth, adoption or foster care is presented. (f) Leaves of absence without pay or benefits shall be granted to up to four (4) employees at a time, not from the same department, and for no more than six (6) months (unless a longer time is agreed upon by the Employer, the Union and the employee), for the purpose of accepting employment with the Union, provided that the employee on leave shall not be assigned by the Union to perform services on its behalf which involve (a) the Employer who has granted the leave, (b) that Employer's employees, or (c) visiting that Employer's premises. ARTICLE 14: MEALS 14.02. Number of Meals. All employees scheduled to work shall be provided one (1) meal per shift, so long as such meal is provided in a dining room maintained by the Employer for the use of, and normally used by, all employees of the Employer, offering a full-course menu with a daily variety of hot and cold choices for all meals in a clean, pleasant, dining room-like setting. Should such conditions not be met, employees working a full shift shall be provided with two (2) meals per shift. ARTICLE 16: MISCELLANEOUS 16.16. Group Deliveries. Except where the Employer now pays a higher rate which shall not be reduced, when Bellhops deliver magazines, newspapers, or similar items, they shall receive ten cents (.10 cents) for each delivery left outside a guest room and fifty cents (.50 cents) for each delivery left inside the room. This shall not apply to hotel-related individual deliveries. Where more than twenty-five (25) deliveries are made to the same group, Bell Captains shall share in the total gratuity on the same percentage basis specified for Captains in Exhibit 3. 4 5 ARTICLE 18: SPECIAL EVENTS 18.03. BELLHOP SERVICE. Where Bellhops are not given the opportunity to room special event or complimented guests, they shall receive not less than TWO DOLLARS ($2.00) per person checking in and out. For package guests, the Bellhops shall receive for each person using the package, TWO DOLLARS ($2.00) per person checking in and/or out only where baggage is delivered and removed as part of a group arrival or departure and the guest requests Bellhop service. The TWO DOLLARS ($2.00) gratuity will not apply to special events and/or packages that were agreed upon with, and/or proposed to, special event and/or package sponsors prior to the execution of this Agreement, provided that the Employer furnishes the Union with a list of all such special events and/or packages. Set arrivals and/or departures shall be evidenced by a manifest. These guaranteed gratuities shall be paid only to Bellhops who actually perform the services. These guaranteed gratuities do not apply to diverted air carriers. THESE GUARANTEED GRATUITIES DO NOT APPLY TO GROUPS WITH WHOM THE EMPLOYER CURRENTLY HAS CONTRACTS AT THE $1.75 RATE OR TO WHOM THE EMPLOYER HAS MADE FIRM OFFERS AT THAT RATE. THE EMPLOYER WILL FURNISH THE UNION WITH A LIST OF ALL SUCH CONTRACTS AND OFFERS AT THE $1.75 RATE. ALL NEW CONTRACTS AND OFFERS WILL BE AT THE $2.00 RATE. ARTICLE 25: HEALTH AND WELFARE 25.01. AMOUNT OF CONTRIBUTIONS. There presently is in effect, pursuant to the agreement of the parties, a group life, medical, surgical and hospital plan involving a trust fund and trust agreement for the Hotel Employees and Restaurant Employees International Union Welfare Fund (the "Fund"). The parties hereto agree that the aforesaid trust agreement and any amendments shall be in effect during the period of this Agreement. The Employer shall make, as of June 1, 1997, for all hours worked on and after that date, a contribution to the Fund of one dollar and eighty-two cents $1.82 per hour worked, on or before the fifteenth (15th) day of each month for the previous month. EFFECTIVE JUNE 1, 1998, THE EMPLOYER SHALL CONTRIBUTE UP TO ONE DOLLAR AND EIGHTY-TWO CENTS ($1.82) PER HOUR WORKED TO THE FUND. HOWEVER, IF DURING THE CONTRACT YEAR JUNE 1, 1998 THROUGH MAY 31, 1999, THE TRUSTEES DETERMINE IN THEIR SOLE DISCRETION THAT A HIGHER CONTRIBUTION, UP TO A MAXIMUM OF ONE DOLLAR AND NINETY-TWO CENTS ($1.92) PER HOUR WORKED, IS REQUIRED TO PAY THE COST OF THE BENEFITS THEN IN EFFECT FOR THE PARTICIPANTS IN THE FUND IN SOUTHERN NEVADA, THEN THE EMPLOYER SHALL CONTRIBUTE THAT HIGHER AMOUNT UP TO A MAXIMUM OF $1.92 PER HOUR WORKED, UPON NOTICE TO THE EMPLOYER BY THE TRUSTEES THAT THEY HAVE DETERMINED, BY MAJORITY VOTE IN ACCORDANCE WITH THE PROCEDURES OF THE FUND, THAT SUCH HIGHER AMOUNT IS REQUIRED. THE COST OF THE BENEFITS SHALL INCLUDE THE DIRECT COST OF CLAIMS, ADMINISTRATION, AND OTHER COSTS, AND THE MAINTENANCE OF PRUDENT RESERVES AND SHALL BE NET OF INVESTMENT AND OTHER INCOME (TAKING INTO ACCOUNT THE EXISTING SURPLUSES FROM THE PRIOR CONTRACT YEAR RESULTING FROM EMPLOYER CONTRIBUTIONS IN SOUTHERN NEVADA). THE EMPLOYER EXPRESSLY AGREES THAT IT SHALL NOT CHALLENGE THE DECISION OF THE TRUSTEES IN ANY OTHER FORUM NOR FOR ANY OTHER REASON FAIL TO PAY THE AMOUNT OF THE CONTRIBUTION REQUIRED BY THIS PARAGRAPH. Effective June 1, 1999, the Employer shall contribute up to two dollars and two cents ($2.02) per hour worked to the Fund. However, the parties agree that it is their intent that the Employer 5 6 contribution as of that date be less than $2.02 per hour worked if in the sole discretion of the Trustees of the Fund a lesser contribution is adequate to pay the costs of the benefits then in effect for participants in the Fund in Southern Nevada for the period of June 1, 1999 through May 31, 2000. The cost of the benefits shall include the direct cost of claims, administration and other costs, and the maintenance of prudent reserves, and shall be net of investment and other income (TAKING INTO ACCOUNT THE EXISTING SURPLUSES FROM THE PRIOR CONTRACT YEAR RESULTING FROM EMPLOYER CONTRIBUTIONS IN SOUTHERN NEVADA). By April 1, 1999, the Trustees of the Fund shall advise the Employer if they have determined, by majority vote in accordance with the procedures of the Fund, that a contribution of less than $2.02 per hour worked is adequate effective June 1, 1999 and if so of the appropriate CONTRIBUTION AS OF THAT DATE. Absent notice by the Trustees that less than $2.02 per hour worked is required, the Employer shall contribute $2.02 per hour worked effective June 1, 1999. The Employer expressly agrees that it shall abide by the determination of the Trustees as set forth in this paragraph, and shall not challenge the decision of the Trustees, or the failure by the Trustees to determine that less than $2.02 per hour worked is required effective June 1, 1999 in any other forum nor for any other reason delay or fail to pay the amount of contribution required by this paragraph effective June 1, 1999. Effective June 1, 2000, the Employer shall contribute up to two dollars and twelve cents ($2.12) per hour worked to the Fund. However, the parties agree that it is their intent that the Employer contribution as of that date be less than $2.12 per hour worked if in the sole discretion of the Trustees of the Fund a lesser contribution is adequate to pay the costs of the benefits then in effect for participants in the Fund in Southern Nevada for the period of June 1, 2000 through May 31, 2001. The cost of the benefits shall include the direct cost of claims, administration and other costs, and the maintenance of prudent reserves, and shall be net of investment and other income (TAKING INTO ACCOUNT THE EXISTING SURPLUSES FROM THE PRIOR CONTRACT YEAR RESULTING FROM EMPLOYER CONTRIBUTIONS IN SOUTHERN NEVADA). By April 1, 2000, the Trustees of the Fund shall advise the Employer if they have determined, by majority vote in accordance with the procedures of the Fund, that a contribution of less than $2.12 per hour worked is adequate effective June 1, 2000 and if so of the appropriate CONTRIBUTION AS OF THAT DATE. Absent notice by the Trustees that less than $2.12 per hour worked is required, the Employer shall contribute $2.12 per hour worked effective June 1, 2000. The Employer expressly agrees that it shall abide by the determination of the Trustees as set forth in this paragraph, and shall not challenge the decision of the Trustees, or the failure by the Trustees to determine that less than $2.12 per hour worked is required effective June 1, 2000 in any other forum nor for any other reason delay or fail to pay the amount of contribution required by this paragraph effective June 1, 2000. Effective June 1, 2001, the Employer shall contribute up to two dollars and twenty-two cents ($2.22) per hour worked to the Fund. However, the parties agree that it is their intent that the Employer contribution as of that date be less than $2.22 per hour worked if in the sole discretion of the Trustees of the Fund a lesser contribution is adequate to pay the costs of the benefits then in effect for participants in the Fund in Southern Nevada for the period of June 1, 2001 through May 31, 2002. The cost of the benefits shall include the direct cost of claims, administration and other costs, and the maintenance of prudent reserves, and shall be net of investment and other income (TAKING INTO ACCOUNT THE EXISTING SURPLUSES FROM THE PRIOR CONTRACT YEAR RESULTING FROM EMPLOYER CONTRIBUTIONS IN SOUTHERN NEVADA). By April 1, 2001, the Trustees of the Fund shall advise the Employer if they have determined, by majority vote in accordance with the procedures of 6 7 the Fund, that a contribution of less than $2.22 per hour worked is adequate effective June 1, 2001 and if so of the appropriate CONTRIBUTION AS OF THAT DATE. Absent notice by the Trustees that less than $2.22 per hour worked is required, the Employer shall contribute $2.22 per hour worked effective June 1, 2001. The Employer expressly agrees that it shall abide by the determination of the Trustees as set forth in this paragraph and shall not challenge the decision of the Trustees, or the failure by the Trustees to determine that less than $2.22 per hour worked is required effective June 1, 2001 in any other forum nor for any other reason delay or fail to pay the amount of contribution required by this paragraph effective June 1, 2001. Contributions shall be forwarded to the bank designated by the Hotel Employees and Restaurant Employees International Union Welfare Fund. A list of the names and social security numbers of employees covered shall accompany the payment. As used in this Section, "hours worked" shall mean all hours for which an employee is compensated, including vacation and holiday hours paid for. 25.02 DELINQUENT CONTRIBUTIONS. In the event the Employer is in arrears in the payment of contributions, it shall be liable for late fees, interest and liquidated damages as established by the Trustees, legal fees, court and/or arbitration costs, and audit and other expenses incidental to the collection of said delinquency. THE EMPLOYER SHALL MAKE AVAILABLE FOR INSPECTION AND AUDIT SUCH PAYROLL RECORDS AS THE FUND MAY LAWFULLY REQUIRE. 25.03 ACCEPTANCE OF TRUST. The Employer and the Union agree to be bound by the Agreement and Declaration of Trust of the said Hotel Employees and Restaurant Employees International Union Welfare Fund as may, from time to time, be amended, and they do hereby irrevocably designate as their respective representatives on the Board of Trustees, such Trustees named in said Agreement and Declaration of Trust as Employer and Union Trustees, together with their successors selected as provided therein, and agree to abide and be bound by all procedures established, and actions taken by, the Trustees pursuant to said Trust Agreement. ANY PROVISION IN THIS AGREEMENT THAT IS INCONSISTENT WITH THE AGREEMENT AND DECLARATION OF TRUST, OR THE PLAN OF BENEFITS, RULES, OR PROCEDURES ESTABLISHED BY THE TRUSTEES, SHALL BE NULL AND VOID. ARTICLE 26: PENSIONS 26.02 CONTRIBUTIONS. Commencing JUNE 1, 1997, said contributions shall be forty-five cents (45 cents) per hour worked. Said contributions shall be due and payable to the fund not later than the fifteenth (15th) day of each month. A list of the names and social security numbers of the employees covered shall accompany the payment. As used in this Section, "hours worked" shall mean all hours for which an employee is compensated, including vacation and holiday hours paid for. 26.05. 401(k) PLAN UPON NOTIFICATION TO THE EMPLOYER BY MEANS OF AN APPROPRIATE AUTHORIZATION FORM EXECUTED BY AN EMPLOYEE, THE EMPLOYER SHALL DEDUCT FROM THE WAGES OF AN EMPLOYEE AN AMOUNT DESIGNATED BY THE EMPLOYEE FOR CONTRIBUTION TO A TAX-DEFERRED 401(K) PLAN. AND SHALL SEND 7 8 SUCH DEDUCTED AMOUNTS TO THE PLAN. THE UNION IS RESPONSIBLE FOR ESTABLISHMENT OF THE PLAN. THE EMPLOYER SHALL IN NO WAY BEAR ANY COSTS ASSOCIATED WITH THE PLAN, EXCEPT FOR DEDUCTION AND SENDING OF AMOUNTS AS REQUESTED BY THE EMPLOYEE. THE EMPLOYER SHALL MAKE NO CONTRIBUTION TO THE PLAN. THE UNION SHALL INDEMNIFY, DEFEND AND SAVE THE EMPLOYER HARMLESS AGAINST ANY AND ALL CLAIMS, DEMANDS, SUITS OR OTHER FORMS OF LIABILITY THAT SHALL ARISE OUT OF OR BY REASON OF ACTION TAKEN BY THE EMPLOYER IN RELIANCE UPON PAYROLL DEDUCTION AUTHORIZATION FORMS SUBMITTED TO THE EMPLOYER FOR THE 401(K) PLAN. ARTICLE 29: SUBCONTRACTING AND SUBLEASING 29.01. It is recognized that the Employer and the Union have a common interest in protecting work opportunities for all employees covered by this Agreement and employed on a regular basis. Therefore, no work customarily performed by employees covered by this Agreement shall be performed under any sublease, subcontract, or other agreement unless the terms of any lease, contract or other agreement specifically state that (a) all such work shall be performed only by members of the bargaining unit covered by this Agreement, and (b) the Employer shall at all times hold and exercise full control of the terms and conditions of employment of all such employees pursuant to the terms of this Agreement. The provisions of this Article apply to all operations on the Employers premises, regardless of location or displacement of employees or prior use of the area occupied by such operations. Any sublease, subcontract, or other agreement for the performance of cleaning or janitorial services shall first require the approval of the Union. Notwithstanding the foregoing provisions hereof, the Employer may purchase from outside sources for use in its establishment convenience foods INCLUDING PRE-BAKED GOODS, prepared frozen foods, pre-mixed salads and peeled vegetables. HIRING RATE 80%-1ST YEAR, THEN 90% 90%-2ND YEAR, THEN 100% ALL INCUMBENT 80% WOULD NOT BE AFFECTED BY THE CHANGE. ONLY THOSE NEW HIRES POST-RATIFICATION WOULD BE ON THE NEW SCHEDULE. 8 9 ARTICLE 31: TERMINATION 31.01. This Agreement shall be in full force and effect from JUNE 1, 1997, to and including MAY 31, 2002, and from year to year thereafter unless sixty (60) days written notice to change, modify or terminate is given by either party prior to JUNE 1, 2002, or in any subsequent year thereafter. IN WITNESS WHEREOF, the parties hereto by their duly designated representatives have hereunto set their hands this 25th day of February, 1999, in Clark County, State of Nevada. EMPLOYER - FITZGERALDS LAS VEGAS LOCAL JOINT EXECUTIVE BOARD INC. dba FITZGERALDS CASINO/HOTEL OF LAS VEGAS BY: /s/ [Signature Illegible] BY: /s/ [Signature Illegible] ------------------------------ ----------------------------- ITS: Vice President/G.M. ITS: President ----------------------------- ----------------------------- BY: /s/ [Signature Illegible] ----------------------------- ITS: SEC - TREAS ----------------------------- 9 10 WAGES INCREASES .25 cents RETRO THROUGH RATIFICATION (PAID IN FULL) WITH .25 cents RATE INCREASE UPON RATIFICATION
*Retro .250 cents ===== Rate Increase ------------- Ratification .250 cents 12/01/99 .125 cents 06/01/00 .125 cents 12/01/00 .250 cents 06/01/01 .400 cents 12/01/01 .400 cents ----- Total $1.55 =====
*Company agrees to pay retro to those laid-off in December. 10 11 EXHIBIT 2 - CHECK-OFF AGREEMENT 1. Pursuant to the Union Security provision of the Agreement between SAM-WILL, INC. dba FITZGERALDS (hereinafter, referred to as the "Employer") and the LOCAL JOINT EXECUTIVE BOARD OF LAS VEGAS, representing the Culinary Workers Union, Local No. 226, and the Bartenders Union, Local No. 165 (hereinafter, referred to as the "Union"), the Employer, during the term of the Agreement, agrees to deduct each month Union membership dues (excluding initiation fees, fines and assessments) from the pay of those employees who have authorized such deductions in writing as provided in this Check-Off Agreement. Such membership dues shall be limited to amounts levied by the Unions in accordance with their Constitutions and Bylaws. Deductions shall be made only for those employees who voluntarily submit to the hotel employing them the original or a facsimile of a written authorization in accordance with the "Authorization for Check-Off of Dues" form set forth below. It is the Union's responsibility to provide the employees with this form. 2. On and after the date this agreement is ratified by employees represented by the Union, the required authorization shall be in the following form: PAYROLL DEDUCTION AUTHORIZATION Date____________________ I, the undersigned, hereby request and voluntarily authorize the Employer to deduct from any wages or compensation due me, an amount equal to the regular monthly dues uniformly applicable to members of ___________________ ("Union") in accordance with the Constitution and Bylaws of the Union. This authorization shall remain in effect and shall be irrevocable unless I revoke it by sending written notice to both the Employer and the Union by registered mail during a period of fifteen (15) days immediately succeeding any yearly period subsequent to the date of this authorization or subsequent to the date of termination of the applicable contract between the Employer and the Union, whichever occurs sooner, and shall be automatically renewed as an irrevocable check-off from year to year unless revoked as hereinabove provided, irrespective of whether I am a Union member. Signed_______________________ Social Security No.__________ The Employer shall continue to honor authorization in the following form executed by employees prior to the date of this agreement is ratified by employees represented by the Union: 11 12 PAYROLL DEDUCTION AUTHORIZATION Date________________________ I, the undersigned, a member of _________________, hereby request and voluntarily authorize the Employer to deduct from any wages or compensation due me, an amount equal to the regular monthly dues uniformly applicable to members of ___________________ ("Union") in accordance with the Constitution and Bylaws of the Union. This authorization shall remain in effect and shall be irrevocable unless I revoke it by sending a written notice to both the Employer and __________, by registered mail during a period of fifteen (15) days immediately succeeding any yearly period subsequent to the date of this authorization or subsequent to the date of termination of the applicable contract between the Employer and the Union, whichever occurs sooner, and shall be automatically renewed as an irrevocable Check-Off from year to year unless revoked as herein above provided. 3. Deductions shall be made only in accordance with the provisions of said Authorization for Check-Off of Dues, together with the provisions of this Check-Off Agreement. 4. The original or a facsimile of a properly executed Authorization of Check-Off of Dues form for each employee for whom Union membership dues are to be deducted hereunder shall be delivered to the Employer before any payroll deductions are made. Deductions shall be made thereafter only under Authorization for Check-Off of Dues forms which have been properly executed and are in effect. Any Authorization for Check-Off of Dues which is incomplete or in error will be returned to the Union by the Employer. 5. Check-off deductions under all properly executed Authorization for Check-Off of Dues forms which have been delivered to the Employee on or before the fifteenth (15th) day of any particular month thereafter shall begin with the following calendar month. 6. Deductions shall be made in accordance with the provisions of this Check-Off of Union Membership Dues section, from the pay received on the first payday of each month regardless of the payroll period ending date represented on that payroll check. These provisions for dues deductions shall not apply to banquet workers. 7. The Employer agrees to make deductions as otherwise provided in this Check-Off of Union Membership Dues section in the case of employees who have returned to work after authorized leave of absence. 8. In cases where a deduction is made which duplicates a payment already made to the Union by an employee, or where a deduction is not in conformity with the provisions of the Union Constitution and By-laws, refunds to the employee will be made by the Union. 9. The Employer shall remit each month to the designated financial officer of the Union, the amount of deductions made for that particular month, together with a list of employees 12 13 and their Social Security numbers, for whom such deductions have been made. The information shall be in computer readable electronic form, in any one of the following media: 1. 8mm cartridge; 2. 1/2 nine track tape, 1600 or 6250 BPI; 3. 8" diskette; 4. 5-1/4" or 3-1/2" diskette in ASCII format. The remittance shall be forwarded to the above designated financial officer not later than the fifteenth (15th) of the month, for the deduction from the first paycheck received by the employee (prior to the fifteenth {15th} of the month) for the month the dues are being paid. 10. Any employee whose seniority is broken by death, quit, discharge or layoff, or who is transferred to a position outside the scope of the bargaining unit, shall cease to be subject to check-off deductions beginning with the month immediately following that in which such death, quit, discharge, layoff, or transfer occurred. 11. In the event any employee shall register a complaint with the Employer alleging his/her dues are being improperly deducted, the employer will make no further deductions of the employee's dues. Such dispute shall then be reviewed with the employee by a representative of the Union and a representative of the Employer. 12. The Employer shall not be liable to the Union by reason of the requirements of this Check-Off Agreement for the remittance of payment of any sum other than that constituting deduction made from employee wages earned. 13. The Union shall indemnify, defend and save the Employer harmless against any and all claims, demands, suits or other forms of liability that shall arise out of or by reason of action taken by the Employer in reliance upon payroll deduction authorization cards submitted to the Employer. 13 14 SIDE LETTER BOOTH CASHIERS - The Company will have full and extensive training on the handling of traveler's checks. Discipline can only occur in regard to traveler's checks if an employee does not follow the established procedure. VOLUNTARY SHORT SHIFTS - We reject in its present configuration but strongly suggest a continuing subcommittee to see if voluntary short shifts work. BELL DEPARTMENT RE-PAYMENT - The current Bellmen agree to re-pay to the Employer at an amount of twenty-five dollars ($25.00) out of each pay check until each Bellman pays off the agreed upon amount owed to the Company. 14 EX-10.(QQ) 8 LABOR AGREEMENT 1 EXHIBIT 10(qq) LABOR AGREEMENT between FITZGERALDS LAS VEGAS, INC. d/b/a FITZGERALDS CASINO/HOTEL [FITZGERALDS LOGO] AND UNITED BROTHERHOOD OF CARPENTERS AND JOINERS OF AMERICA SOUTHERN CALIFORNIA NEVADA REGIONAL COUNCIL OF CARPENTERS, AND ITS AFFILIATED LOCAL UNION NO. 1780 LAS VEGAS, NEVADA [LOGO] For the Period August 1, 1998 through July 31, 2001 2 TABLE OF CONTENTS
DESCRIPTION ARTICLE NO, PAGE NO, - ----------- ----------- -------- Apprenticeship 22 24 Bulletin Boards 17 22 Classifications and Wage Rates 16 20 Discipline and Discharge 13 16 Employment Procedure 3 2 Equal Opportunity 26 25 General 25 24 Grievance and Arbitration Procedure 14 18 Health and Welfare 20 23 Holidays 7 8 Hours of Work -- Overtime 6 5 Individual Agreements 18 22 Jury Duty 10 14 Leaves of Absence 9 12 Management Rights and Responsibilities 12 16 Miscellaneous 28 25 Mutual Obligation 2 2 No Strikes or Lockouts 15 20 Payment of Wages 19 22 Pension 21 23 Recognition and Definitions 1 1 Safety 27 25 Scope of Work 23 22 Seniority 11 14 Temporary Employment 24 24 Term -- Termination -- Renewal 29 26 Union Representatives and Shop Stewards 5 5 Union Security 4 4 Vacations 8 9 APPENDICES Exhibit I -- Payroll Deduction Authorization 27 Exhibit II -- Drug-Free Workplace Policy Revision Date, 10-11-97 28 Memorandum of Understanding -- Floating Holiday 37 Memorandum of Understanding 35 Memorandum of Understanding 36
3 LABOR AGREEMENT BETWEEN FITZGERALDS LAS VEGAS, INC. d/b/a FITZGERALDS CASINO/HOTEL AND UNITED BROTHERHOOD OF CARPENTERS AND JOINERS OF AMERICA, SOUTHERN CALIFORNIA-NEVADA REGIONAL COUNCIL OF CARPENTERS, AND ITS AFFILIATED LOCAL UNION NO. 1780 LAS VEGAS, NEVADA THIS AGREEMENT, entered into as of this 1st day of August 1998, by and between the FITZGERALDS LAS VEGAS, INC. d/b/a FITZGERALDS CASINO/HOTEL (hereinafter referred to as "Employer") and its successors and assigns, and the UNITED BROTHERHOOD OF CARPENTERS AND JOINERS OF AMERICA, SOUTHERN CALIFORNIA-NEVADA REGIONAL COUNCIL OF CARPENTERS AND ITS AFFILIATED LOCAL UNION NO. 1780, LAS VEGAS, NEVADA (hereinafter sometimes referred to as the "Union"). WITNESSETH WHEREAS, pursuant to a valid reopening notice dated May 22, 1998 and served upon the Employer by the Union, the parties have, by negotiations and collective bargaining, reached complete agreement on wages, hours of work, working conditions and other related negotiable subjects to be incorporated into a new Labor Agreement which shall supersede all previous verbal or written agreements applicable to the employees in the bargaining unit defined herein which may have existed between the Employer and the Union or between the predecessor of the Employer, if any, and the Union. NOW, THEREFORE, in consideration of the foregoing, the execution of this Agreement and the full and faithful performance of the covenants, representations and warranties contained herein, it is mutually agreed as follows: ARTICLE 1 RECOGNITION AND DEFINITIONS 1.01. RECOGNITION. The Employer recognized the Union as the exclusive collective bargaining representative for all employees employed by the Employer in the bargaining unit defined in Section 1.03. 1.02. DEFINITION OF EMPLOYEE. The term "employee" or "employees" as used in this Agreement means all persons directly employed by the Employer to perform work covered by the classifications set forth in Article 16, but excluding all other employees. 1.03. DEFINITION OF BARGAINING UNIT. The term "bargaining unit" means the aggregate of all employees (as such term is above defined) employed by the Employer. 4 ARTICLE 2 MUTUAL OBLIGATIONS 2.01. BINDING EFFECT OF AGREEMENT. If the Employer shall, during the term of this agreement, sell, assign or transfer its business, said Employer shall, upon execution of an agreement of sale, assignment or transfer, notify the prospective purchaser, assignee or transferee, by certified mail of the existence of this agreement and shall simultaneously send the Union, by certified mail, a copy of such notice given to the prospective purchaser, assignee or transferee. The signatory Employer shall be responsible for making adequate provisions to insure payment for accrued wages, vacations and fringe benefits as of the date of transfer. ARTICLE 3 EMPLOYMENT PROCEDURE In the employment of workmen on all work covered by this Agreement, the following provisions shall govern: 3.01. ORDER OF PREFERENCE. The Union shall establish and maintain open and nondiscriminatory employment lists for workmen desiring employment on work covered by this Agreement and such workmen shall be entitled to registration and dispatchment free of charge subject to the provisions of this section. The Employer shall first call the dispatching office of the Union, between the hours of eight o'clock a.m. (8:00 a.m.) and three o'clock p.m. (3:00 p.m.), for such applicants as it may from time to time need, and the office shall dispatch to the Employer the required number of workmen requested by the Employer, strictly in accordance with the provisions of this section. The Employer agrees not to hire applicants that have not been dispatched from the Union Hall, except as provided for in Section 3.03 of this Article. Fifty percent (50%) of the time, the Employer has the right to recruit and procure applicants for classifications covered by the Agreement from any source and the remaining fifty percent (50%) of the time, the Employer will utilize and follow the Union Hiring Hall procedures, provided that the Employers recruits either pass the journeyman test or apply and get accepted into the Carpenters' apprenticeship program. At the time the order is placed with the dispatch office, the Employer shall specify whether the job is intended to be temporary or permanent to enable the dispatcher to furnish the workman with this information before reporting for the job interview. The Employer shall specify the number of carpenters for employment and the Union shall dispatch no more than five (5) at a time for each vacancy. The Employer shall schedule the dispatched carpenters for interviews within a reasonable period of time and shall not call for additional carpenters until the dispatched group have all been interviewed. 2 5 The dispatching office will furnish, in accordance with the requests of the Employer, each such qualified and competent workman from among those entered on said lists, Apprentice or Journeyman, to the Employer by use of a written referral. The selection of workmen for referral to jobs shall be on a nondiscriminatory basis and shall not be based on, or in any way affected by, Union membership, by laws, rules, regulations, constitutional provisions, or any other aspect or obligations of Union membership, policies or requirements. The Employer may request on its company letterhead certain applicants. 3.02. APPRENTICES. If the hiring request involves an apprentice, the Union will notify the Employer the level of the apprentice at the time of referral. Progress of apprentice wage schedule shall be in accordance with the apprentice wage schedule set forth in Article 16 without exception. 3.03. ELIGIBILITY PROVISIONS FOR REGISTRATION AND DISPATCHMENT. The Union dispatcher, in the first instance shall, in accordance with the provisions of this section, determine whether an applicant is qualified to register and for which Group or List he is eligible. This determination will normally be based upon information or papers which the applicant or the Employer supplies. If any doubt exists as to any material matter, the dispatcher shall promptly undertake an investigation to secure verification of claims made by or on behalf of the applicant seeking permission to register. An applicant shall be removed from his position on the registration lists if he is dispatched to an Employer, except that any applicant who is rejected by the Employer or fails to complete three (3) full days' work, shall be reinstated to his position on the appropriate Group or List. 3.04. EMPLOYER RIGHTS. If the Union is unable to furnish competent workmen within forty-eight (48) hours of such notice, the Employer may procure employees from any other source. If men are so employed, the Employer shall immediately report to the Union the names and dates of hire of such employees. The Employer shall have the right to reject any applicant referred by the Union. 3.05. POSTING REQUIREMENTS. The Union and the Employer shall post in places where notices to applicants for employment with the Employer are customarily posted, all provisions set forth in this Agreement relating to the functioning of the hiring arrangements agreed upon. 3 6 ARTICLE 4 UNION SECURITY 4.01. UNION SHOP. Subject to the provisions of the Labor Management Relations Act, 1947, as amended, it shall be a condition of employment hereunder that all employees covered by this Agreement who are members of the Union in good standing on the date of execution of this Agreement shall remain members in good standing throughout their employment by the Employer, and those who are not members of the Union on the date of execution of this Agreement shall, on the 30th day following execution of this Agreement, become and remain members of the Union throughout their employment by the Employer. It shall also be a condition of their employment hereunder that all employees covered by this Agreement shall, on or after the 30th day following the employee's first employment by the Employer in the classifications covered hereunder, become and remain members of the Union throughout their employment with the Employer. 4.02. EFFECT OF STATE LAWS. Notwithstanding anything to the contrary therein, Section 4.01 shall not be applicable if all or any part thereof shall be in conflict with applicable law; provided, however, that if all or any part of Section 4.01 becomes permissible by virtue of a change in applicable law, whether by legislative or judicial action, the provisions of Section 4.01 held valid shall immediately apply. 4.03. CHECK-OFF. The Employer will check-off and remit to the Union initiation fees, supplemental dues, and monthly dues for employees who have executed and furnished to the Employer a payroll deduction authorization in the form of Exhibit I attached hereto which by this reference is made a part hereof. 4.04. SUPPLEMENTAL DUES. The Employer agrees to withhold from the employees' wages and contribute the sum of twenty three dollars and twenty cents ($23.20) per pay period in 1999, to the Carpenter's Southern Nevada Vacation Trust Fund for Supplemental dues. These supplemental dues shall increase by eighty cents (80 cents) per pay period for every twenty-five cent (25 cents) increase in the negotiated wage package thereafter. Subject to the following conditions, the Employer agrees that each employee may give written authorization to the Board of Trustees of the Carpenter's Vacation Savings Trust to pay on his/her behalf the above referenced hourly, supplemental dues, contribution. The Union shall bear the entire responsibility for obtaining the written authorization from the employee and furnishing said authorization to the Board of Trustees in a form satisfactory to the Trustees. All written authorization referred to above shall be irrevocable for the term of this Agreement and shall renew automatically for any future agreements unless the employee serves written notice upon the Board of Trustees and on the Union not more than twenty (20) days and not less than ten (10) days prior to the termination date of this Agreement or any future agreement. 4 7 4.05. INDEMNIFICATION. The Union will indemnify and save the Employer harmless against any and all claims, demands or any other forms of liability which may arise out of or by reason of any action taken or not taken by the Employer at the request of the Union in accordance with the provisions of this Article. ARTICLE 5 UNION REPRESENTATIVES AND SHOP STEWARDS 5.01. UNION REPRESENTATIVES. The Employer agrees that the authorized representatives of the Union shall be granted access at any reasonable time to those areas of the premises where employees represented by the Union are employed, when such visits are necessitated by matter concerning the administration of this Agreement. Whenever a Union Representative enters a work area where employees represented by the Union are employed, he will be required to go to the Office of the Director of Human Resources to notify that individual that he is on property and obtain an identification badge. If the Director of Human Resources is not available, the Union Representative is to notify the Director of Facilities that he is on property and obtain an identification badge. If neither the Director of Human Resources or the Director of Facilities are available, the Union Representative is to notify the Security Shift Supervisor he is on property and obtain the identification badge. The Union Representative is to return the identification badge to the party of issuance upon the conclusion of union business necessitated by matter concerning the administration of the Agreement. It is agreed that such representatives of the Union will conduct their business as expeditiously as possible in order to minimize interference with the Employer's business. 5.02. SHOP STEWARDS. The Union may select from among the employees Shop Stewards whose function in addition to their normal work shall be to report to the Business Representative of the Union grievances or alleged infractions of this Agreement. The Union agrees to notify the Employer in writing of the employees selected to serve as Shop Stewards. There shall be no discrimination against a Shop Steward for the performance of his agreed upon duties. ARTICLE 6 HOURS OF WORK -- OVERTIME 6.01. WORKDAY AND WORKWEEK. The regular workday shall consist of eight (8) hours work between seven o'clock a.m. (7:00 a.m.) and five o'clock p.m. (5:00 p.m.), inclusive of a meal period. The regular workweek shall consist of a guaranteed workweek or pay of five (5) consecutive eight (8) hour workdays, Monday through Saturday. 5 8 If, however, an employee fails to work through no fault of the Employer, then in that event, the guaranteed workweek will be reduced by the amount of time not worked. Further, the weekly guarantees shall not apply to the following situations: (A) The first week of employment for: I. All new hires including all employees temporarily hired to work on special projects. II Employees recalled from layoff. III. Employees providing relief for vacation or leaves of absence. IV. Employees returning to active employment from any period of absence off work. (B) The week in which an employee begins his vacation or other absence from the job if said vacation or absence does not begin at the end of the employee's scheduled workweek. (C) The week in which an employee ends his vacation or other absence from the job if the employee does not return to work at the beginning of his scheduled workweek. (D) For employees hired or recalled for special projects, the week in which a special project is completed and/or suspended. (E) For employees hired or recalled for special projects, any week of employment on a special project wherein work is not available due to conditions beyond the control of the Employer such as shortage of materials, unavailability of equipment, unavailability or inaccessibility to the work area due to business activity. (F) The first and last week of employment for employees hired to provide relief for vacations or other absences from the job. Notwithstanding the provisions of this Article, the Employer may establish shifts with starting times between four o'clock a.m. (4:00 a.m.) and five o'clock p.m. (5:00 p.m.) without penalty provided the affected employee(s) are given forty-eight (48) hours notice of change in shift and such change remains in effect a minimum of five (5) calendar days. If the Employer establishes, as allowed by this subsection, a shift starting earlier than seven o'clock a.m. (7:00 a.m.), the Employer will first seek volunteers from among its regular employees in order of seniority. If there is an insufficient number of volunteers, the Employer will assign these earlier shifts to the least senior employees. 6 9 The Employer may also establish a workweek of any five (5) consecutive days out of seven days to include Sunday, without penalty, provided that the affected employee(s) are given seven (7) calendar days notice and that such workweek will remain in effect for thirty (30) calendar days. The number of employees that the Employer may establish Sunday as a regular day of work is limited to ten (10) percent of the work force or two (2) employees, which ever number is the greater. If the Employer establishes a workweek that includes Sunday, the Employer will first seek volunteers from among its regular employees giving the Sunday-inclusive workweek to the most senior volunteers. If there is an insufficient number of volunteers, the Employer will assign the Sunday-inclusive workweek to the least senior employees. 6.02.(A) OVERTIME. For all hours worked in excess of forty (40) hours in an employee's workweek and all hours worked in excess of eight (8) hours per day, an employee will be compensated at the rate of time and one half (1 1/2 x) times the regular straight time rate. For all hours worked in excess of twelve hours on any day and all hours worked on the seventh (7th) day worked of an employee's regular workweek shall be compensated at the rate of double-time (2x) the regular straight-time rate. (B) SIXTH (6TH) DAY. An employee who works on the first regularly scheduled day off as the sixth day (6th) of work shall receive time and one-half (1 1/2 x) the regular straight-time rate for the first eight (8) hours and double time (2x) thereafter. An employee who works on the second (2nd) regularly scheduled day of work as a sixth (6th) day of work shall receive double time (2x) the regular straight-time rate for all hours worked on such day. The exception of 6.02(c) shall apply on such sixth (6th) day of work or seventh (7th) under 6.02(a) shall apply at the regular straight-time rate for all made-up hours up to the forty (40) hours in the work week. (C) EXCEPTION. In those instances where an employee fails to work forty (40) hours during the regular work-week due to personal reasons, the Employer, if the employee is willing, may schedule the employee to work on his days off. In such event, the pay for such work, not exceeding eight (8) hours per day, shall be computed at the straight-time rate of pay. (D) SHIFT SCHEDULES. The Employer may establish shifts other than the shift specified in Section 6.01, but no such shift shall be established for a period less than five (5) days. No shift shall be scheduled to work more than eight (8) hours in any twenty-four (24) hour period nor longer than forty (40) hours in any week. Regular starting and finishing times shall be posted for each shift established and all time worked outside of the posted hours shall be paid for as overtime. A differential of ten percent (10%) per hour shall be allowed for work performed on the second or "swing" shift and on the night or "graveyard" shifts. 7 10 (E) SHIFT CHANGES. The Employer may change an employee's shift starting time by no more than four (4) hours when the Employer deems it necessary to meet the needs of the operation in the event of unforeseen problems: e.g., mechanical breakdowns, to restore area(s) or room(s) to full service, or to perform casino lay-outs. In such cases, the employee shall be notified of the change before leaving work on his prior shift . Such change in shift starting time shall not subject the Employer to overtime pay liability unless the employee actually works more than eight (8) hours on that workday. This is not intended to deprive an employee the option of completing his regular shift. 6.03. REPORTING PAY. An employee who reports for work as scheduled and who is not notified prior to leaving home not to report, shall be provided with eight (8) hours work or shall be paid for eight (8) hours at his regular, straight-time rate of pay unless the employee voluntarily leaves his work or unless the failure to provide work is due to fire, flood, power outages or other circumstances beyond the control of the Employer. In such cases, the employee shall be paid only for hours actually worked. An employee called in to work in an emergency shall be guaranteed four (4) hours work at the applicable overtime rate. 6.04. PROHIBITION AGAINST PYRAMIDING PREMIUM PAY. There will be no pyramiding or premium pay under any of the terms of this Agreement, that is, no type of premium or penalty pay shall be combined with or paid on top of any other type of premium or penalty pay. Where more than one premium or penalty rate applies to the same hours or work, the higher premium only shall apply. ARTICLE 7 HOLIDAYS 7.01. RECOGNIZED HOLIDAYS. The following days shall be recognized as holidays for the purpose of this Agreement: > New Year's Day -- January 1st > Presidents' Day -- 3rd Monday in February > Memorial Day -- Last Monday in May > Independence Day -- July 4th > Labor Day -- 1st Monday in September > Thanksgiving Day -- 4th Thursday in November > Christmas Day -- December 25th A floating holiday in lieu of Veterans' Day may be selected by each employee subject to management approval of an employee's reasonable request as to the time of the holiday and in accordance with the Memorandum of Understanding regarding Floating Holiday. 8 11 Except in cases where circumstances make it impossible to do so, the Employer shall give forty-eight (48) hours advance notice of holiday work schedules. This provision shall not operate to deprive an employee of holiday pay if he has made prior arrangements with his Employer to be absent on a recognized holiday. All such holidays are recognized whether an employee is scheduled to work or not work on such days that the holiday may fall. 7.02. COMPENSATION. An employee shall be paid at the rate of two and one-half (2-1/2x) his regular, straight-time rate of pay for work performed on a recognized holiday, with a guarantee of eight (8) hours, as provided in Article 6. An eligible employee shall be paid for eight (8) hours at his regular, straight-time rate for holidays on which no work is performed. An employee who performs work on a recognized holiday which coincided with the sixth (6th) or seventh (7th) day of his workweek shall be paid for such work at three (3) times the employee's regular, straight-time rate of pay. Except in cases of bona fide illness or injury, an employee who is scheduled to work on a recognized holiday and who fails to do so, shall receive no pay for the holiday. Employees may be required to produce satisfactory evidence that their absence was, in fact, due to bona fide illness or injury. If a recognized holiday falls during an employee's vacation period, the employee shall receive an additional day's pay computed on the basis of eight (8) hours at his regular, straight-time rate. ARTICLE 8 VACATIONS 8.01.(A) Each regular employee who has had one (1) year of continuous service, as defined in Section 8.02, will receive one (1) week's vacation with pay computed on the basis of forty (40) straight-time hours, including shift differential, if any. (B) Each regular employee who has had two (2) but less than six (6) years of continuous service, as defined in Section 8.02, will receive two (2) weeks of vacation with pay computed on the basis of eighty (80) straight time hours including shift differential, if any. (C) Each regular employee who has had six (6) but less than twelve (12) years of continuous service, as defined in Section 8.02, will receive three (3) week's vacation with pay computed on the basis of one hundred and twenty (120) straight-time hours, including shift differential, if any. 9 12 (D) Each regular employee who has had twelve (12) or more years of continuous service, as defined in Section 8.02, will receive four (4) weeks' vacation with pay computed on the basis of one hundred and sixty (160) straight-time hours including shift differential, if any. 8.02. CONTINUOUS SERVICE DEFINED. A regular employee will be considered as having a year of continuous service for the purpose of obtaining a year's eligibility for vacation if he remains on the payroll for the full year and has worked at least sixteen hundred (1600) hours during the twelve (12) months preceding his anniversary date. If a regular employee completes twelve (12) months in the employment of the Employer and works less than sixteen hundred (1600) hours during such twelve (12) month period due to temporary absence, including absence due to illness or injury, he will be entitled to a partial vacation determined by the ratio of hours worked to sixteen hundred (1600) hours. Time spent on an earned vacation, holidays not worked and on jury duty, for which an employee is eligible or benefits under Section 10.01, will be counted as time worked for the purpose of computing the sixteen hundred (1600) hours required under this Section 8.02. 8.03 SCHEDULING OF VACATIONS. Insofar as possible, vacations will be granted at times most desired by the employee, with the twelve (12) months of the year open for selection, but the final right of allotment of vacation periods is reserved to the Employer in order to insure the orderly operation of the establishment. Subject to the above understanding, the following procedures shall be adhered to in scheduling vacations for employees covered by this Agreement. (A) As soon after April 1st of each year as practicable, but in no event later than April 30th, employees shall be given an opportunity to state their first and second preference for vacation periods. Those employees who fail to state their first and second preference by April 30th, shall not be allowed to exercise their seniority to displace a junior employee who has posted his vacation preference within the time required. (B) Where two (2) or more employees select the same vacation period, the conflict, if any, shall be resolved by the supervisor concerned in favor of the employee with the greatest seniority. (C) In recognition of the inconvenience caused employees by last minute changes in vacation schedules, it is agreed that except for emergencies of a serious nature, no changes shall be made within thirty (30) days of the date an employee is scheduled to go on vacation. (D) Vacation periods may be split by mutual agreement in weekly segments, but the choice of deferred dates in such circumstances will be subordinate to the preference of employees taking a full vacation. In extreme circumstances vacation time may be taken in segments of less than one week with prior approval by the Employer. Such vacation pay shall be paid with the next payroll check after vacation time is taken. 10 13 (E) Employees may be granted additional vacation time without pay provided that a request for such additional time off is made at the time the vacation period is agreed upon. The additional unpaid vacation time shall not exceed one (1) week. 8.04. PAYMENT FOR VACATIONS. When an employee is eligible for a vacation under the provisions of this Article, he may, upon application to his Employer, draw his vacation pay at the time he leaves to go on vacation. Such vacation pay shall be based upon the employee's then current regular, straight-time wage rate. Except for hardship cases, vacations must be taken as paid time off during the twelve (12) month period following the employee's anniversary date. 8.05. PRORATED VACATIONS. After completing six (6) full months of employment, if employment be terminated for any reason, vacation pay will be granted in prorated amounts accrued to the date of termination in the ratio of hours worked to sixteen hundred (1600) hours. 8.06. EFFECT OF A CHANGE IN OWNERSHIP. A change of ownership without business interruption of at least thirty (30) days shall not operate to break an employee's continuity of service for vacation eligibility. 8.07 TRANSFERS BETWEEN HOTELS OPERATING UNDER COMMON OWNERSHIP. (A) TEMPORARY TRANSFERS. An employee who is transferred on a temporary basis from one hotel to another operated by the same corporation shall retain full seniority rights at the first hotel with credit for service on the temporary assignment. (B) PERMANENT TRANSFERS. When, at the request of, or with the approval of the management of both hotels, an employee agrees to a permanent transfer from one hotel to another operated by the same corporation, said employee shall incur a break in continuous service at the first hotel as of the date of transfer. If, however, such employee is laid off due to a reduction in force at the second hotel during the twelve (12) months following the date of transfer, he shall have preference for regaining employment at the first hotel over applicants without seniority standing, provided he is qualified to perform satisfactorily the work involved. (C) Employees transferred under the provisions of (A) and (B) of this Section 8.07 shall not be treated as probationary employees. (D) Consistent with the definition of seniority contained in Section 11.01 hereof, it is agreed that employees from one hotel shall not be assigned to perform installation work at a second hotel if such assignment deprives employees at the second hotel of work they are qualified to perform. 11 14 ARTICLE 9 LEAVES OF ABSENCE 9.01. Subject to the provisions of Article II of this Agreement, leaves of absence without pay shall be granted for reasons of bona fide illness or injury. Leaves may be granted by the Employer at his discretion for other reasons, the duration of which shall be mutually agreed upon by the Employer and the employee. The Employer shall not unreasonably refuse to grant leaves for compelling personal reasons. If it is established that an employee on a leave of absence has accepted gainful employment during such leave, he may be terminated without recourse, the provisions of Article 13 of this Agreement to the contrary notwithstanding. Employees will be issued a written leave of absence form and a copy thereof shall be furnished to the Union. 9.02. In addition, leaves of absence without pay shall be granted for the following reasons: (A) Leaves of absence without pay for bona fide medical disability or a serious health condition not compensable under the Nevada Industrial Insurance Act shall be granted for periods not to exceed twelve (12) weeks total during any twelve (12) month period. (B) Leaves of absence without pay for serious health condition in the employee's immediate family (spouse, child, or parent) shall be granted for up to twelve (12) weeks total during any twelve (12) month period. As soon as possible, the employee shall provide, upon request, all proof or information available as to the need for such a leave. (C) Leaves of absence without pay shall be granted for the birth and caring of an employee's children or for the placement of a child with employee for adoption or foster care provided that 1) the employee shall be entitled to a minimum of twelve (12) weeks during any twelve (12) month period; 2) eligibility for the leave ends one year after the date of birth or placement of the child; and 3) proof of the child's birth or adoption is presented. 9.03. FMLA. Where this Article provides rights greater than those provided for under FMLA, this Article governs. Where FMLA provides rights greater than those provided in this Article, FMLA governs. The rights provided in the Article shall not be added to those provided by FMLA to produce greater rights than an employee would have under either this Article or FMLA standing alone; there shall be no duplication of rights. The FMLA governs instead of the Article, all of the requirements for a leave under FMLA must be met by the employee. Where this Article governs, only the requirements set forth in this Article, and not those in FMLA, must be met by the Employee. 12 15 9.04. LIGHT DUTY. The Employer reserves the right to assign employees to work in light duty in classifications that are covered and excluded from the terms of this Agreement, during the time that an employee's bona fide illness or injury compensable under the Nevada State Industrial Insurance Act precludes him/her from performing the duties of his/her classification. The employee shall be paid either the temporary total disability rate mandated by the SIIS while assigned to light duty excluded from this Agreement, or the appropriate rate for the classification if the employee is assigned to perform bargaining unit work, unless the appropriate rate for the classification is less than the temporary total disability rate mandated by the SIIS, in which case the temporary total disability rate will apply. The Employer shall assign the employee to work the shift and hours consistent with the need of the business and availability of light duty work, and without regard to restrictions upon a weekly guarantee. In any event, employees assigned light duty work shall be paid at least the temporary total disability rate required by Nevada Law. Time spent working light duty shall not count as shifts worked for completion of the probationary period. However, the employee's shifts worked, prior to the after assignment to light duty, shall be combined to complete the probationary period. Time spent working light duty shall not be considered a break in service when calculating seniority or vacation entitlement. If the bargaining unit employee rejects the assignment to perform light duty work, whether within or outside of the bargaining unit, the employee shall be subject to disqualification of benefits under the SIIS. However, if the bargaining unit employee rejects the assignment to perform light duty work, the bargaining unit employee shall not otherwise be subject to discipline and shall continue to be entitled to leave for which the employee is eligible under 9.01. In the event a bargaining unit employee is assigned and accepts light duty work within the bargaining unit, all applicable provisions of the Collective Bargaining Agreement, subject to the modifications and restrictions set forth herein, shall apply to such employee, including accrual of seniority, and grievance and arbitration. In addition, the employee shall comply with all Company, House, and Departmental rules to the extent required under Section 12.02. In the event a bargaining unit employee is assigned and accepts out-of-bargaining unit light duty work, the Employer shall make contributions on behalf of the employee pursuant to Articles 20 and 21 of this Agreement. In the event of a termination, the employee shall be entitled to all rights in accordance with Articles 13 and 14 of the Collective Bargaining Agreement except in the event of an arbitration, the arbitrator's power shall be limited to restoring the employee to their pre-injury bargaining unit position. No other provisions of the Collective Bargaining Agreement shall apply to employees working in out-of-unit light duty positions. The employees shall comply with all Company, House, and Departmental rules. Employees shall be prohibited from receiving double benefits or recovery, pursuant to the terms of the Agreement and an action or decision by the SIIS, Nevada Department of Administration, or any other local, state or federal department agency or court. 13 16 ARTICLE 10 JURY DUTY 10.01. An employee who has completed his probationary period and who is required to serve on a jury and who loses work time because of such service shall be paid the difference between the jury fee received and his regular, straight-time rate of pay. It is understood and agreed that this benefit applies only to an employees regularly scheduled days of work and no benefits shall be paid for time spent serving on juries on day on which the employee was not regularly scheduled to work. Payment for jury service, as provided herein, shall be limited to a maximum of thirty (30) days in any twelve (12) month period. At the request of the Employer, the employee shall furnish satisfactory evidence of such jury service for which he claims benefits as HEREIN provided. The provisions of this Article shall not apply to any jury summons received by an employee prior to his date of hire. ARTICLE 11 SENIORITY 11.01. The Employer and the Union recognize the principle of seniority which for the purpose of this Agreement shall be interpreted to mean that: An employee having the longest continuous time of service in a given classification has preference for retaining and regaining employment in case of curtailment or expansion of operations provided such employee has the ability to satisfactorily perform the work involved. [THIS SPACE INTENTIONALLY LEFT BLANK] 14 17 11.02. CALCULATION OF CONTINUOUS SERVICE. For the purpose of this Article, length of continuous service shall be calculated as follows: (A) There will be no deduction for any time lost which does not constitute a break in continuous service. (B) A break in continuous service will occur in the following instances: I. Voluntary termination or resignation. II. Discharge or any other permanent separation. III. Absence exceeding the period of an authorized leave of absence. IV. Absence due to injury or illness sustained during the course of employment exceeding the period for which statutory, temporary, total disability payments are payable; provided that the employee shall have seven (7) working days following his release by the attending physician in which to return to work and, provided further, that if an employee files an appeal from an adverse decision he shall have seven (7) working days from the date of receipt of a decision from the hearing officer or the appeals office, as the case may be, in which to return to work. V. Absence exceeding six (6) months because of layoff for employees with less than six (6) months of active employment or absence exceeding twelve (12) months because of layoff in the case of an employee with six (6) or more months of active employment. VI. For those who have less than twelve (12) months of active employment, leaves of absence will not exceed six (6) months during any twelve (12) month period. For those with more than twelve (12) months of active employment, leaves will not exceed twenty-four (24) months in any forty-eight (48) month period. 11.03. MEDICAL RELEASE. An employee absent five (5) or more days due to illness or injury, whether or not compensable under the terms of the State Industrial Insurance System Act, shall, upon request, present a release from his physician stating that he is physically able to perform the duties of his former position. 11.04. RE-EMPLOYMENT AFTER A BREAK IN SERVICE. An employee who incurs a break in continuous service, if subsequently re-employed, will resume employment as a new employee, except as provided immediately below. If an employee with a break in continuous service due to layoff is available for work and declines re-employment by the Employer, he would forfeit all rights to credit for prior service. In any event an employee who has a break in continuous service due to layoff and who is not re-employed by the Employer for a period of one (1) year after a break in continuous service forfeits all credit for prior service. 15 18 11.05. NOTIFICATION. An employee who is laid off by an Employer through no fault of said employee and who has the greatest length of service and the ability to perform the work involved satisfactorily, shall be notified to return to work by the Employer advising the Union by telephone of the date and time the employee is to report and by confirming such telephone communication in writing. If such employee fails to report to work within forty-eight (48) hours of the time specified for the employee to report, his seniority shall be terminated and the Employer shall be free to hire a replacement in accordance with Article 3 of this Agreement. When the Union notifies the Employer that the employee is temporarily absent from the area or is temporarily unavailable due to illness or some other compelling reason, the employee's seniority will be protected for a period not to exceed five (5) days from the date specified for the employee to report, any provisions herein to the contrary notwithstanding. ARTICLE 12 MANAGEMENT RIGHTS AND RESPONSIBILITIES 12.01. RIGHTS TO MANAGE. The right to manage the business, including all matters not covered by this Agreement, as well as the right to reprimand, suspend or discharge employees for just cause, to prescribe the duties of employees, to direct the working force, to determine the numbers of employees to be employed and to relieve employees from duty for lack of work and the right to determine the means, methods and schedules of operations and maintenance are reserved to the Employer. Any grievance over whether the action of management is contrary to the terms of this Agreement may be taken up under the provisions of Article 14. 12.02. RULES. The Employer may establish and enforce reasonable rules, regulations and procedures applicable to employees provided that such rules, regulations and procedures do not conflict with the provisions of this Agreement. It will be the responsibility of the Employer to furnish a copy of such rules to the employees and to the Union. ARTICLE 13 DISCIPLINE AND DISCHARGE 13.01. CAUSE OF DISCIPLINE. (A) No regular employee, after completing his probationary period, shall be discharged, suspended without pay, or subjected to other disciplinary action without just cause. Probationary employees are employees at will who may be discharged or disciplined with or without cause, at the discretion of the Employer. The discharge or discipline of any probationary employee shall not be subject to the provisions of Article 13. (B) When a regular employee is discharged or disciplined, any prior disciplinary action of that employee occurring within the preceding 6 months before the date of the discharge or discipline may be considered in determining the just cause of the discharge of discipline. Warning notices, written customer complaints, reports of outside agencies or of the Employer's own security force concerning conduct of an employee shall become null and void 6 months after the date of issuance and may not thereafter be used as a basis for any subsequent discharge or disciplinary action. 16 19 (C) The Union agrees that all employees covered by this Agreement shall be subject to all rules of conduct issued by the Employer in accordance with Section 12.02 of this Agreement. The parties agree that employees may be discharged without prior discipline for dishonesty, drunkenness or drinking on duty, being under the influence of a controlled substance or using a controlled substance during working hours or on the Employer's premises, unlawful sale of a controlled substance, refusing to submit to testing for drug or alcohol usage in accordance with the provisions of Sections 13.01(f) and 13.03 of this Agreement, willful misconduct, participation in a slowdown, work stoppage or strike in violation of this Agreement, abusive or discourteous behavior toward a customer or guest, toward a supervisor or a fellow employee, unjustified refusal to follow an order of a supervisor or other representative of the Employer, failure to report for work as scheduled without cause, walking off the job without permission during a shift, insubordination, dissuading a customer or guest from patronizing the Employer's hotel or casino operations, or making disparaging remarks concerning the Employer or its operations to a customer or guest during the term of this Agreement. (D) The above provisions relating to controlled substances will not apply to medicine lawfully prescribed for the employee using the substance by a licensed physician and used in accordance with the prescription. (E) When a regular employee who has completed the probationary period is disciplined and/or discharged, the reason therefore will be given to the employee in writing. When an employee is discharged, copies of the written discharge notice to the employee will be sent to the Union within 72 hours of the discharge. Upon request by the Union, legible copies of all documents relevant to discipline or discharge, including videotapes, shall be provided to the Union. (F) When there is probable cause to believe that an employee is under the influence of alcohol or a controlled substance, the employee, after being notified of the contents of this subsection, must consent to an immediate physical examination at an independent medical facility or suffer the penalty of discharge, The Employer shall pay for the cost of the examination, and the employee shall be paid for all time required for the examination. A blood alcohol level of .08 provides an absolute presumption that an employee is under the influence of alcohol and just cause for discharge. A positive reading for the presence of any illegal controlled substance resulting from a gc/ms test shall constitute just cause for discharge. (G) In the event the work performance of an employee is deteriorating or has become unsatisfactory to the Employer and the employee has received at least 1 written warning notice for the substandard work performance, the Union, upon being advised by the Employer of the situation, agrees to immediately meet with the Employer and the employee concerning his performance. If such performance continues, the employee shall be subject to disciplinary action, up to and including discharge. In the event the Employer does not discharge the employee involved, but assesses a lesser disciplinary penalty, the Employer shall retain the ability to discharge the employee as a result of any such continuing performance. 17 20 (H) The Employer shall notify the Union of its intent to make an employee an offer under this Section 13.01(h). Employees with less than three (3) years of employment with the Employer man, at the sole discretion of the Employer, be offered at any time two (2) months' pay in lieu of processing the grievance and arbitrating the discharge. In the event the employee declines this offer when made by the Employer, the Union, if in its assessment of the issue objectively feels there is sufficient merit of the case, may proceed through the grievance and arbitration procedure for resolution. 13.02. WARNING NOTICES. Warning notices issued to employees must specify the event or actions for which the warning is issued. Warning notices shall be issued to employees as soon as possible after the Employer is aware of the event or action for which the warning notice is issued and has a reasonable period of time to investigate the matter. A copy of any written warning notice issued to employees shall be mailed or given to the Union within seventy-two (72) hours (Monday through Friday excluding holidays) after its issuance by the Employer. A copy of any written complaint concerning an employee, either by a customer, an outside agency, or the Employer's own security force, and copies of any other documents relied upon by the Employer as a basis for issuance of the warning notice shall be furnished to the Union on request. 13.03. TESTING FOR ALCOHOL OR CONTROLLED SUBSTANCES. A testing provision was negotiated between the parties. See Exhibit II Drug-Free Workplace Policy Revision Date, 11-11-97. ARTICLE 14 GRIEVANCE AND ARBITRATION PROCEDURE 14.01. DEFINITION. A grievance shall be defined as a dispute regarding the interpretation or application of the provisions of this Agreement raised by the Union or an employee alleging a violation of the terms and provisions of this Agreement. However, disputes specifically excluded in other Articles of this Agreement from the grievance and arbitration procedure shall not be construed as falling within this definition. 14.02. PROCEDURE. All grievances shall be handled exclusively in the following manner: STEP ONE: If an employee or the Union has a grievance, the matter shall be referred to the designated representative of the Employer in writing. Grievances involving discharge cases must be filed with the Employer within seven (7) days of the date of discharge, Monday through Friday, excluding holidays. Grievances involving other matters must be filed with the Employer within thirty (30) days after the first occurrence of the event giving rise to the grievance or within thirty (30) days of the time the employee or the Union reasonably could have acquired knowledge of the event. 18 21 STEP TWO: If the representative of the Employer and the representative of the Union are unable to resolve the grievance within five (5) days after the Employer receives the written grievance, as provided in Step One, the grievance may be submitted to arbitration by the Union giving the Employer written notice of its intent to do so within an additional five (5) days. In such notice the Union will designate its member of the arbitration board. The Employer shall, at the meeting provided for under Section 14.03, submit in writing to the Union the Name of its board member. 14.03. ARBITRATION. Grievances appealed to arbitration shall be submitted to an arbitration board consisting of three (3) persons: one (1) chosen by the Employer, one (1) chosen by the Union and a third to be chosen by those two persons. The Employer and Union members of the arbitration board shall meet within three (3) days of the receipt of the notice to arbitrate for the purpose of selecting a person to act as the impartial member of the board. If, at such meeting, the parties are unable to agree upon a mutually satisfactory impartial arbitrator, they shall jointly petition the Federal Mediation and Conciliation Service for a panel of five (5) arbitrators. Upon receipt of said panel of names, the Union representative and the Employer representative on the arbitration board shall each, alternately, strike the name of an arbitrator until one alone remains. The remaining arbitrator shall then be requested to hear the case. The determination of which party is to first strike a name from the arbitrator's panel shall be made by lot. The arbitrator shall have no power to add to, subtract from, amend, change or alter any of the terms of this Agreement. The fee and expenses of the impartial arbitrator shall be divided equally and paid in equal portions by the Employer and Union. It is understood and agreed that the arbitrator's award shall be final and binding upon the employee, the Union and the Employer. Monetary awards of settlements in favor of an employee shall be complied with within forty-eight (48) hours of the time of such award or settlement, or in such longer period of time as may mutually be agreed upon. In computing the time within which acts required by this Article shall be done, Saturdays, Sundays and recognized holidays under this Agreement shall be excluded. The Union and the Employer may mutually agree to waive the three-man arbitration board and agree to submit the dispute directly to the impartial member as sole arbitrator. 14.04. TIME LIMITS. It is understood and agreed that if an employee or the Union fails to abide by the time limits specified in this Article 14, the grievance shall be invalid. Likewise, it is agreed if the Employer fails to abide by the time limits imposed upon him, the grievance shall be granted. 19 22 ARTICLE 15 NO STRIKE OR LOCKOUTS 15.01. It is hereby agreed by the union that there will be no strikes, work stoppages or slowdowns of the Employer's operations during the term of this Agreement. 15.02. It is hereby agreed by the Employer that he will not lockout employees covered under this Agreement during the term hereof. 15.03. Refusal of an employee to cross a bona fide picket line sanctioned and approved by Carpenters local #1780 and the Southern Nevada Central Labor Council shall not be deemed to be a violation of this Agreement, provided that the foregoing provisions of this section shall not be applicable with respect to: (A) Any picket line established for organizational or recognition purposes, or for information purposes for the purpose of maintaining standards. (B) Any picket line established as a result of a labor dispute between an employer other than the Employer party hereto and a union other than a union party hereto. (C) Any picket line established as a result of a labor dispute between the Employer party hereto and a union other than the Union party to this Agreement unless and until such picket line has been in effect on a continuing basis, twenty-four (24) hours a days, for ninety (90) days. ARTICLE 16 CLASSIFICATIONS AND WAGE RATES 16.01. The following classifications and hourly wage rates are hereby established:
EFFECTIVE CLASSIFICATION 8/1/98 3/1/99 3/1/00 3/1/01 - -------------- ---------- ---------- ---------- ---------- Carpenter Foreman $18.40 $19.47 $19.97 $20.22 Journeyman Carpenter $18.40 $18.72 $19.22 $19.47
The Union shall have the right to allocate from wage increases to Pension and Apprenticeship Funds including the United Brotherhood of Carpenters National Apprenticeship and Education Funds. 20 23 APPRENTICE WAGE SCHEDULE 0 - 6 months: Sixty-five percent (65%) of journeyman rate 7 - 12 months: Seventy percent (70%) of journeyman rate 13 - 18 months: Seventy-five (75%) of journeyman rate 19 - 24 months: Eighty percent (80%) of journeyman rate 25 - 30 months: Eight-five percent (85%) journeyman rate 31 - 36 months: Ninety percent (90%) journeyman rate 37 - 48 months: Ninety-five percent (95%) journeyman rate The percentage increases of wage rates to an apprentice shall be based on the education and work experience of the apprentice in the industry as established by the Carpenters Local Union 1780 and the Carpenters and Millwrights Apprentice and Journeyman Training Trust. NOTE 1: It shall be the duty of the working Foreman to supervise the performance of work by employees assigned to the crew in accordance with the Employer's instructions. A Journeyman shall not be required to assume the functions and responsibilities of a Foreman without being paid the Foreman's differential. The assignment of the working Foreman shall be at the Employer's discretion. NOTE 2: UNIFORMS. Regular employees, that is, employees assigned to the regular maintenance crew and specifically excluding temporary employees, as defined in Section 24.01, shall be furnished with one (1) clean uniform, in good repairs, for each day worked at no expense to employees. In the event the Employer fails to provide uniforms, as required, he shall be obligated to pay, as a penalty, the sum of one dollar and fifty cents ($1.50) per day to each affected employee. NOTE 3: MEALS. An employee shall be entitled to receive one (1) hot meal during the course of an (8) hour shift, as near to the middle of the shift as possible. If an employee is required to work overtime for two (2) hours or more beyond his regular shift, or is called out in an emergency and works for four (4) hours or more, he shall be entitled to a meal. Meals served to employees shall be palatable, wholesome and comparable to those served to the customers. A selection of meal items shall be made available daily (including at least two (2) meat entrees). An Employer who fails to provide meals as required above shall pay, as a penalty, the sum of one dollar and fifty cent ($1.50) for each such meal he failed to furnish. 21 24 16.02. PROBATIONARY EMPLOYEES. A newly-hired regular employee will be considered as a probationary employee until he has completed ninety (90) days after his most recent date of hire by the Employer, after which his seniority shall date back to his most recent date of hire by the Employer. A probationary employee may be terminated at the discretion of the Employer, and such termination shall not be subject to the grievance and arbitration provisions of Article 14. The above probationary period may be extended by mutual agreement of the employer and the Union. In the event a probationary employee is terminated for any reason other than discharge for cause or voluntary quit, the Employer shall contribute to the construction vacation fund at the rate set forth in the current Construction Agreement as defined under Article 24 hereof for the hours worked by such employee. 16.03. PAYDAY. Employee shall be paid wages due them on a regular payday not less frequent than bi-weekly. ARTICLE 17 BULLETIN BOARDS 17.01. The Employer agrees that the Union shall be permitted to post in places where notices to employees are customarily posted, notices of Union elections and results, meetings and recreational and social affairs. Such notices shall be signed by an authorized Union Representative. ARTICLE 18 INDIVIDUAL AGREEMENTS 18.01. No employee covered by this Agreement shall be compelled or permitted to enter into any individual contract or agreement with the Employer concerning the conditions of employment set forth herein. ARTICLE 19 PAYMENT OF WAGES 19.01. Employees who quit or are discharged shall be paid in full not later than during the next business day of the Payroll Office. If the establishment becomes delinquent in the payment or wages or is operating in receivership by the Board of Trade or a Creditors Committee, or in the case of liquidation or bankruptcy, all wages accrued become due and must be paid at once. In such cases, the Union reserves the right at any time to demand and receive daily payment of wages to all employees. By mutual agreement such wages due may be deposited in an approved escrow. 22 25 ARTICLE 20 HEALTH AND WELFARE 20.01. MEDICAL, DENTAL, VISION AND LIFE INSURANCE. Effective the first day of the month following signing of this agreement and continuing to the expiration date of this agreement, the Employer will provide medical, dental, vision, life insurance, and other benefits as may become available to employees contained within the bargaining unit, and their bonafide dependents, identical to the medical benefits provided to the Employer's hourly employees not covered by collective bargaining agreements in accordance with various plan documents. 20.02. EMPLOYEE CONTRIBUTIONS. Employees contained within the bargaining unit shall be required to make the identical contributions as are required from hourly employees not represented by bargaining units in accordance with the Employer's plan documents. Based upon available plan features selected by bargaining unit employees, the Employer shall have the right, through payroll deduction, to secure those required contributions. ARTICLE 21 PENSION 21.01. AGREEMENT AND DECLARATION OF TRUST. The Employer agrees to be bound by the Agreement and Declaration of Trust dated February 1, 1960, as amended, establishing the Construction Industry and Carpenters Joint Pension Trust. The Employer's Agreement to be bound by the Trust Indenture is based upon the Union's representation that said Trust fund is now and will continue to be an exempt entity under the provisions of the Internal Revenue Code. The Employer does not guarantee the payment of any benefits provided for under said Trust Agreement nor the solvency or actuarial soundness of such fund. The employer's sole obligation shall be to make the contributions at the times and in the manner prescribed in Section 21.02 of this Article. 21.02. CONTRIBUTIONS. Effective with the month of August, 1998, and for each month thereafter, unless changed pursuant to Section 21.03, the Employer shall on or before the 20th day of each month remit to the Construction Industry and Carpenters' Joint Pension Trust Fund the sum of one dollar and seventy cents (41.70) per hour worked by or paid to employees covered by this Agreement during the preceding month. Effective March 1, 1999 and for each month thereafter, unless changed pursuant to Section 21.03, the Employer shall on or before the 20th day of each month remit to the Construction Industry and Carpenters' Pension Trust Fund, the sum of one dollar and eighty-eight cents ($1.88) per hour worked or paid to employees covered by this agreement during the preceding month. 23 26 21.03. INCREASE IN AMOUNT OF PENSION PAYMENTS. Upon giving the Employer at least sixty (60) days written notice prior to March 1, 2000 and March 1, 2001, the Union shall have the right to divert from the wage rate effective on those dates an amount to be added to the pension contributions required to be paid pursuant to Section 21.02 or any amounts that the Union requires may be diverted from the wage rates to an annuity fund (Pension Plan B) provided Pension Plan B is a defined contribution plan and not a defined benefit plan. ARTICLE 22 APPRENTICESHIP 22.01. Effective August 1, 1998 and each month thereafter, the Employer shall contribute the sum of three cents (3 cents) per hour worked by carpenters (excluding carpenter apprentices) the previous month to the Carpenters Joint Apprenticeship Committee Fund. ARTICLE 23 SCOPE OF WORK 23.01. In recognition of the fact that work assignment practices vary from one establishment to another, it is understood and agreed that the Union shall retain jurisdiction over such work as has regularly been assigned in the past by the Employer to employees represented by the Union. ARTICLE 24 TEMPORARY EMPLOYMENT 24.01. When the Employer schedules construction work, special projects, etc. to be accomplished by its employees involving jurisdictional work, requiring in excess of one (1) consecutive week to complete, temporary employees may be hired for periods not to exceed one-hundred and twenty (120) days at the regular hourly rate of pay and benefits ($1.57/Vacation, $2.25/Health & Welfare, $2.06/Pension and 3 cents/Apprenticeship). The one-hundred twenty (120) days may be extended by mutual agreement, such agreement shall not unreasonably be withheld by the Union. ARTICLE 25 GENERAL 25.01. In the event that any provision of this Agreement shall be rendered invalid by applicable legislation or be declared invalid by any court or regulatory agency of competent jurisdiction, such action shall not invalidate the entire Agreement, it being the express intention of the parties hereto that all other provisions not rendered invalid shall remain in full force and effect. The parties agree to attempt to cure such invalidity by negotiations and to submit the matter to arbitration, if such negotiations are unsuccessful. 24 27 ARTICLE 26 EQUAL OPPORTUNITY 26.01. The Employer and the Union agree that there shall be no discrimination against any individual based upon race, religion, sex, ancestry, disability, age or national origin. This pledge of nondiscrimination applies to registration, dispatchment, training, upgrading, compensation and all other aspects of the employment relationship covered by law and the terms of this Agreement. ARTICLE 27 SAFETY 27.01. The Employer will comply with all safety standards prescribed by the Nevada Industrial Commission insofar as such standards are applicable to the employees covered by this Agreement and will not require an employee to work under hazardous conditions without providing such safeguards as are consistent with well-established safety practices. 27.02. Employees are required to comply with all safety policies, and practices established by the Employer from time to time, and to cooperate with the Employer in the enforcement of safety measures. 27.03. The Employer agrees to immediately notify the Union by telephone of all industrial injuries sustained by employees covered by this Agreement which can reasonably be expected to result in a loss of time. ARTICLE 28 MISCELLANEOUS 28.01. TOOLS. The Employer will provide a safe place for employees to keep their tools. The Employer further agrees that tools which are broken or damaged on the job during the performance of work for the Employer shall be replaced or repaired by the Employer at no cost to the employee. Each employee shall be required to provide his Employer with a list of all personal tools stored or used on the premises and to notify the Employer when deletions from or additions to the list are made. 28.02. PERSONAL VEHICLES. No employee shall be required to furnish a motor vehicle for the convenience of the Employer. 28.03. REPORT TO WORK. If an employee is unable to report to work, he shall notify the designated employer representative at least two (2) hours prior to the commencement of the shift. An employee who has been absent for a period of not more than five (5) days, due to illness or injury shall be allowed to return to work on his next regularly scheduled shift after the day the 25 28 employee has notified the Employer of his availability for work, provided such notice has been received by the Employer no later than two (2) hours prior to the time the employee's last regularly scheduled shift would have ended. Reasonable accommodation will be made by the Employer if unusual circumstances warrant. ARTICLE 29 TERM - TERMINATION - RENEWAL 29.01. TERM OF AGREEMENT. Except as specifically otherwise provided for herein, this Agreement shall become effective on the 1st day of August, 1998 and shall continue in full force and effect through July 31, 2001 and from year to year thereafter unless either party hereto shall notify the other in writing by certified mail not less than sixty (60) days prior to August 1, 2001 or August 1st, of any succeeding year of a desire to terminate, modify or amend this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of this 1st day of March, 1999. FOR THE EMPLOYER: FOR THE UNION: Fitzgeralds Las Vegas, Inc. United Brotherhood of Carpenters and d/b/a Fitzgeralds Casino/Hotel Joiners of America, Southern California- Nevada Regional Council of Carpenters, Local Union No. 1780, Las Vegas, Nevada By: /s/ WILLIAM J. NOONAN By: /s/ WILLIAM A. HARRIS ------------------------------ ---------------------------------- Signature Signature By: WILLIAM J. NOONAN By: WILLIAM A. HARRIS ------------------------------ ---------------------------------- Printed Name Printed Name Its: /s/ V.P. & General Manager Its: /s/ Business Representative ------------------------------ ---------------------------------- Printed Title Printed Title 26 29 EXHIBIT I PAYROLL DEDUCTION AUTHORIZATION Date: ____________________ I, the undersigned, a member of the United Brotherhood of Carpenters and Joiners of America Local Union No. 1780, hereby request and voluntarily authorize ______________________________ to deduct from any wages or compensation due to me, the initiation fees, re-initiation fees and regular monthly union dues uniformly applicable to the members in accordance with the Constitution and Bylaws of the Union. I further authorize ________________________________ to deduct from any wages of compensation due me, the supplemental dues uniformly applicable to the members in accordance with the applicable contract between the Employer and the Union. This authorization shall remain in effect and shall be irrevocable unless I revoke it by sending written notice to both the Employer and United Brotherhood of Carpenters and Joiners of America, Southern California-Nevada Regional Council of Carpenters and its affiliated Local Union No. 1780, by registered mail, during a period of fifteen (15) days immediately succeeding any yearly period subsequent to the date of this authorization or subsequent to the date of termination of the applicable contract between the Employer and the Union, which ever occurs sooner, and shall be automatically renewed as an irrevocable check-off from year to year unless revoked as hereinabove provided. Signed____________________________________ Social Security Number_____-_____-________ Dated_____________________________________ 27 30 EXHIBIT II DRUG-FREE WORKPLACE POLICY REVISION DATE, 10-11-97 PURPOSE To provide a uniform policy and procedure for pre-employment and Team Member substance use testing. POLICY Fitzgeralds Gaming Corporation is committed to the goal of maintaining a drug-free workplace. Achieving this goal is necessary to maintain the safety and integrity of our business, and the safety and health of our team members and guests. While Fitzgeralds Gaining Corporation has no intention of intruding into the private lives of its team members, Fitzgeralds Gaming Corporation recognizes that team member's involvement with illegal drugs can have an adverse impact on the workplace, on guests, and on fellow team members. As a consequence, team members are expected to report for work without having used illegal drugs and alcohol (which by definition in the Policy, includes legal drugs illegally obtained). Compliance with this requirement is considered to be an essential job qualification for all job assignments. Consistent with Fitzgeralds Gaming Corporation's objectives and concerns, Fitzgeralds Gaming Corporation has implemented pre-employment testing procedures designed to discourage hiring individuals who use illegal drugs. Further, after hire, Fitzgeralds Gaming Corporation reserves the right at any time to administer testing procedures to team members in order to detect the presence of illegal drugs or alcohol in the body. Fitzgeralds Gaming Corporation reserves the right to administer "reasonable cause" drug testing. This would include testing following an on-the-job injury to the person injured, and to a non-injured team member who may have caused or contributed to an injury to another team member or to a guest, and to anyone who is involved in an incident involving property damage. Fitzgeralds Gaming Corporation also reserves the right to administer drug testing prior to promotion from an hourly to a supervisory salaried position, and for Reasonable Suspicion. As a condition of hire, all applicants considered for hire are required to execute the attached "Pre-Employment Drug Testing Consent Form" as part of pre-employment processing. Further, upon hire, all team members as a condition of employment, are required to sign the "Acknowledgment," which is attached to this policy, confirming that they have read and understand Fitzgeralds Gaming Corporation's Drug-Free Workplace Policy, and that it is their obligation as a condition of employment and continued employment to abide by all of its terms. If a team member's job is covered by a collective bargaining agreement, then the collective bargaining agreement provision applies, if there is any conflict. Below is a more detailed discussion of the general rules that will be enforced in maintaining a 28 31 work environment that is free from the effects of illegal substance use. These rules are subject to change without notice. DEFINITIONS "ILLEGAL DRUG" means any drug which: 1. Is not legally obtainable. 2. Is being used in a manner different from the manner in which it was prescribed. 3. Is legally obtainable but has not been legally obtained. "ILLEGAL DRUG" includes, but is not limited to the following drugs, unless used in accordance with a valid prescription: o AMPHETAMINES o COCAINE o OPIATES o MARIJUANA o PCP "LEGAL DRUG" means any drug that has been legally prescribed for an individual and is used solely by that individual for its prescribed purpose and any over-the-counter drug that has been legally obtained and is being used solely for its manufactured purpose. "TESTING" means the use of any substance measurement or detection test selected by Fitzgeralds Gaming Corporation (in its sole discretion), which detects or infers the presence of drugs or alcohol in the body. "ILLEGAL DRUG IN ONE'S BODY" means the presence in any detectable amount of any illegal drug (or chemical substance or residue from which the presence of any illegal drug may be reasonably inferred) in the body of an applicant or team member. "REASONABLE SUSPICION" means circumstances, workplace conditions, or behavior indicating possible alcohol or other drug use. It includes, but is not limited to, the following circumstances: 1. Observable phenomena, such as direct observation of alcohol or other drug use and/or the physical symptoms of having used alcohol or other drugs; 2. A pattern of abnormal conduct, incoherent mental state, or erratic behavior that is otherwise unexplained; 3. Arrest or conviction for a drug-related offense, or the identification of a Team Member focus of a criminal investigation into illegal drug possessions, use, or trafficking; 4. Information provided either by reliable and credible sources or independently 29 32 corroborated; 5. Newly discovered evidence that the Team Member has tampered with previously administered drug test; 6. Other actions, conduct or misfeasance that provide reasonable suspicion that the Team Member may have used alcohol or other drugs. TEST RESULTS All test results will be disclosed on a "need-to-know" basis and will be maintained as follows: 1. Pre-employment test results will be kept in a locked cabinet, separate from employment applications, and will be accessible to the Health Services Manager, or the Director of Human Resources and/or Manager of Human Resources. 2. Team member test results will be kept in a locked cabinet, separate from personnel records, and will be accessible to the Health Services Manager, or Director and/or Manager of Human Resources. A. TEAM MEMBER TESTING Drug tests will be administered to team members upon any of the following occurrences and as set forth below: 1. INVOLVEMENT IN ANY INCIDENT/ACCIDENT RESULTING IN PERSONAL INJURY OR PROPERTY DAMAGE OF ANY KIND (all persons involved in an incident or accident, not limited to one or ones requiring medical attention). 2. REASONABLE SUSPICION a. A person who notices signs or symptoms of drug or alcohol use by a team member, should contact his/her Shift Supervisor. The Department Shift Supervisor will initiate an investigation. Persons reporting such actions will be required to submit a written statement. Reports will be kept confidential. "Anonymous tips" are not acceptable. The Department Shift Supervisor then fills out the appropriate checklist (available in each department). The Security Department will notify the Surveillance Manager and/or the Surveillance Investigator (in the event that neither is available, the Director of Human Resources, or Health Services Manager will be notified). This/these individual(s), upon review of all information, will determine if drug testing should be performed. If drug testing is instructed, a breathalyzer, urine collection and blood alcohol will be done. Team members covered by a collective bargaining agreement will be sent to an independent lab for testing. Persons admitting to the use of or being under the influence of drugs or alcohol while on the job will not be administered chemical tests and will be required to sign a Statement of Use, to be witnessed by two persons. This will 30 33 constitute a self termination. PERSONS DENYING DRUG OR ALCOHOL USE WHEN THERE IS REASONABLE SUSPICION, WILL BE INSTRUCTED TO, AND MUST TAKE ALL TESTS. b. Breathalyzer tests will be performed in the Security Room by an authorized trained Security officer in the presence of Surveillance. These tests will be videotaped. Team members tested for reasonable suspicion will be suspended pending results. A Security Officer will arrange transportation (taxi cab) to take the team member home. If the results come back negative, the team member will be returned to work. Compensation for time missed while on suspension will be determined by the Director of Human Resources. c. The team member's department Director, the Health Services Manager, and the Director of Security and Surveillance must be notified of all reasonable suspicion drug testing. All related results will be communicated to the Director of Human Resources. B. PRE-EMPLOYMENT TESTING The following procedures shall apply in the pre-employment process: 1. After a conditional offer of employment has been made, all final applicants will be required to sign the Pre-Employment Drug Testing Consent Form, which is attached to this policy, and will be tested for illegal drugs as a condition of employment. Failure, or refusal, to sign such consent form will result in denial of employment. 2. In order to be eligible for employment, applicants will be required to submit to the required testing at a time and place designated by Fitzgeralds. 3. All initial applicant positive drug test results will be subject to confirmation through the use of a second test using the gas chromatography/mass spectrometry (GC/MS) or similarly sophisticated methodology. 4. Where the presence of an illegal drug is detected as per Federal Department of Health and Human Services Guidelines, employment will be denied. The applicant may reapply for employment in ninety days, if a position is open, and be re-tested. 5. Neither the adoption nor implementation of the above practices and procedures shall be construed as giving any person any right to employment with Fitzgeralds, nor shall it be construed to limit in any way Fitzgeralds' right, at its sole discretion, to decline making an offer of employment or to terminate or modify any employment relationship. These policies and procedures may be modified or revoked by Fitzgeralds, at any time without notice. 31 34 If a minor, defined as a person who has not reached his/her 18th birthday as of the date of application, wishes to be considered for employment with Fitzgeralds, it will be necessary for him/her to obtain parental/legal guardian consent for participation in the policy. Forms will be provided for parental consent, and it will be necessary for those forms to be signed as a condition of employment. If the parental/legal guardian refuses to sign the consent form, Fitzgeralds will understand such refusal as a withdrawal of the application of the affected minor applicant. The minor applicant will have all the same rights and privileges under the policy as any other applicant. The minor applicant will also have all the same responsibilities under the policy as any other applicant. Team members testing positive on reasonable suspicion testing will not be offered rehabilitation and will be terminated. C. ON THE JOB INJURY 1. Team members completing an accident report for an on the job injury (which includes all parties involved following an on-the-job injury to the person injured, and to a non-injured team member who may have caused or continued to an injury to another team member or to a guest, and to anyone who is involved in an incident involving property damage), will be required to submit to a urine drug test and Breathalyzer test. (Team members who sustain an on-the-job injury and refuse to fill out an Accident Report will not have their injury accepted as a Worker's Compensation injury). 2. Breathalyzer tests will be performed in the Security room by a trained authorized Security officer in the presence of Surveillance. These tests will be video taped. 3. Urine samples will be collected by a trained authorized Fitzgeralds representative. In the absence of authorized Fitzgeralds representative, the team member will be directed to the designated laboratory. 4. Team members covered by a collective bargaining agreement will be sent to an independent 1 laboratory for testing. 5. Team members who test positive on post-accident testing will be offered rehabilitation. Should insurance cover this, it is up to the respective insurance carrier whether this is a covered benefit or not. [THIS SPACE INTENTIONALLY LEFT BLANK] 32 35 D. PROMOTIONAL TESTING 1. Drug testing will also be done prior to promotion from and hourly to a supervisory salaried position. In the event of a positive drug test result on a test done for promotion, the team member will have the option of entering an approved drug rehabilitation program. Should insurance cover this, it is up to the respective insurance carrier whether this is a covered benefit or not. Team members opting to enter a drug rehabilitation program for a positive drug test done for promotional testing will not be eligible for promotion until they have successfully completed their program and have had two negative drug test results done in the 180 day period following completion of their program. They will be required to provide the Manager of Health Services with the same weekly documentation of attendance and participation in the rehab program. 2. REFUSAL TO PARTICIPATE IN ANY PORTION OF DRUG TESTING WILL RESULT IN TERMINATION OF EMPLOYMENT. 3. IN THE EVENT OF A CONFIRMED POSITIVE TEST RESULT ON POST-ACCIDENT OR PROMOTIONAL TESTING FROM HOURLY TO SUPERVISORY SALARIED POSITIONS, THE FOLLOWING PROCEDURES WILL APPLY: a. The Manager of Health Services will contact the Director or Manager of Human Resources, who will contact the department Director or Manager and instruct them to suspend the team member, and tell them to contact the Manager of Health Services or the Director or Manager of Human Resources for further instructions. A positive test will result in the team member being given the opportunity to enter an approved program for rehabilitation. The team member will have three business days to arrange for enrollment in an APPROVED rehabilitation program and to submit documentation of same to the Manager of Health Services. The team member electing such option will be required to submit documentation on a weekly basis to the Manager of Health Services, confirming the team member's enrollment and his or her participation in the program. Should the team member (1) decline to participate in a rehabilitation program or (2) commence participation in an approved program and subsequently discontinue participation in, or drop out of the program for any reason, or (3) fail to provide appropriate documentation of enrollment and continued participation as required by this policy on a timely basis, or (4) fail a drug test required/recommended by the rehabilitation program, the team member's employment will be terminated. 33 36 Once the team member has successfully completed the program, he/she will be tested twice within the first 180 days following successful completion of the rehabilitation program. A positive drug test after successful completion of a rehabilitation program will result in automatic termination. Should the rehabilitation program recommend testing during the rehabilitation program, it will be up to the respective insurance carrier whether this is a covered benefit or not. 4. Only the Manager of Health Services or the Vice President of Risk Management can authorize a re-test. All re-tests will be done ONLY on the remaining ORIGINAL specimen in the lab. There will be no re-tests on any specimen other than the ORIGINAL specimen. Prior to authorizing a re-test, all costs for same will be paid for by the team member. (Remember that any positive test result has already been tested by two different methodologies). 5. A team member who receives a confirmed positive test result will be given an opportunity to consult with the Medical Review Officer. Urine tests whose results indicate possible dilution, as evidenced by a below normal specific gravity or creatinine, can be repeated, with the collection done under direct observation of a same sex collector, signed and returned prior to the team member's first day of work. The parents will be notified of all drug test results. If the parent/legal guardian refuses to sign the consent form, Fitzgeralds Gaming Corporation will understand such refusal as a resignation of the affected minor. The minor will have all the same rights and privileges under the policy as any other team member. The minor team member will also have all the same responsibilities under the policy as any other team member. [THIS SPACE INTENTIONALLY LEFT BLANK] 34 37 MEMORANDUM OF UNDERSTANDING FLOATING HOLIDAY 1. Employee is not eligible to request a floating holiday until he/she has completed his/her probationary period. 2. Holiday may not be taken prior to day of observance (Veterans' Day), but must be taken prior to the next day of observance. 3. Employee must be actively on the payroll and must have received prior management approval in writing. Such approval shall not be unreasonably withheld. 4. Regular or relief employees only. 5. Must be taken as paid time off. 6. Must be requested ten (10) days in advance. Cannot be canceled with less than seven (7) days notification. 7. If after the day of observance the floating holiday has not been used or approved to be used prior to the effective date of the employee's termination, the floating holiday shall be paid at the time of termination if the employee has completed his/her probationary period. 35 38 MEMORANDUM OF UNDERSTANDING It was agreed during the negotiation of this 1998 - 2001 Agreement that neither the Employer nor the Union nor any of its members shall, in the interpretation of any provision of this collective bargaining agreement, rely on or cite the withdrawal of any proposal by either party during negotiations in support of their respective positions in any arbitration case or other legal proceeding. FOR THE EMPLOYER: FOR THE UNION: Fitzgeralds Las Vegas, Inc. United Brotherhood of Carpenters and d/b/a Fitzgeralds Casino/Hotel Joiners of America, Southern California- Nevada Regional Council of Carpenters and its affiliated Local Union No. 1780, Las Vegas, Nevada Date: 3-01-99 Date: 3/1/99 ------------------------------ ------------------------------ By: /s/ William J. Noonan By: /s/ William A. Harris -------------------------------- -------------------------------- Signature Signature By: William J. Noonan By: William A. Harris -------------------------------- -------------------------------- Printed Name Printed Name Its: V.P. & General Manager Its: Business Representative ------------------------------- ------------------------------- Printed Title Printed Title 36 39 MEMORANDUM OF UNDERSTANDING It was agreed during the negotiations of this 1998-2001 Agreement that it is not the intent of the Union to restrict the flexibility of the Employer in upgrading or maintaining its facility as efficiently as practical in order to provide quality guest services. Furthermore, it is not the intent of the Employer to harm the integrity of the bargaining unit or those employees contained within that unit. Therefore, the parties agree that the Employer will continue its past practice of assigning carpentry work as identified in Article 23 in the following manner: 1. It is understood and agreed that the Employer will maintain flexibility in assigning or subcontracting carpentry work provided that under no circumstances will the bargaining unit be reduced below two (2) regular employees as a result of these assignments or subcontracts. 2. When Carpenter special project work requirements increase for periods in excess of one (1) calendar week, as identified in Article 24, additional carpenters will be requested and hired by the Employer. 3. As designated by the Employer, regular Engineering Staff will be assigned to perform carpentry work in the following cases: a. Repairs of an emergency nature that may be required to ensure service is not interrupted or delayed. b. Routine maintenance that may be required as a part of room checks or calls for repairs. c. Special project work in conjunction with bargaining unit employees that does not exceed one (1) calendar week in duration. FOR THE EMPLOYER: FOR THE UNION: Fitzgeralds Las Vegas, Inc. United Brotherhood of Carpenters and d/b/a Fitzgeralds Casino/Hotel Joiners of America, Southern California- Nevada Regional Council of Carpenters and its affiliated Local Union No. 1780, Las Vegas, Nevada Date: 3-01-99 Date: 3/1/99 ------------------------------ ------------------------------ By: /s/ William J. Noonan By: /s/ William A. Harris -------------------------------- -------------------------------- Signature Signature By: William J. Noonan By: William A. Harris -------------------------------- -------------------------------- Printed Name Printed Name Its: V.P. & General Manager Its: Business Representative ------------------------------- ------------------------------- Printed Title Printed Title 37 EX-27 9 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 13,038,589 0 1,782,635 345,540 1,375,443 20,088,455 226,956,472 67,241,809 209,197,464 27,892,298 208,204,024 24,401,171 0 40,128 51,340,157 209,197,464 25,982,512 224,401,467 12,505,231 185,444,365 3,631,839 388,573 27,173,154 (8,666,827) 0 (8,666,827) 0 0 0 (8,666,827) (3.35) 0
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