Full House Resorts, Inc. · NASDAQ:FLL
Full House Resorts — Proxy Contest (November 2014)
33 slides from Full House Resorts's proxy contest presentation, Nov 12, 2014
Slide 1: Schedule 14A Consent Statement
SCHEDULE 14A Consent Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [ ] Filed by a Party other than the Registrant [x] Check the appropriate box: [ ] Preliminary Consent Statement [ ] Confidential, for Use of the Commission Only (as permitted by Ru
Slide 2: Schedule 14A filing information
4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the
Slide 3: Solicitation to Call a Special Meeting by the Concerned Stockholders of Full House
Concerned Stockholders of Full House Full House Resorts, Inc. (FLL) Solicitation to Call a Special Meeting by the Concerned Stockholders of Full House Investor Presentation November 12, 2014
Slide 4: Table of Contents
Concerned Stockholders of Full House Table of Contents Executive Summary 3 o Background 4 o Recent Bylaw Changes 6 o Sale Process 7 Reasons for Change o Share Price Performance 8 o Operations & Capital Allocation 10 o Compensation & Governance 21 Immediate Action is Needed 25 The Special Meeting 26
Slide 5: Executive Summary
Concerned Stockholders of Full House Executive Summary • We believe the Full House Board has failed stockholders • The stock is down 59% in the year ended September 30, 2014 • The Company has significantly underperformed the Russell 2000 index and the Dow Jones U.S. Gambling Index over one, three an
Slide 6: Background: Full House Resorts, Inc.
Concerned Stockholders of Full House Full House Resorts, Inc. Background • Full House, Inc. owns three casinos and manages a fourth o Rising Star, Rising Sun, IN (owned) acquired in 2011 o Silver Slipper, Bay St. Louis, MS (owned) acquired in 2012 o Stockman’s, Fallon NV (owned) acquired in 2007 o G
Slide 7: Background: Concerned Stockholders
Concerned Stockholders of Full House Concerned Stockholders Background • Daniel R. Lee is Managing Partner of Creative Casinos. He was previously Chairman and Chief Executive Officer of Pinnacle Entertainment (NYSE: PNK) from 2002 to 2009. In the 1990s, he was Chief Financial Officer, Treasurer and
Slide 8: Attempts to Thwart Special Meeting
Concerned Stockholders of Full House Attempts to Thwart Special Meeting Recent Bylaw Changes • We have attempted to engage the Company since February 2014 • October 9, 2014, the Concerned Stockholders filed a 13-D and preliminary solicitation statement to call a Special Meeting • October 13, 2014, t
Slide 9: Company Announces Sale
Concerned Stockholders of Full House Company Announces Sale Company Reacts to Concerned Stockholders • October 22, 2014 the Company announced that it will initiate a sale process • Any sale would require lengthy review and approval by state gaming authorities • The Company’s credit agreements are ap
Slide 10: Shares Have Underperformed
Concerned Stockholders of Full House Shares Have Underperformed Share Price Performance • Shares have underperformed the Russell 2000 and the Dow Jones U.S. Gambling Index for the one, three, and five year periods Period Five Year Three Year One Year 9/30/2009 9/30/2011 9/30/2013 9/30/2014 Full Hous
Slide 11: Stockholders Have Lost Money
Concerned Stockholders of Full House Stockholders Have Lost Money Share Price Performance Stockholders have lost approximately 59% in the past year Note: From September 30, 2013 to September 30, 2014. Preliminary consent statement filed on October 9, 2014 9
Slide 12: Reasons for Change: Poor Operations and Capital Allocation
Concerned Stockholders of Full House Reasons for Change Poor Operations and Poor Capital Allocation • The Company’s operations have performed poorly and it has lost valuable business • Each of the Company’s three owned casinos has seen revenues decline YTD in 2014 • The Company made three acquisitio
Slide 13: Poor Operating Performance of Full House Rising Star
Concerned Stockholders Poor Operating Performance of Full House Rising Star Poor Operations at the Rising Star • Acquired Rising Star in Rising Sun, Indiana in April 2011 • Disclosed price of $43 million did not include deal fees or working capital so cash on cash returns are worse than advertised •
Slide 14: Poor Operations at the Rising Star: Revenues and EBITDA
Concerned Stockholders Poor Operating Performance of Full House Rising Star Poor Operations at the Rising Star Rising Star Total Monthly Gaming Revenues Since Acquisition Rising Star Quarterly EBITDA 10,000 3500 9,000 3000 8,000 2500 7,000 2000 6,000 Tax Relief 1500 Adjusted EBITDA 5,000 1000 4,000
Slide 15: Poor Operating Performance of Full House Silver Slipper
Concerned Stockholders Poor Operating Performance of Full House Silver Slipper Poor Operations at the Silver Slipper Period Silver Slipper MS Gulf Coast Silver Slipper MS Gulf Gross Gaming Counties YOY % Change Counties Revenues (000’s) Revenues (000’s) YOY % Change Q4 2012 12,861 254,223 Q1 2013 13
Slide 16: History of Losing Management Contracts
Concerned d Stockholders rs of Full House se History of Losing Management Contracts History of Losing Management Contracts • Historically, Full House managed casinos for third parties • The Nambé Pueblo Indian Tribe in New Mexico severed business ties with the company in 2008 • The Company pursued o
Slide 17: History of Poor Capital Allocation
Concerned Stockholders of Full House History of Poor Capital Allocation Poor Capital Allocation - Rising Star Hotel The Company invested approximately $8 million in an off-balance sheet transaction to open a new, 142-guest room hotel tower in November 2013 that is across the parking lot from the cas
Slide 18: History is Repeating at Silver Slipper
Concerned Stockholders of Full House History is Repeating at Silver Slipper Poor Capital Allocation • Silver Slipper purchased for $69.3mm, plus deal fees of $1.6mm, working capital of $2.9mm, and loan origination fees of $5.8mm* • Analysts reported the purchase price was 6.0 – 6.25x trailing EBITDA
Slide 19: Counterparty Risk at Silver Slipper
Concerned Stockholders of Full House Counterparty Risk at Silver Slipper Silver Slipper $18 million hotel project • Initial fixed price contract called for September 2014 completion, construction has been delayed at least once • WHD Silver Slipper, LLC., a SPV of Wright Hotel Development, Inc. has b
Slide 20: Board Sanctioned Dilution
Concerned Stockholders of Full House Board Sanctioned Dilution Poor Capital Allocation • 12/31/2013, FLL had 18.8mm shares outstanding • 1/8/2014, the company filed an S-1 to sell up to $46mm worth of stock with no specific explanation for use of funds. That day FLL closed at $2.65 • The proposed of
Slide 21: Acquisitions Lead to Massive Write-Offs
Concerned Stockholders of Full House Acquisitions Lead to Massive Write-Offs Poor Capital Allocation • We believe the Company overpays for acquisitions • Actual numbers for acquisitions are worse as Rising Star and Silver Slipper announced purchase prices did not include working capital or deal fees
Slide 22: Acquisitions Have Destroyed Value
Concerned Stockholders of Full House Acquisitions Have Destroyed Value Poor Capital Allocation • Company bought Stockman’s for $27.1 million in 2007, sold the adjacent hotel for $6.1 million for a net investment of $21 million • In December 2011, the Company’s core assets were approximately $13.2 mi
Slide 23: Questionable Governance
Concerned Stockholders of Full House Questionable Governance Governance • Management representatives comprise 40% of the current five person Board • Chairman is not independent • Every “Independent” has a past working relationship with the CEO • The Concerned Stockholders have repeatedly attempted t
Slide 24: Independent Board Historical Overlap
Concerned Stockholders of Full House Independent Board Historical Overlap • Showboat • American Inc. Hilliou (VP) Bingo & Braunlich, Hilliou Gaming Marshall (President, CEO) (various roles) Adams Miller (Director) (various roles) Hilliou Hilliou (VP) (CEO) Braunlich Adams (various roles) (Director)
Slide 25: Questionable Compensation Practices
Concerned Stockholders of Full House Questionable Compensation Practices Governance Compensation • Despite consistent underperformance, Management Compensation executive compensation of the CEO and 1,600,000 COO is up 68% in the past five years 1,400,000 • Compensation is not visibly tied to 1,200,0
Slide 26: Independent Board Not Aligned
Concerned Stockholders of Full House Independent Board Not Aligned Governance • Independents have a combined 23 years of service on the Board • Independents receive approximately $50,000 in cash and stock each year • Independents own only 58,900 shares in the aggregate – collectively less than $70,0
Slide 27: Special Meeting is Urgent
Concerned Stockholders of Full House Special Meeting is Urgent Immediate Action is Needed • The Company violated its financial covenants in its First and Second Lien Credit Agreements in the first two quarters of 2014 • To obtain waivers, the Company paid fees and agreed to pay the Second Lien holde
Slide 28: Plans for Special Meeting
Concerned Stockholders of Full House Plans for Special Meeting The Special Meeting • Per the bylaws, 40% of Stockholders must request the Special Meeting • We plan to present a proposal to stockholders that will increase the size of the Board from five to ten directors • We intend to nominate five h
Slide 29: Stockholders Support Immediate Call
Concerned Stockholders of Full House Stockholders Support Immediate Call Shareholder Support the Special Meeting • Allen E. Paulson was the founder of the Company and served as the CEO from 1994 until 2000. He was also the founder Gulfstream Aerospace • The Allen E. Paulson Living Trust, a significa
Slide 30: Appendix: Proposed Nominees
Concerned Stockholders of Full House Appendix: Proposed Nominees We intend to nominate Daniel Lee, Bradley Tirpak and these three individuals: • Ellis Landau is a private investor and serves on the Board of Managers of ALST Casino Holdco, LLC, a holding company for Aliante Hotel and Casino. From 199
Slide 31: Appendix: Timeline of Our Involvement
Concerned Stockholders of Full House Appendix: Timeline of Our Involvement Timeline 2014 • 1/8 FLL files S-1 with more than 90% dilution • 2/6 Tirpak writes private letter to the Board asking for the Company to a) open the nomination deadline b) put the dilution to a vote and c) evaluate other strat
Slide 32: Appendix: Andre Hilliou
Concerned Stockholders of Full House Appendix: Andre Hilliou Management • President, CEO and Chairman of the Board of Directors of American Bingo & Gaming, Inc. (later known as Littlefield Corporation, LTFD) (1998-99) • Littlefield suffered chaotic leadership during Hilliou’s term as President, CEO
Slide 33: Disclaimer
Concerned Stockholders of Full House Disclaimer • DISCLAIMER REGARDING THIS PRESENTATION • BRADLEY M. TIRPAK, CRAIG W. THOMAS AND DANIEL R. LEE (COLLECTIVELY, THE "CONCERNED STOCKHOLDERS") HAVE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) A DEFINITIVE CONSENT STATEMENT AND ACCOMPANY