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COMMITMENTS AND CONTINGENCIES
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Dec. 31, 2014
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| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES |
12. COMMITMENTS AND CONTINGENCIES
Operating leases
The nature of our operating leases include the following as summarized below:
Additionally, we have less significant operating leases for certain office and warehouse facilities, office equipment, signage and land.
The total rent expense for all operating leases for the years ended December 31, 2014 and December 31, 2013 was $2.9 million.
Future minimum lease payments are as follows (in thousands):
Grand Lodge Casino Lease. We entered into a lease with Hyatt Equities L.L.C. to operate the Grand Lodge Casino. The lease is secured by the Company’s interests under the lease and property as defined and is subordinate to the liens in the First and Second Lien Credit Facilities. Hyatt Equities, L.L.C. has an option to purchase our leasehold interest and related operating assets of the Grand Lodge Casino subject to assumption of applicable liabilities. The option price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve-month period preceding the acquisition or for such period of time remaining on the lease term, whichever is less, plus the fair market value of the Grand Lodge Casino’s personal property. On April 8, 2013, the Grand Lodge Casino entered into a first amendment to the Grand Lodge Lease (the “Grand Lodge Amendment”). The Grand Lodge Amendment extended the initial term of the Grand Lodge Lease until August 31, 2018 and makes certain other conforming changes.
Options to Purchase Silver Slipper Casino Leased Land. Silver Slipper Casino entered into the Land Lease in November 2004, as amended in March 2009, September 2012 and February 2013, which includes approximately 31 acres of marshlands as well as a seven-acre casino parcel, on which the Silver Slipper Casino was subsequently built. The Land Lease includes an exclusive option to purchase the leased land (“Purchase Option”), as well as an option to purchase a four acre portion of the leased land, which may be exercised at any time in conjunction with a hotel development during the term of the Land Lease for $2.0 million. On February 26, 2013, Silver Slipper Casino entered into a third amendment to the Land Lease which amended the term and Purchase Option provisions. The term of the Land Lease is to April 30, 2058, with a Purchase Option through October 1, 2027, but which may only be exercised after February 26, 2019. If there is no change in ownership, the purchase price will be $15.5 million ($13.5 million if the four acre parcel has been previously purchased) plus a retained interest in Silver Slipper Casino operations of 3% of net income. In the event that we sell or transfer substantially all of the assets of our ownership in Silver Slipper Casino, then the purchase price will increase to $17.0 million.
Silver Slipper Casino Hotel Construction. On August 26, 2013, the Silver Slipper Casino entered into an agreement with WHD Silver Slipper, LLC, an unrelated third party, for the construction of a six-story, 120-room and nine suite hotel being built between the south side of the casino and the waterfront. We expect costs related to the construction of the hotel to be approximately $20 million, inclusive of capitalized interest. We intend to finance $10.0 million of the construction costs with the proceeds of the term loan under the First Lien Credit Facility as described in Note 7, with the remaining construction and related costs funded from available cash and cash flows. As of December 31, 2014, we had funded cash of $8.2 million in construction costs for the Silver Slipper Casino Hotel, and we anticipate funding an additional $1.5 million in cash during 2015, including capitalized interest. We expect to complete and open the 120 standard rooms in the second quarter of 2015, followed shortly thereafter by the remaining nine suites.
Employment Agreements. The Company has entered into employment agreements with certain of its key employees. The agreements may provide the employee with a base salary, bonus, restricted stock grants, stock options and other customary benefits. Certain agreements also provide for severance in the event the employee resigns with “good reason,” or the employee is terminated without “cause” or due to a “change of control,” as defined in the agreements. The severance amounts vary with the terms of the agreements and may include the acceleration and vesting of certain unvested shares and stock-based awards upon a change of control, along with continuation insurance costs and certain other benefits. As of December 31, 2014, the total of these severance amounts in the event of a change of control and subsequent termination of all such individuals was approximately $3.2 million.
In the event the employee is terminated for cause or resigns without good reason, the severance amounts include payments of earned but unpaid salary, reimbursement of expenses, and accrued vacation benefits through the date of termination. Additionally, if employment terminates due to death or disability, the executive may receive benefits under the life and long term disability insurance policies we provide.
Defined Contribution Pension Plan. We sponsor a defined contribution pension plan for all eligible employees providing for voluntary contributions by eligible employees and matching contributions made by us. Matching contributions made by us were $0.3 million and $0.6 million for 2014 and 2013, respectively, excluding nominal administrative expenses assumed. During 2014, the Company changed its employer contribution rate to 50% up to 4% of compensation for each participating employee, from 100% of the first 3% of compensation, plus 50% of the next 2% of compensation for each participating employee during 2013.
Indiana Department of Revenue. During 2014, we received a proposed assessment of $1.6 million, including interest and penalties, from the Indiana Department of Revenue related to unpaid sales and use taxes for periods prior to 2013. The proposed assessment is under protest by the Company and an accrual of $0.25 million has been recorded in the consolidated financial statements, which represents the amount of unpaid sales and use tax we believe is owed. It is possible that a change in this estimated liability could occur in the future.
Legal Matters. We are party to a number of pending legal proceedings which occurred in the normal course of business. Management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on our financial position, cash flows or results of operations.
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