Management and Directors of the Company
The Company's management team brings a wealth of experience in the industry with aggregate experience of over 60 years. Also, a diverse and extremely strong Board of Directors play an active role in the Company.
Provided below are descriptions of the backgrounds of our Executive Officers and Directors and their principal occupations:
Troy Lowrie. Mr. Lowrie has been the Chairman of the Board since April 2002 and Chief Executive Officer since November 2002. Mr. Lowrie is President of Lowrie Investment Management Inc., the General Partner of Lowrie Management LLLP, a Colorado limited liability limited partnership, which formerly owned and operated adult entertainment nightclubs and is now an investment entity. Mr. Lowrie was the owner and President of International Entertainment Consultants, Inc. (IEC), a company engaged in the business of managing adult entertainment nightclubs, from 1982 to October 2003, when it was acquired by the Company. Mr. Lowrie has served as President of two other publicly traded companies: from 1992 to 1996, Western Country Clubs, Inc., a public company specializing in large country and western bars with live music; and from 1996 to 1998, New Millennium Media, Inc., a public company which sells rotating print advertising equipment and full movement video billboards. Mr. Lowrie has a M.A. in Finance from the University of Denver in Denver, Colorado and a B.A. in Business from Fort Lewis College in Durango, Colorado.
Micheal Ocello. Mr. Ocello has been a Director, President and Chief Operating Officer of the Company since April 2002. Mr. Ocello is the owner and President of Unique Entertainment Consultants, Inc., of St. Louis, Missouri, a management company that has specialized in the management of nightclubs since 1995. Mr. Ocello has been affiliated with IEC in a managerial capacity since 1982. He is currently the President of IEC. Over his career, Mr. Ocello has been affiliated with more than 25 adult entertainment nightclubs including all PT's
Showclubs, Diamond Cabaret, The Penthouse Club and Shotgun Willies located in Denver; PT's Showclub in Colorado Springs; The Penthouse Club, The Platinum Club, Roxy's and PT's Showclubs in St. Louis; Schieks Palace Royale in Minneapolis; The Men's Club in Raleigh; Jaguars in Dallas and Ft. Worth; Imperial Showgirls in Anaheim and the Olympic Garden in Las Vegas. He is President of the Association of Club Executives (ACE National, the national trade association for the adult nightclub industry), President of the Illinois Club Owners Association, past Vice Chairman and current Board member of Missouri's Small Business Regulatory Fairness Board. He is a past Vice President and Board member of the Free Speech Coalition. Mr. Ocello attended the University of Missouri, Kansas City from 1977 to 1978 and the United States Military Academy at West Point from 1979 to 1981. Mr. Ocello was originally elected to the Mehlville Board of Education in 2006 and was re-elected for an additional three year term in 2009. Mr. Ocello serves as a commissioned Police Officer for the Village of Brooklyn, Illinois since early 2009.
Courtney Cowgill. Ms. Cowgill has been Chief Financial and Accounting Officer, Corporate Secretary and Treasurer since June 2008. Ms. Cowgill served as Chief Financial Officer and Treasurer of Oceanic Exploration Company, an oil and gas exploration company, from May 2003 to June 2008. She has more than 30 years of accounting experience, including three years experience as an auditor with the former Arthur Young & Co. She has served in Chief Financial Officer, Controller and Internal Auditor Manager positions for the last 20 years. She served as the Executive Director of Program Management for Tele-Communications, Inc./AT&T Broadband, a telecommunications company, from 1996 to 2000, and was employed by the University of Colorado at Boulder, Colorado as an Adjunct Faculty Member from 2001 to 2004. Ms. Cowgill holds a B.S. in Accounting from Metropolitan State College in Denver, Colorado and an M.S. in Telecommunications Engineering from the University of Colorado at Boulder, Colorado. Ms. Cowgill is an active licensed CPA.
Robert McGraw, Jr. Mr. McGraw has been a Director of the Company since November 2002. A certified public accountant since 1982, Mr. McGraw is President of McGraw and McGraw CPA PC of Westminster, Colorado. Mr. McGraw's firm specializes in accounting for restaurants, lounges and small businesses. The practice consists of income tax preparation, financial statement preparation, and small business consulting. Mr. McGraw has a Bachelor's Degree from Western State College in Gunnison, Colorado. Mr. McGraw is currently licensed in the State of Colorado and is a member of the American Institute of Certified Public Accountants and Colorado Society of Certified Public Accountants. Mr. McGraw serves on the Audit, Compensation, and Governance and Nominating Committees and is an independent member of the Board.
Allan Rubin. Mr. Rubin has been a Director of the Company since November 2002. Mr. Rubin is the managing partner of the Southfield, Michigan law firm of Rubin Shulman, P.L.C. Mr. Rubin's practice is primarily devoted to the representation of matters involving free speech, constitutional law, intellectual property, employment and complex corporate litigation, both civil and criminal. Among his clients are adult entertainment businesses. Mr. Rubin also serves as General Counsel to the Association of Club Executives of Michigan and has been a speaker at a number of trade association meetings regarding matters relating to the First Amendment of the U.S. Constitution. Mr. Rubin received his B.A. in Criminal Justice from Michigan State University and graduated Cum Laude from the Thomas M. Cooley Law School in Lansing, Michigan. Mr. Rubin is a member of the First Amendment Lawyers Association. Mr. Rubin does not serve on any Committees because of his involvement in acquisition and litigation matters for the Company and its subsidiaries, which makes him a non-independent member of the Board.
Martin Grusin. Mr. Grusin has been a Director of the Company since July 2005. Mr. Grusin has been practicing law since 1973. In addition to the active practice of law, Mr. Grusin has served as: General Counsel and Director of Aqua Glass Corporation, one of the largest suppliers of bathing fixtures in the country; President, Chief Executive Officer and Director of United American Bank in Memphis, Tennessee; Director of Regions Bank of Memphis, Tennessee; an Associate Professor at the University of Arkansas in Fayetteville, Arkansas and the University of Memphis in Memphis, Tennessee; Managing Director of Stern Cardiovascular Center, P.A., a medical services provider, of which he presently serves as General Counsel; Director of Davis Cartage Company, a provider of transportation and warehousing services; and Director of Iptimize, Inc., a broadband voice and data service provider. Mr. Grusin received a B. S. degree from the University of Memphis, a Juris Doctor degree from Memphis State University School of Law in Memphis, Tennessee and a LL.M. from the University of Miami School of Law in Coral Gables, Florida. Mr. Grusin serves on no Committees because of his involvement in merger and acquisition activity for the Company and its subsidiaries. Mr. Grusin is an independent member of the Board.
Kenton Sieckman. Mr. Sieckman has been a Director of the Company since June 2008. Mr. Sieckman has been Vice President of World Technical Services at CA Wily Technology, a provider of application management solutions, since 2003. Previously Mr. Sieckman was employed in similar positions at Oracle Corporation, the world's largest enterprise software company, and BEA Systems, Inc., an application infrastructure software company. Mr. Sieckman has also worked in the areas of sales and building a worldwide technical services organization. Mr. Sieckman has a B.A. in Mathematics and Computer Science from the University of Colorado at Boulder, Colorado. Mr. Sieckman served as a Director of USMedSys, Corp., a former distributor of medical supplies. Mr. Sieckman serves on the Audit (Chair), Compensation (Chair), and Governance and Nominating Committees and is an independent member of the Board.
George Sawicki. Mr. Sawicki has been a Director of the Company since June 2008. Mr. Sawicki has been In-House Counsel for Zed, formerly 9 Squared, a mobile media solutions company, since 2007. Mr. Sawicki has previously served as In-House Counsel for Playboy Enterprises, Inc., an adult entertainment company, New Frontier Media, Inc., a producer and distributor of adult themed and general motion picture entertainment, Storage Technology Corporation, a data storage company, and Oracle Corporation, the world's largest enterprise software company. Mr. Sawicki has worked as legal counsel with the areas of corporate governance, patent, e-commerce, entertainment, and marketing organizations, managing complex transactions and legal compliance consulting. Mr. Sawicki has a B.A. in Chemistry from Vassar College in Poughkeepsie, New York, a M.S. in Management Information Systems from Houston Baptist University in Houston, Texas, and a Juris Doctor degree from the University of Houston Law Center in Houston, Texas. Mr. Sawicki serves on the Audit, Compensation, and Governance and Nominating Committee (Chair) and is an independent member of the Board.
IEC Management
The Company owns International Entertainment Consultants, Inc. ("IEC"), which provides management services to its nightclubs and, on a fee basis, to non-owned affiliated nightclubs. IEC charges for direct expenses and a proportionate share of IEC's general operating and administrative expenses. Services include: oversight of operations, hiring and contracting personnel, establishing club policies and procedures, conducting compliance monitoring, managing purchasing, preparation of financial/operating reports, income tax preparation, accounting services and management of other administrative needs.
Business Strategy
The Company's goal is to become the leader in the first-class adult entertainment nightclub industry. VCG Holding has developed a proven growth strategy forged from the combined experience of its senior management team. The Company plans to consolidate first class adult entertainment nightclubs in both existing and new markets to increase their profitability by leveraging economies of scale in management, operations and marketing.
Management believes that there is a significant opportunity for industry consolidation as there are many profitable first-class clubs, which are available for acquisition on favorable terms. In fact, it is estimated that in the United States alone there are 3,500 adult entertainment nightclubs. Management also believes in acquiring established nightclubs in existing locations in order to avoid the substantial costs and risks associated with building and licensing nightclubs in new locations with no existing customer base.
The adult entertainment nightclub industry is highly fragmented with most nightclub owners owning only one club. Adult entertainment nightclubs are rarely advertised for sale; but rather, their availability is made known through word-of-mouth within the industry. The Company, through its extensive contacts in the industry, is aware of numerous nightclubs that are for sale throughout the United States. Typically, these nightclubs become available for sale because of owners reaching retirement age, increased operating expenses causing decreased profitability, and inability or unwillingness to commit capital in order to upgrade older nightclubs.
In the Company's professional opinion, there are many opportunities to create clusters of nightclubs in desirable markets. This approach not only limits the competition within a certain market, but also allows the Company to target different demographic segments within a certain geographic area and better leverage marketing and operations synergies as well. In evaluating acquisition opportunities in new markets, the Company will exercise its potential, over time, to build competitive clusters in as many markets as financial and managerial resources will allow. The Company will analyze a number of factors which it believes are important to its success, including: purchase price of property, the potential for consolidation of other properties in the market, the opportunity for operational efficiencies and increased cash flow through streamlined operations, and the general economic conditions of the market. The Company's acquisition strategy contemplates the ongoing evaluation of existing nightclubs and their relocation, upgrade or sale if they do not satisfy operating objectives.
Of paramount importance to delivering impressive cash flow results is the leveraging of operating synergies and the careful, yet tough management of operating expenses. The Company believes that the benefits of consolidation - namely, centralized management, more efficient operations, less costly overhead, and increased market recognition and identity of the clubs under shared name branding, will increase the current profitability of these nightclubs. Moreover, all levels of the Company's management are charged with the justification of all operating expenses. Management is always looking for ways to operate more efficiently and less expensively in all areas of nightclub operations.
The Company and nightclub senior management have utilized these principals over many years with proven success. Corporate and nightclub management are in general agreement on these basic values and strategies, which creates a consistent and unified environment throughout the organization.
Compliance Policies and Controls
IEC has developed comprehensive policies aimed at ensuring that the operation of each nightclub is conducted in conformance with local, state and federal laws and they are designed to assure our clients a quality and enjoyable experience. We have a "no tolerance" policy on illegal drug use in or around the facilities. We continually monitor the actions of entertainers, employees and customers to ensure that proper behavior standards are met.
We believe that operational and accounting controls are essential to the successful operation of a cash intensive nightclub and bar business. IEC has also developed and implemented internal operating and accounting controls to track cash, credit card transactions, and food and beverage inventory. These controls also help to maintain the accuracy of our operating and accounting records. In particular, IEC has developed special software programs to capture operating information and generate reports for efficient management and control of the nightclub. We review all revenue information on a shift basis. This information is recorded in a sales journal, which includes all of the credit cards receipts, register receipts, deposits, and any other sales information for each shift. Once the sales journal is completed by a nightclub manager, it is signed off by a supervisor or Area Director for accuracy, recalculated the following morning by our money counter and matched to the deposit. A copy of this sales journal is faxed into the corporate office for accounting review and recording. Analysis of the daily information enables IEC to detect any variance from expected operating results based on expectations and historical trends.
Advertising and Promotion
Our ability to attract patrons to a nightclub for the first time is critical to a nightclub's success. Promotions, advertising and special offers are the typical means to market a nightclub. We use a variety of highly targeted methods to reach our customers including local radio, billboards, billboard trucks, internet, newspaper and magazine ads, and professional sporting events.
We extensively utilize a marketing program developed by IEC. Our nightclubs are marketed as a safe and upscale environment for adult entertainment. The marketing strategy is to attract new customers, increase the frequency of visits by existing customers and establish a higher level of name recognition. The target market is the business-convention traveler, local professionals and business people. In addition, IEC conducts various promotional activities throughout the year to keep the nightclubs' names before the public. In order to be good corporate citizens, the nightclubs actively sponsor and participate in local charitable events and make contributions to local charities.
Employees and Independent Contractors
As of December 31, 2008, we had approximately 1,030 employees, of which 140 were full-time management employees including corporate and administrative operations, and approximately 890 who were engaged in entertainment, and food and beverage service, including bartenders and waitresses. None of our employees is represented by a union nor have we ever suffered a work stoppage. As of December 31, 2008, we had independent contractor relationships with approximately 2,000 entertainers, who are self-employed and perform at our locations on a non-exclusive basis. Independent contractors/entertainers pay a fee to the nightclub to perform.
Industry Background
For years, sexual content has been continually increasing in the media including movies, television, magazines, newspapers, and the internet. Capitalizing on this opportunity, businesses that were not previously involved in the industry have now become major providers of adult entertainment. These include hotel chains, cable and satellite television companies, national video store companies and long distance telephone carriers.
Public acceptance and demand for the premium quality adult entertainment nightclubs have become common in both cities and suburbs throughout the United States as there is an increasingly open and healthy attitude toward sexuality. There is a strong existing and developing market among businessmen, professionals and other affluent persons for first-class adult entertainment nightclubs.
The social acceptance and accelerating growth in adult entertainment includes adult entertainment nightclubs, particularly first class adult entertainment nightclubs, which are popular among affluent customers for social and business entertainment
The demographic market for adult entertainment nightclubs is substantial as nightclubs appeal to men of all age groups. Within this market, there are two general categories of nightclubs, each having distinct differences in entertainment quality, atmosphere and food service. On the lower-end are "strip clubs" which typically have small facilities and a low-grade atmosphere. These clubs generally cater to a blue-collar clientele, have limited or non-existent food service and a small number of entertainers who are not of the caliber of the upper-scale clubs. The upper-scale clubs are termed "gentlemen's clubs." These clubs are characterized by their large facilities and featuring dozens of entertainers on any given night. They offer a variety of entertainment such as sports on television monitors, billiard tables, VIP rooms and specialty acts. Their target market/audience is a more affluent clientele of businessmen and professionals for whom gentlemen's clubs are increasingly becoming a viable and attractive entertainment option. In addition, they are no longer limited to providing evening entertainment; daytime operations are also growing, particularly during the lunch hour. Food is prepared by an on-site chef and the menu typically offers a wide variety of entrees and appetizers. Most clubs provide a buffet at least once a week as a promotion special.
Competition
The adult nightclub entertainment business is highly competitive with respect to price, location and quality of the facility, entertainment, service, and food and beverages. Due to the highly fragmented nature of the adult nightclub industry, exact industry details are sparse about the actual number of operating nightclubs in the United States. However, various sources state that there are approximately 3,000 to 4,000 adult nightclubs in the United States with no clear industry leader. We have many competitors in the metropolitan areas in which we are located and/or intend to expand. Some of our competitors have substantially greater financial resources and a longer history of operations than the nightclubs currently owned by the Company. Changes in customer preferences, economic conditions, demographic trends and the location, number of and quality of competing nightclubs could adversely affect our business, as could a shortage of experienced local management and hourly employees. We believe that our nightclubs enjoy a high level of repeat business and customer loyalty due to our upscale restaurant atmosphere, food quality, premium entertainment, perceived price-value relationship and efficient service. Although we believe that we are well positioned to compete successfully, there can be no assurance that we will be able to maintain our high level of name recognition and prestige within the marketplace.
Government Regulations
Our business is regulated by local zoning, local and state liquor licensing, local ordinances and state and federal, time, place and manner free speech restrictions. In states in which we currently operate, liquor licenses renew annually, and are considered to be a "privileged" license that could be subject to suspension or revocation. The adult entertainment provided by our nightclubs has elements of free speech and expression and, therefore, enjoys some protection under the First Amendment to the U.S. Constitution. However, the protection is limited to expression, and not conduct. In addition to various regulatory requirements affecting the sale of alcoholic beverages, in many cities where we operate, the location of a topless cabaret is subject to restriction by city ordinance. These ordinances affect the locations in which sexually oriented businesses may be operated by typically requiring minimum distances to schools, churches, and other sexually oriented businesses, and containing restrictions based on the percentage of residences within the immediate vicinity of the sexually oriented business. The granting of a sexually oriented business permit is not subject to discretion; such a business permit must be granted if the proposed operation satisfies the requirements of the applicable ordinance.
In all states where we operate, management believes that we comply with applicable laws, regulations and ordinances governing the sale of alcohol and the operation of sexually oriented businesses. While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will permit our nightclubs to remain in operation or be profitable in the future.
Imperial Showgirls (Anaheim)