THIS PROSPECTUS IS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 424(b)(4).
Registration No. 333-23895
SUBJECT TO COMPLETION, DATED March 24, 1997
RIO HOTEL & CASINO, INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
AGGREGATE PRINCIPAL AMOUNT OF $125,000,000 OUTSTANDING
FOR
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
PAYMENT OF PRINCIPAL AND INTEREST IS FULLY
AND UNCONDITIONALLY GUARANTEED BY RIO PROPERTIES, INC.
This exchange offer and withdrawal rights will expire at
5:00 p.m., New York City time, on May 16, 1997 (as such date may
be extended, the "Expiration Date").
Rio Hotel & Casino, Inc. (the "Company") hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal"), to exchange $1,000 in
principal amount of its 9 1/2% Senior Subordinated Notes due 2007
(the "New Notes") for each $1,000 in principal amount of its
outstanding 9 1/2% Senior Subordinated Notes due 2007 (the "Old
Notes") (the Old Notes and the New Notes are collectively
referred to herein as the "Notes") of which an aggregate
principal amount of $125,000,000 is outstanding.
The Company will accept for exchange any and all Old Notes
that are validly tendered prior to 5:00 p.m., New York City time,
on the Expiration Date. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for
exchange. However, the Exchange Offer is subject to the terms
and provisions of the Registration Agreement dated as of February
4, 1997 (the "Registration Agreement") among the Company; Rio
Properties, Inc., a subsidiary of the Company that has agreed to
guarantee the Notes (the "Guarantor"); and Salomon Brothers Inc
and BancAmerica Securities, Inc. (the "Initial Purchasers"). The
Old Notes may be tendered only in multiples of $1,000. See "The
Exchange Offer."
The Old Notes were issued in a transaction (the "Offering")
pursuant to which the Company issued an aggregate of $125 million
principal amount of the Old Notes. The Old Notes were sold by
the Company to the Initial Purchasers on February 11, 1997 (the
"Closing Date") pursuant to a Purchase Agreement dated
February 4, 1997 (the "Purchase Agreement") among the Company,
the Guarantor and the Initial Purchasers. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A and
certain other exemptions under the Securities Act of 1933, as
amended (the "Securities Act"). The Company and the Initial
Purchasers also entered into the Registration Agreement, pursuant
to which the Company granted certain registration rights for the
benefit of the holders ("Holders") of the Old Notes. The
Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Agreement with respect to the
Old Notes. See "The Exchange Offer - Purpose and Effect."
The Old Notes were, and the New Notes will be, issued under
the Indenture dated as of February 11, 1997 (the "Indenture")
among the Company, the Guarantor and IBJ Schroder Bank & Trust
Company as Trustee (in such capacity, the "Trustee"). The form
and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that
(i) the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer
thereof, (ii) holders of New Notes will not be entitled to
special interest otherwise payable under the Registration
Agreement in respect of Old Notes held by such holders during any
period in which a registration statement has not been filed
and/or is not effective and (iii) holders of New Notes will not
be, and upon the consummation of the Exchange Offer, Holders of
Old Notes will no longer be, entitled to certain rights under the
Registration Agreement intended for the holders of unregistered
securities; provided, however, that purchasers of the Old Notes
shall have the right to require the Company to file a shelf
registration statement pursuant to Rule 415 under the Securities
Act solely for the benefit of such purchasers and will be
entitled to receive special interest if such shelf registration
statement is not declared effective on or prior to the 180th day
following the date of original issuance of the Old Notes. The
Exchange Offer shall be deemed consummated upon the occurrence of
the delivery by the Company to the Registrar under the Indenture
of New Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that were tendered by
holders thereof pursuant to the Exchange Offer. See "The
Exchange Offer - Termination of Certain Rights" and "- Procedures
for Tendering Old Notes" and "Description of New Notes."
See "Risk Factors" on pages 14 through 20 for information
that should be considered by Holders in evaluating the Exchange
Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OF OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 27, 1997
<PAGE>
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING
CONTROL BOARD HAS PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED
HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The New Notes will bear interest at a rate equal to 9 1/2%
per annum from and including their date of issuance. Interest
on the New Notes is payable semiannually on each April 15
and October 15 (each, an " Interest Payment Date"). Holders
whose Old Notes are accepted for exchange will have the
right to receive interest accrued thereon from the date of
their original issuance or the last Interest Payment Date,
as applicable to, but not including, the date of issuance of
the New Notes, such interest to be payable with the first
interest payment on the New Notes. Interest on the Old
Notes accepted for exchange will cease to accrue on the day
prior to the issuance of the New Notes. The New Notes will
mature on April 15, 2007. See "Description of New Notes -
General."
The New Notes will not be redeemable, in whole or in part,
prior to October 15, 2002. Thereafter, the New Notes will
be redeemable at the redemption prices set forth herein,
plus accrued and unpaid interest to the redemption date.
Upon the occurrence of a Change of Control (as defined on
page 64), each holder of New Notes will have the right to
require the Company to purchase all or a portion of such
holder's New Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest to the repurchase date.
The New Notes will be general unsecured obligations of the
Company and will be fully and unconditionally guaranteed by
the Guarantor ( the " Rio Guarantee"). The Rio Guarantee will
be a general unsecured obligation of the Guarantor,
subordinated in right of payment to all present and future
Senior Indebtedness ( as defined on page 72) and Senior
Indebtedness of Guarantor ( as defined on page 72),
respectively. The New Notes will be structurally
subordinated to all liabilities of the Company's
subsidiaries and the Rio Guarantee will be structurally
subordinated to all liabilities of the Guarantor's
subsidiaries. As of September 30, 1996 and December 31,
1996, after giving effect to the offering of the Old Notes
and the application of net proceeds thereof, there were $1.3
million and $33.0 million, respectively, of outstanding
Senior Indebtedness of Guarantor to which the Rio Guarantee
was subordinated. There are no significant outstanding
liabilities of subsidiaries of the Guarantor.
Based on an interpretation by the staff of the Securities
and Exchange Commission ( the " Commission") set forth in no-
action letters issued to third parties, the Company believes
that the New Notes issued pursuant to the Exchange Offer to
a Holder in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by such Holder
(other than (i) a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A
under the Securities Act or any other available exemption
under the Securities Act or (ii) a person who is an
affiliate of the Company within the meaning of Rule 405 of
the Securities Act), without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that the Holder is acquiring the
New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with
any person to participate, in a distribution of the New
Notes. Holders wishing to accept the Exchange Offer must
represent to the Company, as required by the Registration
Agreement, that such conditions have been met. Each broker-
dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired
by such broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes.
See "The Exchange Offer - Resales of the New Notes." This
Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with
resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired by such broker-dealer as
a result of market-making or other trading activities.
The Company will not receive any proceeds from any sale of
New Notes by broker-dealers. New Notes received by any
broker-dealer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New
Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any
2
<PAGE>
such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-
dealers and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by
it for its own account pursuant to the Exchange Offer and
any broker-dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such
resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be
underwriting compensation under the Securities Act. Each
broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such
New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes
where such New Notes were acquired by such broker-dealer as
a result of market-making activities or other trading
activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business on the
first anniversary of the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
As of February 28, 1997, Cede & Co. ("Cede"), as nominee
for The Depository Trust Company, New York, New York
("DTC"), was a registered Holder of the Old Notes,
holding Old Notes for its participants, and one other
Holder held Old Notes directly. The Company believes
that no Holders are affiliates (as such term is defined in
Rule 405 under the Securities Act) of the Company. There
has previously been only a limited secondary market and no
public market for the Old Notes. The Old Notes are eligible
for trading in the Private Offering, Resales and Trading through
Automatic Linkages ("PORTAL") market. In addition, the
Initial Purchasers have advised the Company that they
currently intend to make a market in the New Notes;
however, neither is obligated to do so and any market
making activities may be discontinued by either of the
Initial Purchasers at any time. Therefore, there can be
no assurance that an active market for the New Notes
will develop. If such a trading market develops for
the New Notes, future trading prices will depend on many
factors, including, among other things, prevailing interest
rates, the Company' s results of operations and the market
for similar securities. Depending on such factors, the
New Notes may trade at a discount from their face value.
See "Risk Factors - Absence of Public Trading Market."
The Company will not receive any proceeds from this
Exchange Offer, but, pursuant to the Registration
Agreement, the Company will bear certain registration
expenses. No underwriter is being utilized in connection
with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE
COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD
NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE
ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. IN
ADDITION, HOLDERS OF THE NEW NOTES FOLLOWING THE EXCHANGE
OFFER SHALL BE PROHIBITED FROM SELLING THE NEW NOTES TO NON-
INSTITUTIONAL BUYERS IN THE STATES OF ALABAMA, CALIFORNIA
AND WISCONSIN IN THE ABSENCE OF REGISTRATION OF THE NEW
NOTES (OR A VALID EXEMPTION THEREFROM) UNDER THE SECURITIES
LAWS OF SUCH STATES.
The Old Notes were issued originally in both global form
(the "Global Old Note") and in the form of one physical
certificate. The Global Old Note was deposited with, or on
behalf of, DTC, as the initial depository with respect to
the Old Notes (in such capacity, the "Depository"). The
Global Old Note is registered in the name of Cede, as
nominee of DTC, and beneficial interests in the Global Old
Note are shown on, and transfers thereof are effected only
through, records maintained by the Depository and its
participants. The use of the Global Old Note to represent
certain of the Old Notes permits the Depository's
participants, and anyone holding a beneficial interest in an
Old Note registered in the name of such a participant, to
transfer interests in the Old Notes electronically in
accordance with the Depository' s established procedures
without the need to transfer a physical certificate. Except
as provided below, the New Notes will also be issued
initially as a note in global form (the "Global New Note,"
and together with the Global Old Note, the "Global Notes")
and deposited with, or on behalf of, the Depository.
Notwithstanding the foregoing, holders of Old Notes that
were held, at any time, by a person that is not a qualified
institutional buyer under Rule 144A ( a "QIB"), and any
Holder that is not a QIB that exchanges Old Notes in the
Exchange Offer, will receive the New Notes in certificated
form and is not, and will not be, able to trade such
securities through the Depository unless the New Notes are
resold to a QIB. After the initial issuance of the Global
New Note, New Notes in certificated form will be issued in
exchange for a holder' s proportionate interest in the Global
New Note only as set forth in the Indenture.
3
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION...........................................4
PROSPECTUS SUMMARY..............................................6
RISK FACTORS...................................................14
THE EXCHANGE OFFER.............................................21
CAPITALIZATION.................................................27
SELECTED CONSOLIDATED FINANCIAL DATA...........................28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................30
BUSINESS.......................................................36
MANAGEMENT.....................................................48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................51
PRINCIPAL STOCKHOLDERS.........................................53
DESCRIPTION OF OTHER INDEBTEDNESS..............................55
DESCRIPTION OF NEW NOTES.......................................57
CERTAIN U.S. FEDERAL TAX CONSEQUENCES..........................83
PLAN OF DISTRIBUTION...........................................85
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................86
LEGAL MATTERS..................................................86
EXPERTS........................................................86
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS....................F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS......................F-2
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4
(together with any amendments thereto, the "Registration
Statement") with the Commission under the Securities Act with
respect to the New Notes. This Prospectus, which constitutes a
part of the Registration Statement, omits certain information
contained in the Registration Statement and reference is made to
the Registration Statement and the exhibits and schedules thereto
for further information with respect to the Company and the New
Notes offered hereby. This Prospectus contains summaries of the
material terms and provisions of certain documents and in each
instance reference is made to the copy of such document filed as
an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.
The Company is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports,
proxy and information statements and other information with the
Commission. In addition, upon registration of the Rio Guarantee
in connection with the Exchange Offer, the Guarantor will also be
subject to the reporting requirements of the Exchange Act so long
as the Rio Guarantee remains outstanding. Upon effectiveness of
the Registration Statement, the Guarantor will be subject to the
reporting requirements of the Exchange Act and the
interpretations issued thereunder by the Commission staff. The
Registration Statement (including the exhibits and schedules
thereto) and the periodic reports, proxy and information
statements and other information may be inspected and copied at
the public reference facilities of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the following Regional Offices: 7 World Trade
Center, Suite 1300, New York, New York 10048 and Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can be obtained from the
Commission by mail at prescribed rates. Requests should be
directed to the Commission's Public Reference Section, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, the Commission maintains a website
(http://www.sec.gov) that contains such reports, proxy statements
and other information filed by the Company. The Company's Common
Stock, $.01 par value per share (the "Common Stock") is listed on
the New York Stock Exchange and traded under the symbol "RHC."
4
<PAGE>
Material filed by the Company can be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York
10005. In addition, for so long as any of the Old Notes remains
outstanding, the Company has agreed to make available to any
prospective purchaser of the Old Notes or beneficial owner of the
Old Notes in connection with any sale thereof the information
required by Rule 144A(d)(4) under the Securities Act.
This Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. The Company will
provide a copy of any and all such documents without charge to
each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request to James A.
Barrett, Jr., President, Rio Hotel & Casino, Inc., 3700 W.
Flamingo Road, Las Vegas, Nevada 89103, (702) 252-7733. In order
to ensure timely delivery of the documents, any request should
be made no later than five business days prior to the Expiration
Date.
ALL DOCUMENTS FILED BY THE COMPANY AND THE GUARANTOR
PURSUANT TO SECTION 13(A), 13(C), 14 OR 15(D) OF THE EXCHANGE ACT
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS AND PRIOR TO THE
TERMINATION OF THE EXCHANGE OFFER TO WHICH THIS PROSPECTUS
RELATES SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE HEREIN
AND TO BE A PART HEREOF FROM THE DATE OF THE FILING OF SUCH
REPORTS AND DOCUMENTS. THE COMPANY WILL PROVIDE A COPY OF ANY
AND ALL OF SUCH DOCUMENTS (EXCLUSIVE OF EXHIBITS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE THEREIN)
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO JAMES A. BARRETT, JR., PRESIDENT, RIO HOTEL & CASINO,
INC., 3700 W. FLAMINGO ROAD, LAS VEGAS, NEVADA 89103, (702)
252-7733.
5
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information and financial statements and notes
thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, or the context otherwise requires, the term "Company"
refers to Rio Hotel & Casino, Inc., a Nevada corporation, and its
subsidiaries. This Prospectus contains forward-looking
statements that involve risks and uncertainties. See "Risk
Factors" for certain factors, including factors affecting
forward-looking statements, that a prospective investor should
consider in evaluating the Company before purchasing the Notes.
The Company
Rio Hotel & Casino, Inc. owns and operates an all-suite
hotel-casino, the Rio Suite Hotel & Casino (the "Rio") in Las
Vegas, Nevada. The Rio utilizes a colorful Brazilian Carnivale
theme and, as of March 1, 1997, featured 1,998 suites, 116,000
square feet of casino space, 13 restaurants, approximately 2,500
slot machines, 109 table games and other related amenities. The
Rio is situated on an elevated site near the Las Vegas Strip and
adjacent to a major exit from Interstate 15, the freeway linking
Las Vegas with Southern California. The Company markets to both
local residents and Las Vegas visitors. Management believes that
the Rio's unique all-suite concept, diverse high quality dining
and easy access provide an attractive alternative to the Las
Vegas Strip and a fun and comfortable environment in which to
enjoy gaming, dining and entertainment.
The Rio has substantially completed a $200 million
expansion, exclusive of construction period interest and pre-
opening expenses (the "Phase V Expansion"), centered around the
Masquerade Village. The Masquerade Village contains
approximately 120,000 square feet of public space with a
Carnivale and Mardi Gras themed casino expansion, featuring
Masquerade Show in the Sky, an interactive $25 million indoor
attraction, a variety of new restaurants and fine specialty
retail shops. The Phase V Expansion adds a curved 41-story hotel
tower containing 1,031 suites, 447 of which were open at
March 1, 1997. The balance of the suites and a restaurant on
the top two floors overlooking the Las Vegas Strip are scheduled
to open by the end of the second quarter of 1997.
In addition to the Phase V Expansion, the Company has
assembled 38 acres immediately adjacent to the Rio. This brings
the total acreage at the Rio to 83 acres. The Company may
develop the additional acreage at some time in the future.
The Company's business strategy focuses on attracting and
fostering repeat business from customers in the local resident
and tourist markets. To implement its business strategy, the
Company capitalizes on its unique all-suite concept, strategic
location and fun-filled Carnivale and Mardi Gras theme. The
Company strives to provide a quality, affordable gaming and
entertainment experience in order to generate high customer
satisfaction and loyalty. The Company's location at Interstate
15 and Flamingo Road helps to attract both of its target market
segments. The Rio's value-priced suites provide an attractive
alternative to conventional Las Vegas rooms for visitors who
desire to avoid the crowds and congestion of the Las Vegas Strip.
The Rio's suites offer approximately 50% more space than other
comparably priced Las Vegas hotel rooms. Management believes
that it must offer consistent quality, a comfortable and fun
atmosphere and, most importantly, friendly service at affordable
prices to provide a high value experience to its customers.
The success of the Company's business strategy is evidenced
by the large number of awards the Rio has received. In March
1996, the Rio won recognition through 11 "Best of Las Vegas"
awards in an annual survey published by Nevada's largest daily
newspaper. Among others, these distinctions included: "Best
Buffet," "Best Seafood Restaurant," "Best Coffee Shop," "Best
Breakfast Special," "Best Place to Dance (Club Rio)" and "Most
Efficient Service." The Rio also received recognition in the
1995-1996 Zagat Hotel and Restaurant Survey for "Best Overall,"
"Best Rooms," "Best Dining" and "Best Service" in Las Vegas. In
addition, the Rio was selected by the American Academy of
Hospitality Sciences to be the first and only recipient of the
Five Star Diamond Award for 1997 in Las Vegas. The Academy has
bestowed fewer than 100 hotels and resorts internationally with
this award. Since these awards, however, are based upon
subjective criteria, prospective holders of the New Notes should
not attribute undue significance to these awards. Management
believes these awards exemplify the Company's reputation for
quality and value.
6
<PAGE>
Issuance of the Old Notes
The outstanding 9 1/2% Senior Subordinated Notes Due 2007 (the
"Old Notes") were sold by the Company to Salomon Brothers Inc and
BancAmerica Securities, Inc. (the "Initial Purchasers") on
February 11, 1997 (the "Closing Date") pursuant to the Purchase
Agreement dated February 4, 1997 (the "Purchase Agreement"),
among the Company, the Guarantor, and the Initial Purchasers.
The Initial Purchasers subsequently resold the Old Notes in
reliance on Rule 144A under the Securities Act and other
available exemptions under the Securities Act. The Company and
the Initial Purchasers also entered into the Registration
Agreement dated February 4, 1997 (the "Registration Agreement"),
among the Company, the Guarantor, and the Initial Purchasers,
pursuant to which the Company granted certain registration rights
for the benefit of the Holders of the Old Notes. The Exchange
Offer is intended to satisfy certain of the Company's obligations
under the Registration Agreement with respect to the Old Notes.
See "The Exchange Offer - Purpose and Effect."
The Exchange Offer
The Exchange Offer... The Company is offering upon the terms
and subject to the conditions set forth
herein and in the accompanying letter of
transmittal (the "Letter of Transmittal"),
to exchange $1,000 in principal amount of
its 9 1/2% Senior Subordinated Notes Due
2007 (the "New Notes," with the Old Notes
and the New Notes collectively referred to
herein as the "Notes") for each $1,000
in principal amount of the outstanding
Old Notes (the "Exchange Offer"). As of
the date of this Prospectus, $125 million
in aggregate principal amount of the Old
Notes is outstanding, the maximum amount
authorized by the Indenture for all Notes.
As of February 28, 1997, there were two
registered Holders of the Old Notes;
Cede & Co. ("Cede"), which held the Old
Notes for its participants, and a holder
of one physical certificate. See "The
Exchange Offer - Terms of the Exchange
Offer."
Expiration Date...... 5:00 p.m., New York City time, on
May 16, 1997 as the same may be extended.
See "The Exchange Offer - Expiration Date;
Extensions; Amendments."
Termination of
Certain Rights....... Pursuant to the Registration Agreement
and the Old Notes, Holders of Old Notes
have rights to receive special interest
upon the nonoccurrence of certain events.
If a registration statement for the
Exchange Offer is not ( i) filed within
60 days after the date of original
issuance of the Old Notes or (ii) declared
effective within 150 days after the date
of original issuance of the Old Notes,
special interest will accrue and be
payable semiannually until such time as a
registration statement for the Exchange
Offer is filed or becomes effective, as
the case may be. In addition, if an
exchange offer is not consummated or a
resale shelf registration statement is
not declared effective within 180 days
after the date of original issuance of
the Notes, special interest will accrue
and be payable semiannually until such
time as an exchange offer is consummated
or a resale shelf registration is
declared effective, as the case may be.
Holders of New Notes, and, upon
consummation of the Exchange Offer or
declaration of effectiveness of a shelf
registration statement provided it
remains effective for the requisite
period of time, Holders of Old Notes,
will no longer be entitled to special
interest upon consummation of the
Exchange Offer.
7
<PAGE>
Accrued Interest on
the Old Notes......... The New Notes will bear interest at a
rate equal to 9 1/2% per annum from and
including their date of issuance. Holders
whose Old Notes are accepted for exchange
will have the right to receive interest
accrued thereon from the date of their
original issuance or the last Interest
Payment Date, as applicable, to, but not
including, the date of issuance of the
New Notes, such interest to be payable
with the first interest payment on the
New Notes. Interest on the Old Notes
accepted for exchange, which accrued at
the rate of 9 1/2% per annum, will cease
to accrue on, the day prior to the
issuance of the New Notes.
Procedures for
Tendering Old Notes.. Unless a tender of Old Notes is effected
pursuant to the procedures for book-entry
transfer as provided herein, each Holder
desiring to accept the Exchange Offer
must complete and sign the Letter of
Transmittal, have the signature thereon
guaranteed if received by the Letter of
Transmittal, and mail or deliver the
Letter of Transmittal, together with the
Old Notes or a Notice of Guaranteed
Delivery and any other required documents
(such as evidence of authority to act, if
the Letter of Transmittal is signed by
someone acting in a fiduciary or
representative capacity), to the Exchange
Agent (as defined on page 9) at the
address set forth on the back cover page
of this Prospectus prior to 5:00 p.m.,
New York City time, on the Expiration
Date. Any Beneficial Owner (as defined
on page 23) of the Old Notes whose Old
Notes are registered in the name of a
nominee, such as a broker, dealer,
commercial bank or trust company and
who wishes to tender Old Notes in
the Exchange Offer, should instruct such
entity or person to promptly tender
on such Beneficial Owner's behalf. See
"The Exchange Offer - Procedures for
Tendering Old Notes."
Consequences of
Failure to Tender
Old Notes by
Expiration Date...... Holders who do not tender their Old
Notes by the Expiration Date will be
unable to exchange Old Notes for New
Notes Pursuant to the Exchange Offer.
Holders who acquired Old Notes pursuant
to the Offering and who do not
participate in the Exchange Offer can
require the Company to file as promptly
as practicable after so requested a
shelf registration statement relating to
the Old Notes and cause such shelf
registration statement to be declared
effective by the 180th day following
original issuance of the Old Notes. Old
Notes held by Holders who do not tender
their Old Notes pursuant to the
Exchange Offer or who do not request
that a shelf registration statement be
filed with respect to such Old Notes
may not be offered or sold in the
United States or to, or for the account
or benefit of, U.S. persons except in
accordance with an applicable exemption
from the registration requirements
thereof.
Guaranteed Delivery
Procedures........... Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes
are not immediately available or (ii) who
cannot deliver their Old Notes or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior
to the Expiration Date (or complete the
procedure for book-entry transfer on a
timely basis), may tender their Old Notes
according to the guaranteed delivery
procedures set forth in the Letter of
Transmittal. See "The Exchange Offer -
Guaranteed Delivery Procedures."
8
<PAGE>
Acceptance of Old
Notes and Delivery
of New Notes......... Upon satisfaction or waiver of all
conditions of the Exchange Offer, the
Company will accept any and all Old Notes
that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New
Notes issued pursuant to the Exchange
Offer will be delivered promptly after
acceptance of the Old Notes. See "The
Exchange Offer - Acceptance of Old Notes
for Exchange; Delivery of New Notes."
Withdrawal Rights.... Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York
City time, on the Expiration Date. See
"The Exchange Offer - Withdrawal Rights."
The Exchange Agent... IBJ Schroder Bank & Trust Company is the
exchange agent (in such capacity, the
"Exchange Agent"). The address and
telephone number of the Exchange Agent
are set forth in "The Exchange Offer -
The Exchange Agent; Assistance."
Fees and Expenses.... All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Agreement
will be borne by the Company. The Company
will also pay certain transfer taxes
applicable to the Exchange Offer. See
"The Exchange Offer - Fees and Expenses."
Resales of the New
Notes................ Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that New Notes issued
pursuant to the Exchange Offer to a
Holder in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by such Holder ( other than
(i) a broker- dealer who purchased Old
Notes directly from the Company for
resale pursuant to Rule 144A under the
Securities Act or any other available
exemption under the Securities Act, or
(ii) a person that is an affiliate of the
Company (within the meaning of Rule 405
under the Securities Act), without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that the Holder
is acquiring the New Notes in the
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to
participate, in a distribution of the New
Notes. Each broker-dealer that receives
New Notes for its own account in exchange
for Old Notes, where such Old Notes were
acquired by such broker-dealer as a
result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with
any resale of such New Notes. See "The
Exchange Offer-Resales of the New Notes"
and "Plan of Distribution."
Description of New Notes
The form and terms of the New Notes will be identical in all
material respects to the form and terms of the Old Notes, except
that (i) the New Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer
thereof, (ii) holders of the New Notes will not be entitled to
special interest and (iii) holders of the New Notes will not be,
and upon consummation of the Exchange Offer, Holders of the Old
Notes will no longer be, entitled to certain rights under the
Registration Agreement intended for the holders of unregistered
securities, except in certain limited circumstances. See "Exchange
Offer-Termination of Certain Rights." The Exchange Offer shall
be deemed consummated upon the occurrence of the delivery by
the Company to the Registrar under the Indenture in the
9
<PAGE>
same aggregate principal amount as the aggregate principal amount
of Old Notes that were tendered by holders thereof pursuant to
the Exchange Offer. See "The Exchange Offer - Termination of
Certain Rights" and "- Procedures for Tendering Old Notes;" and
"Description of New Notes."
New Notes............ $125 million in aggregate principal amount
of 9 1/2% Senior Subordinated Notes Due
2007 (the "Notes").
Maturity Date........ April 15, 2007.
Interest Payment
Dates................ April 15 and October 15, commencing
April 15, 1997.
Rio Guarantee........ The New Notes are unconditionally
guaranteed (the "Rio Guarantee") on a
senior subordinated basis by Rio
Properties, Inc. ("Rio Properties" or the
"Guarantor"), the Company's principal
operating subsidiary.
Subordination of
Notes................ The New Notes are subordinated in
right of payment to all existing and
future Senior Indebtedness (as defined
on page 72) of the Company and are
structurally subordinated to all
existing and future indebtedness and
other liabilities (including trade
payables) of the Company's subsidiaries.
As of September 30, 1996 and December
31, 1996, after giving effect to the
Offering and application of the net
proceeds thereof, there were $47.9
million and $77.5 million, respectively,
of total liabilities of the Company's
subsidiaries outstanding ranking senior
to the Notes. Assuming the subsequent
incurrence by Rio Properties of the
full $200 million of its available
bank borrowings under the Rio Bank
Loan (as defined on page 55), there were
outstanding $247.9 million and $245.8
million, respectively, of indebtedness
and other liabilities of the Company's
subsidiaries ranking senior to the
Notes. Moreover, the 10-5/8% Notes
rank pari passu with the New Notes.
The Company has outstanding no senior
subordinated indebtedness, other than
the 10-5/8% Notes, or Senior Indebtedness
(excluding the Company's guarantee of
the Rio Bank Loan). See "Description
of Notes - Subordination of Notes."
Subordination of
Rio Guarantee........ The Rio Guarantee is subordinated in
right of payment to all existing
and future Senior Indebtedness of
Guarantor (as defined on page 72) and
is structurally subordinated to all
existing and future indebtedness and
other liabilities (including trade
payables) of the Guarantor's subsidiaries.
As of September 30, 1996 and December
31, 1996, after giving effect to the
Offering and the application of the
net proceeds thereof there were
outstanding $1.3 million and $33.0
million, respectively, of Senior
Indebtedness of Guarantor to which
the Rio Guarantee would be subordinated.
Assuming the subsequent incurrence by
the Guarantor of the full $200
million of its available bank borrowings
under the Rio Bank Loan, the Rio
Guarantee is subordinated to $201.3
million of Senior Indebtedness of
Guarantor. Moreover, the Guarantor's
guarantee of the 10-5/8% Notes is pari
passu with the Rio Guarantee. There
are no significant outstanding
liabilities of subsidiaries of the
Guarantor. See "Description of Notes -
Subordination of Rio Guarantee."
Mandatory Sinking
Fund................. None.
Optional Redemption.. The Notes may be redeemed at the
option of the Company, in whole or
in part, at any time on or after
April 15, 2002, at the redemption
prices set forth herein, plus accrued
and unpaid interest, if any, through the
10
<PAGE>
redemption date. The New Notes are
subordinated in right of payment to all
existing and future Senior Indebtedness
of the Company and are structurally
subordinated to all existing and future
indebtedness and other liabilities,
including trade payables, of the
Company's subsidiaries, and the Rio
Guarantee is subordinated in right of
payment to all existing and future
Senior Indebtedness of the Guarantor
and is structurally subordinated to
all existing and future indebtedness and
other liabilities, including trade
payables, of the Guarantor's subsidiaries.
Under certain circumstances, holders of
Senior Indebtedness of the Company or
holders of Senior Indebtedness of the
Guarantor may prohibit payments on the
New Notes or under the Rio Guarantee,
respectively. See "Description of New
Notes - Optional Redemption" and "Risk
Factors - Subordination."
Regulatory
Redemption........... If any holder or beneficial owner of New
Notes is required to be found suitable and
is not found suitable by the Nevada Gaming
Commission (the "Nevada Commission"), (i)
the holder shall, upon request of the
Company, dispose of such holder's New
Notes within 30 days or within the time
prescribed by the Nevada Commission,
whichever is earlier, or (ii) the
Company may, at its option, redeem
the holder's New Notes at the lesser
of (x) the principal amount thereof,
(y) the Current Market Price (as
defined on page 66) or (z) the price
at which the New Notes were acquired
by the holder, without, in any case,
accrued and unpaid interest to the
date of the finding of unsuitability
by the Nevada Commission, unless
payment of such interest is permitted
by the Nevada Commission. See "Business
- Regulation and Licensing" and
"Description of Notes - Mandatory
Disposition or Redemption Pursuant to
Gaming Laws."
Change of Control.... Upon a Change of Control (as defined on
Page 64), each holder of New Notes will
have the right to require the Company to
repurchase all or part of such holder's
New Notes at a purchase price in cash
equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of
repurchase. The Company' s Board of
Directors does not have the ability
to waive or modify the right of holders of
the New Notes to require the Company to
repurchase the New Notes upon a Change of
Control nor will such right have limited
applicability in the event of a leveraged
buy out of the Company initiated or
supported by the Company, the Company's
management, an affiliate of the Company
within the meaning of Rule 405 of the
Securities Act, or an affiliate of the
Company's management. The New Notes are
subordinated in right of payment to all
existing and future Senior Indebtedness of
the Company and are structurally
subordinated to all existing and future
indebtedness and other liabilities,
including trade payables, of the Company's
subsidiaries, and the Rio Guarantee is
subordinated in right of payment to all
existing and future Senior Indebtedness of
the Guarantor and is structurally
subordinated to all existing and future
indebtedness and other liabilities,
including trade payables, of the
Guarantor's subsidiaries. In order for
the Company to repurchase the New Notes as
a result of a Change of Control, it will
be necessary for the Company either to
obtain the consent of the Lenders under
the Rio Bank Loan or to repay the Rio
Bank Loan in full. The Company's
obligation to repurchase the Notes is
guaranteed on a senior subordinated basis
by the Guarantor. See "Description of
Notes - Change of Control" and "Risk
Factors - Subordination."
11
<PAGE>
Principal Covenants.. The indenture pursuant to which the New
Notes will be issued (the "Indenture")
will contain certain covenants that,
among other things, limit the ability
of the Company and its Restricted
Subsidiaries (as defined on page 71) to
incur additional indebtedness, pay
dividends or make other distributions,
make investments, repurchase subordinated
obligations or capital stock, create
certain liens (except, among others, liens
securing Senior Indebtedness), enter into
certain transactions with affiliates, sell
assets of the Company or its subsidiaries,
issue or sell subsidiary stock, create or
permit to exist restrictions on
distributions from subsidiaries, or enter
into certain mergers and consolidations.
See "Description of Notes - Certain
Covenants."
Absence of a Public
Market for the New
Notes................ The New Notes are a new issue of
securities with no established market.
Accordingly, there can be no assurance as
to the development or liquidity of any
market for the New Notes. The Initial
Purchasers have advised the Company that
they currently intend to make a market in
the New Notes. However, neither Initial
Purchaser is obligated to do so, and any
market making with respect to the New
Notes may be discontinued at any time
without notice. The Company does not
intend to apply for listing of the New
Notes on a securities exchange or to
seek the admission thereof in the Nasdaq
Stock Market.
Risk Factors
For a discussion of certain factors that should be
considered in connection with an investment in New Notes,
including factors affecting forward-looking statements, see "Risk
Factors."
12
<PAGE>
Summary Consolidated Financial Data
The following table summarizes certain selected consolidated
financial data, which should be read in connection with the
Company's Consolidated Financial Statements and the Notes thereto
included elsewhere herein and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The
summary consolidated financial data as of and for the years ended
December 31, 1992 and 1991 and as of December 31, 1993 have been
derived from the Company's audited financial statements. The
summary consolidated financial data as of and for the years ended
December 31, 1995 and 1994 and for the year ended December 31,
1993 have been derived from the Company's audited financial
statements included elsewhere herein. The summary consolidated
financial data presented below as of and for the nine months
ended September 30, 1996 and 1995 are derived from the Company's
unaudited consolidated financial statements included elsewhere
herein. The unaudited consolidated financial statements include
all adjustments (consisting of only normal recurring adjustments)
which the Company considers necessary for a fair presentation of
the Company's financial position and results of operations for
these periods. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results
that may be expected for future periods.
<TABLE>
Nine Months
Ended September 30, Year Ended December 31,
1996 1995 1995 1994
(Dollars in Thousands)
Statements of
Income Data:
<S> <C> <C> <C> <C>
Net revenues....... $163,087 $141,850 $192,958 $146,424
Operating profit... 30,649 28,221 37,558 25,928
Interest expense... (7,112) (5,411) (8,106) (1,923)
Net income......... 15,068 14,311 18,745 15,966
Ratio of earnings
to fixed
charges<F1>........ 4.31x 5.22x 4.63x 10.64x
Other Data:<F2>
Average daily
suite rate<F3>..... $ 73.82 $ 72.61 $ 72.18 $ 63.80
Average daily
hotel occupancy.... 95.8% 95.2% 94.5% 95.9%
Hotel suites<F4>... 1,551 1,551 1,551 861
Casino square
footage............ 89,000 89,000 89,000 89,000
Slot machines...... 1,880 2,165 2,098 2,200
Table games........ 76 63 73 53
Restaurant seats... 2,540 2,540 2,540 2,440
<FN>
<F1> The ratio of earnings to fixed charges is determined by
dividing (i) earnings before income taxes and fixed charges
by (ii) fixed charges. Fixed charges consist of total
interest expense.
<F2> Other data relating to hotel suites, casino square footage
and restaurant seats represent amounts as of the end of the
period. Data related to slot machines and table games
represent averages for the period.
<F3> Average daily room rate figures are actual rates expressed
in dollars.
<F4> 447 suites in the new 41-story tower were opened on
December 31, 1996.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(Dollars in Thousands)
Statements of
Income Data:
<S> <C> <C> <C>
Net revenues....... $110,053 $ 82,633 $ 66,129
Operating profit... 20,304 12,454 5,228
Interest expense... (1,839) (3,801) (5,639)
Net income......... 10,649 6,308 119
Ratio of earnings
to fixed
charges<F1>........ 8.80x 3.19x 1.13x
Other Data:<F2>
Average daily
suite rate<F3>..... $ 62.60 $ 64.09 $ 67.22
Average daily
hotel occupancy.... 96.8% 96.5% 93.5%
Hotel suites<F4>... 861 424 424
Casino square
footage............ 79,000 54,000 44,000
Slot machines...... 1,950 1,450 1,043
Table games........ 44 31 31
Restaurant seats... 1,843 1,209 955
<FN>
<F1> The ratio of earnings to fixed charges is determined by
dividing (i) earnings before income taxes and fixed charges
by (ii) fixed charges. Fixed charges consist of total
interest expense.
<F2> Other data relating to hotel suites, casino square footage
and restaurant seats represent amounts as of the end of the
period. Data related to slot machines and table games
represent averages for the period.
<F3> Average daily room rate figures are actual rates expressed
in dollars.
<F4> 447 suites in the new 41-story tower were opened on
December 31, 1996.
</FN>
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
Actual As Adjusted<F5>
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $10,990 $36,303
Total assets........................................... 433,838 462,838
Long-term debt, including current maturities........... 197,346 222,909<F6>
Stockholders' equity................................... 178,528 178,528
<FN>
<F5> As adjusted amounts give effect to the Offering and
application of the estimated net proceeds therefrom as if
such transactions had been consummated on September 30,
1996. See "Use of Proceeds" and "Capitalization."
<F6> As adjusted, the Company has $200 million of borrowing
availability under the Rio Bank Loan. As of December
31, 1996, $153.0 million was outstanding under the Rio Bank
Loan and the as adjusted balance would have been $31.7
million.
</FN>
</TABLE>
13
<PAGE>
RISK FACTORS
Except for historical information contained in this
Prospectus, the matters discussed herein contain forward-looking
statements made pursuant to the safe harbor provisions of Section
27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, such as plans for future
expansion, capital spending and financing sources. Such forward-
looking statements are inherently uncertain, and investors must
recognize that actual results may differ from management's
expectations. Key factors affecting current and future
operations of the Company include the factors discussed below.
Holders should carefully consider the following factors in
addition to the other information set forth in this Prospectus
before making an investment in the New Notes offered hereby.
Leverage and Debt Service
Upon the closing of the Offering, the Company had
significant interest expense and principal repayment obligations
under the Old Notes and the Company's other indebtedness. To the
extent that borrowings are drawn under the Rio Bank Loan, Rio
Properties, the Company's principal operating subsidiary, will
have significant interest expense and principal repayment
obligations thereunder, which obligations are guaranteed by the
Company. Moreover, the Company currently has outstanding $100
million in aggregate principal amount of 10-5/8 % Senior
Subordinated Notes. As of September 30, 1996 and December 31,
1996, on a pro forma basis giving effect to the Offering and the
application of the net proceeds thereof the Company's
consolidated total indebtedness was $222.9 million and $254.6
million, respectively, and stockholders' equity was $178.5
million and $181.9 million, respectively. Assuming the
subsequent incurrence by Rio Properties of the full $200 million
of its available bank borrowings under the Rio Bank Loan, the
Company's consolidated total indebtedness was $422.9 million and
$422.9 million, respectively. See "Capitalization." If,
however, the Company does not satisfy certain financial ratios
and covenants imposed upon it under the Rio Bank Loan, the
Company will have available to it only a portion of the entire
$200 million in the absence of a written waiver from the lenders.
The Company will be entirely dependent upon distributions from
Rio Properties to meet its interest expense and principal
repayment obligations under the Notes. The Rio Bank Loan
includes covenants significantly restricting the amount of funds
which may be advanced by Rio Properties to the Company and the
amount of principal or interest that may be repaid on any
intercompany loans, and includes a covenant requiring the Company
to maintain a certain consolidated tangible net worth which
effectively limits the amount of funds which may be distributed
by Rio Properties to the Company in the form of dividends. The
Rio Bank Loan also contains numerous financial and operating
covenants, including requirements that Rio Properties and the
Company, on a consolidated basis, satisfy certain financial
ratios and maintain certain specified levels of net worth, as
well as limitations on the incurrence of additional indebtedness.
The Indenture also contains certain covenants, including a
limitation on the incurrence of additional Indebtedness; however,
the Indenture permits the Company to incur certain financing
indebtedness up to $200 million under the Rio Bank Loan and
certain other indebtedness without satisfying the coverage ratio
contained in such covenants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," "Description of Other
Indebtedness," "Description of Notes - Certain Covenants," and
"Notes to Consolidated Financial Statements - 6. Long-Term
Debt."
The ability of the Company to meet its debt service
requirements and the ability of Rio Properties and the Company to
comply with such covenants will be dependent upon future
performance, which is subject to financial, economic,
competitive, regulatory and other factors of which the Company is
currently unaware affecting the Company and its subsidiaries,
many of which are beyond their control. While the Company
expects that its operating cash flow will be sufficient to cover
its expenses, including interest costs, there can be no assurance
with respect thereto. If the Company is unable to generate
sufficient cash flow, it could be required to adopt one or more
alternatives, such as reducing or delaying planned expansions or
capital expenditures, selling or leasing assets, restructuring
debt or obtaining additional equity capital. There can be no
assurance that any of these alternatives could be effected on
satisfactory terms, and dependence on alternative sources of
funds could impair the Company's competitive position and reduce
its future cash flow. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
14
<PAGE>
Subordination; Change of Control
The operations of the Company are conducted through Rio
Properties, and, therefore, the Company is dependent on the
earnings and cash flow of Rio Properties and its subsidiaries to
meet its debt service obligations, including its obligations with
respect to the Notes. The assets of Rio Properties constitute
substantially all the operating assets of the Company. The Rio
Guarantee is subordinated to all existing and future Senior
Indebtedness of Guarantor (as defined on page 72) and is
structurally subordinated to all existing and future indebtedness
and other liabilities (including trade payables, if any) of
subsidiaries of Rio Properties. Moreover, Rio Properties has
also unconditionally guaranteed payment of the 105/8 % Notes, the
obligation for which ranks pari passu with the Rio Guarantee. As
of September 30, 1996 and December 31, 1996, on a pro forma
basis, after giving effect to the Offering and application of the
net proceeds thereof there was outstanding $1.3 million and $33.0
million, respectively, of Senior Indebtedness of Guarantor to
which the Rio Guarantee would be subordinated. Assuming the
subsequent incurrence by the Guarantor of the full $200 million
of its available bank borrowings under the Rio Bank Loan, the Rio
Guarantee would be subordinated to $201.3 million of Senior
Indebtedness of Guarantor. There are no significant outstanding
liabilities of subsidiaries of the Guarantor.
The New Notes will be subordinated to all existing and
future Senior Indebtedness of the Company, including the
Company's guarantee of the Rio Bank Loan, and will rank pari
passu to the 105/8 % Notes. Except for a limitation on the
aggregate amount of consolidated indebtedness that the Company
and its Restricted Subsidiaries may incur, the Indenture does not
limit the ability of the Company to incur additional Senior
Indebtedness, transfer assets to and among its subsidiaries or
incur or permit its subsidiaries to incur secured indebtedness.
In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to make
payments on the New Notes only after all Senior Indebtedness of
the Company has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on the New Notes.
The Company's guarantee of the Rio Bank Loan provides that the
Company waives all right to subrogation and reimbursement from
Rio Properties. The Rio Bank Loan is secured by substantially
all of the assets of Rio Properties, the subsidiary through which
the Company owns and operates the Rio. Under certain
circumstances, holders of Senior Indebtedness of the Company may
prohibit payments on the New Notes. In addition, in the event of
any distribution or payment of assets of the Company in any
foreclosure, dissolution, winding up, liquidation or
reorganization, holders of secured indebtedness will have a
secured prior claim to the assets of the Company which
constitutes their collateral. See "Description of Notes -
Subordination of Notes."
The Rio Guarantee of the New Notes will be subordinated to
all existing and future Senior Indebtedness of Guarantor,
including the Rio Bank Loan. Moreover, the unconditional
guarantee by Rio Properties of repayment of the 105/8 % Notes
will rank pari passu with the Rio Guarantee of the New Notes.
Except for a limitation on the aggregate amount of consolidated
indebtedness that the Company and its Restricted Subsidiaries
(including Rio Properties) may incur, the Indenture does not
limit the ability of the Guarantor to incur additional Senior
Indebtedness of Guarantor, transfer assets to and among its
subsidiaries or incur or permit its subsidiaries to incur secured
indebtedness. In the event of bankruptcy, liquidation or
reorganization of the Guarantor, the assets of the Guarantor will
be available to make payments under the Rio Guarantee only after
all Senior Indebtedness of Guarantor has been paid in full, and
there may not be sufficient assets remaining to pay amounts due
under the Rio Guarantee. The Rio Bank Loan is secured by
substantially all of the assets of Rio Properties. Under certain
circumstances, holders of Senior Indebtedness of Guarantor may
prohibit payments under the Rio Guarantee. In addition, in the
event of any distribution or payment of assets of the Guarantor
in any foreclosure, dissolution, winding up, liquidation or
reorganization, holders of secured indebtedness will have a
secured prior claim to the assets of the Guarantor which
constitute their collateral. See "Description of Notes -
Subordination of Rio Guarantee."
In the event of a Change of Control, each holder of the New
Notes will have the right to require the Company to repurchase
such holder's Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the repurchase date.
Such right is subordinated to the same extent as the New Notes,
as described above. The Company's obligation to repurchase the
New Notes upon a Change of Control is guaranteed by the Guarantor
pursuant to the Rio Guarantee. Such guarantee is subordinated to
the same extent as the Rio Guarantee generally, also as described
above. A Change of Control constitutes an Event of Default under
the Rio Bank Loan. In order for the Company to repurchase the
New Notes as a result of a Change of Control, it will be
necessary for the Company either to obtain the consent of the
lenders under the Rio Bank Loan or to repay the Rio Bank Loan in
full. These requirements and the subordination of the
15
<PAGE>
New Notes will limit the ability of the Company to repurchase the
New Notes. See "Description of New Notes - Change of Control."
Management of Growth
The current development and construction of the Rio, the
development of additional future gaming properties and the future
growth of the Company may involve unforeseen difficulties and may
require disproportionate amounts of time and attention by the
Company's management to its various business activities as well
as the unexpected allocation of financial and other resources of
the Company. Many management duties within the Company are
presently the responsibility of a relatively small number of
executives. To manage the Company's future growth, the Company
will be required, among other things, to hire and train new
personnel, continuously evaluate and change, if necessary, its
existing management structure and control its operating expenses.
Competition for new personnel in Las Vegas is intense and there
can be no assurance that in the future the Company will be able
to attract and retain qualified personnel.
Competition
Intense competition exists in the gaming industry, and many
of the Company's competitors have significantly greater resources
than the Company. The Rio faces competition from all other
casinos and hotels in the Las Vegas area, including competitors
located on the Las Vegas Strip, on the Boulder Highway and in
downtown Las Vegas. Such competition is primarily targeted
toward local residents and repeat visitors. The Company also
faces competition from non-hotel gaming facilities targeted
foward local residents. In recent months, several of the
Company's direct competitors have opened new hotel-casinos or
have commenced or completed major expansion projects, and other
hotel-casinos and expansions are planned. In the past year,
three large hotel-casinos have opened on or near the Las Vegas
Strip. In addition, eight new hotel-casinos and two hotel-casino
expansions are under construction or have been announced, which
will add approximately 19,000 rooms to the Las Vegas area over
approximately the next two years. Five of the new hotel-casinos
are major resorts with a theme and an attraction which are
expected to draw significant numbers of visitors. Major
expansions or enhancements of existing properties or the
construction of new properties by competitors could have a
material adverse effect on the Company's business, financial
condition and results of operations.
To a lesser extent, the Rio competes with hotel-casinos
located in the Laughlin and Reno-Lake Tahoe areas of Nevada and
in Atlantic City, New Jersey. The Company also competes with
state-sponsored lotteries, on- and off-track wagering, card
parlors, riverboat and Native American gaming ventures and other
forms of legalized gaming in the United States, as well as with
gaming on cruise ships and international gaming operations. In
addition, certain states have recently legalized, and several
other states are currently considering legalizing, casino gaming
in specific geographical areas within those states. The
development of casinos, lotteries and other forms of gaming in
other states, particularly areas close to Nevada, such as
California, could adversely affect the Company's business,
financial condition and results of operations.
For a more comprehensive discussion of competitive factors
affecting the Company's operations, see "Business - Competition."
Reliance on Certain Markets
The Rio draws a substantial number of customers from
throughout the United States, particularly California. Adverse
economic conditions could have a material adverse effect on the
Company's operating results. In addition, an increase in fuel
costs or transportation prices, a decrease in airplane seat
availability, worsening of interstate highway congestion from
California, or a deterioration of relations with tour and travel
agents, as they affect travel to Las Vegas and the Company's
facilities, could materially adversely affect the Company's
business, financial condition and results of operations.
In addition, a significant component of the Rio's customers
are Las Vegas residents. Although management believes that the
population and economic strength of Las Vegas will continue to
grow, there can be no assurance with respect thereto. See
"Business-Competition."
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Control by Existing Stockholders, Certain Relationships and
Related Transactions
Officers and directors of the Company beneficially own or
control approximately 24.8% of the outstanding Common Stock,
including 23.5% owned by Anthony A. Marnell II, Chairman of the
Board of Directors. Two other stockholders and former members of
the Board of Directors control approximately 11.3% in the
aggregate of such Common Stock. Such individuals, if acting
together, would be able to effectively elect the entire Board of
Directors as well as approve most matters submitted to the
stockholders for approval. See "Principal Stockholders."
Anthony A. Marnell II, Chtd. ("Marnell Chartered"), an
architectural firm, and Marnell Corrao Associates, Inc. ("Marnell
Corrao"), a construction company, each of which is controlled by
Mr. Marnell, have provided and continue to provide all project
design and construction services for the Company. Potential
conflicts of interest between the Company and Marnell Chartered
or Marnell Corrao could arise (for example, if a request for a
change order is presented affecting a construction contract
price). To address such issues, the Company's Board of Directors
utilizes an Audit Committee, consisting of two non-employee
directors that, among other things, reviews and reports to the
full Board of Directors on certain issues that involve potential
conflicts of interest. Pursuant to the Indenture, any such
proposed transaction of $1 million or more must be approved by
the Independent Directors, as defined in the Indenture. See
"Certain Transactions" and "Description of Notes - Certain
Covenants - Limitations on Transactions with Affiliates."
Mr. Marnell and James A. Barrett, Jr., President of the
Company, are each officers of Marnell Corrao. Mr. Marnell is an
officer of Marnell Chartered. In these capacities,
Messrs. Marnell and Barrett each devote substantial time and
attention to the affairs of these enterprises. Messrs. Marnell
and Barrett are also involved in other businesses and
investments.
Restrictive Loan Covenants
The Rio Bank Loan includes certain covenants that, among
other things, restrict the Company's ability to: (i) pay
dividends and make certain other restricted payments; (ii) incur
additional indebtedness; (iii) grant liens, other than liens
created pursuant to the Rio Bank Loan and certain permitted
liens; and (iv) sell material assets. The Rio Bank Loan also
requires the Company to maintain certain financial ratios,
including interest coverage and leverage ratios, and not to
exceed certain fixed ratios of Senior Indebtedness (as defined in
the Rio Bank Loan) to EBITDA (as defined in the Rio Bank Loan).
The Rio Bank Loan further limits capital expenditures (subject to
amounts for expansion, including the Phase V Expansion, and $35
million in property acquisition for future expansions,
approximately $30 million of which has been expended to date).
There can be no assurance that these requirements will be met in
the future. If they are not, the holders of the indebtedness
under the Rio Bank Loan would be entitled to declare such
indebtedness immediately due and payable. See "Description of
Other Indebtedness - Rio Bank Loan."
Bankruptcy and Fraudulent Transfer Considerations
The Notes are subordinated in right of payment to all Senior
Indebtedness. Moreover, the Rio Guarantee is subordinated to all
Senior Indebtedness of the Guarantor. In the event of the
bankruptcy, liquidation or reorganization of the Company or the
Guarantor, the assets of the Company or the Guarantor will be
available to pay obligations on the Notes only after all Senior
Indebtedness or Senior Indebtedness of Guarantor, respectively,
has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then
outstanding. Moreover, the Notes are structurally subordinated
to all existing and future indebtedness and other liabilities
(including trade payables) of the Company's subsidiaries and the
Rio Guarantee is structurally subordinated to all existing and
future indebtedness and other liabilities (including trade
payables) of the Guarantor's subsidiaries.
In addition to risks imposed by bankruptcy law, the
obligation of the Guarantor under the Rio Guarantee may be
subject to review under state or federal fraudulent transfer
laws. Under such laws, if an unpaid creditor or representative
of creditors of the Guarantor, or a trustee in bankruptcy for the
Guarantor or the Guarantor as debtor-in-possession, were
successful in establishing that at the time such obligation was
incurred, the Guarantor, among other things, (a) did not receive
fair consideration or reasonably equivalent value therefor and
(b) either (i) was insolvent, (ii) was rendered insolvent,
(iii) was engaged in a business or transaction for which its
remaining unencumbered assets constituted
17
<PAGE>
unreasonably small capital or (iv) intended to incur or believed
that it would incur debts beyond its ability to pay such debts as
they matured, a court could avoid the Guarantor's obligation and
direct the return of any payments made under the Rio Guarantee to
the Guarantor or to a fund for the benefit of its creditors.
Regardless of the factors identified in the foregoing clauses (i)
through (iv), if the creditor representative, trustee in
bankruptcy or debtor in possession were successful in
establishing that the obligation was incurred with intent to
hinder, delay or defraud the Guarantor's creditors, a court could
also avoid such obligation and direct the return of payments. In
any such event, the holders of the Notes would be subject to
prior payment of all liabilities of the Guarantor. Neither the
Company nor the Guarantor can give any assurance that the
Guarantor would have sufficient funds after payment of such prior
claims to satisfy its obligations under the Rio Guarantee.
The measure of insolvency for purposes of the foregoing will
vary depending upon the law of the jurisdiction being applied.
Generally, however, an entity would be considered insolvent if
the sum of its debts is greater than all of its property at a
fair valuation or if the present fair saleable value of its
assets is less than the amount that will be required to pay its
probable liability on its existing debts as they become absolute
and matured.
Dependence on Key Personnel
The loss of the services of certain key individuals,
including Messrs. Marnell and Barrett, could have a material
adverse effect on the Company. The Company does not presently
maintain key person life insurance coverage for such persons.
Neither Messrs. Marnell nor Barrett have employment agreements
with the Company. All employees of the Company, however, are
subject to confidentiality and non-disclosure agreements.
Nevada Gaming Regulations
The Nevada State Gaming Control Board and the Nevada
Commission and other local, county and state regulatory agencies
may, in compliance with certain statutory and regulatory
procedures, limit, condition, suspend or revoke a license or
approval to own the stock of the Company for any cause deemed
reasonable by such licensing agency. Substantial fines for
violations of gaming laws or regulations may be levied against
the Company and persons involved. In addition, the Company could
be subject to fines for each violation of the gaming laws.
Furthermore, a supervisor could be appointed by a state court at
the request of the Nevada Commission to operate any nonrestricted
gaming establishment operated by the Company if the licenses held
by the Company are revoked, suspended or otherwise lapse. In
such extraordinary circumstances, earnings generated by gaming
operations during a supervisor's appointment (except for
reasonable rental value) could be forfeited to the State of
Nevada. Suspension or revocation of any of the licenses or the
appointment of a supervisor by the Nevada Commission would have a
material adverse effect on the Company's business, financial
condition or results of operations. See "Business - Regulation
and Licensing."
Regulatory Redemption
The Nevada Commission may, in its discretion, require the
holder of any security of a corporation registered under the
Nevada Gaming Control Act and the Rules and Regulations
promulgated thereunder (collectively the "Nevada Act"), such as
the New Notes, to file applications, be investigated and be found
suitable to own the security of a registered corporation. If a
beneficial holder of New Notes is required by the Nevada
Commission to be found suitable, the holder shall apply for a
finding of suitability within 30 days after the Nevada Commission
request. The applicant for a finding of suitability must
pay all costs of such investigation. If the Nevada
Commission determines that a person is unsuitable to own
such security, then, pursuant to the regulations of
the Nevada Commission, the registered corporation can
be sanctioned, including by the loss of its approvals,
if, without 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 rights 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
18
<PAGE>
transaction. Further, if the holder or beneficial owner is
required to be found suitable and is not found suitable by the
Nevada Commission, (i) the holder shall, upon request of the
Company, dispose of such holder's New Notes within 30 days or
within the time prescribed by the Nevada Commission, whichever is
earlier, or (ii) the Company may, at its option, redeem the
holder's New Notes at the lesser of (x) the principal amount
thereof, (y) the Current Market Price or (z) the price at which
the New Notes were acquired by the holder, without, in any case,
accrued and unpaid interest to the date of the finding of
unsuitability by the Nevada Commission, unless payment of such
interest is permitted by the Nevada Commission. See "Business -
Regulation and Licensing" and "Description of New Notes -
Mandatory Disposition or Redemption Pursuant to Gaming Laws."
Uncertain Effect of National Gambling Commission
The U.S. Congress has created the National Gambling Impact
and Policy Commission to conduct a comprehensive study of all
matters relating to the economic and social impact of gaming in
the United States. The enabling legislation provides that, not
later than two years after the enactment of such legislation, the
commission would be required to issue a report containing its
findings and conclusions, together with recommendations for
legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the
gaming industry and have a material adverse effect on the
Company's business, financial condition or results of operations.
From time to time, certain legislators have proposed the
imposition of a federal tax on gross gaming revenues. No
specific proposals for the imposition of such a federal tax are
currently pending. However, no assurance can be given that such
a tax will not be imposed in the future. Any such tax could have
a material adverse effect on the Company's business, financial
condition or results of operations.
Absence of Public Trading Market
The New Notes constitute a new issue of securities, have no
established trading market and may not be widely distributed.
The Initial Purchasers have informed the Company that they
currently intend to make a market in the Notes as permitted by
applicable laws and regulations; however, the Initial Purchasers
are not obligated to do so and may discontinue market making at
any time without notice. The Company does not intend to list the
New Notes on any national securities exchange or to seek the
admission thereof to trading on the New York Stock Exchange, and
there can be no assurance as to the development of any market or
liquidity of any market that may develop for the New Notes. If a
market does develop, the price of the New Notes may fluctuate and
liquidity may be limited. If a market for the New Notes does not
develop, purchasers may be unable to resell such securities for
an extended period of time, if at all.
Construction and Development Risks
Construction projects, such as the development of any future
development projects, entail significant risks, including
management's ability to control and manage such projects
effectively, shortages of materials or skilled labor, unforeseen
engineering, environmental or geological problems, work
stoppages, weather interference, floods and unanticipated cost
increases. No assurance can be given that the budgeted costs of
the Company's current and future projects will not be exceeded or
that any such projects will commence operations within the
contemplated schedules, if at all. In addition, the scope of the
licenses, permits and authorizations required to construct and
open a new facility or expand an existing facility are extensive,
and the failure to obtain such licenses, permits and
authorizations could prevent or delay the completion of
construction or opening of all or part of such facilities, affect
the design of features of the project or increase completion
costs.
Any development of new facilities will require the Company
to make a substantial capital investment and, depending on
timing, may require additional debt or equity financing. There
can be no assurance that the cash flow generated by the
operations of the Company or any other new venture will be
sufficient to service any additional debt which may be incurred
in connection therewith. There can be no assurance that
additional financing can be obtained which is acceptable to the
Company. Further, there can be no assurance that any expansion
projects will add proportionately to the Company's results of
operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."
19
<PAGE>
Environmental Risks and Regulation
As is the case with any owner or operator of real property,
the Company is subject to a variety of federal, state and local
governmental regulations relating to the use, storage, discharge,
emission and disposal of hazardous materials. Failure to comply
with environmental laws could result in the imposition of severe
penalties or restrictions on operations by government agencies or
courts of law which could adversely affect operations. The
Company does not have environmental liability insurance to cover
such events.
The Company has in the past engaged in real estate
development projects and has owned several parcels of real
estate. While the Company is unaware of any significant
environmental hazard on properties it owns or has owned, in the
event of any discovery of such hazard, severe penalties,
including the costs of remediation, could be sought against the
Company.
20
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect
The Old Notes were sold by the Company to the Initial
Purchasers on February 11, 1997, pursuant to the Purchase
Agreement. The Initial Purchasers subsequently resold the Old
Notes in reliance on Rule 144A under the Securities Act. The
Company and the Initial Purchasers also entered into the
Registration Agreement, pursuant to which the Company agreed,
with respect to the Old Notes and subject to the Company's
determination that the Exchange Offer is permitted under
applicable law, to (i) cause to be filed, on or prior to
April 11, 1997, a registration statement with the Commission
under the Securities Act concerning the Exchange Offer, (ii) use
all reasonable efforts (a) to cause such registration statement
to be declared effective by the Commission as soon as practicable
and (b) to cause the Exchange Offer to remain open for a period
of not less than 30 days (or longer if required by applicable
law). This Exchange Offer is intended to satisfy the Company's
exchange offer obligations under the Registration Agreement.
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the
conditions set forth herein and in the accompanying Letter of
Transmittal, to exchange $1,000 in principal amount of the
outstanding Old Notes. The Company will accept for exchange any
and all Old Notes that are validly tendered on or prior to 5:00
p.m., New York City time, on the Expiration Date. Tenders of the
Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is
subject to certain customary conditions which may be waived by
the Company, and to the terms and provisions of the Registration
Agreement. See "Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000.
Subject to the foregoing, Holders may tender less than the
aggregate principal amount represented by the Old Notes held by
them, provided that they appropriately indicate this fact on the
Letter of Transmittal accompanying the tendered Old Notes (or so
indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $125 million in aggregate
principal amount of the Old Notes were outstanding, the maximum
amount authorized by the Indenture for all Notes. As of February
28, 1997, there were two registered holders of the Old Notes,
Cede, which held the Old Notes for its participants, and a holder
of one physical certificate. Solely for reasons of
administration (and for no other purpose), the Company has fixed
the close of business on March 1, 1997, as the record date
(the "Record Date") for purposes of determining the persons to
whom this Prospectus and the Letter of Transmittal will be mailed
initially. Only a Holder of the Old Notes (or such Holder's
legal representative or attorney-in-fact) may participate in the
Exchange Offer. There will be no fixed record date for
determining Holders of the Old Notes entitled to participate in
the Exchange Offer. The Company believes that, as of the date of
this Prospectus, no such Holder is an affiliate (as defined in
Rule 405 under the Securities Act) of the Company.
The Company shall be deemed to have accepted validly
tendered Old Notes when, as and if the Company has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering Holders of Old Notes and for
the purposes of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the
tendering Holder thereof as promptly as practicable after the
Expiration Date.
21
<PAGE>
Expiration Date; Extensions; Amendments
The Expiration Date shall be May 16, 1997 at 5:00
p.m. New York City time, unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the
Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will
notify the Exchange Agent of any extension by oral or written
notice and will make a public announcement thereof, each prior to
10:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion,
(i) to delay accepting any Old Notes, (ii) to extend the Exchange
Offer, and (iii) to amend the terms of the Exchange Offer in any
manner. If the Exchange Offer is amended in a manner determined
by the Company to constitute a material change, the Company will
promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered Holders of
the Old Notes.
Termination of Certain Rights
The Registration Agreement provides for the payment of
special interest to Holders of the Old Notes upon the
nonoccurrence of certain events. If (i) a registration statement
("Exchange Offer Registration Statement") for the Exchange Offer
is not filed with the Commission on or prior to the 60th day
following the date of original issuance of the Old Notes,
(ii) the Exchange Offer Registration Statement is not declared
effective prior to the 150th day following the date of original
issuance of the Old Notes or (iii) the Exchange Offer is not
consummated or a shelf registration statement ("Shelf
Registration Statement") with respect to the Notes is not
declared effective on or prior to the 180th day following the
date of original issuance of the Old Notes, interest will accrue
(in addition to stated interest on the Old Notes) from and
including the next day following each of (a) such 60-day period
in the case of clause (i) above, (b) such 150-day period in the
case of clause (ii) above, and (c) such 180-day period in the
case of clause (iii) above. In each case such additional
interest (the "Special Interest") will be payable in cash
semiannually in arrears each April 15, and October 15, commencing
October 15, 1997, at a rate per annum equal to 0.50% of the
principal amount of the Old Notes. Upon (1) the filing of the
Exchange Offer Registration Statement after the 60-day period
described in clause (i) above, (2) the effectiveness of the
Exchange Offer Registration Statement after the 150-day period
described in clause (ii) above or (3) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be, after the 180-day period described
in clause (iii) above, the Special Interest payable on the Old
Notes from the date of such filing, effectiveness, or
consummation, as the case may be, will cease to accrue and all
accrued and unpaid Special Interest as of the occurrence of (1),
(2) or (3) shall be paid to the Holders of the Old Notes promptly
thereafter. Holders of New Notes, and, upon consummation of the
Exchange Offer or declaration of effectiveness of a Shelf
Registration Statement provided such Shelf Registration Statement
remains effective for the requisite period of time, Holders of
Old Notes, will not be eligible to receive Special Interest.
Accrued Interest on the Old Notes
The New Notes will bear interest at a rate equal to 9 1/2%
per annum from and including their date of issuance. Holders whose
Old Notes are accepted for exchange will have the right to
receive interest accrued thereon from the date of their original
issuance or the last Interest Payment Date, as applicable, to,
but not including, the date of issuance of the New Notes, such
interest to be payable with the first interest payment on the New
Notes. Interest on the Old Notes accepted for exchange, which
interest accrued at the rate of 9 1/2% per annum, will cease to
accrue on the day prior to the issuance of the New Notes. See
"Description of New Notes-Principal, Maturity and Interest."
Procedures for Tendering Old Notes
The tender of a Holder's Old Notes as set forth
below and the acceptance thereof by the Company will
constitute a binding agreement between the tendering Holder
and the Company upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder who wishes
to tender Old Notes for exchange pursuant to the Exchange
Offer must transmit such Old Notes, together with a properly
22
<PAGE>
completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth on the back cover page of
this Prospectus prior to 5:00 p.m., New York City time, on the
Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION
AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's
Book-Entry Transfer Facility System may make book-entry delivery
of the Old Notes by causing DTC to transfer such Old Notes into
the Exchange Agent's account in accordance with DTC's procedures
for such transfer. In connection with a book-entry transfer, a
Letter of Transmittal need not be transmitted to the Exchange
Agent, provided that the book-entry transfer procedure must be
complied with prior to 5:00 p.m., New York City time, on the
Expiration Date.
Each signature on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed unless the Old
Notes surrendered for exchange pursuant hereto are tendered
(i) by a registered holder of the Old Notes who has not completed
either the box entitled "Special Exchange Instructions" or the
box entitled "Special Delivery Instructions" in the Letter of
Transmittal, or (ii) by an Eligible Institution (as defined on
page 23). In the event that a signature on a Letter of
Transmittal or a notice of withdrawal, as the case may be, is
required to be guaranteed, such guarantee must be by a firm which
is a member of a registered national securities exchange or the
National Association of Securities Dealers, Inc., a commercial
bank or trust company having an office or correspondent in the
United States or otherwise be an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of
Transmittal is signed by a person other than the registered
Holder of the Old Notes, the Old Notes surrendered for exchange
must either (i) be endorsed by the registered Holder, with the
signature thereon guaranteed by an Eligible Institution, or
(ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed
by the registered holder, with the signature thereon guaranteed
by an Eligible Institution. The term "registered holder" as used
herein with respect to the Old Notes means any person in whose
name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of the Old
Notes tendered for exchange will be determined by the Company in
its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered and to reject any Old
Notes the Company's acceptance of which might, in the judgment of
the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to
particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who
seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured
within such period of time as the Company shall determine. The
Company will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to
give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been
cured or waived.
If any Letter of Transmittal, endorsement, bond power, power
of attorney or any other document required by the Letter of
Transmittal is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such
person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole
discretion, of such person's authority to so act must be
submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner")
whose Old Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes
to tender Old Notes in the Exchange Offer should
contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's
behalf. If such Beneficial Owner wishes to tender
directly, such Beneficial Owner must, prior to completing and
23
<PAGE>
executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes
in such Beneficial Owner's name. Beneficial Owners should be
aware that the transfer of registered ownership may take
considerable time.
By tendering, each registered holder will represent to the
Company that, among other things (i) the New Notes to be acquired
in connection with the Exchange Offer by the Holder and each
Beneficial Owner of the Old Notes are being acquired by the
Holder and each Beneficial Owner in the ordinary course of
business of the Holder and each Beneficial Owner, (ii) the Holder
and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any
person to participate, in the distribution of the New Notes,
(iii) the Holder and each Beneficial Owner acknowledge and agree
that any person participating in the Exchange Offer for the
purpose of distributing the New Notes must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction
of the New Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in no-action
letters that are discussed herein under "Resales of New Notes,"
(iv) that if the Holder is a broker-dealer that acquired Old
Notes as a result of market-making or other trading activities,
it will deliver a prospectus in connection with any resale of New
Notes acquired in the Exchange Offer, (v) the Holder and each
Beneficial Owner understand that a secondary resale transaction
described in clause (iii) above should be covered by an effective
registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the
Commission, and (vi) neither the Holder nor any Beneficial Owner
is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company except as otherwise disclosed to the Company
in writing. In connection with a book-entry transfer, each
participant will confirm that it makes the representations and
warranties contained in the Letter of Transmittal.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available or (ii) who cannot deliver
their Old Notes or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date
(or complete the procedure for book-entry transfer on a timely
basis), may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Letter of Transmittal.
Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution and a Notice of Guaranteed
Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from the Holder and the
Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the Holder,
the certificate number or numbers of the tendered Old Notes, and
the principal amount of tendered Old Notes, stating that the
tender is being made thereby and guaranteeing that, within five
business days after the date of delivery of the Notice of
Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent,
and (iii) such properly completed and executed documents required
by the Letter of Transmittal and the tendered Old Notes in proper
form for transfer (or confirmation of a book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC) must be
received by the Exchange Agent within five business days after
the Expiration Date. Any Holder who wishes to tender Old Notes
pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery and Letter of Transmittal relating to such
Old Notes prior to 5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all the conditions to the
Exchange Offer, the Company will accept any and all Old Notes
that are properly tendered in the Exchange Offer prior to 5:00
p.m. New York City time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted validly
tendered Old Notes, when, as, and if the Company has given oral
or written notice thereof to the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that
are accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange
Agent of such Old Notes, a properly completed and duly
24
<PAGE>
executed Letter of Transmittal and all other required documents
(or of confirmation of a book-entry transfer of such Old Notes
into the Exchange Agent's account at DTC); provided, however,
that the Company reserves the absolute right to waive any defects
or irregularities in the tender or conditions of the Exchange
Offer. If any tendered Old Notes are not accepted for any
reason, such unaccepted Old Notes will be returned without
expense to the tendering Holder thereof as promptly as
practicable after the expiration or termination of the Exchange
Offer.
Withdrawal Rights
Tenders of the Old Notes may be withdrawn by delivery of a
written notice to the Exchange Agent, at its address set forth on
the back cover page of this Prospectus, at any time prior to
5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old
Notes, as applicable), (iii) be signed by the Holder in the same
manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by a bond power in the
name of the person withdrawing the tender, in satisfactory form
as determined by the Company in its sole discretion, duly
executed by the registered Holder, with the signature thereon
guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture, and
(iv) specify the name in which such Old Notes are to be re-
registered, if different from the Depositor, pursuant to such
documents of transfer. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will
be determined by the Company, in its sole discretion. The Old
Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any
Old Notes which have been tendered for exchange but which are
withdrawn will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal. Properly
withdrawn Old Notes may be retendered by following one of the
procedures described under "The Exchange Offer - Procedures for
Tendering Old Notes" at any time on or prior to the Expiration
Date.
Consequences of Failure to Tender Old Notes
Holders who do not tender their Old Notes by the Expiration
Date will be unable to exchange Old Notes for New Notes pursuant
to the Exchange Offer. Holders who acquired Old Notes pursuant
to the Offering and who do not participate in the Exchange Offer
can require the Company to file as promptly as practicable after
so requested a shelf registration statement relating to the Old
Notes and cause such shelf registration statement to be declared
effective by the 150th day following original issuance of the Old
Notes. Old Notes held by Holders who do not tender their Old
Notes pursuant to the Exchange Offer or who do not request that a
shelf registration statement be filed with respect to such Old
Notes may not be offered or sold in the United States or to, or
for the account or benefit of, U.S. persons except in accordance
with an applicable exemption from the registration requirements
thereof.
The Exchange Agent; Assistance
IBJ Schroder Bank & Trust Company is the Exchange Agent.
All tendered Old Notes, executed Letters of Transmittal and other
related documents should be directed to the Exchange Agent.
Questions and requests for assistance and requests for additional
copies of the Prospectus, the Letter of Transmittal and other
related documents should be addressed to the Exchange Agent as
follows:
By Hand or Overnight Courier:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Securities Processing Window, SC1
25
<PAGE>
By Registered or Certified Mail:
IBJ Schroder Bank & Trust Company
Post Office Box 84
Bowling Green Station
New York, NY 10274-0084
Attention: Reorganization Operations Department
By Facsimile: (212) 858-2611 Raymond Liszewski
Confirm by Telephone: (212) 858-2103
Fees and Expenses
All expenses incident to the Company's consummation of the
Exchange Offer and compliance with the Registration
Agreement will be borne by the Company, including without
limitation: (i) all registration and filing fees and
expenses (including filings made with the National
Association of Securities Dealers, Inc., (including, if
applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel, as may be required by the
rules and regulations of the National Association of
Securities Dealers, Inc.)), (ii) all fees and expenses of
compliance with federal securities or state, or other
jurisdictions, securities laws, (iii) all expenses of printing
(including printing certificates for the New Notes and
prospectuses), messenger and delivery services and telephone,
(iv) all fees and disbursements of counsel for the Company
and the fees of counsel for the Initial Purchasers with
respect to the registration statement and any shelf
registration statement, (v) all application and filing fees
in the event the New Notes are listed on a national securities
exchange or automated quotation system, and (vi) all fees and
disbursements of independent certified public accountants
of the Company (including the expenses of any special audit
and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal
expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal
or accounting duties), the expense of any annual audit,
and the fees and expenses of any person, including
special experts, retained by the Company.
The Company has not retained any dealer-manager in
connection with the Exchange Offer and will not make any
payments to brokers, dealers or others soliciting acceptance
of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The Company will pay all transfer taxes, if any, applicable
to the exchange of Old Notes pursuant to the Exchange Offer.
If, however, a transfer tax is imposed for any reason other
than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption is not submitted with the
Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
Accounting Treatment
The New Notes will be recorded at the same carrying value as
the Old Notes, as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or
loss will be recognized by the Company for accounting purposes.
The expenses of the Exchange Offer will be amortized over the
term of the New Notes.
Resales of the New Notes
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties,
the Company believes that the New Notes issued pursuant to the
Exchange Offer to a Holder in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by such
Holder (other than (i) a broker-dealer who purchased Old
Notes directly from the Company for resale pursuant to Rule
144A under the Securities Act or any other available
26
<PAGE>
exemption under the Securities Act, or (ii) a person that is
an affiliate of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act,
provided that the Holder is acquiring the New Notes in the
ordinary course of business and is not participating, and has
no arrangement or understanding with any person to participate,
in the distribution of the New Notes. However, if any Holder
acquires New Notes in the Exchange Offer for the purpose
of distributing or participating in a distribution of the New
Notes, such Holder cannot rely on the position of the staff
of the Commission enunciated in Morgan Stanley & Co.,
Incorporated (available June 5, 1991) and Exxon Capital
Holdings Corporation (available April 13, 1989), or interpreted
in the Commission' s letter to Shearman and Sterling
(available July 2, 1993), or similar no-action or interpretive
letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection
with a secondary resale transaction, unless an exemption from
registration is otherwise available. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer as a
result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. See "Plan of Distribution."
[CAPTION]
CAPITALIZATION
The following table sets forth the cash position and
capitalization of the Company at September 30, 1996 and as
adjusted to give effect to the Company's issuance of the
Old Notes. This table should be read in conjunction with
the more detailed information and financial statements
appearing elsewhere in this Prospectus.
<TABLE>
September 30, 1996
Actual As Adjusted
(In Millions)
<S> <C> <C>
Cash and cash equivalents............ $ 11.0 $ 36.3
Long-term debt, including current
maturities:
Rio Bank Loan...................... $ 96.0 $ --- <F1>
10 5/8% Notes...................... 100.0 100.0
Other long-term debt............... 1.3 1.3
Old Notes, net of discount<F2>..... - 121.6
Total long-term debt, including
current maturities............... 197.3 222.9
Stockholders' equity............... 178.5 178.5
Total capitalization............... 375.8 401.4
<FN>
<F1> As adjusted, the Company has $200 million of borrowing
availability under the Rio Bank Loan. As of December 31,
1996, $153.0 million was outstanding under the Rio Bank Loan
and the as adjusted balance would have been $31.7 million.
<F2> Reflects the effects of receipt of the proceeds from the
issuance of Old Notes on February 11, 1997.
</FN>
</TABLE>
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated
financial data, which should be read in connection with the
Company's Consolidated Financial Statements and the Notes thereto
included elsewhere herein and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The
selected consolidated financial data as of and for the years
ended December 31, 1992 and 1991 and as of December 31, 1993 have
been derived from the Company's audited financial statements. The
selected consolidated financial data as of and for the years
ended December 31, 1995 and 1994 and for the year ended
December 31, 1993 have been derived from the Company's audited
financial statements included elsewhere herein. The selected
consolidated financial data presented below as of and for the
nine months ended September 30, 1996 and 1995 are derived from
the Company's unaudited consolidated financial statements
included elsewhere herein. The unaudited financial statements
include all adjustments (consisting of only normal recurring
adjustments) which the Company considers necessary for a fair
presentation of the Company's financial position and results of
operations for these periods. Operating results for the nine
months ended September 30, 1996 are not necessarily indicative of
the results that may be expected for future periods.
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
1996 1995 1995
(Unaudited) (Dollars in Thousands)
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net revenues:
Casino................................. $83,083 $76,796 $105,547
Non-casino............................. 80,004 65,054 87,411
163,087 141,850 192,958
Operating expenses:
Casino................................. 40,006 33,718 48,072
Non-casino............................. 56,355 48,484 65,319
Selling, general and administrative.... 23,539 21,040 27,778
Depreciation and amortization.......... 12,538 10,387 14,231
Operating profit......................... 30,649 28,221 37,558
Interest expense......................... (7,112) (5,411) (8,106)
Other income, net........................ - - -
Income tax provision..................... (8,469) (8,499) (10,707)
Income from continuing operations........ 15,068 14,311 18,745
Minority interest in consolidated
partnership income..................... - - -
Nonrecurring items <F1>.................. - - -
Net income............................... $15,068 $14,311 $18,745
Ratio of earnings to fixed charges <F2>.. 4.31x 5.22x 4.63x
Other Data <F3>:
Average daily suite rate <F4>............ $73.82 $72.61 $72.18
Average daily hotel occupancy............ 95.8% 95.2% 94.5%
Hotel suites<F5>......................... 1,551 1,551 1,551
Casino square footage.................... 89,000 89,000 89,000
Slot machines............................ 1,880 2,165 2,098
Table games.............................. 76 63 73
Restaurant seats......................... 2,540 2,540 2,540
Balance Sheet Data:
Cash and cash equivalents................ $10,990 $19,342 $19,993
Total assets............................. 433,838 290,299 308,792
Long-term debt, including current
maturities............................. 197,346 100,215 110,202
Minority interest........................ - - -
Stockholders' equity..................... 178,528 160,458 162,888
<FN>
<F1> Nonrecurring items include: income (loss) from operations of
discontinued real estate and development segment, net of income
taxes; extraordinary items; loss from early extinguishment of
debt; and cumulative effects of accounting changes. See
Consolidated Financial Statements and the Notes thereto.
<F2> The ratio of earnings to fixed charges is determined by
dividing (i) earnings before income taxes and fixed charges by
(ii) fixed charges. Fixed charges consist of total interest
expense.
<F3> Other data relating to hotel suites, casino square footage
and restaurant seats represent amounts as of the end of the
period. Data related to slot machines and table games represent
averages for the period.
<F4> Average daily room rate figures are actual rates expressed in
dollars.
<F5> 447 suites in the new 41-story tower were opened on December 31,
1996.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Statements of Income Data:
Net revenues:
Casino................................. $87,165 $71,296 $56,524 $43,710
Non-casino............................. 59,259 38,757 26,109 22,419
146,424 110,053 82,633 66,129
Operating expenses:
Casino................................. 38,696 31,178 27,145 24,421
Non-casino............................. 50,386 35,026 23,669 19,238
Selling, general and administrative.... 20,550 16,001 13,551 12,356
Depreciation and amortization.......... 10,864 7,544 5,814 4,886
Operating profit......................... 25,928 20,304 12,454 5,228
Interest expense......................... (1,923) (1,839) (3,801) (5,639)
Other income, net........................ 1,140 - 100 1,200
Income tax provision..................... (9,179) (6,785) (2,996) (408)
Income from continuing operations........ 15,966 11,680 5,757 381
Minority interest in consolidated
partnership income..................... - - (242) (33)
Nonrecurring items <F1>.................. - (1,031) 793 (229)
Net income............................... $15,966 $10,649 $6,308 $119
Ratio of earnings to fixed charges <F2>.. 10.64x 8.80x 3.19x 1.13x
Other Data <F3>:
Average daily suite rate <F4>............ $63.80 $62.60 $64.09 $67.22
Average daily hotel occupancy............ 95.9% 96.8% 96.5% 93.5%
Hotel suites<F5>......................... 861 861 424 424
Casino square footage.................... 89,000 79,000 54,000 44,000
Slot machines............................ 2,200 1,950 1,450 1,043
Table games.............................. 53 44 31 31
Restaurant seats......................... 2,440 1,843 1,209 955
Balance Sheet Data:
Cash and cash equivalents................ $76,426 $55,785 $42,623 $11,388
Total assets............................. 301,165 218,050 149,518 112,267
Long-term debt, including current
maturities............................. 125,179 65,184 53,212 57,019
Minority interest........................ - - - 1,635
Stockholders' equity..................... 147,839 129,838 86,872 47,731
<FN>
<F1> Nonrecurring items include: income (loss) from operations of
discontinued real estate and development segment, net of income
taxes; extraordinary items; loss from early extinguishment of
debt; and cumulative effects of accounting changes. See
Consolidated Financial Statements and the Notes thereto.
<F2> The ratio of earnings to fixed charges is determined by
dividing (i) earnings before income taxes and fixed charges by
(ii) fixed charges. Fixed charges consist of total interest
expense.
<F3> Other data relating to hotel suites, casino square footage
and restaurant seats represent amounts as of the end of the
period. Data related to slot machines and table games represent
averages for the period.
<F4> Average daily room rate figures are actual rates expressed in
dollars.
<F5> 447 suites in the new 41-story tower were opened on December 31,
1996.
</FN>
</TABLE>
28/29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that
may be considered forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, such as statements relating
to plans for future expansion, capital spending and financing
sources. Such forward-looking information involves important
risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results
may differ from those expressed in any forward-looking statements
made herein. These risks and uncertainties include, but are not
limited to, those relating to construction activities, dependence
on existing management, gaming regulations (including actions
affecting licensing), leverage and debt service (including
sensitivity to fluctuations in interest rates), domestic or
global economic conditions and changes in federal or state tax
laws or the administration of such laws.
OVERVIEW
The Rio's revenues and profits are derived largely from its
gaming activities, although the Company also seeks to maximize
revenues from food and beverage, lodging, entertainment and
retail sales. The Rio generally views its non-casino related
operations as complementary to its core casino operations. The
Rio utilizes entertainment primarily as a casino marketing tool.
The Rio expects to maintain a food and beverage pricing structure
designed to maximize casino customer foot traffic.
The Company's sole business is the operation of the Rio,
which opened in January 1990. The Rio was originally owned and
operated by a limited partnership (the "Rio Partnership") formed
by the Company in 1988. Through a series of transactions
involving an exchange of preferred stock for partnership
interests and later a merger of Rio Partnership into Rio
Properties, the Company increased its ownership of the Rio from
34.4% in 1988 to 100% in 1992. Prior to 1990, the Company's
operations consisted of real estate development and management.
In December 1991, the Company sold all real estate assets and
operations not used or held for the operation or expansion of the
Rio. In 1995, as part of the Company's three-phased expansion
and development plan, the Company entered into agreements for the
purchase of approximately 22 acres adjacent to the Rio and
approximately 64 acres southeast of Las Vegas, both of which may
be developed into future hotel-casino projects. Agreements to
purchase an additional 16 acres adjacent to the Rio were entered
into in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, cash and cash equivalents were $11.0
million compared with $20.0 million at December 31, 1995. At
September 30, 1996, the Company had $104.0 million available
under the Rio Bank Loan. The revolving credit feature of the Rio
Bank Loan allows the Company to pay down and reborrow principal
under the line of credit as the Company deems appropriate. The
Company did not utilize this ability at the end of the third
quarter of 1996, but the Company did borrow $10 million on
December 29, 1995 and repaid $9 million on January 2, 1996. The
decrease in cash is primarily due to the decision of the Company
not to draw down any amount of the available Rio Bank Loan at the
end of the quarter, as well as the use of cash and cash
equivalents to make capital expenditures for the Company's
$200 million Phase V Expansion and the previously reported
acquisition of land adjacent to the Rio.
During the first nine months of 1996, cash provided by
operating activities was $28.6 million. Investing activities
used $123.5 million of the Company's cash during the first nine
months of 1996. Approximately $2.6 million of such expenditures
was related to the Company's Phase III Expansion, approximately
$2.3 million was related to the Company's Phase IV Expansion and
approximately $101.3 million was related to the Company's Phase V
Expansion, including $3.2 million in capitalized interest, $2.9
million in pre-opening costs and $0.8 million in deposits on
signs. During the first nine months of 1996, the Company spent
approximately $10.9 million toward the acquisition of
approximately 34 acres of land adjacent to the Rio. The balance
of cash used in investing activities was expended on other
capital projects.
30
<PAGE>
For the nine months ended September 30, 1996, expenditures
on the Phase V Expansion excluding sign deposits and including
$24.2 million in current liabilities at September 30, 1996
totaled $115.9 million. The Company incurred approximately $10.5
million on the Phase V Expansion in 1995, including $2.6 million
in current liabilities at December 31, 1995. The remaining funds
for the Phase V Expansion will be applied in the fourth quarter
of 1996 and in 1997. The Phase V Expansion has been financed
with the proceeds from the 10 5/8% Notes, funds available under
the Rio Bank Loan, cash on hand and cash from operations.
The Company has acquired through purchase or option
approximately 38 acres of land adjacent to the Rio for a combined
cost of approximately $26 million, which the Company financed
through cash on hand, cash available through borrowings under the
Rio Bank Loan and cash from operations. The adjacent property is
currently being held for possible future development.
The Company also owns a 64-acre parcel located southeast of
Las Vegas (the "Old Vegas Site"). The net cost of the Old Vegas
Site as of September 30, 1996 was approximately $5.9 million.
The Old Vegas Site is being held for sale.
During the fourth quarter of 1994, the Board of Directors
authorized the Company to make discretionary repurchases of up to
2 million shares of its common stock ("Common Stock") from time
to time in the open market or otherwise. During the first nine
months of 1996, the Company repurchased 75,000 shares of Common
Stock at an average cost of $16.13 per share.
In March 1997, the Company entered into a letter agreement
to acquire 60% of a golf course to be located in Henderson,
Nevada, at a purchase price of $9 million. The Company is
currently reviewing various financing alternatives for this
acquisition.
As of October 1, 1996 the Company's capital commitments
include $9.1 million under commitments for the balance of the
purchase price and/or option price of certain of the land parcels
adjacent to the Rio for which the entire purchase price has not
been funded. As of December 31, 1996, the Company estimates that
it will incur approximately $27.6 million to complete the Phase V
Expansion. Based upon cash on hand, cash available through
borrowings under the Rio Bank Loan and cash from operations, the
Company believes that it has adequate cash available to fund the
remaining cost of the Phase V Expansion and the real estate
purchase commitments.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net revenues for the Company increased to $163.1 million in
the first nine months of 1996 from $141.9 million in the 1995
nine month period, an increase of approximately $21.2 million or
15%. Casino revenues increased $6.3 million, or 8%, to $83.1
million in the 1996 period from $76.8 million in the period ended
September 30, 1995. Table game and slot machine revenues were
the main contributors to this increase, with table game revenues
increasing to $30.4 million and slot machine revenues to $48.3
million in the nine months ended September 30, 1996 from $25.8
million and $46.2 million in the same period in the prior year,
respectively. Management believes that the increase in table
game revenues was primarily the result of 13 more tables being
available in the 1996 period and an increase in the number of
available and occupied rooms. The increase in slot machine
revenues occurred primarily in the first three months of 1996,
with revenues remaining relatively flat in the second and third
quarters when compared to the same periods in 1995. Management
believes that this was primarily due to a 12% decrease in the
number of slot machines available during a significant portion of
the nine months ended September 30, 1996 from the number of
machines available in the prior year period as a result of space
limitations associated with the Phase V Expansion and casino
remodeling projects.
Room revenues increased by $5.1 million or 20% to $30.1
million in the nine months ended September 30, 1996 from $25.0
million in the prior year period. The increase in room revenue
resulted primarily from the addition of 365 new hotel suites
placed into service in February 1995, 184 new hotel suites being
placed into service in March 1995 and an additional 141 new hotel
suites being placed into service in December 1995. The hotel
occupancy percentage increased to 95.8% in the 1996 period based
on 424,686 available room nights from 95.2% in the 1995 period
based on 360,258 room nights available.
31
<PAGE>
Food and beverage revenues increased to $53.0 million in the
nine month period ended September 30, 1996 from $44.5 million in
the same period in 1995, an increase of $8.5 million or 19%. An
increase in the average food check and increased beverage sales
contributed to the increase in food and beverage revenues.
Other revenues increased by $2.3 million or 25.0% to $11.4
million in the 1996 period compared to $9.2 million in the nine
month period in 1995. Increased telephone revenues from the
additional hotel suites, as well as increased merchandise sales
and admissions to entertainment activities were the primary
reasons for the increase in other revenues.
Operating profit as a percentage of net revenues was 19% and
20% for the nine month periods ended September 30, 1996 and 1995,
respectively. Casino operating profit was 52% in the nine month
period in 1996 compared to 56% in the same period in 1995.
Management believes that the decline in the operating margin in
the casino was due to (i) the change in the ratio between table
game revenues, which traditionally have a lower operating margin,
and slot machine revenues and (ii) the incurrence of pre-opening
marketing and staff costs associated with the September 1996
opening of the new High Limit gaming area. Food and beverage
operating profit was 23% in the nine month period ended
September 30, 1996 compared to 19% during the first nine months
of 1995. Management believes that this improvement is the result
of effective cost controls and a higher average food check in the
1996 period. Hotel operating profit was 67% for the first nine
months of 1996 compared to 69% in the prior year period.
Management believes that the decline in the hotel operating
margin is the result of increases in normal operating expenses
including salaries, wages, benefits and travel agent commissions.
Other expenses were 51% of other revenues for the nine months
ended September 30, 1996 compared to 54% in the first nine months
of 1995. Management believes the improvement is due to the
increase in other revenues, particularly telephone and
entertainment admissions, which do not require significant
incremental expense. Selling, general and administrative
expenses were 14% and 15% of net revenues for the nine month
periods ended September 30, 1996 and 1995, respectively.
Promotional allowances, which represent the retail value of
rooms, food, beverage and other services provided to customers
without charge, were $14.5 million or 8% of gross revenues in the
first nine months of 1996. The estimated cost of providing such
promotional allowances was $8.2 million. This compares to
promotional allowances in the same nine month period in 1995 of
$13.7 million or 9% of gross revenues at an estimated cost of
$8.0 million.
Depreciation and amortization increased by $2.1 million or
21% to $12.5 million in the first nine months of 1996 compared to
$10.4 million in the same period in the prior year. This
increase is primarily attributable to the 365 new hotel suites
which were placed into service in February 1995 and 184 new hotel
suites in March 1995, as well as completion in December 1995 of
the Phase IV Expansion project which included 141 new hotel
suites, the addition of approximately 5,400 square feet of
meeting room space, the expansion of Buzios seafood restaurant,
the addition of a new health club and salon facility and a
variety of back-of-the-house improvements. In addition,
approximately $7.3 million in construction projects, including
the new multi-level parking garage which is part of the Phase V
Expansion project which will allow for direct access into the
Masquerade Village, have been placed into service in 1996 and are
being depreciated.
Interest expense increased by $1.7 million or 31% to $7.1
million in the first nine months of 1996 from $5.4 million in the
same period in 1995. Interest expense increased primarily as a
result of the Company's July 1995 issuance of the 10 5/8% Notes,
the proceeds from which were primarily utilized to repay the Rio
Bank Loan, and to increased borrowings in connection with the
Phase V Expansion project. Interest expense in the first nine
months of 1996 was reduced by $4.0 million because of interest
capitalized on amounts expended on the Phase V Expansion project,
which centers around a 41-story curved tower containing over
1,000 new hotel suites. This project also includes approximately
120,000 square feet of public area which will provide additional
casino space, restaurants, new retail and interactive
entertainment space as well as an expanded pool and beach area
and additional parking facilities. Interest expense in the first
nine months of 1995 was reduced by $0.6 million because of
interest capitalized on amounts expended on the Phase III and
Phase IV Expansion projects.
Net income for the first nine months of 1996 was $15.1
million or $0.70 per share (fully diluted) compared to
$14.3 million or $0.66 per share (fully diluted) for the first
nine months of 1995.
32
<PAGE>
YEARS ENDED DECEMBER 31, 1995 AND 1994
Net revenues for the Company increased to $193.0 million for
1995 from $146.4 for 1994, an increase of $46.6 million or 32%.
Casino revenues increased to $105.5 million for 1995 from $87.2
million for 1994, an increase of $18.3 million or 21%. The
increase in casino revenues was due primarily to an increase in
slot machine revenues of $8.5 million or 16% to $63.0 million for
1995 from $54.5 million for 1994 and an increase in table games
revenues of $10.3 million or 40% to $36.1 million for 1995 from
$25.8 million for 1994, resulting from the additional slot
machines and table games discussed above, as well as an increase
in the per unit win of both slots and table games.
Room revenues increased by $14.5 million or 76% to $33.8
million for 1995 from $19.3 million for 1994. The increase in
room revenue resulted primarily from the addition of 365 new
hotel suites placed into service in February 1995, 184 new hotel
suites placed into service in March 1995, and 141 new hotel
suites placed into service in December 1995. The additional 690
suites placed into service in 1995 increased the Rio's total to
1,551 suites compared to 861 suites for 1994. Demand for the
Rio's suites remained high during 1995 with a 94% average daily
occupancy compared to a 96% average daily occupancy during 1994.
The average number of suites available during 1995 was 1,354
compared to 861 during 1994. The average daily room rate during
1995 was $72.18 compared to $63.80 during 1994. On December 31,
1996, the Company opened 447 of the 1,031 new suites being added
in the Phase V Expansion. The average number of suites available
during 1996 was 1,550 with a 94% average daily occupancy rate and
an average daily room rate of $76.93.
Food and beverage revenues increased to $60.0 million for
1995 from $47.6 million for 1994, an increase of $12.4 million or
26%. The successful opening in February 1994 of the Copacabana
Showroom, a 430-seat video, entertainment and restaurant complex;
the successful opening in April 1994 of Fiore, a 186-seat fine
dining restaurant; the successful opening in June 1994 of Club
Rio, a late-night dance club; the successful completion in
November 1994 of a 50% expansion of the Carnival World Buffet to
980 seats; and increased beverage sales as a result of increased
gaming customers all contributed to the increase in food and
beverage revenues.
Other revenues for 1995 were $12.4 million, which included
entertainment admission revenues of $4.1 million, retail sales of
$4.1 million, interest income of $0.4 million and miscellaneous
other operating revenues, primarily telephone revenues, of $3.8
million. This represented an increase in other revenues of $5.2
million, or 71%, compared to the $7.2 million in other revenues
generated during 1994. The increase in other revenues resulted
primarily from increased entertainment admission revenues, retail
sales and telephone revenues resulting from increased business
levels.
Operating profit for the Company increased to $37.6 million
for 1995 from $25.9 million for 1994, an increase of $11.7
million or 45%. Management believes that the improvement in
operating results was due to the additional 365 new hotel suites
placed into service in February 1995, the additional 184 new
hotel suites placed into service in March 1995, the additional
141 new hotel suites placed into service in December 1995, an
average monthly increase from 1994 levels of approximately 174
slot machines and 19 table games, additional restaurant capacity
and improved operating efficiencies in the hotel department.
The Company's operating margins were relatively consistent
during 1995 compared to 1994. Operating profit as a percentage
of net revenues was 19% during 1995 compared to 18% during 1994.
Casino operating profit was relatively constant at 55% during
1995 compared to 56% during 1994. Food and beverage operating
profit remained relatively constant at 20% during 1995 compared
to 19% during 1994. Hotel operating profit increased to 69%
during 1995 compared to 66% during 1994 due to efficiencies
resulting from increased customer volume, effective cost controls
and a higher average room rate during 1995 compared to 1994.
Selling, general and administrative expenses were 14% of net
revenues in both 1995 and 1994.
During 1995, promotional allowances were $18.8 million, or
9% of gross revenues, which represented the retail value of
rooms, food, beverage and other services provided to customers
without charge. The estimated cost of providing such promotional
allowances was $11.1 million. This compares to 1994 when
promotional allowances were $14.9 million, or 9% of gross
revenues, and the estimated cost of providing such promotional
allowances was $9.1 million.
33
<PAGE>
Depreciation and amortization increased by $3.3 million or
31% to $14.2 million for 1995 compared to $10.9 million for 1994.
This increase is attributable to depreciation expense from
various completed expansion projects such as the Company's
Eastside Expansion and the Phase III Expansion.
Other expenses of the Company increased primarily because of
higher interest expense. Borrowing levels increased in 1995
compared to 1994 due to funding costs of the various expansion
projects. Also, in July 1995 in anticipation of the funding
requirements for the Phase V Expansion, the Company issued $100
million in 10 5/8% Notes. The fixed coupon rate of 10 5/8 % was
higher than the floating rate that the Company was paying under
the Rio Bank Loan. Consequently, the issuance of these notes
resulted in an increase in interest expense. Interest expense
for 1995 was reduced by $949,423 because of interest capitalized
on amounts expended on the Phase III Expansion, the Phase IV
Expansion and the Phase V Expansion. Interest expense for 1994
was reduced by $619,887 because of interest capitalized on
amounts expended on the Eastside Expansion and the Phase III
Expansion. Other income for 1994 was a one-time gain of
$1.1 million related to the resale of two real estate parcels
previously owned by the Company. A one-time gain of $966,510
related to the sale of real estate which was sold by the Company
to a related party in December 1991. In April 1994, the real
estate was resold to a non-related party. Pursuant to the terms
of the sales agreement between the Company and the related party,
the Company was entitled to a portion of the resale proceeds,
which equaled $966,510, net of expenses. Another one-time gain
of $173,500 related to the sale of a second piece of real
property owned by the Company until May 1991, when it was sold to
a non-related party. Pursuant to the terms of the sales
agreement, the Company was entitled to a portion of the resale
proceeds or refinancing amount, which equaled $173,500, net of
expenses.
Net income for 1995 increased 17% to $18.7 million or $0.87
per share (fully diluted) from $16.0 million or $0.74 per share
(fully diluted) for 1994 as a result of the factors discussed
above.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Net revenues for the Company increased to $146.4 million for
1994 from $110.1 million for 1993, an increase of $36.3 million
or 33%. Casino revenues increased to $87.2 million for 1994 from
$71.3 million for 1993, an increase of $15.9 million or 22%. The
increase in casino revenues was due primarily to an increase in
slot machine revenues of $9.3 million or 20% to $54.5 million for
1994 from $45.2 million for 1993 and an increase in table games
revenues of $6.0 million or 30% to $25.8 million for 1994 from
$19.8 million for 1993, resulting from the additional slot
machines and table games discussed above.
Room revenues increased to $19.3 million for 1994 from
$12.3 million for 1993, an increase of $6.9 million or 56%. The
increase in room revenues resulted primarily from the addition of
437 suites during the fourth quarter of 1993 (375 new suites were
placed in service in September 1993 and 62 suites were placed in
service in October 1993), bringing the Company's total to 861
suites available during 1994. Demand for the Rio's suites
remained high during 1994, at a 96% average daily occupancy
compared to a 97% average daily occupancy during 1993. The
average daily room rate during 1994 was $63.80 compared to $62.60
during 1993.
Food and beverage revenues increased to $47.6 million for
1994 from $32.6 million for 1993, an increase of $15.1 million or
46%. The increase was principally due to the successful opening
in February 1994 of a new 595-seat video, entertainment and
restaurant complex, the successful opening in April 1994 of a new
186-seat fine dining restaurant, the successful completion in
November 1994 of a 50% expansion of the Carnival World Buffet to
980 seats, an increase in the number of patrons served in other
Rio restaurants and an increase in the average food check.
Other revenues for the year ended December 31, 1994 were
$7.2 million, which included entertainment admission revenues of
$1.9 million, retail sales of $2.6 million and miscellaneous
other operating revenues, primarily telephone revenues of $2.6
million. This represented an increase in other revenues of $3.0
million, or 71%, compared to the $4.2 million in other revenues
generated during the twelve months ended December 31, 1993. The
increase of $3.0 million was attributable to increases of
approximately $0.9 million in each of admission revenues, retail
sales, and miscellaneous other revenues.
34
<PAGE>
Operating profit for the Company increased to $25.9 million
for 1994 from $20.3 million for 1993, an increase of $5.6 million
or 27.6%. Management believes that the improvement in operating
results was due to increased business levels in 1994 as a result
of having an additional 437 hotel suites for nine months of the
year, an addition of approximately 800 slot machines
(approximately 500 slot machines were added in December 1993 and
approximately 300 slot machines were added in November 1994), an
addition of approximately 13 table games and additional
restaurant capacity compared to 1993.
The Company's operating margins were relatively consistent
during 1994 compared to 1993. Operating profit as a percentage
of net revenues was 18% in both 1994 and 1993. Casino operating
profit was 56% in both 1994 and 1993. Food and beverage
operating profit improved to 19% during 1994 compared to 15%
during 1993 as a result of an increase in volume, price increases
and effective cost control measures. Hotel operating profit
improved to 66% during 1994 compared to 64% during 1993 as a
result of a higher average room rate and effective cost control
measures. Selling, general and administrative expenses were 14%
of net revenues during 1994, of which $421,367 were expenses
related to gaming development. This compares favorably to 1993
when selling, general and administrative expenses were 15% of net
revenues, which did not include any material expenditures related
to gaming development.
During 1994, promotional allowances were $14.9 million, or
9% of gross revenues, which represented the retail value of
rooms, food, beverage and other services provided to customers
without charge. The estimated cost of providing such promotional
allowances was $9.1 million. This compares to 1993 when
promotional allowances were $10.4 million, or 9% of gross
revenues, and the estimated cost of providing such promotional
allowances was $6.9 million.
Depreciation and amortization increased to $10.9 million for
1994 from $7.5 million for 1993, an increase of $3.3 million or
44%. This increase is attributable to a full year of
depreciation on the Phase II Expansion which was completed in
October 1993, depreciation on the Eastside Expansion which was
completed in phases by April 1994 and depreciation on the Phase
III Expansion projects completed during 1994.
Other income for 1994 was a one-time gain of $1.1 million
related to the resale of certain real estate previously owned by
the Company. A one-time gain of $966,510 related to the sale of
real estate which was sold by the Company to a related party in
December 1991. In April 1994, the real estate was resold to a
non-related party. Pursuant to the terms of the sales agreement
between the Company and the related party, the Company was
entitled to a portion of the resale proceeds, which equaled
$966,510, net of expenses. A one-time gain of $173,500 related
to the sale of real estate owned by the Company until May 1991,
when it was sold to a non-related party. Pursuant to the terms
of the sales agreement, the Company was entitled to a portion of
the resale proceeds or refinancing amount, which equaled
$173,500, net of expenses.
Income before extraordinary items and cumulative effect of a
change in accounting principle increased 37% to $16.0 million or
$0.74 per share (fully diluted) for 1994 from $11.7 million or
$0.60 per share (fully diluted) for 1993. The results for 1993
were impacted by the cumulative effect of a change in accounting
principle resulting from the adoption of Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes"
("SFAS 109"). Adoption of SFAS 109 resulted in a one-time, non-
cash charge in the amount of $776,888 or ($0.04) per share (fully
diluted). The results for 1993 were also adversely affected by
the extraordinary loss on early extinguishment of debt, net of
income tax benefit, of $253,711 or ($0.01) per share (fully
diluted).
Net income for 1994 increased 50% to $16.0 million or $0.74
per share (fully diluted) from $10.6 million or $0.55 per share
(fully diluted) for 1993 as a result of the factors discussed
above.
IMPACT OF INFLATION
Absent changes in competitive and economic conditions or in
specific prices affecting the industry, the Company believes that
the hotel-casino industry may be able to maintain its real
operating profit margins in periods of general inflation by
increasing minimum wagering limits for its games and increasing
the prices of its hotel rooms, food and beverage and other items,
and by taking action designed to increase the number of patrons.
The industry may be able to maintain growth in gaming revenues by
the tendency of customer gaming budgets to increase with
inflation. Changes in specific prices (such as fuel and
transportation prices) relative to the general rate of inflation
may have a material effect on the hotel-casino industry.
35
<PAGE>
BUSINESS
The Company owns and operates an all-suite hotel-casino, the
Rio Suite Hotel & Casino in Las Vegas, Nevada. Situated on an
elevated site adjacent to the Flamingo Road exit from Interstate
15, the freeway linking Las Vegas with Southern California, the
Rio is strategically positioned to attract travelers along
Interstate 15, tourists visiting the Las Vegas Strip and local
Las Vegas residents. The Company markets to both local residents
and Las Vegas visitors. Management believes that the Rio's
unique all-suite concept, diverse high quality dining, easy
access and ample parking provide an attractive alternative to the
Las Vegas Strip and a fun and comfortable environment in which to
enjoy gaming, dining and entertainment.
The Rio is decorated throughout in a fun-filled Carnivale
theme. As of March 1, 1997, the Rio featured a 116,000 square
foot casino; three 21-story hotel towers containing 1,551
suites (2,582 suites upon opening of the new 41-story tower); 14
restaurants and 14 bars (including a restaurant and bar in the new
41-story tower scheduled to open during the second quarter of
1997); a 595-seat entertainment complex; a 32,000 square foot
retail area; meeting and banquet space; a 108,000 square foot
outdoor entertainment area featuring a landscaped sand beach
and three swimming pools, and parking for approximately 3,600
cars. The Rio's casino offers approximately 2,500 slot machines,
109 table games, a poker room, keno and a race and sports book.
The Rio has substantially completed the $200 million Phase V
Expansion, exclusive of construction period interest and pre-
opening expenses, centered around the Masquerade Village. The
Masquerade Village contains approximately 120,000 square feet of
public space with a Carnivale and Mardi Gras themed casino
expansion, featuring MASQUERADE SHOW IN THE SKY, an interactive
$25 million indoor attraction, a variety of new restaurants and
fine specialty retail shops. The Phase V Expansion adds a curved
41-story hotel tower containing 1,031 suites, 447 of which were
open at March 1, 1997. The balance of the suites and a new
restaurant on the top two floors overlooking the Las Vegas Strip
are scheduled to be open by the end of the second quarter of
1997.
In addition to the Phase V Expansion, the Company has
assembled 38 acres immediately adjacent to the Rio. This brings
the total acreage at the Rio to 83 acres. The Company may
develop the additional acreage at some time in the future.
On March 4, 1997, the Company entered into a letter
agreement to acquire a 60% interest in the Seven Hills Golf
Course in Henderson, Nevada, a suburb of Las Vegas. The Company
is scheduled to close the acquisition, subject to certain
contingencies, in April 1997. The course, located in the
master-planned community of Seven Hills, is in the final stages
of completion and is expected to open during the late Summer of
1997 followed by the opening of a clubhouse in Fall 1997. The
Company intends to use the course to provide a golf school and
golf vacation packages to its guests, in addition to providing
play on the course to both its local and tourist customers.
The Company was incorporated in California in 1981 and
reincorporated in Nevada in 1988. The Company changed its name
from MarCor Resorts, Inc. to Rio Hotel & Casino, Inc. in February
1992. Its executive offices are located at 3700 West Flamingo
Road, Las Vegas, Nevada 89103, and its telephone number is
(702) 252-7733.
MASQUERADE VILLAGE
On February 7, 1997, the Company opened its Masquerade
Village, consisting of five new restaurants and additional
retail, gaming and entertainment space. A sixth restaurant, the
Voodoo Cafe to be located at the top of the new 41-story tower
overlooking the Las Vegas Strip, is scheduled to open during the
second quarter of 1997. Inspired by European architecture,
Masquerade Village blends celebrations of Carnivale in Rio de
Janeiro and Venice, and Mardi Gras in New Orleans, into a unique
entertainment experience.
The Masquerade Village includes fine specialty retail shops
and restaurants, and a wine cellar and tasting room. Retail
stores include a NICOLE MILLER boutique, GUESS? FOOTWEAR, SPEEDO
AUTHENTIC FITNESS, WATCH ZONE by Sunshade Optique, ALEGRE, and
REEL OUTFITTERS. New restaurants include Mama Marie's Cucina,
Mask, Napa Restaurant and The Wine Cellar Tasting Room, Bamboleo,
Village Seafood Buffet and Voodoo Cafe. The Masquerade Village
features a fully interactive $25 million indoor attraction,
MASQUERADE SHOW IN THE SKY. The MASQUERADE SHOW IN THE SKY
consists of three
36
<PAGE>
complete parades, each with its own themed music, costumes and
live performers. The show features five floats in each of the
three parades, suspended on a 950-foot track located over the
casino floor. A cast of 36 specialty dancers, musicians,
aerialists and costume stilt walkers will perform in 17
performing areas.
BUSINESS STRATEGY
The Company's business strategy focuses on attracting and
fostering repeat business from customers in the local resident
and tourist markets. To implement its business strategy, the
Company capitalizes on its unique all-suite concept, strategic
location and Carnivale theme. The Company strives to provide a
quality, affordable gaming and entertainment experience in order
to generate high customer satisfaction and loyalty. The Rio's
value-priced suites and restaurants provide an attractive
alternative to conventional Las Vegas properties for visitors who
desire to avoid the crowds and congestion of the Las Vegas Strip.
The Interstate 15 and Flamingo Road location is also ideal for
attracting local residents.
To encourage repeat visits, the Company attempts to ensure
that each customer has an enjoyable, high quality and high value
experience. Management believes that it must offer consistent
quality, a comfortable and fun atmosphere and, most importantly,
friendly service at affordable prices to provide a high value
experience to its customers. Accordingly, the Rio's suites offer
guests approximately 50% more space than comparably priced Las
Vegas hotel rooms. Similarly, the Company's restaurants have won
awards year after year for their quality dining. All of the Rio's
restaurants offer generous portions of high quality food at
reasonable prices which management believes is a major factor in
attracting the value-conscious local customer.
Management believes that friendly service combined with a
quality facility are integral to generating repeat business from
locals as well as tourists. As a result, management continually
seeks to instill in each employee a sense of service excellence
designed to exceed guest expectations. To motivate its employees,
management also strives to instill a sense of "Team Rio" in all
of the Company's employees by making the Rio a fun place to work.
Management strongly believes that its employees are one of the
Company's biggest assets.
The Company has created an identifiable and innovative
marketing presence and continues to build on its "signature" Rio
theme. The Rio's Carnivale theme incorporates bright colors,
creative interior designs, festive employee costumes and other
exotic touches to contribute to its tropical ambiance. The
Masquerade Village expands on the Carnivale theme to blend
Carnivale and Mardi Gras entertainment experiences through
architecture, retail and restaurant areas, and the MASQUERADE
SHOW IN THE SKY. The Rio's message of a fun-filled, colorful
atmosphere is constantly emphasized. The Rio has developed the
Rio Rita(TM) character as a promotional ambassador to the Rio's
hotel-casino guests and as a focal point upon which many
promotional activities have been built, such as Carnival
Dice(TM), Rio Rita's(TM) Lotto Bucks, Carnival Days(TM),
Conga Mania(TM) and Brazilia Days(TM). The Company advertises
extensively in the Las Vegas area print, television and radio
media, and periodically in Southern California, Phoenix and
other regional markets. In anticipation of the opening of the
Phase V Expansion, the Company established a national advertising
program to increase its visitor volume.
The success of the Company's business strategy is evidenced
by the large number of awards the Rio has received. In March
1996, the Rio won recognition through 11 "Best of Las Vegas"
awards in an annual readers' survey published by Nevada's largest
daily newspaper. These distinctions included: "Best Buffet,"
"Best Seafood Restaurant," "Best Coffee Shop," "Best Breakfast
Special," "Best Place to Dance (Club Rio)," "Best Locals Hotel,"
"Most Efficient Service," "Best Bartenders," "Best Cocktail
Waitresses," "Best Employee Uniforms" and "Best Outdoor Sign."
In addition, the Rio received recognition in the 1995-1996 ZAGAT
U.S. HOTELS, RESORTS & SPAS SURVEY for "Best Overall," "Best
Rooms," "Best Dining" and "Best Service" in Las Vegas. In
addition, the Rio was selected by the American Academy of
Hospitality Sciences to be the first and only recipient of the
Five Star Diamond Award for 1997 in Las Vegas. The Academy has
bestowed fewer than 100 hotels and resorts internationally with
this award. Since these awards, however, are based upon
subjective criteria, prospective holders of the New Notes should
not attribute undue significance to these awards. Management
believes that these awards exemplify the Company's reputation for
quality and value.
37
<PAGE>
MARKETING STRATEGY
The Company's marketing efforts are targeted at both the
local patron and the tourist market. To market to local patrons,
the Rio relies on its convenient location, its ample parking, its
value-priced food and its slot machine variety. Management
believes that its restaurants, in particular the Carnival World
Buffet, are among the Rio's greatest attractions for local
patrons. The Carnival World Buffet is one of the most popular
buffets in Las Vegas due to its extensive selections, its high
quality food and the entertainment provided by the live-action
cooking stations. During 1996, the Carnival World Buffet served
an average of approximately 6,600 people per day. In addition to
its emphasis on food and beverage, the Rio also has an aggressive
marketing program which encompasses frequent radio, television
and newspaper advertising, a variety of promotions directed at
the local customer and other programs such as check cashing
promotions.
To attract visitors and fill the Rio's hotel rooms, the
Company markets primarily to three segments of the tourist
market: independent travel, wholesale and special casino
customers. The independent travel segment consists of those
travelers not affiliated with groups who make their reservations
directly with the Rio or through independent travel agents. To
attract the independent traveler, the Rio periodically utilizes
print media, radio and direct mail to advertise in Southern
California, Phoenix and other travel markets. In addition, the
Company's sales force frequently attends trade shows in order to
establish relationships with and promote the Rio to travel agents
nationwide. The wholesale segment comprises those patrons
participating in travel packages offered by air tour operators.
To capture this segment of the market, the Rio has developed
specialized marketing programs for, and cultivated relationships
with, these operators. Finally, special casino customers are
those frequent gaming customers who are in regular communication
with Rio casino marketing personnel. The Company offers VIP
services, casino hosts and a segmented gaming area to certain
special casino customers. The Rio utilizes a variety of
promotions and special events and other amenities in marketing to
this segment.
RIO LOCATION
The Rio is strategically located to take advantage of the
dynamic residential and commercial growth of the western portion
of metropolitan Las Vegas, while offering proximity and easy
access to the "Old Four Corners" (Flamingo Road and the Las Vegas
Strip) and the "New Four Corners" (Tropicana Avenue and the Las
Vegas Strip) areas of the Las Vegas Strip.
THE RIO
Since 1992, the Company has consistently expanded the Rio
under its master plan. Upon completion of the Phase V Expansion,
the Rio will have 2,582 suites, approximately 2,500 slot machines
and 109 table games.
<TABLE>
<CAPTION>
Totals After
Completion
of Phase V As of and for the Year Ended December 31,
Expansion<F1> 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Average daily suite rate........... - $76.93 $72.18 $63.80 $62.60 $64.09
Average daily hotel occupancy...... - 94.5% 94.5% 95.9% 96.8% 96.5%
Hotel suites<F2>................... 2,582 1,998 1,551 861 861 424
Casino square footage.............. 116,000 89,000 89,000 89,000 79,000 54,000
Slot machines<F3>.................. 2,500 1,884 2,098 2,200 1,950 1,450
Table games<F3>.................... 109 79 73 53 44 31
Restaurant seats................... 4,152 2,540 2,540 2,440 1,843 1,209
<FN>
<F1> The Phase V Expansion will be completed in the second
quarter of 1997. Due to the lack of a sufficient historical
period for measurement purposes, meaningful figures cannot
be provided concerning average daily hotel occupancy and
average daily suite rate.
<F2> 447 suites in the new 41-story tower opened on December 31,
1996.
<F3> Average number available during the period.
</FN>
</TABLE>
GAMING. Upon completion of the Masquerade Village on
February 7, 1997, the Rio offered 116,000 square feet of casino
space containing approximately 2,500 slot machines; 109 table
games, including "21," craps, roulette, pai gow
38
<PAGE>
poker, Caribbean stud poker, baccarat and mini-baccarat; other
casino games such as keno and poker; and a race and sports book
which is presently being upgraded.
Gaming operations at the Rio are continually being monitored
and modified to respond to both changing market conditions and
customer demand in an effort to attract new customers while
retaining its existing customer base. New and innovative slot and
table games have been introduced based on customer feedback and
demand from both local customers and Las Vegas visitors.
Management has introduced such games as Rio Rita's(TM) Royals, Rio
Rita's(TM) Bonus Poker, Sneaky Queens(TM) and Mambo Bucks.(TM)
Management devotes substantial time and attention to the type,
location and player activity of all gaming devices. The Company
believes that to continue to attract and retain slot customers,
it must expand the number and variety of slot machines on its
casino floor, particularly its higher denomination slot machines.
HOTEL. The Rio's three 21-story hotel towers contain a
total of 1,551 suites, comprised of 1,504 standard Rio suites, 16
"super" suites, 18 "cariocas" suites, six two-story penthouse
suites, and seven executive suites that combine a conference room
and an adjoining suite. The 41-story hotel tower, when completed
during the second quarter of 1997, will contain a total of 1,031
suites, comprised of 949 standard suites, 78 executive suites,
three "hospitality" suites ranging in size from 1,612 to 2,418
square feet, and one "Presidential" suite consisting of 2,989
square feet. On March 1, 1997, 447 of the 1,031 suites were open
and the balance will be opened through the end of the second
quarter of 1997. The Company has progressively added new hotel
suites since 1993 to meet its consistently strong demand. Despite
such expansion, the Rio has maintained average occupancy rates of
94.5% for both 1995 and 1996.
The standard Rio suite measures approximately 600 square
feet, compared to approximately 400 square feet for the typical
Las Vegas hotel room. The Carnivale theme is carried throughout
the guest suites in wall coverings, art work and other designer
accents. Suite amenities include carved wood finishes, cut glass,
polished granite surfaces, marble tile in the bath areas, room
safes and refrigerators.
RESTAURANTS. While important to attracting Las Vegas
visitor gaming customers, the high quality, value and variety of
food services are critical to consistently attracting the local
resident gaming customer to the Rio. To provide such variety,
with the opening of five new restaurants and bars on February 7,
1997, the Rio now offers 13 bars and 13 restaurants located in
the Rio's main floor area, and a bar and restaurant to be located
at the top of the new 41-story tower overlooking the Las Vegas
Strip are expected to open during the second quarter of 1997.
During 1996, before the addition of the five restaurants
contained in the Phase V Expansion, the Rio served an average of
approximately 12,000 meals per day, including banquets and room
service. The following table sets forth, for each restaurant,
the type of service provided and the current seating capacity:
39
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
TYPE ENTREE PRICE RANGE ($) SEATS
<S> <C> <C>
All American Bar & Grille Steaks, ribs, chicken and seafood 12-24 202
Antonio's Italian fine-dining 16-40 100
Beach Cafe 24-hour full menu coffee shop featuring 6-12 318
American and Chinese cuisine
Buzios Seafood and oyster bar 13-30 160
Carnival World Buffet Buffet with live action cooking featuring 9 1,040
Brazilian, Chinese, Italian, Mexican, Japanese,
Western BBQ and traditional buffet
Toscano's Deli & Market Deli items, pizza and pasta, ice cream and 2-12 104
gelato, and a large selection of bakery products
Copacabana Showroom Entertainment showroom and Club Rio nightclub N/A 595
Fiore Rotisserie & Grille Fine-dining featuring rotisserie-grilled seafood, 21-43 186
beef and poultry
Mama Marie's Cucina Family style casual Italian dining 8-14 150
Mask Far Eastern restaurant 11-65 175
Napa Restaurant and The Fine-dining featuring French country cuisine and 24-37 174
Wine Cellar Tasting Room daily wine tastings
Bamboleo Latin restaurant featuring foods from south of 6-20 250
the border
Village Seafood Buffet Fresh seafood buffet 17 332
Voodoo Cafe<F1> New Orleans flavored restaurant featuring N/A 366<F2>
Creole and Cajun cuisine
Total 4,152
<FN>
<F1> Scheduled to open during the second quarter of 1997.
<F2> Includes the Voodoo Cafe Patio featuring outdoor seating for 48.
</FN>
</TABLE>
ENTERTAINMENT AND OTHER ATTRACTIONS. The Masquerade
Village, which opened on February 7, 1997, features MASQUERADE
SHOW IN THE SKY, an interactive entertainment experience
consisting of three complete parades, each with its own themed
music, costumes and live performances. The show, designed to
emulate celebrations of Carnivale in Rio de Janeiro and Venice,
and Mardi Gras in New Orleans, consists of five floats in each of
the three parades and a cast of 36 specialty dancers, musicians,
aerialists and costumed stilt-walkers. The floats are suspended
along a 950-foot track 13 feet over the casino floor.
The Rio's Copacabana Showroom is a unique, circular 595-seat
video, entertainment and restaurant complex which features two 12-
foot by 90-foot video screens, an exhibition cooking area,
multiple tiers of dining room seating and a stage. The Copacabana
Showroom is utilized as an entertainment showroom and a late-
night dance club, Club Rio. The showroom is also used for casino-
hosted events, concerts, viewing of sporting events on the large
video screens, and corporate meetings that capitalize on the
unique audio visual qualities of the room.
40
<PAGE>
The Ipanema Lounge and Mambo's Lounge each offer live
entertainment in separate casino cocktail settings. The Rio also
houses a spa, a hair and beauty salon, and an exercise room, as
well as approximately 13,250 square feet of public meeting and
banquet room facilities.
The Rio's pool/outdoor entertainment area is approximately
108,000 square feet and includes a landscaped sand beach, an 11-
foot waterfall, three swimming pools, a multi-level spa, and two
terrace bars and food service facility. The Company hosts beach
parties, volleyball games, outdoor concerts with name performers
and other special events, including professional sporting events.
EXPANSION STRATEGY
RIO MASTER PLAN. The Rio's conceptual master plan was
originally designed to accommodate multiple expansions without
significantly interrupting normal business operations. This
design included construction of a reinforced foundation for the
hotel tower and an elevator core to support and facilitate
additional room construction. The Company has also assembled
ample acreage to allow future expansions. Starting from its
original 30 acres, the Company acquired 15 additional acres in
1989 and 1991 and has purchased or has acquired an option to
purchase an additional 38 acres as of December 31, 1996.
Management believes that a high quality, well-maintained
property offering innovative entertainment is integral to success
in the highly competitive Las Vegas gaming market. This belief
has driven the Company's master plan development strategy. The
Company has added substantial new facilities at the Rio every
year since 1992.
<TABLE>
<CAPTION>
START
DATE OPENING
<S> <C> <C>
Initial Construction.............................. 12/88 1/90
Casino (10,000 sq. ft.)/Buffet Expansion.......... 7/92 12/92
Phase II Expansion
Buzios Restaurant.............................. 1/93 5/93
Meeting Rooms.................................. 1/93 8/93
437-Suite Tower................................ 1/93 9/93
Eastside Expansion
Two-Story Parking Garage....................... 7/93 10/93
Casino Space (25,000 sq. ft.).................. 7/93 12/93
Copacabana Showroom............................ 7/93 2/94
Fiore Restaurant............................... 7/93 4/94
Expanded Pool Area............................. 7/93 4/94
Phase III Expansion
Three-Story Parking Garage..................... 5/94 8/94
Casino Space (10,000 sq. ft.).................. 5/94 11/94
Buffet Expansion............................... 5/94 11/94
549-Suite Tower................................ 5/94 2/95
Phase IV Expansion
141-Suite Addition............................. 4/95 12/95
Buzios Expansion............................... 4/95 12/95
Meeting Rooms Expansion........................ 4/95 11/95
Health Club and Salon.......................... 4/95 12/95
41
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
START
DATE OPENING
<S> <C> <C>
Phase V Expansion
1,031-Suite Tower.............................. 9/95 6/97<F1>
Casino Space (27,000 sq. ft.).................. 9/95 2/97
Masquerade Village............................. 9/95 2/97
Spa and Salon Expansion........................ 9/95 2/97
Four-Story Parking Garage...................... 9/95 7/96
Expanded Pool Area............................. 9/95 2/97
<FN>
<F1> Approximately 447 of the 1,031 new suites were opened as of
March 1, 1997 with the balance to open through the second
quarter of 1997.
</FN>
</TABLE>
As of September 30, 1996, the Company has invested in excess
of $453.3 million in the development, expansion and renovation of
the Rio. Moreover, as of December 31, 1996, the Company expects
it will incur expenses of approximately $27.6 million to complete
the Phase V Expansion.
ADDITIONAL GAMING OPPORTUNITIES. The Company has acquired
approximately 31 acres of land adjacent to the Rio site and
placed another seven acres under purchase option. This
additional acreage brings the total Rio site to approximately 83
acres. The additional acreage is being held for future
development. The Company may pursue additional opportunities
that management believes to be in the best interests of the
Company.
COMPETITION
The gaming industry includes land-based casinos, dockside
casinos, riverboat casinos, casinos located on Native American
land and other forms of legalized gaming. There is intense
competition among companies in the gaming industry, some of which
have significantly greater resources than the Company.
The Rio faces competition from all other casinos and hotels
in the Las Vegas area, including competitors located on the Las
Vegas Strip, on the Boulder Strip and in downtown Las Vegas.
Such competition includes a number of hotel-casinos targeted
primarily toward local residents, as well as numerous non-hotel
gaming facilities targeted toward local residents. In recent
months, several of the Company's direct competitors have opened
new hotel-casinos or have commenced or completed major expansion
projects, and other expansions are in progress or are planned.
As of December 31, 1996, there were approximately 40 major gaming
properties located on or near the Las Vegas Strip, 14 located in
the downtown area, 4 located on the Boulder Strip and 11
located in other areas in or near Las Vegas. According to the Las
Vegas Convention and Visitors Authority, the Las Vegas hotel-
motel room inventory was 101,106 as of January 3, 1997 and both
construction of new properties and expansion of existing hotel-
casinos is expected to increase inventory to approximately
122,000 rooms by 1998. In the past year three new large-scale
hotel-casinos have opened on or near the Las Vegas Strip. Eight
new hotel-casinos and two hotel-casino expansions are under
construction or have been announced, which will add approximately
19,000 rooms to the Las Vegas area over approximately the next
two years. Five of the new hotel-casinos are major resorts with
a theme and an attraction which are expected to draw significant
numbers of visitors. Major expansions or enhancements of
existing properties or the construction of new properties by
competitors, could have a material adverse effect on the
Company's business.
To a lesser extent, the Rio competes with hotel-casinos
located in the Mesquite, Laughlin and Reno-Lake Tahoe areas of
Nevada and in Atlantic City, New Jersey. The Company also
competes with state-sponsored lotteries, on- and off-track
wagering, card parlors, riverboat and Native American gaming
ventures and other forms of legalized gaming in the United
States, as well as with gaming on cruise ships and international
gaming operations. In addition, many states have recently
legalized, and additional other states are currently considering
legalizing, casino gaming in specific geographic areas within
those states. The Company believes that the growth in the
legalization of gaming is fueled by a combination of increasing
popularity and acceptability of gaming activities and the desire
and need for states and local communities to generate revenues
without increasing general taxation. The Company believes that
the legalization of unlimited land-based casino gaming in or near
any major metropolitan area, such as Chicago or Los Angeles,
could have a material
42
<PAGE>
adverse effect on its current hotel-casino business. The
development of casinos, lotteries and other forms of gaming in
other states, particularly in areas close to Nevada, such as
California, could adversely affect the Company's operations.
As its principal methods of competition, the Company
utilizes what management believes to be its unique all-suite
concept based upon a Carnivale theme, diverse high quality dining
and ample parking, which management believes provide an attractive
alternative to the closest source of the Company's competition,
the Las Vegas Strip, and a fun and comfortable environment
in which to enjoy gaming, dining and entertainment.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in
Nevada are subject to: (i) the Nevada Gaming Control Act and the
regulations promulgated thereunder (collectively, the "Nevada
Act"); and (ii) various local regulations. The Company's gaming
operations are subject to the licensing and regulatory control of
the Nevada Commission, the Nevada State Gaming Control Board (the
"Nevada Board"), and the Clark County Liquor and Gaming Licensing
Board (the "Clark County Board"). The Nevada Commission, the
Nevada Board, and the Clark County Board are collectively
referred to as 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 requiring the filing of
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. Changes in such laws, regulations
and procedures could have an adverse effect on the Company's
gaming operations.
The Company, which operates the casino, is required to be
licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not
transferable. The Company is registered by the Nevada Commission
as a publicly traded corporation ("Registered Corporation") and
as such, it is required periodically to submit detailed financial
and operating reports to the Nevada Commission and furnish any
other information which the Nevada Commission may require. The
Company has obtained from the Nevada Gaming Authorities the
various registrations, approvals, permits and licenses required
in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with,
the Company 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 Company 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 who are actively and directly involved
in gaming activities of the Company 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, the Company
would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company 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.
43
<PAGE>
The Company is required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing
transactions by the Company must be reported to, or approved by,
the Nevada Commission.
If it were determined that the Nevada Act was violated by
the Company, the gaming licenses it holds could be limited,
conditioned, suspended or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, the
Company 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 the Company's
gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the
reasonable rental value of the Company's gaming properties) could
be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a
supervisor could (and revocation of any gaming license would)
materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated, and have such holder's
suitability as a beneficial holder of the Company's voting
securities determined, if the Nevada Commission has reason to
believe that such ownership would 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 more than 5%
of the Company's voting securities to report the acquisition to
the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of the Company's voting securities apply
to the Nevada Commission for a finding of suitability within 30
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 the Company'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 Company, any change in the
Company's corporate charter, bylaws, management, policies or
operations of the Company, or any of its gaming affiliates, or
any other action which the Nevada Commission finds to be
inconsistent with holding the Company'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 of a Registered Corporation beyond such period of
time as may be prescribed by the Nevada Commission may be guilty
of a criminal offense. The Company is 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, 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 for
cash at fair market value.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the
debt security of a Registered Corporation.
44
<PAGE>
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 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 is also
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.
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. On
July 25, 1996, the Nevada Commission granted the Company prior
approval to make public offerings for a period of one year,
subject to certain conditions ("Shelf Approval"). However, the
Shelf Approval may be rescinded for good cause without prior
notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board. Such approval 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 the Company through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby
such person 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 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 operators 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
Company 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 Company'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.
Licensee 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 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 of food or refreshments. Nevada licensees that hold a
license as an operator of a slot route, or a manufacturer's or
distributor's license, also pay certain fees and taxes to the
State of Nevada.
45
<PAGE>
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 of the Nevada Board of their
participation in such foreign gaming. The revolving fund is
subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with
certain reporting requirements imposed by the Nevada Act.
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 that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employ
a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal
unsuitability.
EMPLOYEES
As of December 31, 1996, the Company employed approximately
3,400 employees. None of the Company's employees is covered by
collective bargaining agreements. The Company believes that its
relationship with its employees is good.
PROPERTIES
The Company owns approximately 76 acres, consisting of the
45-acre site in Las Vegas on which the Rio is located and 31
acres of land adjacent to the current Rio site. The Company has
purchase options on an additional seven acres adjacent to the Rio
site. The entire Rio site is subject to a deed of trust securing
the Rio Bank Loan, of which $10 million and $96 million were
outstanding at December 31, 1995 and September 30, 1996,
respectively. The Company also owns the 64-acre Old Vegas Site
on Boulder Highway southeast of Las Vegas. The Old Vegas Site is
being held for sale.
LEGAL PROCEEDINGS
On April 26, 1994 and May 10, 1994, complaints
("Complaints") in purported class action lawsuits were filed in
the United States District Court, Middle District of Florida,
against 41 manufacturers, distributors and casino operators of
video poker and electronic slot machines, including the Company.
The Complaints allege that the defendants have engaged in a
course of conduct intended to induce persons to play such games
based on a false belief concerning how the gaming machines
operate, as well as the extent to which there is an opportunity
to win on a given play. The Complaints allege violations of the
Racketeer Influenced and Corrupt Organizations Act (the "RICO
Act"), as well as claims of common law fraud, unjust enrichment
and negligent misrepresentation, and seek damages in excess of $1
billion without any substantiation of that amount. The Company
filed motions to dismiss the Complaints. The Nevada District
Court dismissed the Complaints, granting leave to plaintiffs to
refile, and denying as moot all other pending motions, including
those of the Company. The plaintiffs filed an amended complaint
on or about May 31, 1996. The Company renewed its motions to
dismiss based on abstraction and related doctrines, and joined in
the motions to dismiss filed by other defendants, which were
based on defects in the pleadings. The Nevada District Court
consolidated the actions (and one other in which the Company is
not a named defendant), ordered plaintiffs to file a consolidated
amended complaint on or before February 14, 1997, and ordered all
defense motions, including those of the Company, withdrawn
without prejudice. The parties have established a steering
committee to address motion practice, scheduling and discovery
matters. Management believes that the substantive allegations in
the Complaint are without merit and that the consolidated amended
complaint will be subject to the same defects addressed in
earlier motions, and intends vigorously to defend the
allegations. The Complaints were consolidated and transferred to
the United States District Court for the District of Nevada.
Management believes that the Complaints are without merit and
intends vigorously to defend the allegations.
On September 26, 1995, a complaint in a purported class
action lawsuit was filed in the United States District Court for
the District of Nevada, Southern District against four
manufacturers, three distributors and 38 casino operators,
including the Company, that manufacture, distribute or offer for
play video poker and electronic slot machines. The plaintiff
allegedly intends to seek class certification of the interests he
claims to represent. The complaint alleges that the
46
<PAGE>
defendants have engaged in a course of conduct intended to
induce persons to play such games based on a false belief
concerning how the gaming machines operate, as well as the extent
to which there is an opportunity to win on a given play. The
complaint alleges violations of the RICO Act, as well as claims
of common law fraud, unjust enrichment and negligent
misrepresentation, and seeks damages in excess of $1 billion
without any substantiation of that amount. The complaint is
similar to the Complaints. The Company filed a motion to dismiss
the complaint. The plaintiff's attempts to consolidate this
action with the Complaints were not successful. The court
entered an order granting the motions to dismiss based upon
defects in the pleadings, and denying as moot all other pending
motions, including those of the Company. The court granted the
plaintiff until September 30, 1996 within which to file an
amended complaint that complies with the applicable pleading
requirements. The plaintiff filed an amended complaint on or
about September 30, 1996. The Company renewed its motion to
dismiss based upon abstention and related doctrines, and based
upon defects in the pleadings. Management believes that the
complaint is without merit and intends vigorously to defend the
allegations.
On May 5, 1995, a purported class action lawsuit was filed
in the United States District Court for the District of New
Jersey (Camden Division). The Company, together with 76 other
casino operators and others, is named as a defendant in the
action. The action, purportedly brought on behalf of "card
counters," alleges that the casino operators exclude "card
counters" from play and share information about "card counters."
The action is based on alleged violations of federal antitrust
law, the Fair Credit Reporting Act, and various state consumer
protection laws. The amount of damages sought by the plaintiffs
in the action is unspecified. The Company has made a motion to
dismiss the complaint. The court has not yet ruled on the
motion. Management believes that the complaint is without merit
and the Company intends vigorously to defend the allegations.
On March 27, 1996, a complaint in a purported class action
lawsuit was filed in the Superior Court of California, County of
San Diego, against numerous gaming entities, including the
Company. The complaint, almost identical in nature to the other
class action suits filed against the gaming industry, alleges
that the defendants have engaged in a course of conduct intended
to induce persons to play gaming devices based on a false belief
concerning how the gaming machines operate, as well as the extent
to which there is an opportunity to win on a given play. The
Company joined in an attempt to remove the case to federal court
which was not successful. The Company filed a motion to dismiss
the complaint for lack of personal jurisdiction. The motion is
pending. As with the other class action lawsuits, Management
believes that the complaint is without merit and the Company
intends vigorously to defend the allegations.
On December 27, 1996, a purported stockholder derivative
action was filed in the United States District Court for the
District of Nevada, against the Company as a nominal defendant,
five of the Company's directors, Marnell Corrao and Marnell
Chartered. The complaint alleges that pursuant to construction
contracts and architectural contracts with Marnell Corrao and
Marnell Chartered, respectively, the Company paid unfair amounts
in exchange for the services provided. The complaint alleges
breach of fiduciary duty by each of the director defendants and
seeks rescission of the contracts, damages to compensate the
Company to the extent that contract amounts are unfair to the
Company, and injunctive relief prohibiting the Company from
entering into similar contracts with Mr. Marnell or entities
which he controls. A motion to dismiss the complaint was filed
on January 27, 1997. The court has not yet ruled on this motion.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and certain key management
personnel of the Company and Rio Properties and their ages as of
March 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Anthony A. Marnell II <F1> 47 Chairman of the Board and Chief Executive
Officer of the Company and Rio Properties
James A. Barrett, Jr. <F1> 45 President and Director of the Company
and Director of Rio Properties
John A. Stuart 46 Director of the Company and Rio Properties
Thomas Y. Hartley <F2><F3><F4> 63 Director of the Company and Rio Properties
Peter M. Thomas <F2><F3><F4> 47 Director of the Company and Rio Properties
David P. Hanlon 52 Executive Vice President, Chief Operating
Officer and Director of the Company, and
President, Chief Operating Officer and
Director of Rio Properties
Ronald J. Radcliffe 53 Vice President, Treasurer and Chief Financial
Officer of the Company and Rio Properties
I. Scott Bogatz 33 Vice President, Secretary and General Counsel of
the Company and Rio Properties
John M. Lipkowitz 36 Senior Vice President and General Manager of
Rio Properties
Cary A. Rehm 44 Vice President of Development of Rio Properties
Thomas A. Roberts 35 Vice President of Retail of Rio Properties
<FN>
<F1> Member of the Directors' Plan Committee of the Board of Directors.
<F2> Member of the Audit Committee of the Board of Directors.
<F3> Member of the Compensation Committee of the Board of Directors.
<F4> Member of the Incentive Plan Committee of the Board of Directors.
</FN>
</TABLE>
ANTHONY A. MARNELL II has been Chairman of the Board of the
Company and its subsidiaries since 1986, and Chief Executive
Officer since 1990. Since 1982, he has been controlling
stockholder of Austi International, Inc. ("Austi") and of Austi's
wholly owned subsidiary, Marnell Corrao Associates, a leading
hotel-casino general contractor, and President and controlling
stockholder of Marnell Chartered, an architectural firm, each of
which is based in Las Vegas, Nevada. Mr. Marnell is a licensed
architect.
JAMES A. BARRETT, JR. is President of the Company and a
director of the Company and each of its subsidiaries.
Mr. Barrett has been President of the Company since July 1986.
From October 1990 to October 1996, Mr. Barrett was
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<PAGE>
Chief Operating Officer of the Company. Since August 1989,
Mr. Barrett has been a director of Austi and Marnell Corrao.
Mr. Barrett has been a certified public accountant since 1975.
JOHN A. STUART has been a member of the Board of Directors
of the Company since 1989. Since February 1991, he has been
President of John Stuart & Company, Inc., a firm specializing in
employee benefits, consulting and insurance brokerage. Prior
thereto, he was the President of Insurance Services Corporation
of Nevada, Inc., a full service insurance brokerage firm also
located in Las Vegas.
THOMAS Y. HARTLEY has been a member of the Board of
Directors since 1990. Since April 1991, Mr. Hartley has served
as President and Chief Operating Officer of Colbert Golf Design
and Development, a Las Vegas-based golf course design and
development company. From September 1988 to April 1991,
Mr. Hartley served as President and Chief Operating Officer of
Jim Colbert Golf, Inc., a Las Vegas-based golf course development
and management company. Prior to 1988, Mr. Hartley was area
managing partner for the Las Vegas, Phoenix, Tucson, and Reno
offices of Deloitte, Haskins & Sells, now known as Deloitte &
Touche, an international certified public accounting firm.
Mr. Hartley has been a member of the Boards of Directors of
Southwest Gas Corporation, Las Vegas, Nevada, since March 1991;
Sierra Health Services, Inc., Las Vegas, Nevada, since June 1992;
and of AmeriTrade Holding Corporation, Omaha, Nebraska, since
November 1996.
PETER M. THOMAS has been a member of the Board of Directors
of the Company since 1995. Mr. Thomas served as President and
Chief Operating Officer of Bank of America, Nevada from March
1992 until May 1995. Since May 1995, Mr. Thomas has been
Managing Director of the Thomas and Mack Company, a family owned
commercial real estate management and development company. From
1982 to 1992, Mr. Thomas was President, Chief Operating Officer
and a Director of Valley Bank of Nevada, prior to its acquisition
by BankAmerica Corporation in 1992. Mr. Thomas has been a
director of Vegan Development Corporation, a subsidiary of Loews
Corporation, since September 1995. Mr. Thomas received his law
degree in 1975 and is currently a member of the Nevada, Utah and
District of Columbia Bar Associations.
DAVID P. HANLON has been Executive Vice President, Chief
Operating Officer and a director of the Company, and President,
Chief Operating Officer and a director of Rio Properties, since
October 1996. From December 1994 until February 1996, Mr. Hanlon
was President, Chief Executive Officer and a director of
International Game Technology, Reno, Nevada. From October 1993
until December 1994, Mr. Hanlon was a consultant to Hospitality
Franchise Systems, Inc., Parsipany, New Jersey. From November
1988 until October 1993, Mr. Hanlon was President and Chief
Executive Officer of Resorts International, Inc., Atlantic City,
New Jersey.
RONALD J. RADCLIFFE has been Vice President, Treasurer and
Chief Financial Officer of the Company and Rio Properties since
May 1996. From August 1995 to May 1996, Mr. Radcliffe was self
employed as an independent accounting consultant. Mr. Radcliffe
served as Vice President, Treasurer and Chief Financial Officer
of Mikohn Gaming Corporation from October 1993 to August 1995.
Mr. Radcliffe served as Executive Vice President, Chief Financial
Officer, Secretary/Treasurer and member of the Board of Directors
of several predecessor companies to Sahara Gaming Corporation
from 1977 to September 1993. He is a certified public accountant
licensed in Nevada and California.
I. SCOTT BOGATZ has been Vice President, Secretary and
General Counsel of the Company since August 1996. From August
1990 until August 1996, Mr. Bogatz was initially an associate
attorney and later a shareholder with the law firm of Hale, Lane,
Peek, Dennison, Howard, Anderson & Pearl, Las Vegas, Nevada.
Mr. Bogatz has been licensed as an attorney by the Nevada State
Bar since September 1988.
JOHN M. LIPKOWITZ has been Senior Vice President and General
Manager of Rio Properties since August 1995. Mr. Lipkowitz was
Vice President of Strategic Marketing of Rio Properties from
December 1994 until August 1995. Mr. Lipkowitz joined Rio
Properties in 1990 and has served in a variety of other positions
including Vice President of Food and Beverage, Director of Food
and Beverage, and Executive Chef. Mr. Lipkowitz held food
management positions at Harrah's and John Ascuaga's Nugget in
Reno from 1983-1990.
CARY A. REHM has been Vice President of Development of Rio
Properties since October 1993. Prior to that, Mr. Rehm held the
position of Vice President of Slot Development, Director of Slot
Operations, Slot Manager and Assistant Slot Manager from 1989 to
1993. Prior to joining Rio Properties, Mr. Rehm held positions
of progressively
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<PAGE>
greater responsibility in slot management at the Castaways and
Silver Slipper Casinos, including Assistant Slot Manager and
Assistant Lead Slot Technician.
THOMAS A. ROBERTS has been Vice President of Retail of Rio
Properties since January 1996. From July 1987 until January
1996, Mr. Roberts held various positions with the Simon Property
Group, including, from January 1992 to January 1996, General
Manager of the Forum Shops at Caesars, Las Vegas, Nevada.
The Board of Directors has four standing committees: the
Audit Committee, the Compensation Committee, the Directors' Plan
Committee and the Incentive Plan Committee, formerly known as the
NSOP Committee.
The Audit Committee's functions are: to review reports of
certified public accountants to the Company; to review Company
financial practices, internal controls and policies with officers
and key employees; to review such matters with the Company's
auditors to determine scope of compliance with any deficiencies;
to consider selection of independent public accountants; to
review related party transactions; and to make periodic reports
on such matters to the Board of Directors. The Compensation
Committee's function is to review and make recommendations to the
Board of Directors with respect to the salaries and bonuses of
the Company's executive officers. The Directors' Plan Committee
administers the Company's 1991 Directors' Stock Option Plan. The
Incentive Plan Committee's function is to administer the
Company's 1995 Long-Term Incentive Plan ("Incentive Plan") and
the Non-Statutory Stock Option Plan ("NSOP"), including
determining such matters as the persons to whom awards shall be
granted, the number of shares to be awarded, when the awards
shall be granted, when the awards shall vest, and the terms and
provisions of the instruments evidencing the awards under both
plans. The Incentive Plan Committee reports to the Company's
Board of Directors regarding all decisions concerning awards
granted to Incentive Plan and NSOP participants.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL. Anthony A. Marnell II, Chairman of the Board,
Chief Executive Officer, and largest stockholder of the Company,
is the controlling stockholder and Chief Executive Officer of
Marnell Chartered, Austi and Marnell Corrao, and Mr. Marnell
holds a majority ownership interest in MarCor Limited Partnership
("MCLP"), a limited partnership engaged in real estate
development. A family corporation controlled by James A.
Barrett, Jr., President and a director of the Company, is the
general partner of MCLP, and Mr. Barrett is a director of Austi
and Marnell Corrao.
CONSULTING, CONSTRUCTION, AND ARCHITECTURAL SERVICES TO AND
BY AFFILIATES. Marnell Chartered, Austi and Marnell Corrao have
provided design and construction services for various Rio
expansion projects. The construction contract for the third Rio
tower, completed in March 1995, was for an amount not to exceed
$60,511,775; the contract for an addition to the second Rio
tower, completed in December 1995, was for an amount not to
exceed $18,117,258; and the contract for the fourth Rio tower,
scheduled to be completed in the second quarter of 1997, was for
an amount not to exceed $180,609,117. In the nine months ended
September 30, 1996 and the year ended December 31, 1996, the
Company paid a total of $94.1 million and $143.1 million,
respectively, in connection with these and other construction
contracts. Design contracts for these same projects were in
amounts not to exceed $2,496,836, $731,000, and $7,051,558,
respectively. In the nine months ended September 30, 1996 and
year ended December 31, 1996, the Company paid a total of $3.2
million and $4.4 million, respectively, in connection with these
and other design projects.
The original 1989 Rio construction loan ("Original Loan")
required that the Company, Austi, Marnell Corrao, MarCor
Partnership, Anthony A. Marnell II and his personal family trust,
James A. Barrett, Jr. and Maureen M. Barrett and their family
trust (collectively, the "Loan Guarantors") enter into certain
guarantees ("Guarantees") of payment of all obligations under the
Original Loan. In February 1989, in consideration of the
Guarantees, the Company agreed to pay the Loan Guarantors
(excluding Marnell Corrao) $250,000 per year, commencing with the
fiscal year ending December 31, 1990 and continuing through the
fiscal year ending December 31, 1994, for each year in which the
Company's share of net earnings before taxes from the Rio equals
or exceeds $900,000. The agreement provided for up to a two-year
extension if the Loan Guarantors did not receive the full
$1,250,000 by December 31, 1994. No amounts were paid thereunder
for the years ended December 31, 1990 and 1991, and the Loan
Guarantors received payments of $250,000 in December 1992,
December 1993, December 1994, December 1995, and December 1996,
respectively. The payment in December 1996 was the final payment
due to the Loan Guarantors and the Company has no further payment
obligations to the Loan Guarantors under the Guarantee.
SERVICES PROVIDED BY RELATED PARTIES. Entities in which
John A. Stuart, a director of the Company, is a principal
stockholder and executive officer earned commissions totaling
$78,884 and $121,737, respectively, for the nine months ended
September 30, 1996 and the year ended December 31, 1996, arising
out of the acquisition and administration of various insurance
coverages by the Company. The Company reimbursed Marnell Corrao
for certain travel and other expenses advanced on behalf of or
supplied to the Company during the nine months ended
September 30, 1996 and the year ended December 31, 1996 of
approximately $53,500 for both periods. The Company made an
unsecured loan to David P. Hanlon, Executive Vice President,
Chief Operating Officer and a director of the Company, and
President, Chief Operating Officer and a director of Rio
Properties, in the principal amount of $500,000 for purposes of
acquiring a residence. The loan bore interest at the rate of
9.7% per annum and was repaid in full on December 18, 1996.
CERTAIN REAL ESTATE TRANSACTIONS WITH MARNELL CORRAO. On
December 30, 1991, the Company sold to Marnell Corrao certain non-
Rio real estate assets. Marnell Corrao granted a right of first
refusal to the Company to operate gaming on the Old Vegas Site
for the lesser of the purchaser's ownership or 120 months.
Marnell Corrao also agreed for a period up to 120 months to
return 100% of sale proceeds from any subsequent sale of the Old
Vegas Site in excess of $7,000,000, less Marnell Corrao's defined
holding costs. Marnell Corrao agreed (the "Marnell Corrao
Participation Agreement") for a period of up to 48 months to
return, on a declining basis, sale proceeds less defined holding
costs on certain of the other assets sold which included the
general partnership interest in MarCor Green Valley Partnership
(as defined on page 52) and the Warehouse Site (as defined on
page 52). In order to preserve the ability to develop a casino
on the Old Vegas Site without the requirement of building a hotel,
as required by certain Nevada legislation, Marnell Corrao advised
the Company in June
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<PAGE>
1992 that Marnell Corrao intended to proceed with development of
the Old Vegas Site. Marnell Corrao requested that the Company
determine whether it would exercise its right of first refusal.
At the time, the Board of Directors determined that the Company
did not want to divert its efforts and resources away from the
Rio. Therefore, the Company assigned the right of first refusal
to Messrs. Barrett and Marnell with a reserved right to assume
the assigned interest for reimbursement of expenses incurred in
filing the gaming applications and otherwise in connection with
this project, plus interest equal to two percent above the prime
rate of First Interstate Bank of Nevada, N.A. Messrs. Barrett and
Marnell were directed to enter into an agreement with Marnell
Corrao and thereafter filed gaming applications with the Nevada
Gaming Authorities.
In April 1994, Marnell Corrao, through a limited partnership
("MarCor Green Valley Partnership"), sold a parcel of unimproved
real property ("Green Valley Site") located in Henderson, Nevada.
Pursuant to the Marnell Corrao Participation Agreement, the sale
of the Green Valley Site resulted in a $966,510 profit
participation, net of expenses, paid to the Company. Various
issues involving the events prior to and during the sale of the
Green Valley Site are the subject of a pending lawsuit between
MarCor Green Valley Partnership, Marnell Corrao, the Company and
the limited partners of MarCor Green Valley Limited Partnership.
A favorable outcome in that litigation may produce additional
profit participation to the Company pursuant to the Marnell
Corrao Participation Agreement. Since the Company and one of its
subsidiaries, as well as Messrs. Marnell and Barrett, are named
as parties to the lawsuit, an adverse ruling could produce a
damage cost to the Company. However, the agreements under which
the Company sold the Green Valley Site to Marnell Corrao contain
certain indemnities in favor of a subsidiary of the Company,
which may reduce or eliminate such potential cost.
In March 1995, the Company repurchased from Marnell Corrao
improved real property adjacent to the Rio (the "Warehouse
Site"). The $3,203,191 purchase price was based upon an
independent appraisal valuation, less credit for net rental
proceeds during the term of the escrow, and profit participation
pursuant to the Marnell Corrao Participation Agreement of
$496,809. The Company retained Marnell Corrao to provide real
estate brokerage and administration services in connection with
the acquisition of properties adjacent to the Rio, 31 acres of
which have been purchased as of December 31, 1996 with an
additional seven acres subject to purchase options. Fees paid to
Marnell Corrao, including reimbursement of expenses and real
estate brokerage commissions, were $999,910 in the year ended
December 31, 1996. Expenses were reimbursed at cost and
management believes the brokerage commissions were below those
charged by independent realty firms.
In May 1995, the Company repurchased from Marnell Corrao
approximately one-half of the 125-acre Old Vegas Site for
$5,321,925. The purchase price equaled Marnell Corrao's costs
plus defined holding costs and was significantly below the
independent appraisal valuation. The Company retained a right of
first refusal to purchase the other half of the Old Vegas Site
from Marnell Corrao and amended the Marnell Corrao Participation
Agreement to provide for a 50% participation in the event of a
subsequent sale by Marnell Corrao of the remaining half of the
site.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 78.751
of Chapter 78 of the Nevada Revised Statutes, Article XII of the
Company's Articles of Incorporation and Article XIII of the
Company's Bylaws contain provisions for indemnification of
officers, directors, employees and agents of the Company. The
Articles of Incorporation provision requires the Company to
indemnify such persons to the full extent permitted by Nevada
Law. Each person will be indemnified in any proceeding if he
acted in good faith and in a manner which he reasonably believed
to be in, or not opposed to, the best interest of the Company.
Indemnification would cover expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement.
The Company's Articles of Incorporation also provide that
the Company's Board of Directors may cause the Company to
purchase and maintain insurance on behalf of any present or past
director or officer insuring against any liability asserted
against such person incurred in the capacity of director or
officer or arising out of such status, whether or not the
corporation would have the power to indemnify such person. The
Company presently has directors' and officers' liability
insurance in effect.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the
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<PAGE>
opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act and is therefore
unenforceable.
TRANSACTION REVIEW. The Company believes that the
transactions described above are on terms at least as favorable
as would have been obtainable from non-related parties. The
Company requires that the Audit Committee of the Board of
Directors review related party transactions.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of March 1,
1997 (i) by each person (or a group of affiliated persons) who is
known by the Company to own beneficially more than five percent
of the Company's Common Stock, (ii) by the executive officers
named in the Summary Compensation Table contained in the
Company's Proxy Statement prepared in connection with the 1996
Annual Meeting of the Company's stockholders and (iii) by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares of Common Stock Percent
Name and Address of Beneficial Owner Beneficially Owned <F1><F2> Of Class<F2>
<S> <C> <C>
Anthony A. Marnell II.......................... 5,071,618 <F3> 23.5%
4495 S. Polaris Avenue
Las Vegas, Nevada 89103
James A. Barrett, Jr........................... 1,994,833 <F4> 9.3%
4495 S. Polaris Avenue
Las Vegas, Nevada 89103
Lud J. Corrao.................................. 1,287,728 <F5> 6.1%
P.O. Box 12907
Reno, Nevada 89510
Dean P. Petersen............................... 1,091,410 <F6> 5.1%
2900 Las Vegas Blvd. South
Las Vegas, Nevada 89109
The Capital Group Companies, Inc............... 1,582,700 <F7> 7.5%
333 South Hope Street
Los Angeles, California 90071
All Executive Officers and Directors as a group 5,429,206<F8> 24.8%
(8 persons)....................................
<FN>
* Less than one percent.
<F1> Unless otherwise noted, the persons identified in this table have sole voting and
sole investment power with regard to the shares beneficially owned by them.
<F2> Includes shares issuable upon exercise of options which are exercisable within 60
days of the stated date.
<F3> Includes options to purchase 424,000 shares issuable to Mr. Marnell under the
NSOP, which are not listed below. Mr. Marnell beneficially owns the following
shares which are held of record by the following entities:
Anthony A. Marnell II, IRA....................................................... 15,500
A.A. Marnell II Family Revocable Living Trust (the "Marnell Trust") (a).......... 5,500
Certain trusts established for the benefit of Mr. Marnell's family
(the "Family Trusts") (a)....................................................... 820,448
Marnell Corrao (b)............................................................... 82,567
Austi (c)........................................................................ 1,893,051
MarCor Limited Partnership ("MCLP") (d).......................................... 1,828,245
Shares held by Mr. Marnell's spouse and children................................. 2,307
Total Shares......................................................... 4,647,618
(a) Mr. Marnell holds sole voting and investment power over the shares held by
the Marnell Trust and the Family Trusts.
(b) Mr. Marnell owns 70% of Marnell Corrao through the Family Trusts.
(c) Mr. Marnell owns 100% of Austi through the Marnell Trust.
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<PAGE>
(d) Mr. Marnell owns 84.56% of MCLP, a limited partnership. James A. Barrett,
Jr. controls the remaining 15.44% of MCLP including, through a family
corporation, the 4.25% general partner interest.
<F4> Includes options to purchase 145,000 shares issuable to Mr. Barrett under the
NSOP. Of the shares currently held by Mr. Barrett, 2,000 shares are held in his
individual retirement account; 6,538 shares are held in certain of his spouse's
and children's accounts; 13,000 shares are held by the Barrett Family Revocable
Living Trust through a family corporation and 50 shares are held directly by
the trust; and 1,828,245 shares are held by MCLP. Mr. Barrett's ownership in
MCLP is 15.44%; however, all of the shares of the Company's Common Stock held by
MCLP are being reported herein as beneficially owned by Mr. Barrett as a result
of his family corporation's position as sole general partner of MCLP. Control
of MCLP remains with Mr. Marnell as a result of his ability to remove the general
partner. Not included are 3,000 shares held in certain trusts for which Mr.
Barrett is sole trustee.
<F5> Of the shares currently held by Mr. Corrao, 25,000 are held directly and 1,262,728
are held through the Lud Corrao Family Trust.
<F6> Mr. Petersen's shares are held of record by The Dean and Mary Petersen Living
Trust of 1975.
<F7> The Capital Group Companies, Inc. reported on Schedule 13G, dated February 12,
1997, that it had sole dispositive voting power with respect to 1,382,700
shares, through an operating subsidiary, Capital Research and Management Company.
Sole voting power with respect to the same 1,382,700 shares is held by SMALLCAP
World Fund, Inc. which is advised by Capital Research and Management Company.
<F8> Includes options to purchase 569,400 shares under the NSOP, options to purchase
100,000 shares under the Company's 1995 Long-Term Incentive Plan ("Incentive
Plan"), and options to purchase 71,000 shares under the Directors' Plan.
</FN>
</TABLE>
54
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
RIO BANK LOAN
As amended, the Company has a $200 million secured reducing
revolving credit facility (the "Rio Bank Loan") with a syndicate
of banks led by Bank of America National Trust and Savings
Association ("Bank of America NT&SA"). Proceeds from the Rio
Bank Loan may be used for general corporate purposes. The Rio
Bank Loan is secured by a first deed of trust on all real
property owned by Rio Properties, a security interest in
substantially all of Rio Properties' other real and personal
property, and a guaranty by the Company including a pledge of the
capital stock of Rio Properties. The Rio Bank Loan provides that
the Company will be permitted to accumulate and hold up to $35
million in assets which are not to be pledged for the benefit of
the Rio Bank Loan lenders.
The Rio Bank Loan matures on June 30, 2001 and bears
interest based upon a "LIBOR Spread" of 1% to 3%, or a "Base Rate
Spread" of 0% to 2% based upon a schedule determined with
reference to the "Funded Debt to EBITDA Ratio" of Rio Properties.
The "LIBOR Spread" is the amount in excess of the applicable
LIBOR rate which is the London Interbank Offer rate established
in the London interbank market. The "Base Rate Spread" is the
amount in excess of the applicable base rate, which is the rate
per annum equal to the higher of the reference rate as it is
publicly announced from time to time by Bank of America NT&SA or
0.50% per annum above the latest Federal Funds rate. The Rio
Bank Loan also provides for an unused facility fee ranging from
31.25 basis points to 50.00 basis points depending upon the same
Funded Debt to EBITDA ratio schedule utilized for the interest
rate. The Rio Bank Loan requires monthly payments of interest
and requires scheduled reductions of the maximum amount available
under the Rio Bank Loan commencing with a $10.0 million reduction
at December 31, 1997, a $7.5 million reduction at the end of each
quarter during 1998, a $10.0 million reduction at the end of each
quarter during 1999, a $12.5 million reduction at the end of each
quarter during 2000 and a $35.0 million reduction at March 31,
2001 and maturity at June 30, 2001.
The Rio Bank Loan contains certain customary financial
covenants to which the Company is subject. Those covenants
include a requirement that Rio Properties not exceed ratios of
total Indebtedness (as defined in the Rio Bank Loan) to EBITDA
(as defined in the Rio Bank Loan) ranging from 4.25 to 1 at
December 31, 1996, increasing to 4.75 to 1 for the six month
period ending June 30, 1997 and decreasing to 3.0 to 1 at
September 30, 1998 and thereafter. Rio Properties must not
exceed ratios of Senior Indebtedness (as defined in the Rio Bank
Loan) to EBITDA (as defined in the Rio Bank Loan) from 2.25 to 1
through December 31, 1996 up to 3.5 to 1 for the six months ended
June 30, 1997 and reducing to 1.75 to 1 at September 30, 1998 and
thereafter. Rio Properties must maintain Interest Coverage
Ratios (as defined in the Rio Bank Loan) which are not less than
2.0 to 1 through the fiscal quarter ending December 31, 1996,
reducing to 1.5 to 1 for the fiscal quarter ending March 31, 1997
and increasing to 3.0 to 1 for the fiscal quarter ending
December 31, 1998 and thereafter. Minimum Consolidated Tangible
Net Worth (as defined in the Rio Bank Loan) requirements of $125
million, plus 75% of accumulated net income after December 31,
1994 (not reduced by any consolidated net losses) plus 100% of
the net proceeds of any equity offering by Rio Properties or the
Company must be maintained.
Under the Rio Bank Loan, the Company is subject to annual
capital expenditure limits of $7.5 million plus the amount
available of unused capital expenditures from the prior fiscal
year, but not to exceed $12.5 million in a calendar year. A
specific carve-out of $200 million for the Phase V Expansion and
$35 million for the identified adjacent Rio land acquisition is
incorporated in the Rio Bank Loan. The Rio Bank Loan also
provides for a basket of $10 million for the repurchase of equity
shares of the Company through open market purchases from June 17,
1996 through the maturity date of the Rio Bank Loan. Because of
the annual restrictions on capital expenditures contained in the
Rio Bank Loan, any other significant new capital improvements
will also require the consent of the lenders.
10 5/8% NOTES
On July 18, 1995, the Company sold the 10 5/8% Notes, the
net proceeds of which (approximately $96.7 million) were applied
to the Phase V Expansion. The 10 5/8% Notes were issued under an
indenture (the "10 5/8% Notes Indenture") dated July 21, 1995
among the Company, Rio Properties and IBJ Schroder Bank & Trust
Company, as trustee. The following summary of certain provisions
of the 10 5/8% Notes Indenture does not purport to be complete
and
55
<PAGE>
is subject to the provisions of the 10 5/8% Notes Indenture and
the 10 5/8% Notes. Capitalized terms not otherwise defined have
the same meanings assigned to them in the 10 5/8% Notes
Indenture.
The 10 5/8 % Notes mature on July 15, 2005. Interest payment
dates under the 10 5/8% Notes are January 15 and July 15,
commencing January 15, 1996. The 10 5/8% Notes are fully and
unconditionally guaranteed (the "Outstanding Rio Guarantee") on a
senior subordinated basis by Rio Properties. The 10 5/8% Notes
are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the 10 5/8% Notes Indenture)
of the Company and are structurally subordinated to all existing
and future indebtedness and other liabilities (including trade
payables) of the Company's subsidiaries. The Outstanding Rio
Guarantee is subordinated in right of payment to all existing and
future Senior Indebtedness (as defined in the 105/8 % Notes
Indenture) of Rio Properties and is structurally subordinated to
all existing and future indebtedness and other liabilities
(including trade payables) of Rio Properties' subsidiaries.
The 10 5/8% Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or after July 15,
2000, at the redemption prices set forth in the 10 5/8% Notes
Indenture, plus accrued and unpaid interest, if any, through the
redemption date. The 10 5/8% Notes will be redeemed from any
holder or beneficial owner of the 10 5/8% Notes which is required
to be found suitable and is not found suitable by the Nevada
Gaming Commission.
Upon a Change of Control of the Company (as defined in the
10 5/8% Notes Indenture), each holder of 10 5/8% Notes will have
the right to require the Company to repurchase all or part of
such holder's 10 5/8% Notes at a price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. The Company's
obligation to repurchase the 10 5/8% Notes is guaranteed on a
senior subordinated basis by Rio Properties. The 10 5/8% Notes
Indenture contains certain covenants that, among other things,
limit the ability of the Company and its Restricted Subsidiaries
(as defined in the 10 5/8% Notes Indenture) to incur additional
indebtedness, pay dividends or make other distributions, make
investments, repurchase subordinated obligations or capital
stock, create certain liens (except, among others, liens
securing Senior Indebtedness), enter into certain transactions
with affiliates, sell assets of the Company or its subsidiaries,
issue or sell subsidiary stock, create or permit to exist
restrictions on distributions from subsidiaries, or enter into
certain mergers and consolidations.
56
<PAGE>
DESCRIPTION OF NEW NOTES
The New Notes will be issued under an indenture to be dated
as of February 11, 1997 (the "Indenture"), among Rio Hotel &
Casino, Inc. (the "Company"), Rio Properties, Inc. (the
"Guarantor") and IBJ Schroder Bank & Trust Company, as trustee
(the "Trustee"). Except as otherwise indicated below, the
following summary applies to both the Old Notes and the New
Notes. As used herein, the term "Notes" shall mean the Old Notes
and the New Notes unless otherwise stated.
The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 as in effect on the date of the Indenture
(the "Trust Indenture Act"). The Notes are subject to all such
terms, and holders of Notes ("Holders" or "Noteholders") are
referred to the Indenture and the Trust Indenture Act for a
statement of those terms.
The form and terms of the New Notes are substantially
identical to the form and terms of the Old Notes, except that
(i) the New Notes will be registered under the Securities Act of
1933, as amended, and, therefore, will not bear legends
restricting the transfer thereof, (ii) Holders of the New Notes
will not be entitled to Special Interest, which terminates upon
consummation of the Exchange Offer, and (iii) Holders of New
Notes will not be entitled to certain rights under the
Registration Agreement intended for the holders of unregistered
securities. The New Notes will be issued solely in exchange for
an equal principal amount of Old Notes. As of the date hereof,
$100 million aggregate principal amount of Old Notes is
outstanding. See "The Exchange Offer."
The following summary of certain provisions of the Indenture
does not purport to be complete and is subject to the provisions
of the Indenture and the Notes, including the definitions therein
of certain terms used below. The Company, however, believes the
following summarizes all material provisions of the Indenture. A
copy of the Indenture has been filed with the Commission as an
exhibit to the Company's Report on Form 8-K dated February 4,
1997. Capitalized terms used in this section and not otherwise
defined below have the respective meanings assigned to them in
the Indenture.
GENERAL
The Notes are general unsecured obligations of the Company
and will be limited to $125 million aggregate principal amount.
The Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples
thereof.
The payment of principal and interest on the Notes is
unconditionally guaranteed on a senior subordinated and unsecured
basis by the Guarantor (the "Rio Guarantee").
PAYMENT TERMS
The Notes will mature on April 15, 2007 and will bear
interest at a rate of 9 1/2% per annum until maturity, payable
semiannually on April 15 and October 15 of each year, commencing
April 15, 1997, to the persons who are registered Noteholders
thereof at the close of business on April 1 or October 1
immediately preceding such interest payment date.
The Indenture provides that interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
Initially, the Trustee will act as Paying Agent and Registrar.
Principal and interest will be payable initially at the offices
of the Trustee but, at the option of the Company, interest may be
paid by check mailed to the persons who are registered
Noteholders at their registered addresses. The Notes may be
presented for registration of transfer and exchange at the
offices of the Registrar, which initially will be the offices of
the Trustee. The Company or any domestically incorporated Wholly
Owned Subsidiary may act as Paying Agent and Registrar, and the
Company may change the Paying Agent or Registrar without prior
notice to Noteholders.
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SUBORDINATION OF NOTES
The Notes are subordinated in right of payment, as set forth
in the Indenture, to the prior payment in full, in cash or cash
equivalents, of all existing and future Senior Indebtedness of
the Company. The Notes shall in all respects rank PARI PASSU
with all other Senior Subordinated Indebtedness of the Company,
including the 10 5/8% Notes, and only Indebtedness of the Company
which is Senior Indebtedness shall rank senior to the Notes.
Except with respect to limitations on consolidated Indebtedness
that the Company may incur, the Indenture does not limit the
ability of the Company to incur additional Senior Indebtedness or
restrict the ability of the Company to transfer assets to and
among its Restricted Subsidiaries. As described below, in the
event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to make
payments on the Notes only after all Senior Indebtedness has been
paid in full, and there may not be sufficient assets remaining to
pay amounts due on the Notes. Substantially all of the Senior
Indebtedness of the Company (currently consisting of the
Company's Guarantee of the Rio Bank Loan) is secured by
substantially all the assets of the Company. In the event of any
payment or distribution of the assets of the Company in any
foreclosure, dissolution, winding up, liquidation or
reorganization, holders of the secured indebtedness will have a
secured prior claim to the assets of the Company and its
Subsidiaries. The Company has outstanding no Senior Indebtedness
other than its Guarantee of the Rio Bank Loan.
Under certain circumstances, as described below, holders of
Senior Indebtedness may block payments on the Notes. Any claims
by Noteholders against the assets of Subsidiaries would be
subordinate to all existing and future obligations (including
trade payables and preferred stock, if any, of such
subsidiaries). As of December 31, 1996, after giving effect to
this Offering and application of the net proceeds thereof, there
were $77.5 million of total liabilities of the Company's
subsidiaries outstanding ranking senior to the Notes. Assuming
the subsequent incurrence by Rio Properties of the full $200
million of its available bank borrowings under the Rio Bank Loan,
there were outstanding $245.8 million of indebtedness and other
liabilities of the Company's subsidiaries ranking senior to the
Notes.
Upon any payment or distribution of the assets of the
Company to creditors upon a total or partial liquidation or a
total or partial dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property: (i) holders of Senior
Indebtedness shall be entitled to receive payment in full of the
Senior Indebtedness before Noteholders shall be entitled to
receive any payment of principal of or interest on the Notes; and
(ii) until the Senior Indebtedness is paid in full, any
distribution to which Noteholders would be entitled but for this
provision shall be made to holders of Senior Indebtedness as
their interests may appear, except that Noteholders may receive
shares of stock and any debt securities that are subordinated to
Senior Indebtedness to at least the same extent as the Notes.
The Company may not pay the principal of or interest on the
Notes or make any deposit for the purpose of the discharge of its
liabilities under the Indenture and may not repurchase, redeem or
otherwise retire any Notes (collectively, "pay the Notes") if (i)
any Senior Indebtedness is not paid when due or (ii) any other
default on Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, (a) the default has been cured or waived
and any such acceleration has been rescinded or (b) such Senior
Indebtedness has been paid in full. During the continuance of
any default (other than a default described in clause (i) or (ii)
of the preceding sentence) with respect to any Senior
Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, the Company may not
pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Company and the Trustee of
written notice of such default from the Representative of any
Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period (a "Blockage Notice") and ending 179 days
thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company
from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full of such Senior Indebtedness or (iii) because
the default giving rise to such Blockage Notice is no longer
continuing). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions
contained in the next preceding sentence), unless the holders of
such Senior Indebtedness or the Representative of such holders
shall have accelerated the maturity of such Senior Indebtedness,
the Company may resume payments on the Notes after such Payment
Blockage Period. Not more than one Blockage Notice may be given
in any consecutive 360-day period, irrespective of the number of
defaults with respect to Senior Indebtedness during such period.
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The provisions described in the two preceding paragraphs
shall not prevent or delay (i) the Company from redeeming any
Notes if required by any Gaming Authority as described under
"Mandatory Disposition or Redemption Pursuant to Gaming Laws" or
from otherwise purchasing any Notes pursuant to any Legal
Requirement relating to the gaming business of the Company and
its Subsidiaries or (ii) the receipt by the Noteholders of
payments of principal and interest on the Notes, as described
under "Discharge of Indenture and Defeasance", from the
application of any money or U.S. Government Obligations held in
trust by the Trustee.
In the event of the Company's insolvency, liquidation,
reorganization, dissolution or other proceedings, funds which
would otherwise be payable to Noteholders will be paid to the
holders of Senior Indebtedness to the extent necessary to pay the
Senior Indebtedness in full. Moreover, creditors of the Company
who are holders of Senior Indebtedness may recover more, ratably,
than the Noteholders, and creditors of the Company who are not
holders of Senior Indebtedness or of the Notes may recover less,
ratably, than holders of the Senior Indebtedness and may recover
more, ratably, than the Noteholders.
There is currently no Indebtedness of the Company that is
subordinated to the Notes, and the Company has no current plans
to issue any Indebtedness that would be subordinated to the
Notes.
SUBORDINATION OF RIO GUARANTEE
The Rio Guarantee is subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full, in cash
or cash equivalents, of all existing and future Senior
Indebtedness of Guarantor. As of December 31, 1996, after giving
effect to this Offering and the application of the net proceeds
thereof there was $33.0 million outstanding of Senior
Indebtedness of Guarantor to which the Rio Guarantee would be
subordinated. Assuming the subsequent incurrence by the
Guarantor of the full $200 million of its available bank
borrowings under the Rio Bank Loan, the Rio Guarantee would be
subordinated to $201.3 million of Senior Indebtedness of
Guarantor. The Rio Guarantee shall in all respects rank PARI
PASSU with all other Senior Subordinated Indebtedness of
Guarantor, including its guarantee of the 10 5/8% Notes, and only
Indebtedness of the Guarantor which is Senior Indebtedness of
Guarantor shall rank senior to the Rio Guarantee. Except with
respect to limitations on consolidated Indebtedness that the
Company and its Restricted Subsidiaries (including the Guarantor)
may incur, the Indenture does not limit the ability of the
Guarantor to incur additional Senior Indebtedness of Guarantor or
restrict the ability of the Guarantor to transfer assets to and
among its Restricted Subsidiaries. As described below, in the
event of bankruptcy, liquidation or reorganization of the
Guarantor, the assets of the Guarantor will be available to make
payments under the Rio Guarantee only after all Senior
Indebtedness of Guarantor has been paid in full, and there may
not be sufficient assets remaining to pay amounts due on the Rio
Guarantee. Substantially all of the Senior Indebtedness of
Guarantor is secured by substantially all the assets of the
Guarantor. In the event of any payment or distribution of the
assets of the Guarantor in any foreclosure, dissolution, winding
up, liquidation or reorganization, holders of the secured
indebtedness will have a secured prior claim to the assets of the
Guarantor and its Subsidiaries.
Under certain circumstances, as described below, holders of
Senior Indebtedness of Guarantor may block payments on the Rio
Guarantee. Any claims by Noteholders against the assets of
Subsidiaries of the Guarantor would be subordinate to all
existing and future obligations (including trade payables and
preferred stock, if any, of such Subsidiaries). The Subsidiaries
of the Guarantor do not have any significant liabilities
outstanding.
Upon any payment or distribution of the assets of the
Guarantor to creditors upon a total or partial liquidation or a
total or partial dissolution of the Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding
relating to the Guarantor or its property: (i) holders of Senior
Indebtedness of Guarantor shall be entitled to receive payment in
full of the Senior Indebtedness of Guarantor before Noteholders
shall be entitled to receive any payment under the Rio Guarantee;
and (ii) until the Senior Indebtedness of Guarantor is paid in
full, any distribution to which Noteholders would be entitled but
for this provision shall be made to holders of Senior
Indebtedness of Guarantor as their interests may appear, except
that Noteholders may receive shares of stock and any debt
securities that are subordinated to Senior Indebtedness of
Guarantor to at least the same extent as the Rio Guarantee.
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The Guarantor may not pay the principal of or interest on
the Notes pursuant to the Rio Guarantee or make any deposit for
the purpose of the discharge of its liabilities under the
Indenture and may not repurchase, redeem or otherwise retire any
Notes pursuant to the Rio Guarantee (collectively, "pay the
Notes") if (i) any Senior Indebtedness of Guarantor is not paid
when due or (ii) any other default on Senior Indebtedness of
Guarantor occurs and the maturity of such Senior Indebtedness of
Guarantor is accelerated in accordance with its terms unless, in
either case, (a) the default has been cured or waived and any
such acceleration has been rescinded or (b) such Senior
Indebtedness of Guarantor has been paid in full. During the
continuance of any default (other than a default described in
clause (i) or (ii) of the preceding sentence) with respect to any
Senior Indebtedness of Guarantor pursuant to which the maturity
thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods,
the Guarantor may not pay the Notes for a period (a "Payment
Blockage Period") commencing upon the receipt by the Guarantor
and the Trustee of written notice of such default from the
Representative of any Designated Senior Indebtedness of Guarantor
specifying an election to effect a Payment Blockage Period (a
"Blockage Notice") and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Guarantor from the Person or Persons who
gave such Blockage Notice, (ii) by repayment in full of such
Senior Indebtedness of Guarantor or (iii) because the default
giving rise to such Blockage Notice is no longer continuing).
Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions contained in
the next preceding sentence), unless the holders of such Senior
Indebtedness of Guarantor or the Representative of such holders
shall have accelerated the maturity of such Senior Indebtedness
of Guarantor, the Guarantor may resume payments under the Rio
Guarantee after such Payment Blockage Period. Not more than one
Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Senior
Indebtedness of Guarantor during such period.
In the event of the Guarantor's insolvency, liquidation,
reorganization, dissolution or other proceedings, funds which
would otherwise be payable to Noteholders will be paid to the
holders of Senior Indebtedness of Guarantor to the extent
necessary to pay the Senior Indebtedness of Guarantor in full.
Moreover, creditors of the Guarantor who are holders of Senior
Indebtedness of Guarantor may recover more, ratably, than the
Noteholders, and creditors of the Guarantor who are not holders
of Senior Indebtedness of Guarantor or of the Notes may recover
less, ratably, than holders of the Senior Indebtedness of
Guarantor and may recover more, ratably, than the Noteholders.
There is currently no Indebtedness of the Guarantor that is
subordinated to the Rio Guarantee, and the Guarantor has no
current plans to issue any Indebtedness that would be
subordinated to the Rio Guarantee.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the option of the
Company prior to April 15, 2002. On or after that date, the
Notes will be redeemable at the option of the Company, in whole
at any time or in part from time to time, on at least 30 but not
more than 60 days' prior notice, mailed by first-class mail to
the Holders' registered addresses, at the redemption prices
(expressed in percentages of principal amount) specified below
plus accrued interest to the redemption date, if redeemed during
the 12-month period beginning April 15 of the years indicated
below:
YEAR PERCENTAGE
2002 104.750%
2003 103.167%
2004 101.583%
2005 and thereafter 100.000%
If fewer than all the Notes are to be redeemed, selection of
Notes for redemption will be made by the Trustee, PRO RATA or by
lot or by any other means the Trustee determines to be fair and
appropriate and which complies with applicable legal and
securities exchange requirements.
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The Notes are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company and are
structurally subordinated to all existing and future indebtedness
and other liabilities, including trade payables, of the Company's
subsidiaries, and the Rio Guarantee is subordinated in right of
payment to all existing and future Senior Indebtedness of the
Guarantor and is structurally subordinated to all existing and
future indebtedness and other liabilities, including trade
payables, of the Guarantor's subsidiaries. Under certain
circumstances, holders of Senior Indebtedness of the Company or
holders of Senior Indebtedness of the Guarantor may prohibit
payments on the New Notes or under the Rio Guarantee,
respectively. See "Risk Factors - Subordination."
MANDATORY DISPOSITION OR REDEMPTION PURSUANT TO GAMING LAWS
If a Holder or beneficial owner of a Note is required to be
licensed, qualified or found suitable under applicable Gaming
Laws and is not so licensed, qualified or found suitable, the
Holder shall be obliged, at the request of the Company, to
dispose of such Holder's Notes within 30 days after receipt of
notice of failure to be found suitable or such earlier date
prescribed by any Gaming Authority (in which event the Company's
obligation to pay any interest after the receipt of such notice
shall be limited as provided in such Gaming Laws), and
thereafter, the Company shall have the right to redeem, on the
date fixed by the Company for the redemption of such Notes, such
Holder's Notes at a redemption price equal to the lower of (i)
the price at which such Holder or beneficial owner acquired the
Notes without accrued interest, if any (unless the payment of
such interest is permitted by the applicable Gaming Authority),
(ii) the Current Market Price of the Notes on such redemption
date and (iii) the principal amount of such notes without accrued
interest, if any (unless the payment of such interest is
permitted by the applicable Gaming Authority). The Company is
not required to pay or reimburse any Holder or beneficial owner
of a Note for the costs of licensure or investigation for such
licensure, qualification or finding of suitability. Any Holder
or beneficial owner of a Note required to be licensed, qualified
or found suitable under applicable Gaming Laws must pay all
investigative fees and costs of the Gaming Authorities in
connection with such qualification or application therefor.
MANDATORY SINKING FUND
There are no mandatory sinking fund payments for the Notes.
CHANGE OF CONTROL
Upon a Change of Control, each Holder shall have the right
to require that the Company repurchase such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of
purchase, in accordance with the terms contemplated in the next
paragraph. In the event that at the time of such Change of
Control the terms of the Bank Indebtedness or other Senior
Indebtedness restrict or prohibit the repurchase of Notes
pursuant to this provision, then prior to the mailing of the
notice to Holders provided for in the next paragraph below but in
any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full all Bank Indebtedness or
such other Senior Indebtedness or to offer to repay in full all
Bank Indebtedness or such other Senior Indebtedness and to repay
the Bank Indebtedness or such other Senior Indebtedness of each
lender who has accepted such offer or (ii) obtain the requisite
consent under the agreements governing the Bank Indebtedness or
such other Senior Indebtedness to permit the repurchase of the
Notes as provided for in the next paragraph.
The Notes are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company and are
structurally subordinated to all existing and future indebtedness
and other liabilities, including trade payables, of the Company's
subsidiaries, and the Rio Guarantee is subordinated in right of
payment to all existing and future Senior Indebtedness of the
Guarantor and is structurally subordinated to all existing and
future indebtedness and other liabilities, including trade
payables, of the Guarantor's subsidiaries. In order for the
Company to repurchase the New Notes as a result of a Change of
Control, it will be necessary for the Company either to obtain
the consent of the Lenders under the Rio Bank Loan or to repay
the Rio Bank Loan in full. See "Risk Factors - Subordination."
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Within 30 days following any Change of Control, the Company
shall send, by first-class mail to each Holder, a notice to each
Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such
Holder has the right to require the Company to purchase such
Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase;
(2) the circumstances and relevant facts regarding such
Change of Control which the Company in good faith believes will
enable Holders to make an informed decision (which at a minimum
will include information with respect to PRO FORMA historical
income, cash flow and capitalization, each after giving effect to
such Change of Control, events causing such Change of Control and
the date such Change of Control is deemed to have occurred);
(3) the purchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed);
and
(4) the instructions determined by the Company, consistent
with this provision, that a Holder must follow in order to have
its Notes purchased, together with the information contained in
the next paragraph (and including any related materials).
Holders electing to have a Note purchased will be required
to surrender the Note, with an appropriate form duly completed,
to the Company at the address specified in the notice at least
five Business Days prior to the purchase date. Holders will be
entitled to withdraw their election if the Trustee or the Company
receives not later than three Business Days prior to the purchase
date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note
which was delivered for purchase by the Holder and a statement
that such Holder is withdrawing his election to have such Note
purchased.
The Company's Board of Directors does not have the ability
to waive or modify the right of Holders to require the Company to
repurchase the Notes upon a Change of Control nor will such right
have limited applicability in the event of a leveraged buy out of
the Company initiated or supported by the Company, the Company's
management, an affiliate of the Company within the meaning of
Rule 405 of the Securities Act, or an affiliate of the Company's
management.
On the purchase date, all Notes purchased by the Company
under this provision shall be delivered by the Trustee for
cancellation, and the Company shall pay the purchase price plus
accrued and unpaid interest, if any, to the Holders entitled
thereto.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other
securities laws or regulations in connection with the repurchase
of Notes pursuant to this provision. To the extent that the
provisions of any securities laws or regulations conflict with
this provision, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have
breached its obligations under this provision by virtue thereof.
The Company's obligations to repurchase the Notes upon a
Change of Control will be guaranteed on a senior subordinated
basis by the Guarantor pursuant to the Rio Guarantee. Such Rio
Guarantee will be subordinated to Senior Indebtedness of
Guarantor to the same extent described above under "Subordination
of Rio Guarantee." There can be no assurance that sufficient
funds will be available to the Company upon the occurrence of a
Change of Control to provide it with the means to repurchase the
Notes.
The phrase "all or substantially all" of the assets of the
Company as used in the definition of "Change of Control" in the
Indenture has no clearly established meaning under New York law
(which governs the Indenture), has been the subject of limited
judicial interpretation in few jurisdictions and will be
interpreted based upon the particular facts and circumstances.
As a result, there may be a degree of uncertainty in ascertaining
whether a sale or transfer of "all or substantially all" of the
assets of the Company has occurred and therefore whether a Change
of Control has occurred.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms
used in the Indenture. Reference is made to the Indenture for
the full definition of all such terms, as well as any other terms
used herein for which no definition is provided.
"ADDITIONAL ASSETS" means (i) any property or assets (other
than Indebtedness and Capital Stock) in a Related Business; (ii)
Capital Stock of a Person that becomes a Restricted Subsidiary as
a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that, in the case
of clauses (ii) and (iii), such Restricted Subsidiary is
primarily engaged in a Related Business.
"AFFILIATE" of any specified Person means (i) any other
Person, directly or indirectly, controlling or controlled by or
under direct or indirect common control with such specified
Person or (ii) any other Person who is a director or officer (a)
of such specified Person, (b) of any subsidiary of such specified
Person or (c) of any Person described in clause (i) above. For
the purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the section
"Limitation on Transactions with Affiliates" only, "Affiliate"
shall also mean any beneficial owner of shares representing 10%
or more of the total voting power of the Voting Stock (on a fully
diluted basis) of the Company or of rights or warrants to
purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"ASSET DISPOSITION" means any direct or indirect sale
including a Sale/Leaseback Transaction, lease, transfer,
conveyance or other disposition (or series of related sales,
Sale/Leaseback Transactions, leases, transfers, conveyances or
dispositions) of shares of Capital Stock of a Restricted
Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a
merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary,
(ii) a disposition of property or assets at Fair Market Value in
the ordinary course of business and consistent with past
practices of the Company or any of its Restricted Subsidiaries,
as applicable, (iii) a disposition with a Fair Market Value and a
sale price of less than $10 million, and (iv) for purposes of the
provisions of "Limitation on Sales of Assets and Subsidiary
Stock" only, a disposition subject to the limitations set forth
under "Limitation on Restricted Payments".
"ATTRIBUTABLE INDEBTEDNESS" means Indebtedness deemed to be
incurred in respect of a Sale/Leaseback Transaction and shall be,
at the date of determination, the greater of (i) the fair market
value of the property subject to such Sale/Leaseback Transaction
(as determined in good faith by the Board of Directors) or (ii)
the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually) of the total
obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been
extended).
"AVERAGE LIFE" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient
obtained by dividing (i) the sum of the products of the numbers
of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred
Stock multiplied by the amount of such payment by (ii) the sum of
all such payments.
"BANK INDEBTEDNESS" means any and all amounts payable under
or in respect of the Credit Agreement, as amended (or refinanced
or replaced) from time to time, including principal, premium (if
any), interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization
relating to the Company or the Guarantor whether or not a claim
for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all
other amounts payable thereunder or in respect thereof.
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"BANKS" has the meaning specified in the Credit Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf
of such Board.
"BOARD RESOLUTION" means a duly adopted resolution of the
Board of Directors in full force and effect at the time of
determination and certified as such by the Secretary or an
Assistant Secretary of the Company.
"CAPITALIZED LEASE OBLIGATIONS" means an obligation that is
required to be classified and accounted for as a capitalized
lease for financial reporting purposes in accordance with GAAP;
and the amount of Indebtedness represented by such obligation
shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"CAPITAL STOCK" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations
or other equivalents of or interests in (however designated)
equity of such Person, including any Preferred Stock, but
excluding any debt securities convertible or exchangeable into
such equity.
"CASINO" means any gaming establishment and other property
or assets directly ancillary thereto or used in connection
therewith, including any building, restaurant, hotel, theater,
parking facilities, retail shops, land, golf courses and other
recreation and entertainment facilities, vessel, barge, ship and
equipment.
"CHANGE OF CONTROL" means the occurrence of any of the
following events: (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or
more Permitted Holders or an underwriter engaged in a firm
commitment underwriting in connection with a public offering of
the Voting Stock of the Company, is or becomes the "beneficial
owner" (as that term is used in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of
more than 40% of the total voting power of the Voting Stock of
the Company; (ii) during any period of 12 consecutive months
after the date of the Indenture, individuals who at the beginning
of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors
of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office;
or (iii) the Company consolidates or merges with or into, or,
directly or indirectly, sells all or substantially all of its
assets to any person, other than a Wholly Owned Subsidiary or a
Permitted Holder.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED COVERAGE RATIO" as of any date of
determination means the ratio of (i) the aggregate amount of
EBITDA for the period of the most recent four consecutive fiscal
quarters ending at least 45 days (or at least 30 days if the
Company's Report on Form 10-Q or 10-K for the most recent fiscal
quarter or year, as the case may be, has been filed with the SEC)
prior to the date of such determination to (ii) Consolidated
Interest Expense for such four fiscal quarters; PROVIDED,
HOWEVER, that (a) if the Company or any Restricted Subsidiary has
Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need
to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, or both, Consolidated Interest Expense for such
period shall be calculated after giving effect on a PRO FORMA
basis to such Indebtedness as if such Indebtedness had been
Incurred on the first day of such period and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (b) if
since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Asset Disposition, or both, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or increased
by an amount equal to the EBITDA (if negative), directly
attributable thereto for such period as if such Asset Disposition
had occurred on the first day of such
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period and Consolidated Interest Expense for such period shall
be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company
or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset
Dispositions for such period as if such Asset Disposition had
occurred on the first day of such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period as if such Asset Disposition
had occurred on the first day of such period directly
attributable to the Indebtedness of such Restricted Subsidiary to
the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale), (c)
if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which
becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with
a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a
business, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving PRO FORMA effect thereto
(including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such
period and (d) if since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged
with or into the Company or any Restricted Subsidiary since the
beginning of such period) shall have made any Asset Disposition
or any Investment that would have required an adjustment pursuant
to clause (b) or (c) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving PRO
FORMA effect thereto as if such Asset Disposition or Investment
occurred on the first day of such period. For purposes of this
definition, whenever PRO FORMA effect is to be given to an
acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection
therewith, the PRO FORMA calculations shall be determined in good
faith by a responsible financial or accounting Officer of the
Company and as further contemplated by the definition of PRO
FORMA. If any Indebtedness bears a floating rate of interest
and is being given PRO FORMA effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Protection
Agreement applicable to such Indebtedness if such Interest Rate
Protection Agreement has a remaining term in excess of 12
months).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the
total interest expense of the Company and its consolidated
Subsidiaries, plus, to the extent not included in such interest
expense, (i) interest expense attributable to capital leases,
(ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) accrued
interest, (vi) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance
financing, (vii) interest actually paid by the Company or any
such Subsidiary under any Guarantee of Indebtedness or other
obligation of any other Person, (viii) net costs associated with
Interest Rate Protection Agreements (including amortization of
fees), (ix) the interest portion of any deferred obligation, (x)
Preferred Stock dividends in respect of all Preferred Stock of
Subsidiaries and Redeemable Stock of the Company held by Persons
other than the Company or a Wholly Owned Subsidiary, (xi) fees
payable in connection with financings to the extent not included
in (ii) above, including commitment, availability and similar
fees and (xii) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust; PROVIDED, HOWEVER, that there
shall be excluded therefrom any such interest expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted
Subsidiary.
"CONSOLIDATED NET INCOME" means, for any period, the net
income (loss) of the Company and its Subsidiaries; PROVIDED,
HOWEVER, that there shall not be included in such Consolidated
Net Income (i) any net income (loss) of any Person if such Person
is not a Restricted Subsidiary, except that (a) subject to the
limitations contained in (iv) below, the Company's equity in the
net income of any such Person for such period shall be included
in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to
the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (b) the Company's equity in
a net loss of any such Person (other than an Unrestricted
Subsidiary) for such period shall be included in determining such
Consolidated Net Income, (ii) any net income (loss) of any person
acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition,
(iii) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company,
except that (a) subject to the limitations contained in
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(iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during
such period to the Company or another Restricted Subsidiary as a
dividend (subject, in the case of a dividend to another
Restricted Subsidiary, to the limitation contained in this
clause) and (b) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (iv) any gain (but not
loss) realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the
ordinary course of business and any gain (but not loss) realized
upon the sale or other disposition of any Capital Stock of any
Person, (v) any extraordinary gain or loss and (vi) the
cumulative effect of a change in accounting principles.
"CONSOLIDATED NET WORTH" means the total of the amounts
shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance
with GAAP, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days (or at least 30 days if the
Company's Report on Form 10-Q or 10-K for the most recent fiscal
quarter or year, as the case may be, has been filed with the SEC)
prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of
all outstanding Capital Stock of the Company plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (a) any
accumulated deficit and (b) any amounts attributable to
Disqualified Stock.
"CREDIT AGREEMENT" means the $200 million revolving credit
facility, as amended, between the Company and a syndicate of
banks, and any extensions, revisions, refinancings or
replacements thereof by a bank or a syndicate of banks.
"CURRENT MARKET PRICE" on any date means the arithmetic mean
of the Quoted Price of the Notes for 20 consecutive trading days
commencing 30 days before such date.
"DEFAULT" means any event which is, or after notice or
passage of time or both would be, an Event of Default. See
"Description of New Notes - Certain Covenants - Events of
Default."
"DESIGNATED SENIOR INDEBTEDNESS" means (i) the Company's
Guarantee of the Bank Indebtedness and (ii) any other Senior
Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the
date of determination, the holders thereof, are committed to lend
up to, at least $25 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of
the Indenture and has been designated as "Designated Senior
Indebtedness" for purposes of the Indenture in an Officers'
Certificate received by the Trustee.
"DESIGNATED SENIOR INDEBTEDNESS OF GUARANTOR" means (i) the
Bank Indebtedness and (ii) any other Senior Indebtedness of
Guarantor which, at the date of determination, has an aggregate
principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to,
at least $25 million and is specifically designated by the
Guarantor in the instrument evidencing or governing such Senior
Indebtedness of Guarantor as "Designated Senior Indebtedness of
Guarantor" for purposes of the Indenture and has been designated
as "Designated Senior Indebtedness of Guarantor" for purposes of
the Indenture in an Officers' Certificate received by the
Trustee.
"DISQUALIFIED STOCK" of a Person means Redeemable Stock of
such Person as to which the maturity, mandatory redemption,
conversion or exchange or redemption at the option of the holder
thereof occurs, or may occur, on or prior to the first
anniversary of the Stated Maturity of the Notes.
"EBITDA" for any period means the Consolidated Net Income
for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation expense
and (iv) amortization expense, in each case for such period.
"EVENT OF LOSS" means, with respect to any property or
asset, any (i) loss, destruction or damage of such property or
asset; or (ii) any condemnation, seizure or taking, by exercise
of the power of eminent domain or otherwise, of such property or
asset, or confiscation or requisition of the use of such property
or asset.
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"FAIR MARKET VALUE" means, with respect to any asset or
property, the price which could be negotiated in an arms'-length
free market transaction, for cash, between a willing seller and a
willing buyer, neither of whom is under undue pressure or
compulsion to complete the transaction.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of the
Indenture, including those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a
significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP consistently applied.
"GAMING AUTHORITY" means the Nevada Gaming Commission, the
Nevada State Gaming Control Board or any agency which has, or may
at any time after the date of the Indenture have, jurisdiction
over the gaming activities of the Company or any of its
Subsidiaries or any successor to such authority.
"GAMING LAWS" means the gaming laws of a jurisdiction or
jurisdictions to which the Company or any of its Subsidiaries is,
or may at any time after the date of the Indenture be, subject.
"GAMING LICENSE" means any license, permit, franchise or
other authorization from any Governmental Authority required on
the date of the Indenture or at any time thereafter to own,
lease, operate or otherwise conduct the gaming business of the
Company and its Subsidiaries, including all licenses granted
under Gaming Laws and other Legal Requirements.
"GUARANTEE" means any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any
Indebtedness or other obligation of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of
such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or
in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"GUARANTOR" means Rio Properties, Inc.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a
Note is registered on the Registrar's books.
"INCUR" means issue, assume, Guarantee, incur or otherwise
become liable for; PROVIDED, HOWEVER, that any Indebtedness or
Capital Stock of a Person existing at the time such person
becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be incurred by such
Subsidiary at the time it becomes a Subsidiary. The terms
"Incurred", "Incurrence" and "Incurring" shall each have a
correlative meaning.
"INDEBTEDNESS" means, with respect to any Person on any date
of determination (without duplication),
(i) the principal of and premium (if any) in respect of
indebtedness of such Person for borrowed money;
(ii) the principal of and premium (if any) in respect of
obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(iii) all Capitalized Lease Obligations and Attributable
Indebtedness of such Person;
(iv) all obligations of such Person to pay the deferred
and unpaid purchase price of property or services (except Trade
Payables), which purchase price is due more that six months after
the date of placing such property in service or taking delivery
and title thereto or the completion of such services;
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(v) all obligations of such Person in respect of letters
of credit, banker's acceptances or other similar instruments or
credit transactions (including reimbursement obligations with
respect thereto), other than obligations with respect to letters
of credit securing obligations (other than obligations described
in (i) through (iv) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing
is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following
payment on the letter of credit;
(vi) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary, any
Preferred Stock (but excluding, in each case, any accrued
dividends);
(vii) all Indebtedness of other Persons secured by a Lien
on any asset of such Person, whether or not such Indebtedness
is assumed by such Person; provided, however, that the amount of
such Indebtedness shall be the lesser of (a) the fair market
value of such asset at such date of determination and (b) the
amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent
Guaranteed by such Person; and
(ix) to the extent not otherwise included in this
definition, obligations in respect of Interest Rate Protection
Agreements.
The amount of Indebtedness of any Person at any date shall
be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon
the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"INDEPENDENT DIRECTOR" means a director of the Company other
than a director who is a party, or who is a director, officer,
employee or Affiliate (or is related by blood or marriage to any
such person) of a party, to the transaction in question, and who
is, in fact, independent in respect of such transaction.
"INTEREST RATE PROTECTION AGREEMENT" means, in respect of a
Person, any interest rate swap agreement, interest rate option
agreement, interest rate cap agreement, interest rate collar
agreement, interest rate floor agreement or other similar
agreement or arrangement.
"INVESTMENT" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary
course of business that are recorded as accounts receivable on
the balance sheet of such Person) or other extension of credit
(including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued
by such Person. For purposes of the definition of "Unrestricted
Subsidiary" and the limitations set forth in "Limitation on
Restricted Payments", (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that
upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount
(if positive) equal to (x) the Company's "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time that such Subsidiary is so re-designated a
Restricted Subsidiary; and (ii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer. In determining the
amount of any Investment in respect of any property or assets
other than cash, such property or asset shall be valued at its
fair market value at the time of such Investment (unless
otherwise specified in this definition), as determined in good
faith by the Board of Directors, whose determination shall be
evidenced by a Board Resolution.
"LIEN" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any
conditional sale or other title retention agreement or lease in
the nature thereof) or any Sale/Leaseback Transaction.
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"NET AVAILABLE CASH" from an Asset Disposition or Event of
Loss means cash payments received (including any cash payments
received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the
form of assumption by the acquiring person of Indebtedness or
other obligations relating to such properties or assets or
received in any other noncash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions
and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset
Disposition or Event of Loss, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such
assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law
be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition or Event of Loss and (iv) the
deduction of appropriate amounts to be provided by the seller as
a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition
and retained by the Company or any Restricted Subsidiary after
such Asset Disposition.
"NET CASH PROCEEDS", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a
result thereof.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness of a Person
to the extent that under the terms thereof or pursuant to
applicable law (i) no personal recourse shall be had against such
Person for the payment of the principal of or interest or
premium, if any, on such Indebtedness, and (ii) enforcement of
obligations on such Indebtedness is limited only to recourse
against interests in Property and assets purchased with the
proceeds of the Incurrence of such Indebtedness and as to which
neither the Company nor any of its Restricted Subsidiaries
provides any credit support or is liable.
"OFFICER" means the Chairman of the Board, the President,
the Treasurer or the Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two
Officers at least one of whom shall be the principal executive
officer, principal accounting officer or principal financial
officer of the Company.
"OPINION OF COUNSEL" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.
"PARI PASSU", as applied to the ranking of any Indebtedness
of a Person in relation to other Indebtedness of such Person,
means that each such Indebtedness either (i) is not subordinate
in right of payment to any Indebtedness or (ii) is subordinate in
right of payment to the same Indebtedness as is the other, and is
so subordinate to the same extent, and is not subordinate in
right of payment to each other or to any Indebtedness as to which
the other is not so subordinate.
"PERMITTED FF&E FINANCING" means Indebtedness which is Non-
Recourse Indebtedness to the Company or any of its Restricted
Subsidiaries or any of their properties that is Incurred to
finance the acquisition or lease after the date of the Indenture
of newly acquired or leased furniture, fixtures or equipment
("FF&E") used directly in the operation of any casino hotel owned
or leased by the Company or its Restricted Subsidiaries and
secured by a Lien on such FF&E (which Lien, subject to certain
limitations, shall be the only Permitted Lien with respect to
such FF&E).
"PERMITTED HOLDERS" means Anthony A. Marnell II, James A.
Barrett, Jr., their estates, spouses, ancestors, and lineal
descendants, the legal representatives of any of the foregoing
and the trustee of any bona fide trust of which the foregoing are
the sole beneficiaries or the grantors, or any Person of which
the foregoing "beneficially owns" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act) voting securities representing at
least 66 2/3% of the total voting power of all classes of Capital
Stock of such Person (exclusive of any matters as to which class
voting rights exist).
"PERMITTED INVESTMENT" means an Investment by the Company or
any Restricted Subsidiary in (i) a Restricted Subsidiary or a
Person which will, upon the making of such Investment, become a
Restricted Subsidiary; PROVIDED, HOWEVER, that the primary
business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of
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such Investment such other Person is merged or consolidated with
or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; PROVIDED,
HOWEVER, that such Person's primary business is a Related
Business; (iii) Temporary Cash Investments; (iv) receivables
owing to the Company or any Restricted Subsidiary, if created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary
trade terms as the Company or any such Restricted Subsidiary
deems reasonable under the circumstances; (v) payroll, travel and
similar advances to cover matters that are expected at the time
of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the
ordinary course of business consistent with past practices of the
Company or such Restricted Subsidiary, as the case may be; and
(vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of
judgments.
"PERMITTED LIENS" means, with respect to any Person, (a)
pledges or deposits by such Person under workmen's compensation
laws, unemployment insurance laws or similar legislation, or good
faith deposits in connection with bids, tenders, contracts (other
than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States
government bonds to secure surety or appeal bonds to which such
Person is a party, or deposits as security for contested taxes or
import duties or for the payment of rent, in each case Incurred
in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each
case for sums not yet due or being contested in good faith by
appropriate proceedings, or other Liens arising out of judgments
or awards against such Person with respect to which such Person
shall then be prosecuting an appeal or other proceedings for
review; (c) Liens for property taxes not yet due or payable or
subject to penalties for non-payment and which are being
contested in good faith by appropriate proceedings; (d) Liens in
favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in
the ordinary course of its business; (e) minor survey exceptions,
minor encumbrances, easements or reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real property or
Liens incidental to the conduct of the business of such Person or
to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or
materially impair their use in the operation of the business of
such Person; (f) Liens existing on the date of the Indenture; (g)
Liens on property or shares of stock of a Person at the time such
Person becomes a Subsidiary; PROVIDED, HOWEVER, that any such
Lien may not extend to any other property owned by the Company or
any Restricted Subsidiary; (h) Liens on property at the time the
Company or a Subsidiary acquired the property, including any
acquisition by means of a merger or consolidation with or into
the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that
any such Lien may not extend to any other property owned by the
Company or any Restricted Subsidiary; (i) Liens securing an
Interest Rate Protection Agreement so long as the related
Indebtedness is permitted to be incurred under the Indenture, (j)
Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions,
renewals or replacements) as a whole, or in part, of any
Indebtedness secured by any Lien referred to in the foregoing
clauses (f), (g), (h) and (k); PROVIDED, HOWEVER, that (x) such
new Lien shall be limited to all or part of the same property
that secured the original Lien (plus improvements on such
property) and (y) the Indebtedness secured by such Lien at such
time is not increased to any amount greater than the sum of (A)
the outstanding principal amount or, if greater, committed amount
of the Indebtedness described under clauses (f), (g), (h) or (k)
at the time the original Lien became a Permitted Lien under the
Indenture and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement and (k) Liens
securing Permitted FF&E Financings.
"PERSON" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"PREFERRED STOCK", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) which is preferred as to the payment of dividends, or
as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"PRINCIPAL" of a Note means the principal of the Note plus
the premium, if any, payable on the Note which is due or overdue
or is to become due at the relevant time.
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"PRO FORMA" means, with respect to any calculation made or
required to be made pursuant to the terms hereof, a calculation
in accordance with Article 11 of Regulation S-X promulgated under
the Securities Act (to the extent applicable), as interpreted in
good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or
otherwise a calculation made in good faith by the Board of
Directors after consultation with the independent certified
public accountants of the Company, as the case may be.
"QUOTED PRICE" means for any day the last reported sale
price regular way or, in case no such reported sale takes place
on such day, the average of the closing bid and asked prices
regular way for such day, in either case on the principal
national securities exchange on which the Notes are listed or
admitted to trading, or if the Notes are not so listed or
admitted to trading, but are traded in the over the counter
market, the closing sale price of the Notes or, in case no sale
is publicly reported, the average of the closing bid and asked
prices, as furnished by two members of the National Association
of Securities Dealers, Inc. selected from time to time by the
Company for that purpose.
"REDEEMABLE STOCK" means, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable) or
upon the happening of any event (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness (other than
Preferred Stock) or Disqualified Stock or (iii) is redeemable at
the option of the holder thereof, in whole or in part.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including
pursuant to any defeasance or discharge mechanism) (collectively,
"refinances," and "refinanced" shall have a correlative meaning)
any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary)
including Indebtedness that refinances Refinancing Indebtedness;
PROVIDED, HOWEVER, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the
Indebtedness being refinanced, (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or
if issued with original issue discount, the aggregate accreted
value) then outstanding of the Indebtedness being refinanced and
(iv) if the Indebtedness of the Company or a Restricted
Subsidiary being refinanced is subordinated to other Indebtedness
of the Company or a Restricted Subsidiary in any respect, such
Refinancing Indebtedness is subordinated at least to the same
extent; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness
shall not include (a) Indebtedness of a Subsidiary that
refinances Indebtedness of the Company or (b) Indebtedness of the
Company or a Restricted Subsidiary that refinances Indebtedness
of an Unrestricted Subsidiary.
"RELATED BUSINESS" means the gaming business conducted (or
proposed to be conducted) by the Company and its Subsidiaries as
of the date of the Indenture and any and all reasonably related
businesses necessary for, in support or anticipation of and
ancillary to or in preparation for, the gaming business
including, without limitation, the development, expansion or
operation of any Casino (including any land-based, dockside,
riverboat or other type of Casino), owned, or to be owned, by the
Company or one of its Subsidiaries.
"RESTRICTED SUBSIDIARY" means (i) Rio Properties, Inc. and
(ii) any other Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"REPRESENTATIVE" means the trustee, agent or representative
(if any) for an issue of Senior Indebtedness.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating
to property now owned or hereafter acquired whereby the Company
or a Restricted Subsidiary transfers such property to a Person
and the Company or a Restricted Subsidiary leases it from such
Person.
"SEC" means the Securities and Exchange Commission.
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"SENIOR INDEBTEDNESS" means (i) the Company's Guarantee of
the Bank Indebtedness and (ii) all other Indebtedness of the
Company including interest thereon, whether outstanding on the
date of the Indenture or thereafter issued, unless in the
instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such obligations are
not superior in right of payment to the Notes; PROVIDED, HOWEVER,
that Senior Indebtedness shall not include (a) any obligation of
the Company to any Subsidiary, (b) any liability for Federal,
state, local or other taxes owed or owing by the Company, (c) any
accounts payable or other liability to trade creditors arising in
the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities), (d) any Indebtedness,
Guarantee or obligation of the Company which is subordinate or
junior in any respect to any other Indebtedness, Guarantee or
obligation of the Company, including any Senior Subordinated
Indebtedness and any Subordinated Obligations, (e) any
obligations with respect to any Capital Stock or (f) any
Indebtedness Incurred in violation of the Indenture.
"SENIOR INDEBTEDNESS OF GUARANTOR" means (i) the Bank
Indebtedness and (ii) all other Indebtedness of the Guarantor
including interest thereon, whether outstanding on the date of
the Indenture or thereafter issued, unless in the instrument
creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are not superior
in right of payment to the Rio Guarantee; provided, however, that
Senior Indebtedness of Guarantor shall not include (a) any
obligation of the Guarantor to any Subsidiary, (b) any liability
for Federal, state, local or other taxes owed or owing by the
Guarantor, (c) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities),
(d) any Indebtedness, Guarantee or obligation of the Guarantor
which is subordinate or junior in any respect to any other
Indebtedness, Guarantee or obligation of the Guarantor, including
Senior Subordinated Indebtedness of Guarantor and any
Subordinated Obligations, (e) any obligations with respect to any
Capital Stock or (f) any Indebtedness Incurred in violation of
the Indenture.
"SENIOR SUBORDINATED INDEBTEDNESS" means the Notes, the
10 5/8% Notes and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank PARI
PASSU with the Notes and is not subordinated by its terms to any
Indebtedness or other obligation of the Company which is not
Senior Indebtedness.
"SENIOR SUBORDINATED INDEBTEDNESS OF GUARANTOR" means the
Rio Guarantee, the Guarantor's guarantee of the 10 5/8% Notes and
any other Indebtedness of the Guarantor that specifically
provides that such Indebtedness is to rank PARI PASSU with the
Rio Guarantee and is not subordinated by its terms to any
Indebtedness or other obligation of the Guarantor which is not
Senior Indebtedness of Guarantor.
"STATED MATURITY" means, with respect to any security, the
date specified in such security as the fixed date on which the
payment of principal of such security is due and payable,
including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening
of any contingency beyond the control of the issuer unless such
contingency has occurred).
"SUBORDINATED OBLIGATION" means (i) any Indebtedness of the
Company (whether outstanding on the date of the Indenture or
thereafter Incurred) which is subordinate or junior in right of
payment to the Notes or (ii) any Indebtedness of the Guarantor
(whether outstanding on the date of the Indenture or thereafter
Incurred) which is subordinate or junior in right of payment to
the Rio Guarantee.
"SUBSIDIARY" of any Person means any corporation,
association, partnership or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by (i) such
Person, (ii) such Person and one or more Subsidiaries of such
Person or (iii) one or more Subsidiaries of such Person.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(i) investments in U.S. Government Obligations maturing within 90
days of the date of acquisition thereof, (ii) investments in time
deposit accounts, certificates of deposit and money market
deposits maturing within 90 days of the date of acquisition or
any state thereof having capital, surplus and undivided profits
aggregating in excess of $500,000,000 and whose long-term debt is
rated "A-3" or "A-" or higher according to Moody's Investors
Service, Inc. or Standard and Poor's Corporation (or such similar
equivalent rating by at
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least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)), (iii)
repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications
described in clause (ii) above, and (iv) investments in
commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the
United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to
Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard and Poor's Corporation.
"TRADE PAYABLES" means, with respect to any Person, any
accounts payable or any indebtedness or monetary obligation to
trade creditors created, assumed or Guaranteed by such Person
arising in the ordinary course of business of such Person in
connection with the acquisition of goods or services.
"TRUSTEE" means the party named as such in the Indenture
until a successor replaces it in accordance with the provisions
of the Indenture and, thereafter, means the successor.
"UNIFORM COMMERCIAL CODE" means the New York Uniform
Commercial Code as in effect from time to time.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors in the manner
provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Company or any
other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED, HOWEVER, that either
(a) the Subsidiary to be so designated has total assets of $1,000
or less or (b) if such Subsidiary has assets greater than $1,000,
then such designation would be permitted under "Limitation on
Restricted Payments" as a "Restricted Payment". The Board of
Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after
giving PRO FORMA effect to such designation (1) the Company could
incur $1.00 of additional Indebtedness if it complies with the
Consolidated Coverage Ratio limitations in "Limitation on
Indebtedness" and (2) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a
copy of the Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation
complies with the foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or
certificates representing an ownership interest in such
obligations) of the United States of America (including any
agency or instrumentality thereof) for the payment of which the
full faith and credit of the United States of America is pledged
and which are not callable or redeemable at the issuer's option.
"VOTING STOCK" of a corporation means all classes of Capital
Stock of such corporation then outstanding and normally entitled
to vote in the election of directors.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary of
the Company all the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly
Owned Subsidiary.
CERTAIN COVENANTS
The Indenture contains covenants including, among others,
the following:
LIMITATION ON INDEBTEDNESS. The Company shall not, and
shall not permit any Restricted Subsidiary to, Incur any
Indebtedness; PROVIDED, HOWEVER, that the Company or any
Restricted Subsidiary may Incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than
2.00:1.00.
Notwithstanding the foregoing limitation, the Company and
its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness under the Credit Agreement in an aggregate
amount outstanding at any time not to exceed
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$200 million (less the amount of any permanent reductions in the
amount of available borrowings); (ii) Indebtedness outstanding
under Permitted FF&E Financings in an amount not to exceed 100%
of the lower of cost or fair market value of the FF&E so
purchased or leased; (iii) Indebtedness (other than Indebtedness
permitted by the immediately preceding paragraph or elsewhere in
this paragraph) in an aggregate principal amount outstanding at
any time not to exceed $40 million; (iv) Indebtedness of the
Company owing to and held by any Wholly Owned Subsidiary or
Indebtedness of a Restricted Subsidiary owing to and held by
the Company or any Wholly Owned Subsidiary; PROVIDED, HOWEVER,
that any subsequent issuance or transfer of any Capital Stock
which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the issuer thereof; (v) Indebtedness
represented by the Notes and the Rio Guarantee and any
Indebtedness (other than the Indebtedness described in clauses
(i) or (iv) above) outstanding on the date of the Indenture; (vi)
Indebtedness under Interest Rate Protection Agreements; PROVIDED,
HOWEVER, such Interest Rate Protection Agreements do not increase
the Indebtedness of the Company outstanding at any time other
than as a result of fluctuations in the exchange rates or
interest rates or by reason of customary fees, indemnities and
compensation payable thereunder; (vii) Indebtedness in connection
with one or more standby letters of credit issued in the
ordinary course of business or pursuant to self-insurance
obligations; (viii) Indebtedness Incurred solely in respect of
performance bonds or completion guarantees, to the extent that
such Incurrence does not result in the Incurrence by the Company
or any Restricted Subsidiary of any obligation for the payment of
borrowed money to others; and (ix) Refinancing Indebtedness
Incurred in respect of Indebtedness Incurred pursuant to the
provisions of the immediately preceding paragraph or clauses (ii)
and (v) above.
For purposes of determining the outstanding principal amount
of any particular Indebtedness Incurred pursuant to this section
"Limitation on Indebtedness", (i) Indebtedness permitted by this
section need not be permitted solely by reference to one
provision permitting such Indebtedness but may be permitted in
part by one such provision and in part by one or more other
provisions of this provision permitting such Indebtedness and
(ii) in the event that Indebtedness or any portion thereof meets
the criteria of more than one of the types of Indebtedness
described in this section, the Company, in its sole discretion,
shall classify such Indebtedness and only be required to include
the amount of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS. The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any
distribution on or in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving
the Company) except dividends or distributions payable solely in
its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase such Capital Stock and
except dividends or distributions payable to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary is not
wholly owned, to its other shareholders on a pro rata basis),
(ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Company or any Restricted Subsidiary held by
Persons other than the Company or a Restricted Subsidiary, (iii)
purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment any Subordinated
Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation
of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of
acquisition) or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a
"Restricted Payment") if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment: (a) a
Default shall have occurred and be continuing (or would result
therefrom); (b) the Company could not Incur at least $1.00 of
additional Indebtedness under the Consolidated Coverage Ratio
limitation set forth in "Limitation on Indebtedness" above; or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors,
whose determination shall be evidenced by a Board Resolution)
declared or made since June 30, 1995, would exceed, without
duplication, the sum of: (1) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from
June 30, 1995, to the end of the most recent fiscal quarter
ending at least 45 days (or at least 30 days if the Company's
Report on Form 10-Q or 10-K for the most recent fiscal quarter or
year, as the case may be, has been filed with the SEC) prior to
the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit) and minus 100% of the amount of any write-downs, write-
offs, other negative revaluations and other negative
extraordinary charges not otherwise reflected in Consolidated Net
Income during such period; (2) the aggregate Net Cash Proceeds
received by the Company from the issue or sale of its Capital
Stock (other than Disqualified
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Stock) subsequent to June 30, 1995 (other than an issuance or
sale to a Subsidiary of the Company or an employee stock
ownership plan or other trust established by the Company or any
of its Subsidiaries); (3) the amount by which Indebtedness of the
Company or its Restricted Subsidiaries is reduced on the
Company's balance sheet upon the conversion or exchange (other
than by a Subsidiary) subsequent to June 30, 1995, of any
Indebtedness of the Company or its Restricted Subsidiaries
convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash
or other property distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange); (4) the amount
equal to the net reduction in Investments resulting from (A)
payments of dividends, repayments of loans or advances or other
transfers of assets to the Company or any Restricted Subsidiary
or (B) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment") not to exceed the amount of
Investments previously made by the Company or any Restricted
Subsidiary, which amount was treated as a Restricted Payment, in
each case to the extent not included in Consolidated Net Income;
and (5) $20 million.
The provisions of this section shall not prohibit: (i) any
purchase or redemption of Capital Stock of the Company or
Subordinated Obligations made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock
of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any
of its Subsidiaries); PROVIDED, HOWEVER, that (a) such purchase
or redemption shall be excluded in the calculation of the amount
of Restricted Payments and (b) the Net Cash Proceeds from such
sale shall be excluded from clause (c)(2) of the preceding
paragraph; (ii) any purchase or redemption of Subordinated
Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Refinancing Indebtedness;
PROVIDED, HOWEVER, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments;
(iii) the Company or the Guarantor from redeeming or repurchasing
Capital Stock of the Company or any Subordinated Obligation in
the event that the holder of such Capital Stock or Subordinated
Obligation has failed to qualify or to be found suitable or
otherwise eligible under a Gaming Law to remain a holder of such
Capital Stock or Subordinated Obligation; PROVIDED, HOWEVER, that
the amount of such redemption or repurchase shall be included in
the calculation of the amount of Restricted Payments; (iv)
dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have
complied with the preceding paragraph; PROVIDED, HOWEVER, that at
the time of payment of such dividend, no other Default shall have
occurred and be continuing (or result therefrom); PROVIDED
FURTHER, HOWEVER, that such dividend shall be included in the
calculation of the amount of Restricted Payments or (v) the
Company from making Investments (other than Investments in the
Capital Stock of the Company) the cost to the Company of which do
not exceed $30 million in the aggregate at any one time
outstanding for all such Investments made in reliance upon this
clause (v), PROVIDED FURTHER, HOWEVER, that such Investments
shall be included in the calculation of the amount of Restricted
Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
SUBSIDIARIES. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company, (ii) make any
loans or advances to the Company or (iii) transfer any of its
property or assets to the Company, except: (a) any encumbrance or
restriction pursuant to an agreement in effect at or entered into
on the date of the Indenture; (b) any encumbrance or restriction
with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted
Subsidiary prior to the date on which such Restricted Subsidiary
was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date; (c) any encumbrance or
restriction pursuant to an agreement effecting a refinancing of
Indebtedness Incurred pursuant to an agreement referred to in
clause (a) or (b) of this provision or contained in any amendment
to an agreement referred to in clause (a) or (b) of this
provision; PROVIDED, HOWEVER, that the encumbrances and
restrictions contained in any such refinancing agreement or
amendment are no less favorable to the Noteholders than
encumbrances and restrictions contained in such agreements; (d)
in the case of clause (iii), any encumbrance or restriction (1)
that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (2) arising
by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by
the Indenture, or (3) arising or agreed to in the ordinary course
of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Company or
any Restricted
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Subsidiary in any manner material to the Company or such
Restricted Subsidiary; (e) any encumbrance or restriction
pursuant to an agreement relating to an acquisition of property,
so long as such encumbrance or restriction relates solely to the
property so acquired; (f) any encumbrances or restrictions
pursuant to the Credit Agreement and any extensions or revisions
thereof; and (g) any encumbrance or restriction imposed by any
Gaming Authority.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. The
Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such
Asset Disposition at least equal to the Fair Market Value, as
determined in good faith by the Board of Directors, the
determination of which shall be evidenced by a Board Resolution
(including as to the value of all non-cash consideration), of the
shares and assets subject to such Asset Disposition; (ii) at
least 85% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or cash
equivalents; (iii) the Company delivers an Officers' Certificate
to the Trustee certifying that such Asset Disposition complies
with clauses (i) and (ii); and (iv) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by
the Company (or such Restricted Subsidiary, as the case may be)
(a) FIRST, to the extent the Company elects (or is required by
the terms of any Senior Indebtedness or the 10 5/8% Notes), to
prepay, repay or purchase Senior Indebtedness or Indebtedness
(including the 10 5/8% Notes but other than any Preferred Stock)
of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company)
within 270 days from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (b)
SECOND, to the extent of the balance of Net Available Cash after
application in accordance with clause (a), to the extent the
Company or such Restricted Subsidiary elects, to reinvest in
Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary)
within 270 days from the later of such Asset Disposition or the
receipt of such Net Available Cash; and (c) THIRD, to the extent
of the balance of such Net Available Cash after application in
accordance with clauses (a) and (b) (such balance being the
"Excess Proceeds"), to make an Offer to purchase Notes pursuant
to and subject to the conditions of the following two paragraphs;
PROVIDED, HOWEVER that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (a) or
(c) above, the Company or such Restricted Subsidiary shall retire
such Indebtedness and shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this provision, the
Company and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance with this provision
except to the extent that the aggregate Net Available Cash from
all Asset Dispositions which are not applied in accordance with
this provision exceed $15 million (taking into account income
earned on any Excess Proceeds). Pending application of Net
Available Cash pursuant to this provision, such Net Available
Cash shall be invested in Temporary Cash Investments.
Upon an Event of Loss incurred by the Company or any of its
Restricted Subsidiaries, the Net Available Cash received from
such Event of Loss shall be applied in the same manner as
proceeds from Asset Dispositions described above and pursuant to
the procedures set forth below.
In the event of an Asset Disposition or Event of Loss that
requires the purchase of Notes pursuant to clause (iii)(c) of the
next preceding paragraph, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for
the Notes (the "Offer") which offer shall be in the amount of the
Allocable Excess Proceeds (as defined below), at a purchase price
of 100% of their principal amount plus accrued interest to the
Purchase Date in accordance with the procedures (including
prorationing in the event of over subscription) set forth in the
next paragraph. If the aggregate purchase price of Notes
tendered pursuant to the Offer is less than the Allocable Excess
Proceeds, the Company may use the remaining Net Available Cash in
its general operations and the amount of Excess Proceeds will be
reset to zero. The Company shall not be required to make an
Offer for Notes pursuant to this provision if the Excess Proceeds
are less than $15 million for any particular Asset Disposition or
Event of Loss (which lesser amounts plus any income earned
thereon shall be carried forward for purposes of determining
whether an Offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition or Event of Loss).
"Allocable Excess Proceeds" means the product of (x) the Excess
Proceeds and (y) a fraction, the numerator of which is the
aggregate principal amount of the Notes outstanding on the date
of the Offer and the denominator of which is the sum of the
aggregate principal amount of the Notes outstanding on the date
of the Offer and the aggregate principal amount of other
Indebtedness of the Company outstanding on the date of the Offer
that is PARI PASSU in right of payment with the Notes and subject
to terms and conditions in respect of Asset Dispositions similar
in all material respects to the covenant described hereunder and
requiring the Company to make an offer to purchase such
Indebtedness substantially at the same time as the Offer.
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Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be
obligated to deliver to the Trustee and send, by first-class mail
to each Holder, a written notice stating that the Holder may
elect to have his Notes purchased by the Company either in whole
or in part (subject to prorationing as hereinafter described in
the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price.
The notice shall specify a purchase date not less than 30 days
nor more than 60 days after the date of such notice (the
"Purchase Date") and shall contain information concerning the
business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a
minimum will include (i) the most recently filed Annual Report on
Form 10-K (including audited consolidated financial statements)
of the Company, the most recent subsequently filed Quarterly
Report on Form 10-Q and any Current Report on Form 8-K of the
Company filed subsequent to such Quarterly Report, other than
Current Reports describing Asset Dispositions or Events of Loss
otherwise described in the offering materials (or corresponding
successor reports) (collectively, the "Reports"), (ii) a
description of material developments in the Company's business
subsequent to the date of the latest of the Reports, and (iii) if
material, appropriate PRO FORMA financial information) and all
instructions and materials necessary to tender Notes pursuant to
the Offer, together with the information contained in the next
following paragraph.
Not later than the date upon which written notice of an
Offer is delivered to the Trustee as provided below, the Company
shall deliver to the Trustee an Officers' Certificate as to (i)
the amount of the Allocable Excess Proceeds, (ii) the allocation
of the Net Available Cash from the Asset Dispositions or Event of
Loss pursuant to which such Offer is being made and (iii) the
compliance of such allocation with the provisions of the next
preceding paragraph. On such date, the Company shall also
irrevocably deposit with the Trustee or with a paying agent (or,
if the Company is acting as its own paying agent, segregate and
hold in trust) in Temporary Cash Investments an amount equal to
the Allocable Excess Proceeds to be held for payment in
accordance with the provisions of this provision. Upon the
expiration of the period for which the Offer remains open (the
"Offer Period"), the Company shall deliver to the Trustee the
Notes or portions thereof which have been properly tendered to
and are to be accepted by the Company. The Trustee shall, on the
Purchase Date, mail or deliver payment to each tendering Holder
in the amount of the purchase price. In the event that the
aggregate purchase price of the Notes delivered by the Company to
the Trustee is less than the amount of Allocable Excess Proceeds,
the Trustee shall deliver the excess to the Company immediately
after the expiration of the Offer Period.
Holders electing to have a Note purchased will be required
to surrender the Note, with an appropriate form duly completed,
to the Company at the address specified in the notice at least
five Business Days prior to the Purchase Date. Holders will be
entitled to withdraw their election if the Trustee or the Company
receives not later than three Business Days prior to the Purchase
Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note
which was delivered for purchase by the Holder and a statement
that such Holder is withdrawing his election to have such Note
purchased. If at the expiration of the Offer Period the
aggregate principal amount of Notes surrendered by Holders
exceeds the amount of Allocable Excess Proceeds, the Company
shall select the Notes to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so
that only Notes in denominations of $1,000, or integral multiples
thereof, shall be purchased). Holders whose Notes are purchased
only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered.
At the time the Company delivers Notes to the Trustee which
are to be accepted for purchase, the Company will also deliver an
Officers' Certificate stating that such Notes are to be accepted
by the Company pursuant to and in accordance with the terms of
this provision. A Note shall be deemed to have been accepted for
purchase at the time the Trustee, directly or through an agent,
mails or delivers payment therefor to the surrendering Holder.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other
securities laws or regulations in connection with the repurchase
of Notes pursuant to this provision. To the extent that the
provisions of any securities laws or regulations conflict with
this provision, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have
breached its obligations under this provision by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The
Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, conduct any business, enter into or
permit to exist any transaction (including the purchase,
conveyance, disposition, sale, lease or exchange of any property
or the rendering of any service) with any
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Affiliate of the Company (an "Affiliate Transaction") unless the
terms of such Affiliate Transaction are (i) set forth in writing,
(ii) in the best interest of the Company or such Restricted
Subsidiary, as the case may be, (iii) as favorable to the Company
or such Restricted Subsidiary, as the case may be, as those that
could be obtained at the time of such transaction for a similar
transaction in arm's-length dealings with a Person who is not
such an Affiliate, and (iv) with respect to an Affiliate
Transaction involving aggregate payments or value of $1 million
or greater, the Independent Directors have determined in good
faith that the criteria set forth in clauses (ii) and (iii) are
satisfied and have approved the relevant Affiliate Transaction,
such approval to be evidenced by a Board Resolution. The
determinations pursuant to clauses (ii) and (iii) above shall not
require the Board of Directors or the Independent Directors to
obtain independent expert opinions unless, in the sole judgment
of the Board of Directors or the Independent Directors, the Board
of Directors or the Independent Directors decide to obtain such
an opinion.
(b) The provisions of the preceding paragraph shall not
prohibit (i) any Restricted Payment permitted to be paid pursuant
to "- Limitation on Restricted Payments" above, (ii) any issuance
of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iii) loans or advances to
employees in the ordinary course of business in accordance with
past practices of the Company, (iv) the payment of reasonable
fees to directors of the Company and its Restricted Subsidiaries
who are not employees of the Company or its Restricted
Subsidiaries or (v) any transaction between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.
LIMITATION ON LAYERED INDEBTEDNESS. The Company will not,
and will not permit the Guarantor to, directly or indirectly,
Incur any Indebtedness that is subordinate in right of payment to
any other Indebtedness of the Company or the Guarantor, as the
case may be, unless such Indebtedness is subordinate in right of
payment to, or ranks PARI PASSU with, the Notes in the case of
the Company or the Rio Guarantee in the case of the Guarantor.
The Guarantor will not, directly or indirectly, Guarantee
any Indebtedness of the Company that is subordinated in right of
payment to any other Indebtedness of the Company unless such
Guarantee is subordinate in right of payment to, or ranks PARI
PASSU with, the Rio Guarantee.
LIMITATION ON LIENS. The Company shall not, and shall not
permit the Guarantor to, directly or indirectly, create or permit
to exist any Lien (other than Permitted Liens and Liens securing
Senior Indebtedness or Senior Indebtedness of Guarantor,
including Attributable Indebtedness that is Senior Indebtedness
or Senior Indebtedness of Guarantor) on any of its property or
assets (including Capital Stock), whether owned on the date of
the Indenture or thereafter acquired, or any income or profits
therefrom securing any obligation unless contemporaneously
therewith effective provision is made to secure the Notes equally
and ratably with (or prior to) such obligation for so long as
such obligation is so secured.
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company will not permit any
Restricted Subsidiary to, directly or indirectly, issue any
Capital Stock other than to the Company or a Restricted
Subsidiary, that shall entitle the holder of such Capital Stock
to a preference in right of payment in the event of the
liquidation, dissolution or winding-up of such Restricted
Subsidiary or with respect to dividends of such Restricted
Subsidiary.
OWNERSHIP OF RIO PROPERTIES, INC. The Company will
maintain its 100% ownership of the Capital Stock of the
Guarantor.
SUCCESSOR COMPANY
Neither the Company nor the Guarantor shall consolidate with
or merge with or into, or convey, transfer or lease all or
substantially all its assets to, any Person, unless: (i) the
resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation organized and existing under the
laws of the United States of America, any State thereof or the
District of Columbia and the Successor Company (if not the
Company or the Guarantor) shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture or the Guarantor under
the Rio Guarantee and the Indenture, as the case may be; (ii)
immediately after giving effect to such transaction on a PRO
FORMA basis (and treating
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any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such
transaction as having been Incurred by the Successor Company or
such Restricted Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a PRO FORMA basis (and
treating any Indebtedness which becomes an obligation of the
Successor Company or any Restricted Subsidiary as a result of
such transaction as having been Incurred by the Successor Company
or such Restricted Subsidiary at the time of such transaction),
the Successor Company would be able to incur an additional $1.00
of Indebtedness in compliance with the Consolidated Coverage
Ratio limitations set forth in "Limitation on Indebtedness"; (iv)
immediately after giving effect to such transaction on a PRO
FORMA basis (and treating any Indebtedness which becomes an
obligation of the Successor Company or any Restricted Subsidiary
as a result of such transaction as having been Incurred by the
Successor Company or such Restricted Subsidiary at the time of
such transaction), the Successor Company shall have Consolidated
Net Worth in an amount which is not less than the Consolidated
Net Worth of the Company immediately prior to such transaction;
and (v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
The Successor Company shall succeed to, and be substituted
for, and may exercise every right and power of, the Company or
the Guarantor, as the case may be, under the Indenture, but the
predecessor Company in the case of a lease shall not be released
from the obligation to pay the principal of and interest on the
Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (iv),
any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
The phrase "all or substantially all" of the Company's
assets has no clearly established meaning under New York law
which may result in uncertainty in ascertaining whether such an
event has occurred. See "Description of New Notes - Change of
Control."
EVENTS OF DEFAULT
An "Event of Default" occurs if: (i) the Company and the
Guarantor default in any payment of interest on any Note when the
same becomes due and payable, and such default continues for a
period of 30 days; (ii) the Company and the Guarantor (a) default
in the payment of the principal of any Note when the same becomes
due and payable at its Stated Maturity, upon redemption, upon
declaration or otherwise, or (b) fail to redeem or purchase Notes
when required pursuant to the Indenture or the Notes; (iii) the
Company or the Guarantor fails to comply with the provisions of
"Successor Company" above; (iv) the Company or the Guarantor, as
the case may be, fails to comply with "Change of Control" above,
"Reports to Holders of Notes" below, and subsections "-
Limitation on Indebtedness," "- Limitation on Restricted
Payments," "- Limitation on Restrictions on Distributions from
Subsidiaries," "- Limitation on Sales of Assets and Subsidiary
Stock," "- Limitation on Liens," "- Limitation on Layered
Indebtedness," "- Limitation on Transactions with Affiliates",
and "Ownership of Rio Properties, Inc." in "Certain Covenants"
(other than a failure to purchase Notes when required under
"Change of Control" or "Certain Covenants - Limitation on Sale of
Assets and Subsidiary Stock") of the Indenture and such failure
continues for 30 days after the notice specified below or the
Company fails to give the notice specified below; (v) the Company
or the Guarantor fails to comply with any of its agreements in
the Notes or the Indenture (other than those referred to in (i),
(ii), (iii) or (iv) above) and such failure continues for 60 days
after the notice specified below or the Company fails to give the
notice specified below; (vi) the principal, any premium or
accrued and unpaid interest of Indebtedness of the Company or any
Restricted Subsidiary is not paid within any applicable grace
period after final maturity or is accelerated by the holders
thereof because of a default, the total amount of such
Indebtedness unpaid or accelerated exceeds $10 million at the
time and such default continues for 10 days; (vii) the Company or
any Restricted Subsidiary pursuant to or within the meaning of
any Bankruptcy Law: (a) commences a voluntary case; (b) consents
to the entry of an order for relief against it in an involuntary
case; (c) consents to the appointment of a Custodian of it or for
any substantial part of its property; or (d) makes a general
assignment for the benefit of its creditors; or takes any
comparable action under any foreign laws relating to insolvency;
(viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (a) is for relief against
the Company or any Restricted Subsidiary in an involuntary case;
(b) appoints a Custodian of the Company or any Restricted
Subsidiary or for any substantial part of its property; or (c)
orders the winding up or liquidation of the Company or any
Restricted
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Subsidiary; or any similar relief is granted under any foreign
laws and the order or decree remains unstayed and in effect for
60 days; (ix) any judgment or decree for the payment of money in
excess of $10 million at the time is entered against the Company
or any Restricted Subsidiary and is not discharged and either (a)
an enforcement proceeding has been commenced by any creditor upon
such judgment or decree or (b) there is a period of 60 days
following the entry of such judgment or decree during which such
judgment or decree is not discharged, waived or the execution
thereof stayed and, in the case of (a) or (b), such default
continues for 10 days; or (x) any Gaming License of the Company
or any of its Restricted Subsidiaries is revoked, terminated or
suspended or otherwise ceases to be effective, resulting in the
cessation or suspension of operation for a period of more than 90
days of the casino business of any casino hotel owned, leased or
operated directly or indirectly by the Company or any of its
Restricted Subsidiaries (other than any voluntary relinquishment
of a Gaming License if such relinquishment is, in the reasonable,
good faith judgment of the Board of Directors of the Company
evidenced by a Board Resolution, both desirable in the conduct of
the business of the Company and its Subsidiaries, taken as a
whole, and not disadvantageous in any material respect to the
Holders).
The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary
or involuntary or is effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body.
The term "Bankruptcy Law" means Title 11, UNITED STATES
CODE, or any similar Federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee,
assignee, liquidator, custodian or similar official under any
Bankruptcy Law.
A Default under clause (iv) or (v) is not an Event of
Default until the Trustee or the Holders of at least 25% in
principal amount of the Notes notify the Company of the Default
and the Company does not cure such Default within the time
specified after receipt of such notice. Such notice must specify
the Default, demand that it be remedied and state that such
notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days
after the occurrence thereof, written notice in the form of an
Officers' Certificate of any event which with the giving of
notice and the lapse of time would become an Event of Default
under clause (iv), (v), (vi) or (ix), its status and what action
the Company is taking or proposes to take with respect thereto.
ACCELERATION
If an Event of Default (other than an Event of Default
specified in clauses (vii) or (viii) in "Events of Default" above
with respect to the Company) occurs and is continuing, the
Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the Notes by notice to the Company and the
Trustee, may declare the principal of and accrued interest on all
the Notes to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable immediately. If
an Event of Default specified in clause (vii) or (viii) above
with respect to the Company occurs, the principal of and interest
on all the Notes shall IPSO FACTO become and be immediately due
and payable without any declaration or other act on the part of
the Trustee or any Noteholders. The Holders of a majority in
principal amount of the Notes by notice to the Trustee may
rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely
because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
LIMITATION ON SUITS
A Noteholder may not pursue any remedy with respect to the
Indenture or the Notes unless: (i) the Holder gives to the
Trustee written notice stating that an Event of Default is
continuing; (ii) the Holders of at least 25% in principal amount
of the Notes make a written request to the Trustee to pursue the
remedy; (iii) such Holder or Holders offer to the Trustee
reasonable security or indemnity against any loss, liability or
expense; (iv) the Trustee does not comply with the request within
60 days after receipt of the request and the offer of security or
indemnity; and (v) the Holders of a majority
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in principal amount of the Notes do not give the Trustee a
direction inconsistent with the request during such 60-day
period.
A Noteholder may not use the Indenture to prejudice the
rights of another Noteholder or to obtain a preference or
priority over another Noteholder.
RIGHTS OF HOLDERS TO RECEIVE PAYMENT
Notwithstanding any other provision of the Indenture, the
right of any Holder to receive payment of principal of and
interest on the Notes held by such Holder, on or after the
respective due dates expressed in the Notes, or to bring suit for
the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of
such Holder.
DISCHARGE OF INDENTURE AND DEFEASANCE
When (i) the Company delivers to the Trustee all outstanding
Notes (other than Notes replaced because of mutilation, loss,
destruction or wrongful taking) for cancellation or (ii) all
outstanding Notes have become due and payable, whether at
maturity or as a result of the mailing of a notice of redemption
as described above and the Company irrevocably deposits with the
Trustee funds sufficient to pay at maturity or upon redemption
all outstanding Notes, including interest thereon, and if in
either case the Company pays all other sums payable hereunder by
the Company, then the Indenture shall, subject to certain
surviving provisions, cease to be of further effect. The Trustee
shall acknowledge satisfaction and discharge of the Indenture on
demand of the Company accompanied by an Officers' Certificate and
an Opinion of Counsel and at the cost and expense of the Company.
Subject to conditions to defeasance described below and the
survival of certain provisions, the Company at any time may
terminate (i) all its obligations under the Notes and the
Indenture ("legal defeasance option") or (ii) its obligations
under certain restrictive covenants and the related Events of
Default ("covenant defeasance option"). The Company may exercise
its legal defeasance option notwithstanding its prior exercise of
its covenant defeasance option.
If the Company exercises its legal defeasance option,
payment of the Notes may not be accelerated because of an Event
of Default. If the Company exercises its covenant defeasance
option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (ii) of the immediately
preceding paragraph.
The Company may exercise its legal defeasance option or its
covenant defeasance option only if:
(a) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the payment of
principal and interest on the Notes to maturity or redemption, as
the case may be; and
(b) certain other conditions, including delivery of certain
opinions of counsel, are met.
REPORTS TO HOLDERS OF THE NOTES
The Company shall file with the Trustee and provide
Noteholders, within 15 days after it files them with the SEC,
copies of its annual report and the information, documents and
other reports which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall continue to file with the SEC
and provide the Trustee and Noteholders with the annual reports
and the information, documents and other reports which are
specified in Sections 13 and 15(d) of the Exchange Act. The
Company also shall comply with the other provisions of TIA
Section 314(a).
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with
the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer
documents, and the Company may require a Holder to pay any taxes
and fees required by law or permitted by the Indenture. The
Registrar is not required to transfer or exchange any Note
selected for redemption, or any Note for a period of 15 days
before a selection of Notes to be redeemed, or any Note for a
period of 15 days before an interest payment date.
The registered holder of a Note may be treated as the owner
of it for all purposes.
AMENDMENT AND SUPPLEMENT
Subject to certain exceptions, the Indenture, the Notes or
the Rio Guarantee may be amended or supplemented by the Company
or the Guarantor and the Trustee with the consent of the Holders
of at least a majority in principal amount of such then
outstanding Notes. Without notice to or the consent of any
Noteholder, the Company, the Guarantor and the Trustee may amend
the Indenture or the Notes, among other things, to cure any
ambiguity, defect or inconsistency; to provide for the assumption
of the Company's or the Guarantor's obligations to Noteholders by
a Successor Corporation; to provide for uncertificated Notes in
addition to or in place of certificated Notes; or to make any
change that does not adversely affect the rights of any
Noteholder. Without the consent of each Noteholder affected, the
Company may not reduce the principal amount of Notes the Holders
of which must consent to an amendment of the Indenture; reduce
the rate or extend the time for payment of interest on any Note;
reduce the principal of or extend the fixed maturity of any Note;
reduce the premium payable upon the redemption of any Note or
change the time at which any Note may or shall be redeemed;
reduce the premium payable upon the repurchase of any Note upon a
Change of Control; make any Note payable in money other than that
stated in the Note; make any change in the provisions concerning
waiver of Defaults or Events of Default by Holders of the Notes
or rights of Holders to receive payment of principal or interest;
make any change in the subordination provisions in the Indenture
that affects the right of any Holder; or release the Company or
the Guarantor from its obligations under the Notes or the Rio
Guarantee (except pursuant to the provisions described above in
"Limitation on Merger or Sale of Assets") or make any change in
the Notes that would adversely affect the rights of any Holder.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS
No director, officer, employee or stockholder, as such, of
the Company shall have any personal liability in respect of the
obligations of the Company under the Notes or the Indenture by
reason of his or its status as such.
THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the
Indenture.
The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties
as are specifically set forth in the Indenture. During the
existence of an Event of Default, the Trustee will exercise such
of the rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent
Person would exercise under the circumstances in the conduct of
such Person's own affairs.
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CERTAIN U.S. FEDERAL TAX CONSEQUENCES
BACKUP WITHHOLDING
Under federal income tax law, a Holder may, under certain
circumstances, be subject to "backup withholding" unless such
Holder (i) is a corporation, or is otherwise exempt and, when
required, demonstrates this fact, or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The withholding
rate is 31% of "reportable payments," which include interest and,
under certain circumstances, principal payments.
PAYMENTS TO UNITED STATES ALIENS
Under current United States federal income and estate tax
law, (i) payments of principal and interest on a Note by the
Company or any paying agent to a Noteholder that is a foreign
corporation, a nonresident alien individual, a nonresident alien
fiduciary of a foreign estate or trust, or a foreign partnership
one or more of the members of which is, for United States federal
income tax purposes, a foreign corporation, a nonresident alien
individual, or a nonresident alien fiduciary of a foreign estate
or trust (a "United States Alien") will not be subject to
withholding of United States federal income tax, provided that,
with respect to payments of interest, the Noteholder (1) does not
actually or constructively own 10% or more of the combined voting
power of all classes of stock of the Company, (2) is not a
controlled foreign corporation related to the Company through
stock ownership and (3) provides a statement, under penalties of
perjury (such as Form W-8), to the Company that the Noteholder is
a United States Alien and provides its name and address; (ii) a
Noteholder that is a United States Alien will not be subject to
United States federal income tax on gain realized on the sale,
exchange or redemption of such Note, provided that such
Noteholder (or a fiduciary, settlor or beneficiary of, or a
person holding power over, such Noteholder, if such Noteholder is
an estate or trust, or a member or stockholder of each
Noteholder, if such Noteholder is a partnership or corporation)
does not have a present or former connection with or status with
respect to the United States including, without limitation, such
Noteholder's (or such fiduciary, settlor, beneficiary, person
holding a power, member or stockholder) (1) being or having been
a citizen or resident thereof or being or having been engaged in
trade or business or present therein or having or having had a
permanent establishment therein or (2) past or present status as
a personal holding company, foreign person holding company or
private foundation or other tax-exempt organization with respect
to the United States or as a corporation that accumulates
earnings to avoid United States federal income tax; and (iii) a
Note will not be subject to United States federal estate tax as a
result of the death of a Noteholder who is not a citizen or
resident of the United States at the time of death, provided that
such Noteholder did not at the time of death actually or
constructively own 10% or more of the combined voting power of
all classes of stock of the Company and, at the time of such
Noteholder's death, payments of interest on such Note would not
have been effectively connected with the conduct by such
Noteholder of a trade or business in the United States.
United States information reporting requirements and backup
withholding tax will not apply to payments on a Note made outside
the United States by the Company or any paying agent (acting in
its capacity as such) to a Noteholder that is a United States
Alien provided that a statement described in (i)(3) above has
been received by the payor and the payor does not have actual
knowledge that the payee is not a United States Alien.
Information reporting requirements and backup withholding
tax will not apply to any payment of the proceeds of the sale of
a Note effected outside the United States by a foreign office of
a "broker" (as defined in applicable Treasury regulations),
provided that such broker (1) is a United States Alien, (2)
derives less than 50% of its gross income for certain periods
from the conduct of a trade or business in the United States and
(3) is not a controlled foreign corporation as to the United
States (a person described in (1), (2) and (3) being hereinafter
referred to as a "foreign controlled person"). Payment of the
proceeds of the sale of a Note effected outside the United States
by a foreign office of any broker that is not a foreign
controlled person will not be subject to backup withholding tax,
but will be subject to information reporting requirements unless
such broker has documentary evidence in its records that the
beneficial owner is a United States Alien and certain other
conditions are met, or the beneficial owner otherwise establishes
an exemption.
83
<PAGE>
OTHER TAX CONSIDERATIONS
There may be other federal, state, local or foreign tax
considerations applicable to the circumstances of a particular
prospective purchaser of the Notes as to which it should consult
its tax adviser. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS
OWN TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO IT OF
PURCHASING, HOLDING AND DISPOSING OF THE NEW NOTES.
84
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed,
starting on the Expiration Date and ending on the close of
business on the first anniversary of the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of
New Notes by broker-dealers. New Notes received by any broker-
dealer for their own account pursuant to the Exchange Offer may
be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the
writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of
resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Notes
may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and
any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that
it will deliver, and by delivering, a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of one year after the Expiration Date, the
Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-
dealer that requests such documents in the Letter of Transmittal.
The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of counsel for the Initial
Purchasers and the Trustee) other than commissions or concessions
of any brokers or dealers and will indemnify the Holders of the
Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
85
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference, the following
documents filed with the Commission under the Exchange Act:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995; the Company's Reports on Form 10-Q for
the periods ended March 31, 1996, June 30, 1996, and
September 30, 1996; and the Company's Report on Form 8-K
dated February 4, 1997; and
(b) All documents and reports subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to
termination of the Exchange Offer, shall be deemed to be
incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents or
reports.
Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded, except
as so modified or superseded, shall not be deemed to constitute a
part of this Prospectus.
The Company will provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written
or oral request of such person, a copy of any or all of the
documents incorporated herein by reference, other than exhibits
to such documents unless they are specifically incorporated by
reference into such documents. Requests for such copies should
be directed to: James A. Barrett, Jr., President, Rio Hotel &
Casino, Inc., 3700 West Flamingo Road, Las Vegas, Nevada 89103,
(702) 252-7733.
LEGAL MATTERS
Certain legal matters with regard to the validity of the New
Notes will be passed upon for the Company by Kummer Kaempfer
Bonner & Renshaw, Las Vegas, Nevada.
EXPERTS
The consolidated financial statements included elsewhere in
this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
86
<PAGE>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1995 and
1994 and September 30, 1996 (Unaudited) F-3
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993, and for the Nine Months
Ended September 30, 1996 and 1995 (Unaudited) F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993, and for the Nine Months
Ended September 30, 1996 and 1995 (Unaudited) F-6
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 and for the
Nine Months Ended September 30, 1996 (Unaudited F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Rio Hotel & Casino, Inc.:
We have audited the accompanying consolidated balance sheets
of Rio Hotel & Casino, Inc. (a Nevada corporation) and
subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements 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, the financial statements referred to above
present fairly, in all material respects, the financial position
of Rio Hotel & Casino, Inc. and subsidiaries as of December 31,
1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 7 to the consolidated financial
statements, effective January 1, 1993, the Company changed its
method of accounting for income taxes.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 26, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995 1994
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 10,990,443 $ 19,992,695 $ 76,426,258
Accounts receivable, net 5,677,846 4,313,442 3,204,416
Federal income taxes receivable 450,058 190,914 139,329
Inventories 3,731,801 1,794,850 1,378,598
Prepaid expenses and other current assets 4,867,706 4,638,090 4,716,701
Total current assets 25,717,854 30,929,991 85,865,302
Property and equipment:
Land and improvements 47,890,821 37,509,960 24,666,679
Building and improvements 195,762,408 192,818,896 137,005,432
Equipment, furniture and improvements 74,033,008 68,500,267 43,108,873
Less: accumulated depreciation (58,887,367) (46,707,850) (32,826,276)
258,798,870 252,121,273 171,954,708
Construction in progress 141,534,800 17,173,483 38,521,773
Net property and equipment 400,333,670 269,294,756 210,476,481
Other assets, net 7,786,648 8,566,847 4,823,489
$ 433,838,172 $ 308,791,594 $ 301,165,272
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 342,845 $ 25,252 $ 15,032,534
Note payable 1,000,000 - -
Accounts payable 4,019,402 4,562,132 2,425,645
Accrued expenses 14,100,525 9,136,226 7,830,706
Accounts payable - related party 24,178,394 6,641,506 10,026,210
Accrued interest 3,288,740 4,726,915 351,864
Total current liabilities 46,929,906 25,092,031 35,666,959
Non-current liabilities:
Long-term debt, less current maturities 197,002,902 110,176,765 110,146,869
Deferred income taxes 11,377,388 10,634,898 7,512,277
Total non-current liabilities 208,380,290 120,811,663 117,659,146
Total liabilities 255,310,196 145,903,694 153,326,105
Stockholders' equity:
Common stock, $0.01 par value;
100,000,000 shares authorized;
21,236,341; 21,139,146 and 21,371,346 shares
issued and outstanding 212,364 211,392 213,714
Additional paid-in capital 114,091,669 113,520,158 117,214,582
Retained earnings 64,223,943 49,156,350 30,410,871
Total stockholders' equity 178,527,976 162,887,900 147,839,167
$ 433,838,172 $ 308,791,594 $ 301,165,272
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Casino $ 83,082,679 $ 76,796,240
Room 30,112,121 25,026,342
Food and beverage 52,992,883 44,531,840
Other 11,446,560 9,157,338
Casino promotional allowances (14,546,973) (13,661,681)
163,087,270 141,850,079
Expenses:
Casino 40,005,532 33,718,226
Room 9,876,771 7,641,962
Food and beverage 40,615,871 35,907,312
Other 5,862,380 4,934,415
Selling, general and administrative 23,539,507 21,040,377
Depreciation and amortization 12,538,158 10,386,640
132,438,219 113,628,932
Operating profit 30,649,051 28,221,147
Other income (expense):
Interest expense (7,112,247) (5,410,950)
Other income - -
(7,112,247) (5,410,950)
Income before income tax provision 23,536,804 22,810,197
Income tax provision (8,469,211) (8,499,509)
Income before extraordinary items 15,067,593 14,310,688
Extraordinary items:
Loss on early extinguishment of debt,
net of income tax benefit - -
Cumulative effect of a change in
accounting principle:
Adoption of SFAS No. 109 - -
Net income $ 15,067,593 $ 14,310,688
</TABLE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
For the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Casino $ 105,546,531 $ 87,164,738 $ 71,295,870
Room 33,826,095 19,261,477 12,334,207
Food and beverage 60,009,994 47,648,778 32,573,861
Other 12,386,275 7,235,891 4,244,019
Casino promotional allowances (18,810,726) (14,886,794) (10,394,625)
192,958,169 146,424,090 110,053,332
Expenses:
Casino 48,071,953 38,696,281 31,177,642
Room 10,413,883 6,631,787 4,441,851
Food and beverage 48,257,881 38,795,127 27,799,449
Other 6,646,950 4,959,250 2,784,746
Selling, general and administrative 27,777,901 20,550,142 16,001,309
Depreciation and amortization 14,231,307 10,863,844 7,544,326
155,399,875 120,496,431 89,749,323
Operating profit 37,558,294 25,927,659 20,304,009
Other income (expense):
Interest expense (8,105,680) (1,923,237) (1,838,713)
Other income - 1,140,010 -
(8,105,680) (783,227) (1,838,713)
Income before income tax provision 29,452,614 25,144,432 18,465,296
Income tax provision (10,707,135) (9,178,023) (6,785,305)
Income before extraordinary items 18,745,479 15,966,409 11,679,991
Extraordinary items:
Loss on early extinguishment of debt,
net of income tax benefit - - (253,711)
Cumulative effect of a change in
accounting principle:
Adoption of SFAS No. 109 - - (776,888)
Net income $ 18,745,479 $ 15,966,409 $ 10,649,392
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
Nine Months Ended September 30,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Earnings per common share:
Primary:
Income applicable to common shares $ 0.70 $ 0.66
Extraordinary items:
Loss on early extinguishment of debt,
net of income tax benefit - -
Cumulative effect of a change in accounting
principal:
Adoption of SFAS 109 - -
Net Income $ 0.70 $ 0.66
Weighted average number of common
shares outstanding 21,549,457 21,633,529
Fully diluted:
Income applicable to common shares $ 0.70 $ 0.66
Extraordinary items:
Loss on early extinguishment of debt,
net of income tax benefit - -
Cumulative effect of a change in accounting
principal:
Adoption of SFAS 109 - -
Net Income $ 0.70 $ 0.66
Weighted average number of common
shares outstanding 21,563,090 21,635,455
</TABLE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
For the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Earnings per common share:
Primary:
Income applicable to common shares $ 0.87 $ 0.74 $ 0.60
Extraordinary items:
Loss on early extinguishment of debt,
net of income tax benefit - - (0.01)
Cumulative effect of a change in accounting
principal:
Adoption of SFAS 109 - - (0.04)
Net Income $ 0.87 $ 0.74 $ 0.55
Weighted average number of common
shares outstanding 21,591,325 21,720,121 19,504,466
Fully diluted:
Income applicable to common shares $ 0.87 $ 0.74 $ 0.60
Extraordinary items:
Loss on early extinguishment of debt,
net of income tax benefit - - (0.01)
Cumulative effect of a change in accounting
principal:
Adoption of SFAS 109 - - (0.04)
Net Income $ 0.87 $ 0.74 $ 0.55
Weighted average number of common
shares outstanding 21,592,769 21,720,381 19,537,515
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 15,067,593 $ 14,310,688
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss on early extinguishment of
debt, net of income tax benefit - -
Compensation expense recognized
from stock option grant 79,409 58,477
Depreciation and amortization 12,538,163 10,386,640
Provision for uncollectible accounts 63,872 211,908
Net loss on sale of assets - -
Cumulative effect of change in
accounting principle - Adoption
of SFAS 109 - -
Deferred income taxes 742,490 2,506,408
(Increase) decrease in assets:
Accounts receivable (1,428,276) (1,181,769)
Inventories (1,936,951) (62,796)
Prepaid expenses and other current
assets 67,453 231,709
Other, net 454,061 (1,026,048)
Increase (decrease) in liabilities:
Accounts payable (542,729) 972,097
Accrued federal income tax payable - 609,125
Accrued expenses 4,964,299 2,098,365
Accrued interest (1,438,175) 1,778,592
Net cash provided by operating
activities 28,631,209 30,893,396
Cash flows from investing activities:
Purchase of equipment, furniture and
improvements (112,036,884) (46,810,997)
Purchase of land and improvements (11,500,910) (10,711,864)
Net cash (used in) investing
activities (123,537,794) (57,522,861)
Cash flow from financing activities:
Proceeds from borrowings 86,000,000 -
Net proceeds from common stock
issuance 1,146,710 878,651
Net proceeds from issuance of senior
subordinated notes - 96,869,021
Repurchase of common stock (1,209,850) (3,237,788)
Costs paid in connection with prior
common stock offering and stock
exchange rights - -
Loan acquisition costs - -
Payments on notes and loans payable (32,527) (124,964,759)
Net cash (used in) provided by
financing activities 85,904,333 (30,454,875)
Net increase (decrease) in cash and
cash equivalents (9,002,252) (57,084,340)
Cash and cash equivalents, beginning of
period 19,992,695 76,426,258
Cash and cash equivalents, end of period $ 10,990,443 $ 19,341,918
</TABLE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 18,745,479 $ 15,966,409 $ 10,649,392
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss on early extinguishment of
debt, net of income tax benefit - - 253,711
Compensation expense recognized
from stock option grant 87,627 141,975 54,133
Depreciation and amortization 14,231,307 10,863,844 7,544,326
Provision for uncollectible accounts 1,002,463 512,999 523,491
Net loss on sale of assets - - 10,885
Cumulative effect of change in
accounting principle - Adoption
of SFAS 109 - - 776,888
Deferred income taxes 3,122,621 1,693,101 2,265,571
(Increase) decrease in assets:
Accounts receivable (2,026,109) (790,677) (1,891,439)
Inventories (416,252) (510,231) (223,051)
Prepaid expenses and other current
assets 659,627 (827,476) (856,554)
Other, net (843,335) (2,881,750) (662,965)
Increase (decrease) in liabilities:
Accounts payable 2,136,487 (522,443) 304,585
Accrued federal income tax payable - 546,142 91,401
Accrued expenses 1,305,520 1,306,086 1,628,387
Accrued interest 4,375,051 297,896 (92,009)
Net cash provided by operating
activities 42,380,486 25,795,875 20,376,752
Cash flows from investing activities:
Purchase of equipment, furniture and
improvements (63,326,652) (66,053,542) (49,967,458)
Purchase of land and improvements (12,781,239) - 22,499
Net cash (used in) investing
activities (76,107,891) (66,053,542) (49,944,959)
Cash flow from financing activities:
Proceeds from borrowings 10,000,000 60,014,175 65,000,000
Net proceeds from common stock
issuance 969,251 1,022,700 32,506,200
Net proceeds from issuance of senior
subordinated notes 96,750,244 - -
Repurchase of common stock (5,386,225) - -
Costs paid in connection with prior
common stock offering and stock
exchange rights - (119,529) (456,821)
Loan acquisition costs - - (1,107,647)
Payments on notes and loans payable (125,039,428) (18,358) (53,212,000)
Net cash (used in) provided by
financing activities (22,706,158) 60,898,988 42,729,732
Net increase (decrease) in cash and
cash equivalents (56,433,563) 20,641,321 13,161,525
Cash and cash equivalents, beginning of
period 76,426,258 55,784,937 42,623,412
Cash and cash equivalents, end of period $ 19,992,695 $ 76,426,258 $ 55,784,937
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Number of
Shares Amount
<S> <C> <C>
Balance, December 31, 1992 18,600,796 $ 186,008
Tax benefit of stock options granted
Issuance of common stock 2,547,000 25,470
Common stock offering costs
Net income for the year
Implementation of SFAS No. 109
Compensation expense for stock
options granted
Balance, December 31, 1993 21,147,796 211,478
Tax benefit of stock options granted
Exercise of common stock options 223,550 2,236
Net income for the year
Compensation expense for stock
options granted in 1993
Balance, December 31, 1994 21,371,346 213,714
Tax benefit of stock options granted
Exercise of common stock options 198,300 1,983
Repurchase of common stock (430,500) (4,305)
Common stock offering costs
Net income for the year
Compensation expense for stock
options granted in 1993
Balance, December 31, 1995 21,139,146 211,392
Tax benefit of stock options granted
Exercise of common stock options 172,195 1,722
Repurchase of common stock (75,000) (750)
Net income for the nine months
Compensation expense for stock
options granted
Balance, September 30, 1996 21,236,341 $ 212,364
</TABLE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Additional Paid-In Retained Total Stockholders'
Capital Earnings Equity
<S> <C> <C> <C>
Balance, December 31, 1992 $ 82,891,073 $ 3,795,070 $ 86,872,151
Tax benefit of stock options granted 1,120,823 1,120,823
Issuance of common stock 32,480,730 32,506,200
Common stock offering costs (541,066) (541,066)
Net income for the year 10,649,392 10,649,392
Implementation of SFAS No. 109 (823,152) (823,152)
Compensation expense for stock
options granted 54,133 54,133
Balance, December 31, 1993 115,182,541 14,444,462 129,838,481
Tax benefit of stock options granted 886,132 886,132
Exercise of common stock options 1,003,934 1,006,170
Net income for the year 15,966,409 15,966,409
Compensation expense for stock
options granted in 1993 141,975 141,975
Balance, December 31, 1994 117,214,582 30,410,871 147,839,167
Tax benefit of stock options granted 632,601 632,601
Exercise of common stock options 965,467 967,450
Repurchase of common stock (5,381,920) (5,386,225)
Common stock offering costs 1,801 1,801
Net income for the year 18,745,479 18,745,479
Compensation expense for stock
options granted in 1993 87,627 87,627
Balance, December 31, 1995 113,520,158 49,156,350 162,887,900
Tax benefit of stock options granted 556,213 556,213
Exercise of common stock options 1,144,988 1,146,710
Repurchase of common stock (1,209,100) (1,209,850)
Net income for the nine months 15,067,593 15,067,593
Compensation expense for stock
options granted 79,410 79,410
Balance, September 30, 1996 $ 114,091,669 $ 64,223,943 $178,527,976
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-7
<PAGE>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts
of Rio Hotel & Casino, Inc. and its wholly owned subsidiaries:
Rio Properties, Inc. ("Rio Properties," which owns and operates
the Rio Suite Hotel & Casino (the "Rio") in Las Vegas, Nevada);
Rio Development Company, Inc. (formerly MarCor Development
Company, Inc.); Rio Resort Properties, Inc. (formerly MarCor
Resort Properties, Inc.); Rio Leasing, Inc.; and Rio Properties'
wholly owned subsidiaries, Cinderlane, Inc. and HLG, Inc.
All significant intercompany balances and transactions have
been eliminated in consolidation.
All amounts related to September 30, 1996 and 1995 are
unaudited.
RECLASSIFICATIONS
The financial statements for prior periods reflect certain
reclassifications, which have no effect on net income, to conform
with classifications adopted in the current year.
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 and disclosure of contingent 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 these estimates.
CAPITALIZATION OF INTEREST
The Company capitalizes interest on funds disbursed during
the active construction phases of real estate development and
other major projects. Interest capitalized during the years ended
1995, 1994, and 1993 was $0.9 million, $0.6 million and $0.5
million, respectively. For the nine month periods ended
September 30, 1996 and 1995, capitalized interest was $4.0
million and $0.6 million, respectively.
PROPERTY AND EQUIPMENT
Land and improvements, building and improvements, and
equipment, furniture and improvements are stated at cost.
Depreciation and amortization of property and equipment is
computed using the straight-line method predominantly over the
following estimated useful lives:
Building and improvements 7 to 45 years
Equipment, furniture and improvements 3 to 15 years
Costs of major improvements are capitalized, while costs of
normal repairs and maintenance are charged to expense as
incurred.
F-8
<PAGE>
PREOPENING COSTS
Preopening costs consist principally of direct incremental
personnel costs and advertising and marketing expenses. These
costs are capitalized prior to the opening of the specific
project and are charged to expense at the commencement of
operations. At September 30, 1996, included in construction-in-
progress is $3,009,480 in preopening costs.
IMPAIRMENT
Management reviews existing information and analyses of the
Company and its operations as well as indicators of impairment
(such as dramatic changes in the manner in which an asset is used
or forecasts showing lack of long-term profitability) to
determine whether an impairment may exist. The Company considers
relevant cash flow and profitability information, including
estimated future operating results, trends and other available
information, in assessing whether the carrying value of its fixed
assets can be recovered. Upon a determination that the carrying
value of an asset will not be recovered from its future
undiscounted cash flows, the carrying value of that asset would
be considered impaired and will be reduced by a charge to
operations in the amount of the impairment. Impairment is
measured as any deficiency in estimated discounted future cash
flows of the fixed assets to recover the carrying value related
to those assets.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost
is determined by using the first-in, first-out method.
REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenues represent the net win from gaming wins and
losses. The retail value of rooms, food, beverage and other
services provided to customers without charge is included in
gross revenue and deducted as promotional allowances. The
estimated departmental costs of providing such promotional
allowances are included in casino costs and expenses as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Room $1,255,269 $1,383,184
Food and beverage 6,845,047 6,610,073
Other operating expenses 140,021 81,274
$8,240,337 $8,074,531
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Room $ 1,940,936 $1,273,154 $ 889,448
Food and beverage 9,020,152 7,823,819 5,969,683
Other operating expenses 104,921 44,888 36,940
$11,066,009 $9,141,861 $6,896,071
</TABLE>
EARNINGS PER SHARE
Earnings per common share are computed on the basis of the
weighted average number of common shares and common stock
equivalents outstanding during the period.
HEDGING TRANSACTION
The Company was a party to an interest rate swap agreement
and has purchased an interest rate cap (Note 6). Any net
payments made or received by the Company in connection with this
interest rate swap agreement or interest rate cap, or any other
hedging transaction that the Company may enter into, will be
classified as cash flows from operating activities.
Premiums paid for the interest rate cap agreements are
amortized to interest expense over the shorter of the original
life of the debt or the term of the cap. Unamortized premiums
are included in other assets in the statement of financial
position. Accounts receivable under the agreements are accrued
as a reduction of interest expense. Amounts payable under the
interest rate swap agreements are included in interest expense.
F-9
<PAGE>
INCOME TAXES
Effective January 1, 1993, the Company implemented the
provisions of SFAS 109. SFAS 109 utilizes the liability method
and deferred taxes are determined based on the estimated future
tax effects of differences between the financial statement and
tax bases of assets and liabilities given the provisions of the
enacted tax laws.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at September 30, 1996,
December 31, 1995 and 1994 include $3 million, $10 million and
$68 million, respectively, in overnight repurchase agreements
with a bank. These items are recorded at cost which approximates
market value and are considered cash equivalents for purposes of
the Consolidated Statements of Cash Flows.
3. CONSOLIDATED STATEMENTS OF CASH FLOWS
The following supplemental disclosures are provided as part
of the Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Cash payments made for interest
(net of amounts capitalized) $7,736,982 $3,723,580
Cash payments made for income taxes $6,600,000 $5,500,000
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash payments made for interest
(net of amounts capitalized) $3,904,540 $1,919,556 $1,728,693
Cash payments made for income taxes $7,100,000 $6,240,000 $4,428,335
</TABLE>
Non-cash financing and investing activities:
SEPTEMBER 30, 1996
Purchase of property and equipment financed through payables
totaled $25,139,541.
Purchase of land financed through debt issuance totaled
$1,215,110.
Tax benefit arising from the exercise of stock options under
the Company's Non-Statutory Stock Option Plan ("NSOP") totaled
$556,213.
DECEMBER 31, 1995
Purchase of property and equipment financed through payables
totaled $6,556,126.
Purchase of land financed through long-term debt totaled
$62,042.
Accounts receivable increased by $85,380. This was financed
through payables and will be reimbursed to the Company.
Tax benefit arising from the exercise of stock options
granted under the NSOP totaled $632,601.
SEPTEMBER 30, 1995
Purchase of property and equipment financed through payables
totaled $4,149,939.
Bond offering costs financed through accounts payable
totaled $109,200.
F-10
<PAGE>
Tax benefit arising from the exercise of stock options under
the NSOP totaled $609,125.
DECEMBER 31, 1994
Purchase of property and equipment financed through payables
totaled $10,026,210.
Tax benefit arising from the exercise of stock options
granted under the NSOP totaled $886,132.
DECEMBER 31, 1993
Purchase of property and equipment financed through payables
totaled $8,442,660.
Purchase of property and equipment financed through long-
term debt totaled $183,586.
Additional costs of issuing Common Stock totaled $12,194.
Costs of issuing Common Stock financed through payables
totaled $163,801.
Tax benefit arising from the exercise of stock options
granted under the NSOP totaled $1,120,823.
Reduction in paid-in capital as a result of the
implementation of SFAS 109 totaled $823,152. This amount was
charged directly against equity because it reflects the tax
effect of SFAS 109 as it related to the gain on sale of assets to
affiliates of the Company's largest stockholder in December 1991,
which was also recorded directly to equity.
4. ACCOUNTS RECEIVABLE
Components of receivables are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
<S> <C> <C> <C>
Casino $ 3,670,658 $ 3,267,244 $ 2,082,871
Hotel 2,679,399 1,757,640 1,534,107
Other 216,352 113,250 66,573
6,566,409 5,138,134 3,683,551
Less allowance for doubtful
accounts (888,563) (824,692) (479,135)
$ 5,677,846 $ 4,313,442 $ 3,204,416
</TABLE>
5. ACCRUED EXPENSES
Components of accrued expenses are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
<S> <C> <C> <C>
Accrued salaries, wages and
related benefits $ 6,158,679 $ 4,065,736 $ 4,004,080
Progressive slot machines
and other gaming accruals 1,097,114 2,532,964 2,033,406
Accrued gaming taxes 921,839 841,037 1,123,036
Other accrued liabilities 5,922,893 1,696,489 670,184
$ 14,100,525 $ 9,136,226 $ 7,830,706
</TABLE>
F-11
<PAGE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
(Unaudited)
<S> <C> <C> <C>
Rio Bank Loan, originally a $65
million revolving credit facility,
which was amended to be a $200
million revolving credit facility
with interest equal to the
Eurodollar Rate or the Base Rate,
plus a margin. The loan matures on
June 30, 2001 and is collateralized
by a first deed of trust on the
Rio's real property, equipment and
improvements. $ 96,000,000 $ 10,000,000 $ 125,000,000
10-5/8% Senior Subordinated Notes,
interest only payable semi-annually;
principal due July 15, 2005. 100,000,000 100,000,000 -
Special improvement district
assessment bonds, payable over 10
years in twenty substantially equal
semi-annual installments of
principal, plus 6.1% interest. 170,989 202,017 165,228
9% note payable, payable in monthly
installments of $2,360. Secured by a
first deed of trust on real property. 213,611 - -
Other contract payable, secured by
equipment. 961,147 - 14,175
197,345,747 110,202,017 125,179,403
Less current maturities (342,845) (25,252) (15,032,534)
$ 197,002,902 $ 110,176,765 $ 110,146,869
</TABLE>
The prime interest rate quoted by the Company's primary
lenders at September 30, 1996 and December 31, 1995 was 8.25% and
8.50%, respectively.
At September 30, the three month Eurodollar Rate was 5.5%.
The margin on the Company's Eurodollar Rate borrowings at
September 30 was 2.0%.
The Rio Bank Loan was originally entered into on July 15,
1993 in the amount of $65 million with a syndicate of banks led
by Bank of America National Trust and Savings Association ("Bank
of America NT&SA"). As a result of certain amendments, the Rio
Bank Loan was increased to $125 million in December 1994, to $175
million in September 1995, and to $200 million in June 1996. As
amended, the Rio Bank Loan is a secured reducing revolving credit
facility to be used (a) to refinance the pre-amendment Rio Bank
Loan, (b) to finance the Phase V Expansion, (c) to finance
acquisition of land adjacent to the Rio for up to $30 million,
and (d) for general corporate purposes.
The Rio Bank Loan matures on June 30, 2001 and bears
interest based upon a "LIBOR Spread" of from 1% to 3%, or a "Base
Rate Spread" of from 0% to 2.0% based upon a schedule determined
with reference to the "Funded Debt to EBITDA Ratio" of Rio
Properties. The "LIBOR Spread" is the amount in excess of the
applicable LIBOR rate which is the London Interbank Offer rate
established in the London interbank market. The "Base Rate
Spread" is the amount in excess of the applicable base rate,
which is the rate per annum equal to the higher of the reference
rate as it is publicly announced from time to time by Bank of
America NT&SA or 0.50% per annum above the latest Federal Funds
rate. The Rio Bank Loan also provides for an unused facility fee
ranging from 31.25 basis points to 50.00 basis points depending
upon the same Funded Debt to EBITDA ratio schedule utilized for
the interest rate. (A basis point is one one-hundredth of one
percent.) The Rio Bank Loan requires monthly payments of
interest and requires scheduled reductions of the maximum amount
available under the Rio Bank Loan commencing with a $10.0 million
reduction at December 31, 1997, a $7.5 million reduction at the
end of each quarter during 1998, a $10.0 million reduction at the
end of each quarter during 1999, a $12.5 million reduction at the
end of each quarter during 2000, and a $35.0 million reduction at
March 31, 2001 and maturity at June 30, 2001.
F-12
<PAGE>
To reduce the risks from interest rate fluctuations, the
Company entered into interest rate swap agreements in the amount
of $20 million from September 30, 1994 through December 29, 1995
and $15 million from December 29, 1995 through its expiration on
June 28, 1996. In August 1994, the Company purchased a
$40 million interest rate cap, effective September 30, 1994, for
a three-year term, which provides for quarterly payments to the
Company in the event that three-month LIBOR exceeds 7% on any
quarterly reset date. The Company is exposed to credit risks in
the event of non-performance by the counterparty. At
September 30, 1996 and December 31, 1995, the potential maximum
credit risk amounted to $265,333 and $464,333, the carrying value
of the unamortized premiums, respectively. However, the Company
does not anticipate non-performance by the counterparty. The
counterparty under these agreements is Bank of America NT&SA, the
lead bank in the syndicate participating in the Rio Bank Loan.
Management believes that the financial resources of Bank of
America NT&SA and its competitive position within the national
banking industry significantly reduce the chances of non-
performance under the interest rate swap and cap agreements.
At September 30, 1996, the interest rate cap agreement had a
fair market value of less than $28,000. Management is of the
opinion that the fair values of all other financial instruments
are not materially different from their carrying values.
As a result of entering into interest rate swap agreements
and cap agreements, the Company has recognized interest expense
of $142,526, $18,638, $83,833, and $187,875 for the nine months
ended September 30, 1996 and the years ended December 31, 1995,
1994 and 1993, respectively. The impact of these hedging
activities on the Company's weighted average borrowing rate was
an increase of approximately 0.001%, 0.03%, 0.26% and 0.44% for
the nine months ended September 30, 1996 and the years ended
December 31, 1995, 1994 and 1993, respectively.
As of the nine months ended September 30, 1996, and the
years ended December 31, 1995 and 1994, there were no deferred
gains and losses relating to terminated interest rate swap and
interest rate cap agreements.
The revolving credit feature of the Rio Bank Loan allows the
Company to pay down and reborrow principal under the line of
credit as the Company deems appropriate. The Company utilized
this ability by reborrowing $69 million on December 30, 1994 and
repaying $69 million on January 3, 1995. The Company also
reborrowed $10 million on December 29, 1995 and repaid $9 million
on January 2, 1996 under the terms of the Rio Bank Loan. During
the third quarter of 1995, the Company used the net proceeds from
the Subordinated Notes to reduce amounts outstanding under the
Rio Bank Loan. The Company had $104 million and $165 million
available under the Rio Bank Loan at September 30, 1996 and
December 31, 1995, respectively, while the Company's borrowing
capacity under the Rio Bank Loan was fully utilized at
December 31, 1994.
As of September 30, 1996, at which time the Rio Bank Loan
was $96 million, annual maturities of total notes and loans
payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
<S> <C>
September 30, 1997 $ 342,845
September 30, 1998 360,105
September 30, 1999 365,383
September 30, 2000 4,037,752
September 30, 2001 92,038,925
Thereafter 100,200,737
$ 197,345,747
</TABLE>
Based upon the present operations of the Rio, internal
projections of revenues and expenses, and other anticipated cash
requirements of Rio Properties during 1996, the Company
anticipates meeting required principal and interest payments
under the Rio Bank Loan during 1996.
The carrying values of assets included in the consolidated
financial statements, which collateralize bank loans payable, are
as follows:
F-13
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
<S> <C> <C> <C>
Building and improvements $ 195,762,408 $ 192,818,896 $ 137,005,432
Equipment, furniture and
improvements 74,033,008 68,500,267 43,108,873
Land and improvements 47,890,821 37,509,960 24,666,679
Construction in progress 141,534,800 17,173,483 38,521,773
$ 459,221,037 $ 316,002,606 $ 243,302,757
</TABLE>
On July 18, 1995, the Company entered into an agreement with
Salomon Brothers Inc and Montgomery Securities (the "Initial
Purchasers") for the sale by the Company of $100 million in
principal amount of the Company's 10-5/8% Senior Subordinated
Notes Due 2005 (the "Old 10-5/8% Notes"). The Old 10-5/8% Notes
were purchased by the Initial Purchasers for resale to qualified
institutional investors. Pursuant to a registration agreement
between the Company and the Initial Purchasers, the Company
registered on Form S-4 under the Securities Act of 1933 $100
million principal amount of 10-5/8% Senior Subordinated Notes
Due 2005 (the "10-5/8% Notes") which were exchanged for the Old
10-5/8% Notes.
The 10-5/8% Notes were issued under an indenture (the
"Indenture") dated July 21, 1995 among the Company, Rio
Properties and IBJ Schroder Bank & Trust Company, as trustee.
The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to the provisions of
the Indenture and the 10-5/8% Notes. Capitalized terms not
otherwise defined have the same meanings assigned to them in the
Indenture.
The 10-5/8% Notes mature on July 15, 2005. Interest payment
dates under the 10-5/8% Notes are January 15 and July 15,
commencing January 15, 1996. The 10-5/8% Notes are
unconditionally guaranteed (the "Rio Guarantee") on a senior
subordinated basis by Rio Properties. The 10-5/8% Notes are
subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture) of the Company
and are structurally subordinated to all existing and future
indebtedness and other liabilities (including trade payables) of
the Company's subsidiaries. The Rio Guarantee is subordinated in
right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture) of Rio Properties and is
structurally subordinated to all existing and future indebtedness
and other liabilities (including trade payables) of Rio
Properties' subsidiaries.
The 10-5/8% Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or after July 15,
2000, at the redemption prices set forth in the Indenture, plus
accrued and unpaid interest, if any, through the redemption date.
The 10-5/8% Notes will be redeemed from any holder or beneficial
owner of the 10-5/8% Notes which is required to be found suitable
and is not found suitable by the Nevada Commission.
Upon a Change of Control of the Company (as defined in the
Indenture), each holder of 10-5/8% Notes will have the right to
require the Company to repurchase all or part of such holder's
10-5/8% Notes at a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. The Company's obligation to repurchase the
10-5/8% Notes is guaranteed on a senior subordinated basis by Rio
Properties. The Indenture contains certain covenants that, among
other things, limit the ability of the Company and its Restricted
Subsidiaries (as defined in the Indenture) to incur additional
indebtedness, pay dividends or make other distributions, make
investments, repurchase subordinated obligations or capital
stock, create certain liens (except, among others, liens securing
Senior Indebtedness), enter into certain transactions with
affiliates, sell assets of the Company or its subsidiaries, issue
or sell subsidiary stock, create or permit to exist restrictions
on distributions from subsidiaries, or enter into certain mergers
and consolidations.
7. INCOME TAXES
In February 1992, the Financial Accounting Standards Board
issued SFAS 109 which supersedes previous pronouncements on
accounting for income taxes and is effective for fiscal years
commencing after December 15, 1992. The Company adopted SFAS 109
in the first quarter of 1993 by reporting the effect of SFAS 109
as a cumulative effect of a change in accounting principle and
not restating prior periods. The effect of SFAS 109 recorded in
January 1993 decreased net income as a non-cash, non-recurring
cumulative effect of a change in accounting principle by an
amount
F-14
<PAGE>
totaling $776,888. It also reduced paid-in capital by an amount
totaling $823,152. This amount was charged directly against
equity because it reflects the tax effect of SFAS 109 as it
related to the gain on sale of assets to affiliates of the
Company's largest stockholder in December 1991, which was also
recorded directly to equity.
The federal income tax provisions for the nine months ended
September 30, 1996 and for the years ended December 31, 1995,
1994 and 1993 consist of the following:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Provision before tax rate
change and extraordinary items $ 8,469,211 $10,707,135 $ 9,178,023 $ 6,671,872
Additional provision due to
tax rate change (see below) - - - 113,433
Provision before extraordinary item 8,469,211 10,707,135 9,178,023 6,785,305
Income tax benefit from
extraordinary loss on early
retirement of debt - - - (130,700)
Total income tax provision $ 8,469,211 $10,707,135 $ 9,178,023 $ 6,654,605
</TABLE>
The Revenue Reconciliation Act of 1993 raised the corporate
income tax rate from 34% to 35%, retroactively to January 1,
1993. In accordance with the requirements of SFAS 109, the
deferred income tax assets and liabilities were adjusted
accordingly, resulting in a charge against income in the amount
of $113,433.
F-15
<PAGE>
The following schedule reconciles the Company's effective
tax rate to the statutory rate:
<TABLE>
<CAPTION>
For the
Nine Months
Ended For the Year Ended
September 30, December 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0% 35.0%
Depreciation on premium
allocated in Rio Partnership
exchange 0.4% 0.4% 0.5% 0.7%
Disallowance for tax purposes of
certain meals, travel and
entertainment expenses 0.0% 1.5% 1.2% 0.4%
Other 0.6% (0.5)% (0.2)% -
Effective rate 36.0% 36.4% 36.5% 36.1%
</TABLE>
During 1994, the Company utilized all remaining alternative
minimum tax credit carryforwards.
The Company's deferred tax assets (liabilities) at
September 30, 1996 and December 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
Current Non-Current Current Non-Current
<S> <C> <C> <C> <C>
Depreciation & amortization $ - $(13,082,515) - $ (11,399,852)
Deferred employee benefits 843,478 - $ 370,122 -
Bad debt expense 310,997 - 288,642 -
Other deferred tax assets, net - 1,705,127 - 764,954
$1,154,475 $(11,377,388) $ 658,764 $ (10,634,898)
</TABLE>
The Company's deferred tax assets (liabilities) at
December 31, 1994 consisted of the following:
<TABLE>
<CAPTION>
Current Non-Current
<S> <C> <C>
Depreciation & amortization $ - $(7,613,359)
Deferred employee benefits 391,927 -
Bad debt expense 136,105 -
Other deferred tax assets, net 34,231 101,082
$ 562,263 $(7,512,277)
</TABLE>
The current portion of the Company's net deferred tax assets
is included on the Consolidated Balance Sheet under the heading
"Prepaid Expenses and Other Current Assets."
The Company has determined that it is probable that the full
amount of the tax benefit from the deferred tax assets will be
realized and therefore, has not recorded a valuation allowance to
reduce the carrying value of the deferred tax assets.
8. COMMITMENTS AND CONTINGENCIES
In connection with the bank loan agreements, the Company has
entered into agreements with certain key stockholders, directors
and executive officers to facilitate borrowings by the Company.
These individuals personally guaranteed the previous bank loan
made to Rio Properties in exchange for compensation of $1,250,000
upon the satisfaction of certain terms and conditions. The first
potential payment obligation of the Company of $250,000 commenced
with the fiscal year ended December 31, 1990 and continued to
December 31, 1994, with a two-year extension provision. No
amounts were due or paid arising out of the years ended
December 31, 1990 or 1991. The Company made $250,000 payments in
each of the four years ended December 31, 1995 and will make the
final payment of $250,000 in the fourth quarter of 1996.
F-16
<PAGE>
Effective January 1, 1991, Rio Properties maintains an
employee profit sharing plan for all employees who have
accredited service. Contributions to the plan are discretionary
and cannot exceed amounts permitted under the Internal Revenue
Code. Contributions of $278,835, $215,039, and $109,701 have
been authorized and charged to income for the years ended
December 31, 1995, 1994, and 1993, respectively. For the nine
months ended September 30, 1996, contributions of $274,390 were
charged to income.
In the normal course of business, the Company is involved
with various negotiations and legal matters. In addition, Rio
Properties is a potential defendant in various personal injury
allegations. Management is of the opinion that the effect of
these matters is not material to the consolidated financial
statements.
9. STOCKHOLDERS' EQUITY
COMMON STOCK
During the nine months ended September 30, 1996, the Company
issued 172,195 shares of Common Stock at exercise prices ranging
from $3.00 per share to $15.625 per share pursuant to options
previously granted under the NSOP.
During the nine months ended September 30, 1996, the Company
repurchased 75,000 shares of Common Stock from time to time on
the open market at a total cost of $1.2 million. The repurchased
shares of Common Stock were retired.
During 1995, the Company issued 198,300 shares of Common
Stock at exercise prices ranging from $3.00 per share to $14.25
per share pursuant to options previously granted under the NSOP.
During 1995, the Company repurchased 430,500 shares of
Common Stock from time to time in the open market at a total cost
of $5.4 million. The repurchased shares of Common Stock were
retired.
During 1994, the Company issued 223,550 shares of Common
Stock at exercise prices ranging from $3.00 per share to $15.625
per share pursuant to options previously granted under the
Company's NSOP.
On November 24, 1993, the Company sold in a public offering
2,300,000 shares of Common Stock at a net price per share of
$13.60. The proceeds from the sale were received in November
1993.
During 1993, the Company issued 247,000 shares of Common
Stock at exercise prices ranging from $3.00 per share to $6.00
per share pursuant to options previously granted under the
Company's NSOP.
STOCK OPTIONS
Key officers and employees are eligible to participate in
the NSOP. The Company has granted 3,037,500 options at exercise
prices ranging from $3.00 to $15.625 per share. As of
September 30, 1996, 866,445 options had been exercised and
462,300 options had been forfeited, resulting in 1,550,755
options outstanding and 220,300 options available to be granted
under the NSOP.
The NSOP will terminate July 8, 1997, subject to the right
of the Board of Directors to terminate the NSOP prior thereto.
On September 5, 1991, the Company's Board of Directors
adopted the 1991 Directors' Stock Option Plan, which was ratified
by the Company's stockholders on May 16, 1992. On March 28,
1995, the Company's Board of Directors amended the 1991
Directors' Stock Option Plan, which was ratified by the Company's
Stockholders on May 16, 1995, under which options to purchase up
to 200,000 shares of Common Stock may be granted to non-employee
directors. The option exercise price is 100% of the fair market
value of the Common Stock on the date of grant. As of
September 30, 1996, 123,000 options had been granted, 30,000
options had been exercised and 22,000 options had been forfeited
resulting in 71,000 options outstanding and 99,000 options
available to be granted. As of December 31, 1995, 108,000
F-17
<PAGE>
options had been granted at exercise prices ranging from $3.00
per share to $16.625 per share. As of December 31, 1994, 20,000
options had been exercised and 22,000 options had been forfeited,
resulting in 66,000 options outstanding and 114,000 options
available to be granted under the Directors' Stock Option Plan.
On January 26, 1995, the Company's Board of Directors
adopted the 1995 Long-Term Incentive Plan ("Incentive Plan"),
which was ratified by the Company's stockholders on May 16, 1995.
Under the Incentive Plan, options to purchase up to 2,000,000
shares of the Company's Common Stock may be granted to executive
officers, key employees, and outside consultants of the Company.
The option exercise price is equal to the last reported sale
price of the Common Stock on the date of the grant. As of
September 30, 1996, 255,000 options had been granted at
exercise prices ranging from $15.50 to $16.75 per share. A total
of 7,000 options had been forfeited, resulting in 248,000
options outstanding and 1,752,000 options available to be granted
under the Incentive Plan.
10. RELATED PARTY TRANSACTIONS
The Company contracted with two affiliates of the Company's
largest stockholder for the design and construction of a 41-story
hotel tower containing approximately 1,000 suites for a total of
$177,109,805. As of September 30 1996, the Company had
capitalized $130.4 million in connection with these contracts.
As of September 30 1996, $24,178,000 is included in current
liabilities on the Company's balance sheet in connection with
these construction and design contracts.
The Company contracted with two affiliates of the Company's
largest stockholder for the design and construction of an
addition to an existing 21-story hotel tower of 144 additional
suites for a total of $18,848,258. As of September 30, 1996, the
Company had capitalized $18,078,000 in connection with these
contracts.
The Company contracted with two affiliates of the Company's
largest stockholder for the design and construction of a 21-story
hotel tower containing 549 suites for a total of $64,166,368. As
of September 30, 1996 and December 31, 1995, the Company had
capitalized $62,151,000 and $62,026,000 in connection with these
contracts, respectively. As of December 31, 1995 and 1994,
$372,370 and $10,026,210 had been accrued in connection with
these contracts.
In 1993, the Company contracted with two affiliates of the
Company's largest stockholder for the design and construction of
a 21-story hotel tower containing 437 suites and an expansion of
the Rio's public area. The two contracts were in amounts not to
exceed $57,557,093. As of December 31, 1994, all amounts due in
connection with these contracts had been capitalized and paid.
In December 1991, the Company sold non-Rio real estate to an
affiliate of the Company's largest stockholder. In April 1994,
the affiliated entity sold the real estate to a non-related
party. Pursuant to the terms of the sales agreement, the Company
was entitled to a portion of the sales proceeds which equaled
$966,510, net of expenses.
The Company reimbursed an affiliate of the Company's largest
stockholder for certain expenses advanced on behalf of or
supplied to the Company during the nine months ended
September 30, 1996 and the years ended December 31, 1995 and
December 31, 1993 of approximately $52,000, $559,113 and
$162,425, respectively. Nominal amounts were paid by the Company
to the affiliate for similar purposes during 1994. Such amounts
were generally billed to the Company at the affiliate's cost.
The Company also retained the affiliate to provide real estate
brokerage and administration services in connection with the
acquisition of various parcels of land. As a result, the
affiliate received brokerage commissions of $999,110, $0 and $0
for the years ended December 31, 1996, 1995 and 1994,
respectively.
Two director/officers of the Company are associated with
affiliated entities which render various architectural and
construction services for the Company. The Company paid these
entities, in the aggregate, approximately $97.3 million, $51
million, $50.4 million and $44.6 million during the nine months
ended September 30, 1996 and the years ended December 31, 1995,
1994, and 1993, respectively, for their services.
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<PAGE>
Entities in which a director of the Company is the principal
stockholder and the executive officer received commissions from
the Company totaling approximately $158,789, $124,912 and $90,325
during the first nine months of 1996 and for the years ended
December 31, 1995, 1994, and 1993, respectively, arising out of
the acquisition of various insurance coverages by the Company.
The Company believes that the transactions described above
are on terms at least as favorable as would have been obtained
from non-related parties.
11. DEBT GUARANTEE
Summarized financial information is provided below for Rio
Properties, the Company's principal wholly-owned operating
subsidiary, as sole guarantor to the Company's $100,000,000
10-5/8% Notes. The 10-5/8% Notes are fully and unconditionally
guaranteed by Rio Properties and are subordinated to all existing
and future indebtedness and other liabilities (including trade
payables) of the Company's subsidiaries.
Summarized financial statements of Rio Properties have not
been prepared since the assets, pre-tax income and parents' net
investment in the non-guarantor subsidiaries on an individual and
combined basis are inconsequential. In addition, the Company's
operations or assets other than its investment in its
subsidiaries are inconsequential. The difference in net equity
between the Company and Rio Properties is principally a result of
the Company's purchase in 1990 and 1992 of minority interests in
a subsidiary, resulting in the payment of premiums of
approximately $13.7 million and $1.3 million, respectively. The
premiums were allocated by the Company, based on fair market
values, among land, building and equipment, furniture and
improvements.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Current assets $ 25,862,355 $ 29,995,415 $ 85,120,465 $ 62,303,414
Non-current assets 392,556,229 262,320,009 199,788,372 138,644,090
Current liabilities 57,369,372 33,216,257 44,662,313 29,292,301
Non-current liabilities 197,002,902 110,176,765 110,146,869 56,875,753
Revenues 163,086,316 192,537,954 146,299,304 109,981,585
Operating profit 30,625,598 37,138,205 25,726,349 20,265,334
Income before income taxes 23,513,351 29,451,596 23,925,361 18,107,197
Net income 15,044,140 18,733,318 15,174,014 10,745,469
</TABLE>
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