SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
-----------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from:__________ to __________
Commission file number 1-11569
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RIO HOTEL & CASINO, INC.
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(Exact name of registrant as specified in its charter)
Nevada 95-3671082
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3700 West Flamingo Road, Las Vegas, Nevada 89103
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(Address of principal executive offices) (Zip Code)
(702) 252-7733
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
24,786,541 shares of Common Stock, $0.01 par value as of
July 23, 1998
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<PAGE>
FORM 10-Q
TABLE OF CONTENTS
PAGE
NUMBER
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Supplemental Disclosure of Cash Flow Information 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analyses of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
EXHIBIT INDEX 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,625,158 $ 22,241,976
Accounts receivable, net 31,544,844 28,177,480
Inventories 12,057,066 7,797,343
Prepaid expenses and other current assets 11,882,869 8,277,440
------------ ------------
Total current assets 75,109,937 66,494,239
============ ============
Property and equipment:
Land and improvements 96,608,380 85,713,088
Building and improvements 433,751,248 418,618,050
Equipment, furniture and improvements 91,267,349 82,792,652
Less: accumulated depreciation (94,793,601) (82,162,055)
------------ ------------
526,833,376 504,961,735
Construction in progress 54,228,950 5,354,757
------------ ------------
Net property and equipment 581,062,326 510,316,492
------------ ------------
Other assets, net 10,041,716 11,344,116
------------ ------------
$666,213,979 $588,154,847
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,812,046 $ 2,434,483
Accounts payable 8,424,455 11,440,103
Accrued expenses 24,081,762 23,554,336
Accounts payable - related party 14,445,644 2,808,488
Accrued interest 8,138,128 7,412,999
------------ ------------
Total current liabilities 57,902,035 47,650,409
------------ ------------
Non-current liabilities:
Long-term debt, less current maturities 302,561,840 250,522,894
Deferred income taxes 20,600,168 19,806,419
------------ ------------
Total non-current liabilities 323,162,008 270,329,313
------------ ------------
Total liabilities 381,064,043 317,979,722
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value;
100,000,000 shares authorized;
24,786,541 and 24,643,141 shares
issued and outstanding 247,866 246,432
Additional paid-in capital 182,354,212 179,912,196
Retained earnings 102,547,858 90,016,497
------------ ------------
Total stockholders' equity 285,149,936 270,175,125
------------ ------------
$666,213,979 $588,154,847
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- --------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 45,922,035 $ 51,047,606 $ 94,084,698 $ 84,059,965
Room 20,627,945 17,734,494 40,106,735 32,730,419
Food and beverage 33,268,510 28,906,726 66,155,186 52,160,330
Other 6,852,195 6,484,200 13,511,277 11,688,178
Casino promotional allowances (8,528,513) (6,982,455) (18,975,635) (13,520,736)
------------- ------------- ------------- -------------
98,142,172 97,190,571 194,882,261 167,118,156
------------- ------------- ------------- -------------
Expenses:
Casino 27,458,902 25,518,216 51,983,395 43,748,328
Room 6,670,115 5,457,093 12,382,217 9,648,583
Food and beverage 24,152,049 21,958,407 47,683,766 39,913,263
Other 3,420,299 4,235,529 7,483,233 7,098,783
Selling, general and administrat 16,362,093 15,517,913 29,960,961 24,532,109
Depreciation and amortization 6,951,060 6,869,787 13,571,901 12,237,400
Preopening expense - - - 11,200,000
------------- ------------- ------------- -------------
85,014,518 79,556,945 163,065,473 148,378,466
------------- ------------- ------------- -------------
Operating profit 13,127,654 17,633,626 31,816,788 18,739,690
Interest expense 5,993,740 7,178,008 12,082,362 12,097,413
------------- ------------- ------------- -------------
Income before income tax 7,133,914 10,455,618 19,734,426 6,642,277
Income tax provision 2,603,878 3,825,768 7,203,065 2,429,750
------------- ------------- ------------- -------------
Net income $ 4,530,036 $ 6,629,850 $ 12,531,361 $ 4,212,527
============= ============= ============= =============
Earnings per common share:
Basic $ 0.18 $ 0.31 $ 0.51 $ 0.20
============= ============= ============= =============
Diluted $ 0.18 $ 0.31 $ 0.50 $ 0.20
============= ============= ============= =============
Weighted average number of
common shares outstanding:
Basic 24,750,776 21,283,776 24,724,231 21,238,207
Stock Options 390,323 236,572 323,620 229,881
------------- ------------- ------------- -------------
Diluted 25,141,099 21,520,348 25,047,851 21,468,088
============= ============= ============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,531,361 $ 4,212,527
Adjustments to reconcile net income to net
cash provided by operating activities:
Compensation expense recognized from
stock option grant 57,440 57,740
Depreciation and amortization 13,561,476 12,237,400
Provision for uncollectible accounts (7,148,721) 5,402,942
Deferred income taxes 240,188 (2,540,925)
(Increase) decrease in assets:
Accounts receivable 3,781,357 (14,377,768)
Inventories (4,259,723) (597,247)
Prepaid expenses and other current assets (3,297,859) (2,379,124)
Other, net 988,145 826,156
Increase (decrease) in liabilities:
Accounts payable (10,918,911) 3,918,492
Accrued federal income tax 1,962,876 2,281,192
Accrued expenses 7,225,772 6,992,588
Accrued interest 725,129 1,479,214
-------------- --------------
Net cash provided by operating activities 15,448,530 17,513,187
-------------- --------------
Cash flows from investing activities:
Purchase of land and improvements (10,822,792) (5,641,807)
Purchase of equipment, furniture and
improvements (61,045,559) (47,333,747)
Funds advanced for purchase of golf course - (7,792,655)
-------------- --------------
Net cash used in investing activities (71,868,351) (60,768,209)
-------------- --------------
Cash flows from financing activities:
Proceeds from borrowings 118,100,000 55,000,000
Net proceeds from issuance of senior
subordinated notes - 121,562,500
Net proceeds from common stock issuance 1,628,050 593,050
Payments on notes and loans payable (65,925,047) (130,152,170)
-------------- --------------
Net cash provided by financing activities 53,803,003 47,003,380
-------------- --------------
Net increase (decrease) in cash and cash equivalents (2,616,818) 3,748,358
Cash and cash equivalents, beginning of period 22,241,976 10,623,094
-------------- --------------
Cash and cash equivalents, end of period $ 19,625,158 $ 14,371,452
============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Cash payments made for interest, net of
capitalized interest $ 12,866,177 $ 11,190,781
============== ==============
Cash payments made for income taxes $ 5,000,000 $ 1,000,000
============== ==============
Non-cash financing and investing activities:
Purchase of property and equipment financed
through payables $ 14,518,144 $ 6,676,759
============== ==============
Tax benefit arising from exercise of stock
options under the Company's Non-Statutory
and Long Term Incentive Stock Option Plans $ 757,960 $ 542,378
============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - 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., Rio
Resort Properties, Inc., Rio Leasing, Inc., Rio Properties'
wholly owned subsidiaries, HLG, Inc. and Cinderlane, Inc.,
and Cinderlane Inc.'s wholly owned subsidiary Twain Avenue,
Inc. (collectively the "Company").
All significant intercompany balances and transactions have
been eliminated in consolidation.
The consolidated balance sheet as of June 30, 1998 and the
related consolidated statements of income for the three and
six month periods ended June 30, 1998 and 1997 and
consolidated statements of cash flows for the six month
periods ended June 30, 1998 and 1997 are unaudited but, in
the opinion of management, reflect all adjustments necessary
for a fair presentation of results for such periods. The
results of operations for an interim period are not
necessarily indicative of the results for the full year.
The consolidated financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto contained in the Company's annual report on
Form 10-K for the year ended December 31, 1997.
NOTE 2 - LONG-TERM DEBT
On February 24, 1998, the Company's credit line with a
consortium of banks was amended and restated, increasing the
amount available from $190.0 million to $275.0 million.
Loan costs will be reduced pursuant to the amended and
restated terms of the new agreement, and a mechanism has
been provided whereby the amount available under the credit
line may be increased by an additional $25.0 million.
NOTE 3 - EARNINGS PER COMMON SHARE
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 - "Earnings Per
Share" ("SFAS 128") which became effective for periods
ending after December 15, 1997 and replaces historically
reported earnings per share with "basic", or undiluted,
earnings per share and "diluted" earnings per share. Basic
earnings per share are computed by dividing net income by
the weighted average number of shares outstanding during the
period, while diluted earnings per share reflect the
additional dilution for all potentially dilutive securities,
such as stock options. Earlier application of SFAS 128 was
not permitted. Earnings per share for the three and six
month periods ended June 30, 1998 and 1997 in the
accompanying Consolidated Statements of Income have been
computed in accordance with SFAS 128.
NOTE 4 - PURCHASE COMMITMENT
On June 1, 1998, the Company entered into an Aircraft
Purchase Agreement (the "Agreement") to purchase an aircraft
for $27.0 million, with $1.0 million to be deposited within
90 days of the date of the Agreement and the balance due
upon delivery of the aircraft to the Company which shall
7
<PAGE>
occur within 60 days of January 31, 2000. The aircraft will
be used for general corporate purposes, including
transportation of certain international and domestic
customers of the Rio. The Company is purchasing the
airplane from a company controlled by the Company's Chairman
of the Board and Chief Executive Officer.
NOTE 5 - SUBSEQUENT EVENTS
In July 1998, the Company made a $15.0 million investment in
New Airline, Inc. ("NAI"), a development stage airline to be
based in Las Vegas, Nevada. The Company's investment will
represent approximately 19% of NAI's voting common stock,
and the Company will have a strategic marketing agreement
with NAI. The Company has been advised by NAI that NAI will
commence operations in early 1999, that it has secured up to
five gate locations at McCarran International Airport in Las
Vegas, and that the Las Vegas Convention and Visitors
Authority will provide advertising and marketing support for
the new airline.
8
<PAGE>
ITEM 2. 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 the 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), issues related to the Year 2000, domestic or
global economic conditions and changes in federal or state tax
laws or the administration of such laws.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
OVERVIEW
The Company, through a wholly owned subsidiary, owns and
operates an all-suite hotel-casino, the Rio Suite Hotel & Casino
(the "Rio"), in Las Vegas, Nevada. The Rio features over 2,500
suites, including over 1,500 suites contained in three connected
21-story hotel towers (the "Ipanema Towers") and over 1,000
suites in a new 41-story curved tower (the "Masquerade Tower").
On February 7, 1997, the Rio celebrated the grand opening of the
public areas of its Phase V Expansion project, the Masquerade
Village. With the Masquerade Village and Tower, the Rio features
120,000 square feet of gaming space; 15 restaurants, a 737-seat
entertainment complex; a 32,000 square foot retail area; and a
108,000 square foot outdoor entertainment area featuring a
landscaped sand beach and three swimming pools.
On September 8, 1997, the Company acquired the Rio Secco
Golf Club in Henderson, Nevada, a suburb of Las Vegas. The golf
course, located in the master-planned community of Seven Hills,
is complete and opened for play in October 1997. The clubhouse
was completed during the second quarter of 1998. In addition to
providing play on the golf course to local and tourist customers,
the Company intends to use the Rio Secco Golf Club as part of
golf packages for its guests. The Rio Secco Golf Club also
features a golf school operated by Butch Harmon, the Butch Harmon
School of Golf.
The Company has assembled 43 acres immediately adjacent to
the Rio (approximately seven of which are subject to options to
purchase), bringing the total acreage at the Rio to approximately
83 acres. In October 1997, the Company announced a new master
plan (the "New Master Plan") for continued development of the
existing Rio site and the adjacent 43 acre site. The New Master
Plan is expected to be implemented in phases, the first of which
has commenced and includes a state-of-the-art convention and
entertainment center adaptable to meet a variety of entertainment,
meeting, special event and convention needs; a complex of nine
"Palazzo" suites; a restaurant serving authentic Chinese food
(which opened April 1998); a valet parking structure (which opened
May 1998); a retail shopping area; an expanded outdoor area
with an additional swimming pool; additional exhibition space in
the Masquerade Village; an expansion of the Shutters premium
gaming lounge; the creation of a concierge suite level in the
Ipanema and Masquerade Towers; an expansion of the Rio's spa;
a new road connecting the Rio and the Las Vegas Strip through an
extension of Twain Avenue to Industrial Road; and additional
customer parking.
9
<PAGE>
This first phase of the New Master Plan, the Phase VI
Expansion, is anticipated to be completed in stages through 1998
and early 1999 at an estimated cost of $200 million. Subsequent
phases of the New Master Plan are currently in the conceptual
stage. The timetable, theme and cost of the subsequent phases
have not yet been established, and there can be no assurance that
the balance of the New Master Plan will be implemented
successfully, if at all.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
The Company's net revenues increased to $98.1 million in the
second quarter of 1998 from $97.2 million in the same period
in the prior year, an increase of $0.9 million or 1%. As a
result of a lower hold percentage in table games, casino
revenues decreased $5.1 million, or 10%, to $45.9 million
for the three months ended June 30, 1998 compared to $51.0
million in the second quarter of 1997. Table game revenues
were $20.9 million for the three months ended June 30, 1998,
a decrease of $6.0 million, or 22%, from the $26.9 million
reported in the same period in the prior year. Although the
Company experienced a $28.5 million increase in table games
handle, or 23%, to $153.8 million in the second quarter of
1998 from $125.3 million in the second quarter of 1997, the
table games hold percentage was only 16% in the current
year's quarter compared to a table game hold percentage of
25% in the prior year's second quarter. Increased
advertising and promotional efforts, and an increased
emphasis by management on marketing to table game customers
with higher credit limits and average wagers are considered
to be the primary contributors to the increase in table game
handle. Slot machine revenues were $23.6 million in the
second quarter of 1998, an increase of $1.1 million, or 5%,
from 1997 second quarter revenues of $22.5 million. Other
casino revenues, consisting of the race and sports books,
keno and poker decreased by approximately $0.2 million,
primarily due to a lower hold percentage in the sports book
for the three months ended June 30, 1998 than in the same
period in the prior year.
Room revenues increased by $3.0 million, or 17%, to $20.7
million in the second quarter of 1998 from $17.7 million in
the prior year period due to higher occupancy and higher
room rates. The occupancy rate was 95.0% for the three
months ended June 30, 1997 compared to 88.6% in the prior
year period. The average suite rate increased from $89 for
the quarter ended June 30, 1998 to $97 in the current year's
quarter.
Food and beverage revenues increased $4.4 million, or 15%,
to $33.3 million for the three months ended June 30, 1998
compared to $28.9 million in the second quarter of 1997.
Management believes that this increase in revenues was
primarily the result of increased advertising and
promotional programs together with food and beverage prices
which were generally higher in the current year's second
quarter than in the prior year period.
Other revenues increased by $0.4 million to $6.9 million in
the current year's second quarter from $6.5 million in the
prior year period. A decrease of $1.5 million in retail
sales, which resulted from leasing the gift shop and most
other retail shops that were previously operated by the
Company to a third party, was offset by an increase in
showroom admissions of $0.7 million, an increase of $0.5
million in shop rental income, and golf course revenues of
$0.9 million.
10
<PAGE>
OPERATING MARGINS
Operating profit as a percentage of net revenue was 13% for
the quarter ended June 30, 1998 and 18% for the prior year
quarter. The casino operating margin was $18.5 million, or
40%, for the three months ended June 30, 1998 compared to
$25.5 million, or 50%, in the same period in the prior year.
Casino expenses were $27.5 million for the quarter ended
June 30, 1998 compared to $18.2 million in the second
quarter of the prior year. Increased payroll and other
volume related expenses, including casino marketing and
promotional costs, were the primary reasons for the increase
in casino expense when comparing the two periods. For the
three months ended June 30, 1998 and 1997, hotel operating
profits were 68% and 69%, respectively; food and beverage
operating profits were 27% and 24%, respectively; and other
operating department profit margins were 50% and 35%,
respectively. Management believes that the food and beverage
operating margin was positively impacted by an increase in
food and beverage prices, volume related purchasing and
administrative efficiencies, and the profitability of the
VooDoo Cafe and Lounge which opened in May 1997. The
increase in the operating profit margin for other
departments is primarily due to shop rental revenues
resulting from the leasing to a third party the retail
outlets previously operated by the Company and the
elimination of the costs associated with the operations of
the retail outlets. Selling, general and administrative
expenses increased as a percentage of gross revenue from 16%
to 17% for the quarters ended June 30, 1997 and 1998,
respectively. Increases in payroll, other administrative
expenses, property taxes, casualty insurance and utilities
were significant contributors to the increase.
PROMOTIONAL ALLOWANCES
Promotional allowances, which represent the retail value of
rooms, food, beverage and other services provided to
customers without charge, were 8% and 7% of total revenues
for the quarters ended June 30, 1998 and 1997, respectively.
Management believes that this increase was primarily due to
complimentary rooms, food, beverage and other services being
extended in connection with the volume increase in table
games.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by 1% to $7.0
million in the second quarter of 1998 from $6.9 million in
the second quarter of the prior year.
OTHER INCOME AND EXPENSE
Interest expense decreased by $1.2 million to $6.0 million
in the second quarter of 1998 from $7.2 million in the same
period in 1997. Interest expense was reduced by $1.3 million
and $0.5 million for the three month periods ended June 30,
1998 and 1997, respectively, due to interest being
capitalized on construction costs of the upper floors of the
Masquerade Tower which opened in May 1997 and on land
purchases in 1997 and, in 1998, on the Phase VI Expansion
that commenced in October 1997.
NET INCOME
Net income for the second quarter of 1998 was $4.5 million,
or $0.18 per common share on a diluted basis, compared to
$6.6 million, or $.31 per common share on a diluted basis in
the second quarter of 1997.
11
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
The Company's net revenues increased to $194.9 million in
the first six months of 1998 from $167.1 million in the same
period in the prior year, an increase of $27.8 million or
17%. Casino revenues increased $10.0 million, or 12%, to
$94.1 million for the first six months of 1998 compared to
$84.1 million for the six month period ended June 30, 1997.
Table game revenues were $42.7 million for the the first six
months of 1998, an increase of $2.2 million, or 5%, from the
$40.5 million reported in the same period in the prior year.
Although the Company experienced a $99.0 million increase in
table games handle, or 42%, to $336.0 million during the
first six months of 1998 from $237.0 million in the first
six months of 1997, the table games hold percentage was only
15% in the current year's first six months compared to a
table games hold percentage of 19% in the same period in 1997.
Increased advertising and promotional efforts, increased
customer traffic associated with the Masquerade Village and
Tower having been open for a year and during the entire six
month period in 1998, and an increased emphasis by management
on marketing to table game customers with higher credit limits
and average wagers are considered to be the primary
contributors to the increased table game volume. Slot
machine revenues were $47.3 million for the six month period
ended June 30, 1998, an increase of $6.8 million, or 17%,
from slot machine revenues of $40.5 million for the six
month period ended June 30, 1997. Other casino revenues,
consisting of the race and sports books, keno and poker
increased $1.0 million, or 32%, to $4.0 million for the
first six months of 1998 from $3.0 million in the prior year
period. The increase in customer traffic associated with the
Masquerade Village and Tower expansion having been open for
a year and for the full six month period in 1998, together
with increased advertising and promotional efforts are
considered to be the primary reasons for the increase in
slot machine and other casino revenues.
Room revenues increased by $7.4 million, or 23%, to $40.1
million in the six month period ended June 30, 1998 from
$32.7 million in the same period in the prior year due to
higher occupancy and higher room rates. The occupancy rate
was 95.0% for the six months ended June 30, 1998 compared to
90.6% in the prior year period, with 39,062 more suites
available and 54,748 more suites being occupied during the
1998 six month period than in the same period in 1997. The
average suite rate increased from $89 for the six month
period ended June 30, 1997 to $95 for the six month period
ended June 30, 1998.
Food and beverage revenues increased $14.0 million, or 27%,
to $66.2 million for the six months ended June 30,1998
compared to $52.2 million in the first six months of 1997.
Management believes that having the five restaurants and
bars located in the Masquerade Village open during the
entire first six months of 1998, the increase of 54,748
occupied suites, increased advertising and promotional
programs, and a general increase in food and beverage prices
were the primary reasons for the increase.
Other revenues increased by $1.8 million to $13.5 million in
the first six months of 1998 from $11.7 million in the prior
year period. A decrease of $2.8 million in retail sales,
which resulted from leasing the gift shop and most other
retail shops that were previously operated by the Company to
a third party, was offset by an increase in showroom
admissions of $1.9 million, an increase of $1.1 million in
shop rental income, golf course revenues of $1.5 million and
increases in telephone and salon revenues.
12
<PAGE>
OPERATING MARGINS
Operating profit as a percentage of net revenue was 16% for
the six months ended June 30, 1998 and 18% before preopening
expense for the first six months of the prior year. The
casino operating margin was $42.1 million, or 45%, for the
six months ended June 30, 1998 compared to $40.3 million, or
48%, in the same period in the prior year. Casino expenses
were $52.0 million for the first six months of 1998 after a
$4.6 million decrease in the provision for doubtful
accounts. Casino expenses in the first six months of the
prior year were $43.7 million. Increased payroll and other
volume related expenses together with increased casino
marketing and promotional costs were the primary reasons for
the increase in casino expense when comparing the two
periods. For the six months ended June 30, 1998 and 1997,
hotel operating profits was 71% in both periods; food and
beverage operating profits were 27% and 23%, respectively;
and other operating department profit margins were 45% and
39%, respectively. Management believes that the food and
beverage operating margin was positively impacted by an
increase in food and beverage prices, volume related
purchasing and administrative efficiencies, and the
profitability of the VooDoo Cafe and Lounge which opened in
May 1997 and is located on the 40th and 41st floors of the
Masquerade Tower. The increase in the operating profit
margin for other departments is primarily due to increased
shop rental revenues resulting from the leasing to a third
party the retail outlets previously operated by the Company
and the elimination of the costs associated with the
operations of the retail outlets. Selling, general and
administrative expenses were 15% of gross revenue in each of
the six month periods ended June 30, 1998 and 1997.
Increases in payroll, advertising and promotional expenses,
property taxes, casualty insurance and utilities were
significant contributors to the $5.4 million increase in
selling, general and administrative expenses when comparing
the two six month periods.
PROMOTIONAL ALLOWANCES
Promotional allowances, which represent the retail value of
rooms, food, beverage and other services provided to
customers without charge, were 9% and 8% of total revenues
for the six month periods ended June 30, 1998 and 1997,
respectively. Management believes that this increase was
primarily due to complimentary rooms, food, beverage and
other services being extended in connection with the volume
increase in table games.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $1.3 million, or
11%, to $13.6 million in the first six months of 1998
compared to $12.3 million in the prior year period. This
increase is primarily attributable to depreciation and
amortization expense associated with the Masquerade Village
and Tower.
OTHER INCOME AND EXPENSE
Interest expense was $12.1 million in each of the six month
periods ended June 30, 1998 and 1997. Interest expense was
reduced by $2.2 million and $2.8 million for the six month
periods ended June 30, 1998 and 1997, respectively,
primarily due to interest being capitalized on the
Masquerade Village expansion in 1997 and, in 1998 on Phase
VI Expansion.
13
<PAGE>
NET INCOME
Net income for the first six months of 1998 was $12.5
million, or $0.51 per common share on a diluted basis,
compared to net income of $4.2 million, or $0.20 per common
share on a diluted basis in the first six months of 1997. In
the prior year period, the Company incurred $11.2 million
($7.1 million net of income tax) associated with the opening
of the Masquerade Village and Tower. Adjusted on a pro forma
basis for these preopening expenses, net income for the
first quarter of 1997 would have been $11.3 million, or
$0.53 per common share on a diluted basis.
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
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.
LIQUIDITY AND CAPITAL RESOURCES
On February 24, 1998, the Company's credit line was amended
and restated, increasing the amount available from $190.0
million to $275.0 million and reducing the interest rate.
The amended and restated agreement provides a mechanism
whereby the amount available under the credit line may be
increased by an additional $25.0 million.
During the first six months of 1998, net cash provided by
operating activities was $15.4 million. Net cash used in
investing activities was $71.9 million, including
approximately $48.7 million related to the Phase VI
Expansion, $8.7 million in land acquisitions adjacent to the
Rio and $3.8 million for the improvements of the Rio Secco
Golf Club, including the construction of the clubhouse and
golf school which opened in the second quarter of 1998.
Based upon cash on hand, cash available through borrowings
under the $275.0 million line of credit, $204.1 million of
which was available as of June 30, 1998, and cash provided
by operations, the Company believes that it has adequate
cash available to fund purchase commitments, the Phase VI
Expansion, ongoing maintenance and upgrades and the
Company's operations.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 27, 1996, a purported stockholder derivative
action (PARK EAST, INC. V. ANTHONY A. MARNELL II, ET AL., Case
No. CV-596-01196-HDM (RLH)) 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 Associates, Inc. ("Marnell Corrao") and Anthony A. Marnell
II Chartered ("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. On January 27, 1997,
the Company and the director defendants filed a motion to dismiss
and a joinder in the Company's motion to dismiss. On April 21,
1997, the United States District Court of Nevada entered an order
denying the motion to dismiss the Company and the individual
directors, and granting the motion to dismiss Marnell Corrao and
Marnell Chartered.
On July 1, 1998, the Company executed a settlement agreement
(the "Agreement") with Park East, Inc. The United States
District Court for the District of Nevada took note of the
Agreement on July 6, 1998, and a hearing on the Agreement (the
"Hearing") has been set for September 15, 1998. The Agreement
provides for the settlement and dismissal with prejudice of all
claims asserted by Park East, Inc. in connection with
construction and architectural contracts for Phase V of the
Company's Master Plan expansion project ("Phase V"). The parties
agreed that the terms of the contracts are fair and reasonable to
the Company and its stockholders, and that the Company would
continue to submit construction project contracts to its
independent audit committee. No monetary amounts are being paid
to the plaintiffs in the case; however, the Company will pay up
to $100,000 for plaintiff's attorneys' fees. Notice of the
Agreement and of the Hearing is being sent to all record
stockholders and all beneficial owners of Company common stock as
of July 6, 1998.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May
21, 1998.
(a) Election of Directors.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR VOTES CAST AGAINST ABSTAIN
<S> <C> <C> <C>
James A. Barrett, Jr. 922,363 -0- 508,401
John A. Stuart 923,216 -0- 507,458
Peter M. Thomas 923,273 -0- 507,491
</TABLE>
(b) Approval of an increase of stock options available
under the Long-Term Incentive Plan.
FOR VOTES CAST AGAINST ABSTAIN
794,901 4,405,175 21,727
(c) Approval and ratification of the Annual Performance-
Based Incentive Plan.
FOR VOTES CAST AGAINST ABSTAIN
132,392 1,272,051 26,320
ITEM 5. OTHER INFORMATION
STOCKHOLDER PROPOSALS. Pursuant to recent changes in
Securities and Exchange Commission Rule 14a-4, unless a
stockholder proposal for the Company's 1999 Annual Meeting of
Stockholders is submitted to the Company prior to February 15,
1999, management may use its discretionary voting authority to
vote management proxies on the stockholder proposal without any
discussion of the matter in the proxy statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
10.01 Aircraft Purchase Agreement by and between Rio
Leasing, Inc. and N & MD Investment Corp.,
dated as of June 1, 1998.
10.02 Subscription Agreement executed by Rio Hotel &
Casino, Inc. dated June 19, 1998 for New
Airline, Inc.
27.01 Financial Data Schedule.
(b) REPORT ON FORM 8-K
NONE
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
RIO HOTEL & CASINO, INC.
------------------------
(Registrant)
August 7, 1998 /s/ Ronald J. Radcliffe
- ----------------------------- --------------------------
(Date) RONALD J. RADCLIFFE
Vice President, Treasurer
and Chief Financial
Officer
(Duly Authorized Officer
and Principal Financial
Officer)
17
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
10.01 Aircraft Purchase Agreement by and between 19
Rio Leasing, Inc. and N & MD Investment
Corp., dated as of June 1, 1998.
10.02 Subscription Agreement executed by Rio 33
Hotel & Casino, Inc. dated June 19, 1998
for New Airline, Inc.
27.01 Financial Data Schedule 50
18
<PAGE>
EXHIBIT 10.01
AIRCRAFT PURCHASE AGREEMENT
This Aircraft Purchase Agreement, made and executed this 1st
day of June, 1998, by and between N & MD Investment Corp., a
Delaware corporation, with offices at One Rodney Square, P.O. Box
551, Wilmington, Delaware 19899; (hereinafter "SELLER") and Rio
Leasing, Inc., a Nevada corporation, with offices at 3700 West
Flamingo Road, Las Vegas, Nevada 89103; (hereinafter "BUYER").
IN CONSIDERATION of the mutual covenants contained herein,
the parties hereto agree as follows:
ARTICLE I
SALE OF USED AIRCRAFT
Subject to the terms and conditions set forth herein,
Seller hereby agrees to sell and deliver, and Buyer hereby agrees
to buy and accept, that certain used 1993 Gulfstream IV-SP
aircraft, bearing manufacturer's serial number 1217 together with
it engines, systems and equipment, listed on Exhibit "A" attached
hereto (hereinafter the "AIRCRAFT"). Seller shall retain the FAA
Registration Number N711MC and Seller shall pay all costs
incurred to change the FAA Registration Number and to remove the
existing Number from the Aircraft and replace it with the new FAA
Registration Number.
ARTICLE II
DELIVERY, INSPECTION, AND ACCEPTANCE
2.1 The Aircraft shall be ready for delivery to Buyer
within sixty (60) days of January 31, 2000.
2.2 Before the end of the period of Article 2.1, Seller
shall give Buyer reasonable notice of the date on which the
Aircraft will be ready for Buyer's inspection and/or flight test
and delivery to Buyer (the "Readiness Date") in accordance with
this Agreement. Buyer, at its expense, shall commence that
inspection and/or flight test within ten (10) days of the
Readiness Date, such ten (10) day period being the "Delivery
Period". If no Aircraft defect or discrepancy is revealed by that
inspection and/or flight test, Buyer shall accept delivery of the
Aircraft on or before the last day of the Delivery Period (the
time of the acceptance of delivery of the Aircraft being the
"Delivery Date"). Two (2) representatives of Buyer may
participate in the foregoing inspection and/or flight test. Such
flight test shall not exceed four (4) hours duration.
2.3 Any aircraft defect or discrepancy revealed by Buyer's
inspection and/or flight test referred to in Article 2.2 shall be
corrected by Seller before the delivery of the Aircraft to Buyer
which, in the case of this Article 2.3, may occur during or after
the Delivery Period depending on the nature of the defect or
discrepancy and time required for correction. Such correction
shall be made at no cost to Buyer. If such correction requires an
additional flight test it will be conducted according to Article
2.2. When this Article 2.3 applies, Buyer shall accept delivery
of the Aircraft within three (3) days after the Aircraft defect
or discrepancy has been corrected.
2.4 If Buyer does not accept delivery of the Aircraft
according to Article 2.2 or 2.3, as applicable, Buyer shall be
deemed to be in default of the terms of this Agreement and (i)
the unpaid balance of the Purchase Price (as defined in Article
4.1) shall immediately become due and payable, (ii) the Aircraft
shall thereafter be provided with suitable outside storage at the
expense of Buyer, and (iii) all risk of loss or damage to the
Aircraft shall pass to and be borne by Buyer. Should Buyer not
accept delivery of the Aircraft within thirty (30) days after the
date for delivery as established according to Article 2.2 or 2.3,
as applicable, Seller, at its election and upon giving ten (10)
days written notice to Buyer, may terminate this Agreement in
accordance with Article 9.1.
2.5 Buyer, by its acceptance of the Aircraft at Delivery
Date and signature of a receipt for the Aircraft in the form of
Exhibit "B" attached hereto, shall be deemed to have examined the
Aircraft and found it in conformity with the provisions of this
Agreement.
ARTICLE III
RISK OF LOSS
Risk of loss, damage or destruction to the aircraft shall
pass from Seller to Buyer upon Buyer's execution of the Delivery
Receipt. In the event of the loss, destruction or damage of the
Aircraft prior to the Delivery Date, Buyer shall have the right
to terminate this agreement. In the event of termination, Buyer's
rights shall be governed by Article 9.3. Buyer shall notify
Seller of its decision within fifteen (15) days from receipt by
Buyer of written notice from Seller of the loss, destruction or
damage of the Aircraft.
ARTICLE IV
PURCHASE PRICE AND PAYMENT SCHEDULE
4.1 The purchase price of the Aircraft is Twenty Seven
Million and no/100ths Dollars (US$27,000,000.00). The purchase
price of the Aircraft shall be decreased One Thousand and
no/100ths Dollars (US$1,000.00) for each flight hour logged on
the Aircraft as of the Readiness Date in excess of Two Thousand
Five Hundred (2,500) hours. (The purchase price, net of any
adjustment required herein, is hereinafter the "PURCHASE PRICE").
4.2 The Purchase Price shall be paid by Buyer in accordance
with the following schedule:
AMOUNT TIMING
------ ------
U.S.$1,000,000.00 "Deposit" due ninety (90)
days after execution of
this Agreement.
Balance of Purchase Upon Closing and Delivery
Price of Aircraft
4.3 The Closing transaction will go through Aero Records &
Title Co., 3300 South Lakeside Drive, Oklahoma City, Oklahoma
73179, Attention: Mike Goble ("ESCROW AGENT") with Seller and
Buyer paying all escrow fees. Seller shall pay all
filing/recording fees for the Bill of Sale and Registration
Application and the release of any liens. Buyer shall furnish all
funds by wire transfer to the account of Escrow Agent pursuant to
the wiring instructions attached hereto as Exhibit C. Seller
shall execute the Bill of Sale and deliver it to Escrow Agent on
or before the Delivery Date. On the Delivery Date, Buyer shall
wire transfer the balance of the Purchase Price, and its share of
the escrow fees, to the account of Escrow Agent and Seller shall
direct the Escrow Agent to file the Bill of Sale with the FAA.
4.4 Seller and Buyer agree that the Deposit shall be held
as security for Buyer's performance under this Agreement. The
Deposit shall be deposited in an interest bearing account with
Escrow Agent with interest accruing to the benefit of Buyer so
long as Buyer is not in default of this Agreement. The Deposit
shall be disbursed to Seller after Seller has signed and
delivered to Escrow Agent all documents and instruments that must
be signed by Seller to complete the sale of the Aircraft to
Buyer.
ARTICLE V
TAXES
5.1 Seller warrants that there are no outstanding or
delinquent taxes attributable to the Aircraft as of the date of
Delivery except as specifically stated herein. This warranty
shall survive Delivery and acceptance of the Aircraft by Buyer.
5.2 Buyer hereby agrees to pay the sales, use, or similar
taxes or assessments and duties or fees, which may be imposed by
any taxing authority in connection with the delivery,
registration or its ownership of the Aircraft, but specifically
excluding any capital gains, income, personal property or other
similar taxes which may be assessed against Seller.
ARTICLE VI
LIMITED WARRANTY
6.1 The Aircraft is being sold on an "AS-IS" basis, and
there are no warranties which extend beyond the description of
the Aircraft except as set forth herein. Seller disclaims all
expressed or implied warranties or representation of any kind or
nature whatsoever including merchantability and fitness except
that Seller warrants that the Aircraft will be delivered in good
working order and repair and have a valid Certificate of
Airworthiness issued by the FAA with the required Bill of Sale
and other title document free and clear of all liens and
encumbrances. The documents conveying the Aircraft shall be the
usual U.S. Government AC Form No. 8050-2 (Bill of Sale), and a
warranty Bill of Sale defending title to the Aircraft, and
attached hereto as Exhibit D. Both Bills of Sale shall be duly
executed and acknowledged by Seller to Buyer so as to convey to
the Buyer all of the Seller's right, title and interest in the
Aircraft. The Bills of Sale shall be accompanied, if applicable,
by properly executed release of lien and lease termination
documents acceptable to the U.S. Federal Aviation Administration.
6.2 Seller shall deliver to Buyer good and merchantable
title to the Aircraft and shall convey such to Buyer free and
clear of all liens, claims and encumbrances, at the time of
Delivery. This warranty shall survive Delivery and acceptance of
the Aircraft by Buyer.
6.3 Seller agrees to indemnify, reimburse and hold Buyer,
and its respective successors, assigns, shareholders, directors,
representatives, employees, agents and servants (collectively
"INDEMNITEES") harmless from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgment, and any and all costs, expenses or
disbursements (including reasonable attorney's fees and
expenses)(collectively "EXPENSES") of whatsoever kind and nature
imposed on, asserted against or incurred by any of the
Indemnitees in any way relating to or arising out of the
ownership of the Aircraft by Seller, its respective predecessors
or agents (including, without limitation, latent or other
defects, whether or not discoverable); provided that no
Indemnitee shall be indemnified for Expenses to the extent caused
by the gross negligence or willful misconduct of such Indemnitee.
Seller agrees upon written notice by any Indemnitee of the
assertion of such a liability, obligation, damage, injury,
penalty, claim, demand, action, suit or judgment, Seller shall at
the request of such Indemnitee assume full responsibility for the
defense thereof.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 Seller hereby represents and warrants to Buyer as
follows, which representations and warranties shall survive the
Delivery Date:
a. On the Delivery Date, the Aircraft will be in good
working order and repair and have a valid Certificate of
Airworthiness issued by the FAA with all Airworthiness Directives
and inspections current;
b. On the Delivery Date, the Aircraft will have been
inspected and maintained within the preceding twelve (12) month
period in accordance with the provision of FAR Part 91 with all
applicable requirements for maintenance and inspection thereunder
complied with;
c. All log books, maintenance records and other records to
be delivered to Buyer are true and correct and the numbers on the
Hobbs meter of the Aircraft are true and accurate;
d. All existing service agreement, maintenance
subscriptions and existing manufacturer warranties pertaining to
the Aircraft listed or described on Exhibit E are binding, in
full force and effect and will be paid through and up-to-date
through the Delivery Date.
e. Seller has good and marketable title to the Aircraft
and on the Delivery Date, Seller will convey to Buyer good and
marketable title to the Aircraft free and clear of any and all
leases, liens, claims, rights to purchase and encumbrances;
f. Seller is duly and validly organized and existing in
good standing under the laws of the State of Delaware. Seller has
the power, authority and legal capacity to enter into this
Agreement and to carry out the transaction contemplated hereby
without consent from any other party. The execution and delivery
of this Agreement by Seller and the performance of its
obligations hereunder have been duly authorized by all necessary
action and do not violate or conflict with (i) any provision of
any of its Certificate of Incorporation/Organization or By-Laws;
(ii) any law or any order, writ, injunction, decree, rule or
regulation of any court, administrative agency or any other
governmental authority; or (iii) contravene, result in a material
breach or termination of or constitute a default under any
provision of any agreement to which Seller is a party or by the
Aircraft is bound; and (iv) will not result in the creation of
any lien, restriction or encumbrance of the Aircraft. There is no
action, suit or proceeding pending or threatened against Seller
before any court, administrative agency or other governmental
authority which brings into question the validity of, or might in
any way impair, the execution, delivery or performance by the
Seller of this Agreement. Seller is not subject to any
restriction or agreement which, with or without the giving of
notice, the passage of time, or both, prohibits or would be
violated by the execution, delivery and consummation of this
Agreement and the transaction contemplated herein;
g. This Agreement constitutes a legally valid and binding
obligation of Seller, enforceable according to its terms, subject
to bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting the enforceability of
contractual obligations and creditors' rights generally and by
the applicable of equitable principles or courts of competent
jurisdiction, sitting at law or in equity.
h. On the Delivery Date, no representation or warranty of
Seller will contain any untrue statement of material fact or omit
a material fact necessary to make the statements contained herein
not misleading. To the best knowledge of Seller, there is no fact
which Seller has not disclosed in writing to Buyer which
materially adversely affects, or may materially adversely affect
the Seller or the Aircraft.
i. There are no actions, suits, claims or legal,
administrative, arbitration or other proceedings or governmental
investigations or examinations pending or threatened or
injunctions or order entered, pending or threatened against
Seller or its business, property or assets, at law or in equity,
before or by any federal, state, municipal or other governmental
department, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, to restrain or prohibit the
consummation of the transactions contemplated hereby or to obtain
damages which if decided would adversely affect the ability of
Seller to consummate the transactions provided for in this
Agreement.
7.2 Buyer hereby represents and warrants to Seller as
follows, which representations and warranties shall survive the
Delivery Date:
a. Buyer is duly and validly organized and existing in
good standing under the laws of the State of Nevada. Buyer has
the power, authority and legal capacity to enter into this
Agreement and to carry out the transaction contemplated hereby
without consent from any other party. The execution and delivery
of this Agreement by Buyer and the performance of its obligations
hereunder have been duly authorized by all necessary action and
do not violate or conflict with (i) any provision of any of its
certificate of incorporation/organization or by-laws; (ii) any
law or any order, writ injunction, decree, rule or regulation of
any court, administrative agency or any other governmental
authority; or (iii) contravene, result in a material breach or
termination of or constitute a default under any provision of any
agreement to which Buyer is a party. Buyer is not subject to any
restriction or agreement which, with or without the giving of
notice, the passage of time, or both, prohibits or would be
violated by the execution, delivery and consummation of this
Agreement and the transaction contemplated herein;
b. This Agreement constitutes a legally valid and binding
obligation of Buyer, enforceable according to its terms, subject
to bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting the enforceability of
contractual obligations and creditors' rights generally and by
the application of equitable principles by courts of competent
jurisdiction, sitting at law or in equity.
c. On the Delivery Date, no representation or warranty of
Buyer contained herein will contain any untrue statement of
material fact or omit a material fact necessary to make the
statements contained herein not misleading. Buyer makes no
representation or warranty of any kind, express or implied, other
than those contained in this Agreement.
ARTICLE VIII
EXCUSABLE DELAYS
Seller and Buyer shall be excused from, and shall not be
liable in any manner for, any delay or failure in performance
under this Agreement if occasioned by cause or causes beyond its
control and fault including, but not necessarily limited to,
vendor delays, acts of God or the public enemy, weather, war,
insurrection, riots, hostilities, acts of government, strikes,
explosions, or serious accidents, governmental priorities or
allocations, or any other cause beyond such party's reasonable
control. Either party agrees to notify the other promptly of the
occurrence of any such cause and carry out this Purchase
Agreement as promptly as practicable after such cause is
terminated. In the event Seller cannot deliver the Aircraft until
180 or more days after the occurrence and notification of such
delay, then Buyer shall have the right to terminate this
Agreement as provided in Article 9.3, upon written notice to
Seller, with no further obligations.
ARTICLE IX
TERMINATION
9.1 a. This Agreement may be terminated before the
Delivery Date by either party by notice of termination to the
other party upon the occurrence of any of the following events:
i) the other party makes an assignment for the
benefit of creditors, or admit in writing its inability to pay
its debts;
ii) a receiver or trustee is appointed for the
other party or for substantially all of such party's assets and,
if appointed without such party's consent, such appointment is
not discharged or stayed within thirty (30) days;
iii) proceedings under any law relating to
bankruptcy, insolvency or the reorganization or relief of debtors
are instituted by or against the other party and, if contested by
such party, are not dismissed or stayed within thirty (30) days;
or
iv) any writ of attachment or execution or any
similar process is issued or levied against the other party or
any significant part of its property and is not released, stayed,
bonded or vacated within thirty (30) days after it issue or levy.
b. In addition, Seller may terminate this Agreement
before Delivery Date (i) as provided in Article 2.4 hereof; or
(ii) if Buyer is in default or breach of any material term or
condition of this Agreement and does not cure such default or
breach promptly after receipt of notice from Seller specifying
such default or breach.
c. In addition, Buyer may terminate this Agreement
before Delivery Date if Seller is in default or breach of any
material term or condition of this Agreement.
9.2 In case of termination of this Agreement by Seller
pursuant to and in accordance with Article 9.1:
i) all rights (including property rights) which
Buyer may have or may have had in or to this Agreement or the
Aircraft shall be extinguished;
ii) all rights (including property rights and the
right to sell the Aircraft to another party) in and to the
Aircraft shall be vested with Seller free and clear of any
ownership or title rights, prior to claims, liens, charges or
encumbrances; and
iii) all amounts previously paid to Seller shall
be retained by Seller and shall be applied against the costs and
damages incurred by Seller as a result of the termination of this
Agreement. Buyer hereby acknowledges and recognizes that in any
event, such costs and damages will aggregate not less than the
amounts previously paid to Seller.
9.3 Upon termination of this Agreement by Buyer pursuant to
and in accordance with Article 3; Article 8; or Article 9.1,
Buyer's sole right, remedy and recourse against Seller and
Seller's obligation to Buyer shall be limited to the following:
Buyer shall be entitled to recover from Seller only those amounts
previously paid to Seller together with interest at the prime
rate as published by the Bank of America, Nevada.
ARTICLE X
NOTICES
10.1Any notice required to be given under this Agreement,
or by any applicable provision of law, shall be made by telecopy
and followed by certified mail addressed by the respective
parties as set forth in the initial cause of this Agreement.
10.2 All notices shall be deemed given as of the date of
sending of the certified mail.
ARTICLE XI
MODIFICATION AND ASSIGNMENT
11.1No modification, amendment or termination of this
Agreement shall be effective unless it is in writing and signed
by the party to be bound or its authorized representative.
11.2 The obligations of the parties under this Agreement may
not be delegated in whole or in part.
11.3 The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
ARTICLE XII
APPLICABLE LAW
The laws of the State of Delaware shall govern this
Agreement. In the event of any dispute or claim arising out of
this Agreement, the parties hereby agree that any legal action
may be litigated in courts having situs within the State of
Delaware. The parties hereby consent and submit to the non-
exclusive jurisdiction of any local, state or federal court
located within said State.
ARTICLE XIII
WAIVER
13.1 All rights of the parties hereunder are separate and
cumulative.
13.2 No waiver by either party of any default hereunder
shall be deemed waiver of any subsequent default.
ARTICLE XIV
ENTIRE AGREEMENT
14.1 This Agreement sets forth the entire contract between
the parties and supersedes all previous communication,
representation, or Agreements whether oral or written, between
the parties with respect to the sale and purchase of the
Aircraft.
14.2 Should any provision of the Agreement be void or
unenforceable, such provision shall be deemed omitted, and this
Agreement, with such provision omitted, shall remain in full
force and effect.
14.3 This Agreement may be executed in multiple originals,
each of which shall be deemed an original but all of which
together shall constitute but one and the same instrument.
14.4 All of the exhibits attached hereto are incorporated
herein and made a part of this Agreement by this reference
thereto.
14.5 The parties hereto represent that in the negotiation
and drafting of this Agreement they have been represented by and
have relied upon the advise of counsel of their choice. The
parties affirm that their counsel have both had a substantial
role in the drafting and the negotiation of this Agreement and,
therefore, this Agreement shall be deemed drafted by all of the
parties hereto and the rule of construction that any ambiguities
are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any exhibit
attached hereto.
ARTICLE XV
BROKERS
Neither Seller nor Buyer have employed or retained any
broker, agent, finder or other party or incurred any obligation
for brokerage fees, finder's fees or commissions with respect to
the transactions contemplated by this Agreement or otherwise
dealt with anyone purporting to act in the capacity of a finder
or broker with respect thereto whereby Buyer or Seller may be
obligated to pay such a fee or a commission.
ARTICLE XVI
CONFIDENTIALITY
In connection with the Agreement, Seller, Buyer and their
agents agree that their terms of this Agreement shall be
maintained in strict confidence and shall not be disclosed to any
prospective third party principal or other interested person(s),
except (i) to assignees or transferees of a party or to their
counsel, accountants, auditors, other agents or third parties,
all of whom shall agree to keep the same confidential; (ii) to a
party's counsel, accountants, auditors or other agents; (iii) as
may be required by statue, court or administrative order or
decree or governmental ruling or regulation in any applicable
jurisdiction; (iv) to the extent such information is publicly
available; or (v) to the Lessee (as defined hereafter) and its
counsel, accountants, auditors and other agents.
ARTICLE XVII
1031 EXCHANGE
Buyer is aware that Seller is to perform a 1031 tax-deferred
exchange. Buyer agrees to reasonably cooperate in such an
exchange, at Seller's sole cost and expense. It is Seller's
intent, and Buyer agrees to cooperate in such regard, that this
transaction qualify as a like-kind exchange of property pursuant
to Section 1031 of the United States Internal Revenue Code and
Regulations. Buyer agrees to execute such documents which may be
necessary to affect the like-kind exchange.
IN WITNESS WIIEREOF, the parties have executed this
Agreement by their duly authorized agents.
N & MD INVESTMENT CORP., RIO LEASING, INC.,
A DELAWARE CORPORATION, A NEVADA CORPORATION,
/s/ James A. Barrett, Jr. /s/ Ronald J. Radcliffe
- ----------------------------- ---------------------------
Name: James A. Barrett, Jr. Name: Ronald J. Radcliffe
---------------------- --------------------
Title: Treasurer Title: Treasurer
---------------------- --------------------
Date: 6/1/98 Date: 6/1/98
---------------------- --------------------
AIRCRAFT PURCHASE AGREEMENT
GULFSTREAM IV SP, S/N 1217
EXHIBIT A
ENGINES
- -------
ROLLS-ROYCE TAY ENGINES MK611-8
7000 Hrs. TBO
LEFT RIGHT
---- -----
Serial Number 16534 16535
Time Since New 1317 Hours 1317 Hours
APU SERIAL NUMBER - P-595
- -------------------------
INTERIOR
- --------
12 Passenger Interior (10 Place Installed) Five Single Chairs
One Four Place Conference Group One Three-Place Divan
Aft Galley, Fwd Crew Galley, Fwd & Aft Lav Three Video Monitors and CD Player
Airshow 400 with Genesis Light Colored Interior
Flite Phone Magna Star Flite Phone
with Facsimile
EXTERIOR
- --------
White with Black and Grey Trim
AVIONICS
- --------
Honeywell EDZ-884 EDS
Triple Collins VHF-422B VHF COMM
Dual Collins VIR-432 VHF NAV
Dual Collins ADF-462 ADF
Dual Collins DME-42 DME
Dual Collins TDR 94D Transponder Mode "S"
Dual Collins HF-900 HF COMM
Triple Honeywell Laser Ref II IRS
Triple Honeywell FMZ-800 FMS 4.1D Software
Motorola Selcal
Honeywell Primus 870 Color Radar
MISCELLANEOUS
- -------------
Honeywell DL-900 Data Locker Dorne/Margolin ELT
Secure Plane Security System Dual Global GPS Sensors
Aerial View Camera System Honeywell TCAS II
B.F. Goodrich Stormscope Loral FDR F-1000
Loral CVR A-1OOA RVSM Approved
Devore Tel-Tail Lights 10 Line Cabin Display
AIRCRAFT PURCHASE AGREEMENT
GULFSTREAM IV SP, S/N 1217
EXHIBIT B
BUYER: Rio Leasing, Inc.
- ------ 3700 West Flamingo Road
Las Vegas, Nevada 89103
This acknowledges full and satisfactory delivery and
acceptance of the following described aircraft and/or equipment
subject to the inspection rights described in the Aircraft
Purchase Agreement for the Purchase of Gulfstream IV Serial
Number 1217 by and between BUYER and N&MD INVESTMENT CORP. dated
the____________day of______________, 1998.
GULFSTREAM IV SP, S/N 1217
The aircraft and/or equipment referred to above was
received by us on the date and at the location set forth below
and was determined by us to be in good order and condition and
acceptable to us.
IN WITNESS WHEREOF this instrument has been duly signed by
the undersigned authorized parties.
RIO LEASING, INC. N&MD INVESTMENT CORP.
(BUYER)
By:__________________________ By:________________________
Its:_________________________ Its:_______________________
Date:________________________ Date:______________________
Location:____________________ Location:__________________
AIRCRAFT PURCHASE AGREEMENT
GULFSTREAM IV SP, S/N 1217
EXHIBIT C
WIRING INSTRUCTIONS
-------------------
N&MD INVESTMENT CORP.
c/o AERO RECORDS & TITLE CO.
NATIONAL CITY BANK/CLEVE/TRUST
Cleveland, Ohio
ABA: 04 1000 1 24
Beneficiary Name: Trust Department
Beneficiary Account Number: 217115
For Further Credit To: Aero Records & Title Co.
Escrow No. 75-R064-009
Contact: Sandra Johnson at Ext. 2640
Reference: 71 IMC/Mike (IMPORTANT)
(It is imperative that the N# be shown on the incoming wire for
property credit)
N&MD INVESTMENT CORP.
ONE RODNEY SQUARE
P.O. BOX 551
WILMINGTON, DELAWARE 19899
WARRANTY BILL OF SALE
EXHIBIT D
KNOW ALL MEN BY THESE PRESENTS, that N&MD INVESTMENT CORP.,
a Delaware corporation (hereinafter "N&MD"), in consideration of
the sum of One Dollar ($1.00) and other good and valuable
consideration to it paid by:
RI0 LEASING, INC., A NEVADA CORPORATION
(hereinafter "BUYER"), the receipt whereof is hereby
acknowledged, hereby sells, grants, transfers and delivers to the
BUYER, its successors and assigns, all of N&MD's right, title and
interest in and to the Aircraft (Gulfstream IV-SP, Serial Number
1217), together with the engines installed thereon, described as
Rolls-Royce Tay engines, Serial Numbers 16534 (left) and 16535
(right), together also with all appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment of
whatever nature installed on the Aircraft pursuant to that
Gulfstream IV-SP Purchase Agreement dated the _____ day of
__________, 1998 (said aircraft, engines, appliances, parts,
instruments, appurtenances, accessories, furnishings, and other
equipment being hereinafter collectively called the "Aircraft").
N&MD hereby represents, warrants and agrees that it is the
lawful owner of the full legal and beneficial title to the
Aircraft; that the Aircraft is free from all liens and
encumbrances; that N&MD has the right to sell the same as
aforesaid; and that N&MD will warrant and defend the sale of the
Aircraft and BUYER'S title thereto against the claims and demands
of all persons.
IN WITNESS WHEREOF, N&MD has caused this Warranty Bill of
Sale to be signed by its duly authorized officer this _____ day
of __________, 1998.
N&MD INVESTMENT CORP.,
A DELAWARE CORPORATION,
_________________________
By:______________________
Its:_____________________
Date:____________________
N&MD INVESTMENT CORP.
ONE RODNEY SQUARE
P.O. BOX 551
WILMINGTON, DELAWARE 19899
WARRANTY BILL OF SALE
EXHIBIT D
KNOW ALL MEN BY THESE PRESENTS, that N&MD INVESTMENT CORP.,
a Delaware corporation (hereinafter "N&MD"), in consideration of
the sum of One Dollar ($1.00) and other good and valuable
consideration to it paid by:
RIO LEASING, INC., A NEVADA CORPORATION
(hereinafter "BUYER"), the receipt whereof is hereby
acknowledged, hereby sells, grants, transfers and delivers to the
BUYER, its successors and assigns, all of N&MD's right, title and
interest in and to the Aircraft (Gulfstream IV-SP, Serial Number
1217), together with the engines installed thereon, described as
Rolls-Royce Tay engines, Serial Numbers 16534 (left) and 16535
(right), together also with all appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment of
whatever nature installed on the Aircraft pursuant to that
Gulfstream IV-SP Purchase Agreement dated March ________, 1998
(said aircraft, engines, appliances, parts, instruments,
appurtenances, accessories, furnishings, and other equipment
being hereinafter collectively called the "Aircraft").
N&MD hereby represents, warrants and agrees that it is the
lawful owner of the full legal and beneficial title to the
Aircraft; that the Aircraft is free from all liens and
encumbrances; that N&MD has the right to sell the same as
aforesaid; and that N&MD will warrant and defend the sale of the
Aircraft and BUYER'S title thereto against the claims and demands
of all persons.
IN WITNESS WHEREOF, N&MD has caused this Warranty Bill of
Sale to be signed by its duly authorized officer this _____ day
of __________, 1998.
N&MD INVESTMENT CORP.,
A DELAWARE CORPORATION,
_________________________
By:______________________
Its:_____________________
Date:____________________
AIRCRAFT PURCHASE AGREEMENT
GULFSTREAM IV SP, S/N 1217
EXHIBIT E
I. SERVICE AGREEMENTS
------------------
None
II. MAINTENANCE SUBSCRIPTIONS
-------------------------
None
III. MANUFACTURER'S WARRANTY
-----------------------
PRIMARY & SECONDARY STRUCTURE 15 years / 15,000 hours commencing
September 15, 1993
Labor included through the entire
warranty period.
NEW AIRLINE, INC.
12,000,000 SHARES - COMMON STOCK
SUBSCRIPTION AGREEMENT
Ladies and Gentlemen:
The following information is furnished in connection with
the undersigned's subscription for shares of Common Stock (the
"Common Stock") of NEW AIRLINE, INC., a Delaware corporation
(the "Company"), and for you to determine whether I am qualified
to purchase the shares of Common Stock pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended (the
"Securities Act") and comparable provisions of applicable state
securities laws. I, the undersigned, understand that you will
rely upon the following information for purposes of such
determination, and that the shares of Common Stock will not be
registered under the Securities Act in reliance upon the
exemption from registration provided by Sections 3(b) and 4(2)
of the Securities Act, Regulation D thereunder, and comparable
provisions of applicable state securities laws.
ALL INFORMATION CONTAINED IN THIS SUBSCRIPTION AGREEMENT
WILL BE TREATED CONFIDENTIALLY. However, it is agreed that you
may present this document to such parties as you deem
appropriate if called upon to establish that the proposed offer
and sale of the shares of Common Stock is exempt from
registration under the Securities Act or meets the requirements
of applicable state securities laws. I understand that a false
statement by me will constitute a violation of my
representations and warranties under this Subscription Agreement
and may also constitute a violation of law, for which a claim
for damages may be made against me. My investment in the shares
of Common Stock will not be accepted until the Company
determines that I satisfy all of the suitability standards set
forth in the Private Offering Memorandum (the "Memorandum"). See
"WHO MAY INVEST."
I, the undersigned Subscriber, hereby supply you with the
following information and representations:
1. FULL NAME: RIO HOTEL & CASINO, INC. OR ASSIGNS
2. BUSINESS ADDRESS (NO P.O. BOXES) AND TELEPHONE NUMBER:
3700 West Flamingo Road
Las Vegas, Nevada 89103
Attention: James A. Barrett, Jr.
Telephone (702) 252-7777
<PAGE>
3. BUSINESS ADDRESS AND TELEPHONE NUMBER:
4. STATE IN WHICH THE UNDERSIGNED MAINTAINS PRINCIPAL
RESIDENCE:
N/A
5. STATE IN WHICH THE UNDERSIGNED IS REGISTERED
TO VOTE:
N/A
6. IF THIS INVESTMENT IS TO BE MADE BY AN ENTITY (I.E.
PARTNERSHIP, CORPORATION, TRUST, PENSION PLAN, PROFIT-SHARING
PLAN), THE UNDERSIGNED FURTHER REPRESENTS TO YOU AS FOLLOWS:
(A) NAME AND ADDRESS OF ENTITY MAKING PURCHASE
(USE FULL LEGAL NAME):
See 1
(B) NAME AND ADDRESS OF PERSON REPRESENTING
INVESTMENT DECISION FOR ABOVE ENTITY:
James A. Barrett, Jr.
(C) POSITION OR TITLE OF PERSON MAKING INVESTMENT
DECISION FOR ABOVE ENTITY:
President
7. BASED ON THE DEFINITION OF AN "ACCREDITED INVESTOR"
WHICH APPEARS BELOW, I CERTIFY THAT I AM AN ACCREDITED INVESTOR
(INITIAL "YES" OR "NO").
Yes X No
----- -----
Investors indicating a "Yes" answer, please complete both
Questions 7A AND 7B.
2
<PAGE>
Investors indicating a "No" answer, please proceed to Question
7B.
7A. I CERTIFY THAT I AM AN ACCREDITED INVESTOR
BECAUSE I FALL WITHIN ONE OF THE FOLLOWING CATEGORIES:
(PLEASE INITIAL NEXT TO THE APPROPRIATE CATEGORY)
(A) ____ $1,000,000 NET WORTH NATURAL PERSON. A
natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of
his purchase exceeds $1,000,000.
(B) ____ $200,000 INCOME NATURAL PERSON. A
natural person who had "Individual Income" in excess
of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the
current year. (See definition of "Individual Income"
under the caption "WHO MAY INVEST" in the
Memorandum.)
(C) X PARTNERSHIP, CORPORATE OR OTHER ENTITY
INVESTORS. The investor is a partnership,
corporation or unincorporated association and all of
the equity owners of that entity qualify as
Accredited Investors under subparagraph (a) or (b)
above. Investors that check this subparagraph (c)
must furnish a separate copy of this Subscription
Agreement for each equity owner with items 1 through
7B completed and executed on the Signature Page by
each such equity owner.
(D) ___ REVOCABLE OR GRANTOR TRUST. The
Investor is a revocable or grantor trust and each
Person with the power to revoke the trust qualified
as an Accredited Investor under (a) or (b) above.
Investors that check this subparagraph (d) must
furnish a separate copy of this Subscription
Agreement for each Person with the power to revoke
the trust with items l through 7B completed and
executed on the Signature Page by each such Person.
(E) ____ INVESTMENT DECISION BY PLAN FIDUCIARY.
The Investor is an employee benefit Plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974, and the investment decision is
made by a Plan fiduciary, as defined in Section
3(21) of such Act which is a bank, savings and loan
association, insurance company or registered
investment advisor.
(F) ____ SELF-DIRECTED PLAN-INVESTMENT DECISION
SOLELY BY ACCREDITED INVESTOR. The Investor is an
employee benefit Plan within the meaning of Title I
of the Employee Retirement Income Security Act of
1974, the Plan provides for self-directed
investments by the Plan Participant(s) AND the
purchase of the shares of Common Stock is made
pursuant to an exercise by a Plan
3
<PAGE>
Participant, who is an Accredited Investor under
subparagraph (a) or (b) above, of such power to
direct the investments of his or her interest in the
Plan. This Subscription Agreement must be completed
and executed by such Plan Participant.
(G) _____OTHER ACCREDITED INVESTOR--PLEASE
DESCRIBE:
7B. (ALL INVESTORS COMPLETE) I FURTHER REPRESENT TO YOU
AS FOLLOWS:
(A) EMPLOYER AND POSITION OF PERSON MAKING
INVESTMENT DECISION:
(B) PRIOR EMPLOYMENT (5 YEARS) OF PERSON MAKING
INVESTMENT DECISION:
Employer (1) ______________________________
(2) ______________________________
Nature of (1) ______________________________
Duties
(2) ______________________________
Dates of Employment (1)___________ (2) __________
4
<PAGE>
(C) PRIOR INVESTMENTS OF PURCHASER
AMOUNT (Cumulative):
- -----------------------------------------------------------------
REAL ESTATE Up to $250,000 to Over $500,000
None _____ $250,000 _____ $500,000 _____ _____
STOCKS Up to $250,000 to Over $500,000
None _____ $250,000 _____ $500,000 _____ _____
BONDS Up to $250,000 to Over $500,000
None _____ $250,000 _____ $500,000 _____ _____
OTHER Up to $250,000 to Over $500,000
None _____ $250,000 _____ $500,000 _____ _____
(D) MY "INDIVIDUAL INCOME" FROM ALL SOURCES IS AT
LEAST:
1994 (ACTUAL) ____$150,000 ____$200,000 ____$300,000 ____$400,000
1995 (ACTUAL) ____$150,000 ____$200,000 ____$300,000 ____$400,000
1996 (ACTUAL) ____$150,000 ____$200,000 ____$300,000 ____$400,000
1997 (ESTIMATED) ____$150,000 ____$200,000 ____$300,000 ____$400,000
(E) MY JOINT INCOME WITH MY SPOUSE IS AT LEAST:
1994 (ACTUAL) ____$150,000 ____$300,000 ____$400,000 ____$500,000
1995 (ACTUAL) ____$150,000 ____$300,000 ____$400,000 ____$500,000
1996 (ACTUAL) ____$150,000 ____$300,000 ____$400,000 ____$500,000
1997 (ESTIMATED) ____$150,000 ____$300,000 ____$400,000 ____$500,000
5
<PAGE>
(F) MY PERSONAL NET WORTH, EITHER INDIVIDUALLY OR WITH MY
SPOUSE, IS IN EXCESS OF:
_____ $250,000, exclusive of home, home furnishings and automobiles
_____ $500,000, exclusive of home, home furnishings and automobiles
_____ $750,000, exclusive of home, home furnishings and automobiles
_____ $1,000,000, including all personal assets and liabilities
_____ $2,500,000, including all personal assets and liabilities
_____ $5,000,000, including all personal assets and liabilities
(G) I REPRESENT THAT I EITHER: (PLEASE CHECK APPROPRIATE
CATEGORY)
_____ Have such knowledge and experience in financial and business
matters that I am capable of evaluating the merits and risks
of the investment and am not relying upon a Purchaser
Representative and do not need one; or
_____ Have obtained the services of a Purchaser Representative as
defined in Regulation D ("Purchaser Representative"), in
connection herewith whose name is:
____________________________________________________________
(The Purchaser Representative submits for your files a copy of
the attached Purchaser Representative Questionnaire.) The
undersigned and the above-named Purchaser Representative
together have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits
and risk of the investment in the shares of Common Stock.
(H) PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND:
________________________________________________________________
________________________________________________________________
________________________________________________________________
6
<PAGE>
(I) PLEASE INDICATE YOUR PRINCIPAL SOURCES OF INVESTMENT
KNOWLEDGE OR ADVISE (CHECK ALL THAT APPLY):
_____ First hand investment experience (____years)
_____ First hand business experience
_____ Employment experience
_____ Education
_____ Financial, trade or industry publications
_____ Investment professionals (brokers, investment advisors, bankers)
_____ Other professionals (attorney or accountant)
8. REPRESENTATIONS AND WARRANTIES. I, the undersigned,represent and
warrant as follows:
(a) I have received and have carefully reviewed
the Memorandum and have relied solely on the
information contained therein, and information
otherwise provided to me in writing by the Company. I
understand that all documents, records and books
pertaining to this investment have been made available
by the Company for inspection by me or my attorney,
accountant and Purchaser Representative. I am familiar
with the Company's business objectives and the
financial arrangements in connection therewith and I
believe that the shares of Common Stock I am
purchasing are the kind of securities that I wish to
hold for investment and that the nature and amount of
the shares of Common Stock are consistent with my
investment program. I and my advisor(s) have had a
reasonable opportunity to ask questions of and receive
answers from the officers of the Company concerning
the Company and the shares of Common Stock and all
such questions have been answered to my full
satisfaction. I, or my representatives, have made such
investigation of the facts and circumstances set forth
in the Memorandum in connection with the purchase of
the shares of Common Stock as I have deemed necessary.
No representations have been made or information
furnished to me or my advisor(s) relating to the
Company or the shares of Common Stock which were in
any way inconsistent with the Memorandum.
(b) Subject to the terms and conditions hereof, I
hereby irrevocably tender this Subscription Agreement
to purchase the number of shares of Common Stock
indicated in Paragraph 12 below. I am aware that the
subscription made herein is irrevocable, but that the
Company has the unconditional right to accept or
reject this subscription in whole or in part, and that
the sale of the shares of Common Stock pursuant
thereto is subject to the approval of certain legal
matters by counsel and to other conditions. If my
subscription is not accepted for any reason whatsoever
or, if the offering made through the Memorandum is
terminated, my money will be returned in full, without
interest, and the Company
7
<PAGE>
will be relieved of any responsibility or liability
which might be deemed to arise out of my offer to
subscribe for any shares of Common Stock.
(c) I and, if applicable, my Purchaser
Representative have carefully reviewed the Memorandum
and all other documents or information furnished to me
by the Company. I have, either alone or together with
my Purchaser Representative(s), such knowledge and
experience in business and financial matters as will
enable me to evaluate the merits and risks of the
prospective investment and to make an informed
investment decision. I am also aware that no state or
federal agency has reviewed or endorsed the Memorandum
or the shares of Common Stock, that the Company has no
prior financial or operating history, that the shares
of Common Stock involve a high degree of economic
risk, and that there is, and will be, no public market
for the shares of Common Stock.
(d) I have been advised and am fully aware that
investing in the Company is a speculative and
uncertain undertaking the advantages and benefits of
which are generally limited to a certain class of
investors and that shares of Common Stock may be sold
only to persons who understand the nature of the
proposed operations of the Company and for whom the
investment is suitable. I represent that I meet such
suitability requirements.
(e) I meet the requirements of a purchaser as set
forth in the Memorandum under the caption "Who May
Invest."
(f) I have relied on my own tax and legal adviser
and my own investment counselor with respect to the
income tax and investment considerations of ownership
of the shares of Common Stock described in the
Memorandum.
(g) I certify that either (i) I have a current
net worth (either individually or jointly with my
spouse) of at least $500,000, exclusive of home, home
furnishings and automobiles, and reasonably anticipate
that I will have an individual income of at least
$150,000 in the year in which I subscribe for the
shares of Common Stock (without including any income
of my spouse unless my spouse is a co-investor) or
(ii) I have a current net worth, either individually
or jointly with my spouse, of at least $750,000,
exclusive of home, home furnishings and automobiles.
(h) I understand that the Company has not
registered the shares of Common Stock or any
securities into which the shares of Common Stock may
be convertible under the Securities Act of 1933, as
amended (the "Securities Act"), or the applicable
securities laws of any sate in reliance on exemptions
from registration. I further understand that such
exemptions depend upon my investment intent at the
time I acquire the shares of Common Stock. I therefore
represent and warrant that I am purchasing the shares
of Common Stock for my own account for investment and
not with a view to distribution, assignment, resale or
other transfer of the shares of Common Stock. Except
as specifically stated herein, no other person has a
direct or indirect beneficial interest in my shares of
Common Stock. Because the shares of Common Stock are
not registered, I am aware that I must hold them
indefinitely unless they are registered under the
Securities Act and any applicable state securities
laws or I must obtain exemptions from such
registration. I acknowledge that the Company is under
no duty to register the shares of Common Stock or
comply with any exemption in connection with my sale,
transfer or other disposition under applicable rules
and regulations. I understand that in the event I
desire to sell, assign, transfer, hypothecate or in
any way alienate or encumber my shares of Common Stock
in the future, except as specifically authorized by
the Company, the Company can require that I provide,
at my own expense, an opinion of counsel satisfactory
to the Company to the effect that such action will not
result in a violation of applicable federal or state
securities laws and regulations or other applicable
federal or state laws and regulations.
(i) The solicitation of an offer to purchase the
shares of Common Stock was directly communicated to
me, and any Purchaser Representative(s) that I may
have, through the Memorandum. At no time was I
presented with or solicited by or through any leaflet,
public promotional meeting, circular, newspaper or
magazine article, radio or television advertisement or
any other form of general advertising in connection
with such communicated offer.
(j) I recognize that investment in the shares of
Common Stock involves certain risks and I, and my
Purchaser Representative(s), have taken full
cognizance of and understand all of the risk factors
related to the business objectives of the Company and
the purchase of the shares of Common Stock including
those risk factors set forth under the caption "RISK
FACTORS" in the Memorandum.
(k) All information that I have provided herein
including, without limitation, information concerning
myself, my financial position and my knowledge of
financial and business matters and that of my
Purchaser Representative, is correct and complete as
of the date hereof, and if there should be any
material change in such information prior to the
acceptance of this Subscription, I will immediately
provide the Company with such information.
(l) If the Subscriber is a corporation,
partnership, trust unincorporated association or other
entity, it is authorized and otherwise duly qualified
to purchase and hold the shares of Common Stock
subscribed hereunder; such entity has not been formed
for the specific purpose of acquiring shares of Common
Stock. If the Subscriber is a trustee and is acquiring
the shares of Common Stock for the trust of which he
is a trustee, he has sought the advice of counsel
regarding whether the purchase of the shares of Common
Stock is an authorized trust investment and has been
advised by counsel that after reviewing the applicable
state law and the terms of the trust instrument, such
counsel is of the opinion that the undersigned has the
authority to purchase the shares of Common Stock for
the trust.
(m) If the Subscriber is an individual, he is 21
years of age, or if the Subscriber is an association,
all of its members are of such age.
9. INDEMNIFICATION. I agree to indemnify and hold
harmless the Company, its directors, officers, agents and its
other Affiliates from and against all damages, losses, costs
and expenses (including reasonable attorney's fees) which they
may incur by reason of my failure to fulfill any of the terms
or conditions of this Subscription Agreement, or by reason of
any untrue statement made herein or any breach of the
representations and warranties made herein or in any document
that I have provided to the Company.
10. RESTRICTIVE LEGEND. I hereby acknowledge and
consent to the placement of the following restrictive legend on
the certificate(s) or other document(s), if any, evidencing the
shares of Common Stock:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE
SECURITIES LAWS, AND THEY MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
11. MISCELLANEOUS.
(a) I agree that I may not cancel, terminate or
revoke this Agreement or any covenant hereunder and
that this Agreement shall survive my death or
disability and shall be binding upon my heirs,
executors, administrators, successors and assigns.
(b) This Agreement shall be enforced, governed
and construed in all respects in accordance with the
laws of the State of Arizona.
(c) Within 10 days after receipt of a written
request from the Company, I agree to provide such
information and to execute and deliver such
documents as reasonably may be necessary to comply
with any and all laws and ordinances to which the
Company is subject.
12. SUBSCRIPTION.
(a) I hereby subscribe for shares of Common Stock as
follows:
(i) Number of shares of Common Stock* (minimum
of 100,000 shares): 3,000,000
(ii) Price per Shares: X $5.00
(iii)Total Investment: $15,000,000
* See file for voting vs. non-voting.
(b) I hereby agree that within seven days of being
notified that the Company has accepted subscriptions for
shares of Common Stock equal to or greater than $50
million, I will take the following actions:
(i) I will tender funds via wire transfer to
the escrow account identified in the notice.
Such funds will be held in escrow and will not
be released to the Company until at least a
total of $50 million is received from
subscribers to this Offering.
(ii) I will deliver to the Company an executed
copy of the Shareholder Agreement between the
Company and me.
13. REGISTRATION AND ADDRESS
___________________________________________________________
___________________________________________________________
___________________________________________________________
(Please Print Name(s) in which the shares of Common Stock
subscribed are to be registered.)
___________________________________________________________
Social Security or Taxpayer II) Number of each purchaser.
COMMUNICATIONS TO BE SENT TO (CHECK ONE):
Home ________________________ Business __________________
Please check with address you use on your income tax returns:
Home ________________________ Business _________________
_______________________________
* See file for voting US. Non-Voting
FORM OF OWNERSHIP (CHECK ONE)
_____(a) Individual Ownership
_____(b) Joint tenants with right of survivorship (both or all
parties; Signatures required)
_____(c) Community Property (one signature required if held in
one name; two if held in both names)
_____(d) Tenants in Common (all parties; signatures required)
_____(e) Partnership*
__X__(f) Corporation*
_____(g) Limited Liability Company*
_____(h) Other* (Trust, etc.) (please specify)
*IF (E), (F), (G) OR (H) ARE CHECKED, DOCUMENTS INCLUDING
PARTNERSHIP OR CORPORATE RESOLUTION OR TRUST OR OTHER
AGREEMENT, AUTHORIZING THE SUBSCRIBER TO MAKE THE INVESTMENT
MUST ACCOMPANY THIS SUBSCRIPTION.
<PAGE>
NEW AIRLINE, INC.
A DELAWARE CORPORATION
SIGNATURE PAGE
The undersigned Subscriber, desiring to purchase
shares of Common Stock (the "Common Stock") pursuant to the
Private Offering Memorandum (the "Memorandum") of NEW
AIRLINE, INC., a Delaware corporation (the "Company"), by
executing this Signature Page, hereby agrees to be bound by
all terms of this Subscription Agreement, and further,
hereby executes, adopts, makes, confirms and agrees to all
terms, conditions, representations and warranties of this
Subscription Agreement.
Dated as of 19th day of June, 1998.
/s/ James A. Barrett, Jr., President
- ------------------------------------------------------------
Signature (If signing on behalf of an entity, state capacity
in which you are signing)
Number of Shares of Common Stock
Three Million (See file for voting vs. non-voting)
- ------------------------------------------------------------
Signature of Co-investor (if any)
Amount paid in upon Subscription
- ------------------------------------------------------------
Print Name of Subscriber
- ------------------------------------------------------------
Print Name of Co-investor (if any)
ACKNOWLEDGEMENT
STATE OF )
) ss.
County of )
On the 19th day of June, 1998, before my personally
appeared JAMES A. BARRETT (and) _____________________________,
known to me to be the individual(s) described therein and
acknowledged the foregoing instrument and that (he) (she) (they)
executed the same, being authorized to do so in the capacity
indicated.
/s/ Kathleen M. Muldoon
----------------------------
Notary Public
KATHLEEN M. MULDOON
Notary Public - State of Nevada
Clark County
93-0955-1 My Appt. Expires February 10, 2001
<PAGE>
CERTIFICATION
Based on information obtained from the Subscriber
concerning his investment objectives, his other investments and
his financial situation and needs, the undersigned
broker-dealer has reasonable grounds to believe that an
investment in the shares of Common Stock of the Company is
suitable for the Subscriber. Prior to the Subscriber's
executing this Subscription Agreement, the undersigned broker-
dealer has informed the Subscriber of any compensation the
undersigned broker-dealer shall receive on account of the sale
of the shares of Common Stock herein and all pertinent facts
relating to an investment in the shares of Common Stock,
including the risk factors disclosed in the Memorandum. The
undersigned believes that the representations and warranties
expressed above are true and correct.
Schroder & Co. Inc.
By:___________________________
Authorized Signature
Subscription accepted by the Company: Dated: _____________
NEW AIRLINE, INC.
______________________________
Michael J. Conway
<PAGE>
NEW AIRLINE, INC.
PURCHASER REPRESENTATIVE QUESTIONNAIRE
Ladies and Gentlemen: Date:_____, 1998
The following information is furnished to you so that you
may determine whether the undersigned's client,
_______________________________________________________________
____ (the "Purchaser"), together with the undersigned and
other purchaser representatives, if any, have such knowledge
and experience in financial and business matters to be capable
of evaluating the merits and risks of an investment in the
shares of Common Stock (the "Common Stock") of New Airline,
Inc. (the "Company") as required under Securities and Exchange
Commission Regulation D ("Regulation D") and corresponding
provisions of applicable state securities laws. I understand
that you will rely upon the information contained herein for
purposes of such determination, and that the shares of Common
Stock will not be registered under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance upon the
exemption from registration provided by Sections 3(b) and 4(2)
of the Securities Act and Regulation D thereunder and
corresponding provisions of applicable state securities laws.
All information contained herein will be treated
confidentially. However, we agree that you may present this
Questionnaire to such parties as you deem appropriate if
called upon to establish that the proposed offer and sale of
the shares of Common Stock is exempt from registration under
the Securities Act or meets the requirements of applicable
state securities laws. I agree to advise you promptly of any
material changes in the foregoing information which may occur
prior to the termination of the offering.
I am acting as Purchaser Representative for the Purchaser
in connection with the Purchaser's investment in the shares of
Common Stock and, in that connection, I furnish you with the
following representations and information (Please Print):
1. Name:_______________________________________________
2. Age:________________________________________________
3. Profession (or Business) and Title, if applicable:__
______________________________________________________
4. (a) Business Address:_______________________________
(b) Telephone Number: ( )_________________________
5. Details of any training or experience in financial,
business or tax matters which qualify me to act in the capacity
of Purchaser Representative (include current and prior
employment, business or professional education, professional
licenses now held, SEC or state broker-dealer registrations
held, and if applicable, participation in valuation of similar
investments in the past):
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______
6. The undersigned has not, during the past ten years,
(i) been convicted, indicted or investigated in connection with
any past or present criminal proceedings (excluding traffic
violations and other minor offenses); or (ii) been the subject
of any order, judgment or decree of any court of competent
jurisdiction permanently or temporarily enjoining the
undersigned from acting as an investment advisor, underwriter,
broker or dealer in securities or as an affiliated person,
director or employee of an investment company, bank, savings
and loan association of insurance company, or from engaging in
or continuing any conduct or practice in connection with any
such activity or in connection with the purchase or sale of any
security, or been the subject of any order of a Federal or
state authority barring or suspending for more than sixty days
the undersigned's right to be engaged in any such activity, or
to be associated with persons engaged in any such activity,
which order has not been reversed or suspended.
7. I have such knowledge and experience in financial,
business and tax matters so as to be capable of evaluating,
alone or together with the Purchaser, the relative merits and
risks of an investment in the shares of Common Stock.
8. There is no material relationship (within the meaning
of Regulation D) between me or my affiliates and the Company or
its affiliates which now exists or is mutually understood to be
contemplated or which has existed as a result of any such
relationship.
9. In advising the Purchaser in connection with
Purchaser's prospective investment in the Company, I will be
relying in part on the Purchaser's own experience in certain
areas.
Yes _____ No _____
10. In advising the Purchaser in connection with the
Purchaser's prospective investment in the shares of Common
Stock, I will be relying in part on the expertise of an
additional Purchaser Representative or Representatives.
Yes _____No _____
If "Yes", give the names and address of such additional
Representative or Representatives
_________________________________________________________________
_________________________________________________________________
11. I agree to advise you promptly of any material
changes in the foregoing information which may occur prior to
the termination of the offering.
_____________________________________
SIGNATURE OF PURCHASER REPRESENTATIVE
Date , 199___________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,625
<SECURITIES> 0
<RECEIVABLES> 47,541
<ALLOWANCES> 15,996
<INVENTORY> 12,057
<CURRENT-ASSETS> 75,110
<PP&E> 581,062
<DEPRECIATION> 94,794
<TOTAL-ASSETS> 666,214
<CURRENT-LIABILITIES> 57,902
<BONDS> 305,374
0
0
<COMMON> 248
<OTHER-SE> 2,851,252
<TOTAL-LIABILITY-AND-EQUITY> 666,214
<SALES> 194,882
<TOTAL-REVENUES> 194,882
<CGS> 0
<TOTAL-COSTS> 163,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (4,584)
<INTEREST-EXPENSE> 12,082
<INCOME-PRETAX> 19,734
<INCOME-TAX> 7,203
<INCOME-CONTINUING> 12,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,531
<EPS-PRIMARY> .51
<EPS-DILUTED> .50
</TABLE>
