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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM:
COMMISSION FILE NUMBER: 0-14050
THE SANDS REGENT
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEVADA 88-0201135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
345 NORTH ARLINGTON AVENUE
RENO, NEVADA 89501
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 348-2200
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.05 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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
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The aggregate market value of the Registrant's $.05 par value Common Stock
held by non-affiliates of the Registrant on September 23, 1996 was
$8,050,145. The aggregate market value is computed with reference to the
average price per share on such date.
Registrant's Common Stock outstanding at September 23, 1996 was 4,498,722
shares.
Portions of Registrant's 1996 Annual Report to the Shareholders are
incorporated into Part II as set forth herein. Portions of Registrant's
definitive Proxy Statement for its November 4, 1996 Annual Meeting of
Shareholders are incorporated into Part III as set forth herein.
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PART I
ITEM 1. BUSINESS
GENERAL
THE COMPANY
The Company, through a wholly-owned subsidiary, Zante, Inc. ("Zante"), owns
and operates the Sands Regency hotel/casino in downtown Reno, Nevada. The
Company, through three wholly-owned subsidiaries, Patrician, Inc. ("Patrician"),
Gulfside Casino, Inc. ("GCI") and Artemis, Inc., ("Artemis"), owns Gulfside
Casino Partnership (the "Partnership"), which owns the Copa Casino, a dockside
gaming vessel located in Gulfport, Mississippi. GCI, Patrician and Artemis own
20%, 79% and 1%, respectively, of the Partnership. Gaming operations for the
Copa Casino commenced in September 1993.
Reno, Nevada. The Sands Regency hotel/casino has approximately 27,000 square
feet of gaming space and 938 hotel rooms, including 32 suites of various sizes.
The complex also includes three restaurants, a "Winchell's Donut House", a
"Pizza Hut", an "Arby's" restaurant operated by a third party, a
"Baskin-Robbins" and an "Orange Julius" operated by a third party, three
cocktail lounges, a gift shop, a beauty/barber shop and a liquor store, each
operated by third parties, a video arcade, a health club, a swimming pool and
over 10,000 square feet of convention and meeting space which can seat up to 650
people. The Company maintains six parking areas on its main hotel/casino
property and adjacent to it, including two parking garages, with a total
combined capacity for approximately 1,000 vehicles. Although the Company offers,
on a very limited basis, complimentary hotel accommodations to select customers,
no group arrangements known as "junkets" are conducted.
The average room occupancy for fiscal 1996 was 82.9% compared to 87.1% for
1995. The hotel's average room rate for the current fiscal year was
approximately $32.00 as compared to $33.00 in the prior fiscal year.
As of September 25, 1996, the casino offered 20 table games, including 15
blackjack tables, 1 caribbean stud table, 1 craps table, and 2 roulette tables,
1 let it ride, 2 keno games and approximately 690 slot machines. In connection
with the supervision of its gaming activities, the Company's policies include
stringent controls, cross-checks and recording of all receipts and
disbursements.
The Company's Reno, Nevada operations are conducted 24 hours a day, every
day of the year. The primary source of revenues and income to the Company is its
gaming activities, although the hotel, bars, shops, restaurants and other
services are an important adjunct to the gaming activities. The Company's
operating and marketing philosophy emphasizes high volume business, offering
large, attractive hotel rooms at reasonable prices to travel group wholesalers,
primarily from Western Canada, the Pacific Northwest and Northern California.
Gaming accounted for approximately 55% of the Company's revenues in fiscal 1996
and approximately 77% of the gaming revenues were generated by slot machines.
The Company generally does not extend credit to its gaming customers.
As a result of current adverse market conditions and the uncertainty of
future market growth, the Company has cancelled its major expansion plans and
allowed its local governmental approvals to expire. In the near term, the
Company will concentrate its resources on renovating and improving existing Reno
facilities and services. Future expansion plans will be considered based upon
future market conditions and the need to add hotel rooms and other major
facilities.
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Gulfport, Mississippi. In December 1992, the Company, through Patrician,
entered into a partnership agreement with GCI to develop and operate a dockside
gaming facility in Gulfport, Mississippi. Located approximately 75 miles from
New Orleans, Louisiana and 70 miles from Mobile, Alabama, the facility, known as
the "Copa Casino," is a permanently moored 500-foot cruise ship. Gaming
operations commenced in mid-September 1993.
On February 25, 1994, the Company acquired all of the outstanding stock of
GCI as well as certain advances to the Partnership previously due to an
affiliate of GCI. GCI's principal asset is its general partnership interest in
the Partnership. In April 1995, Artemis was formed as a wholly-owned subsidiary
of The Sands Regent and acquired a 1% ownership interest in the Partnership from
Patrician. The Company, through Patrician, GCI and Artemis, owns 100% of the
Partnership.
Mississippi, which legalized casino gaming in September 1991, allows for
24-hour gaming on riverboats or other floating vessels located on or adjacent to
approved navigable waterways. Such floating facilities need not cruise into the
waterways and, as such, become permanently moored as dockside gaming facilities.
Gulfport is a deep-water port located on U.S. Highway 90 on the Mississippi gulf
coast. A population of approximately 2.5 million resides within a 100-mile
radius, including New Orleans and Mobile. Interstate Highway 10, which is the
main thoroughfare between Mobile and New Orleans, lies approximately 10 miles to
the north of the port area. The Gulfport-Biloxi metropolitan area has over 7,000
hotel and motel rooms located in the immediate Gulfport-Biloxi area.
The Copa Casino consists of approximately 24,000 square feet of casino space
located on two decks. As of September 25, 1996, the Copa offered approximately
717 slot machines and 26 table games, including craps, roulette, blackjack,
caribbean stud, let it ride and big six. In addition, the facility also includes
4 cocktail lounges/bars, a deli-style restaurant, a buffet restaurant operated
by a third party, a gift shop and various ancillary services and facilities. The
deck below the two casino decks contains a surveillance area, a vault, count
rooms and security and various operations and administrative offices. An
additional three decks on the ship are available for future expansion of gaming
and dining facilities.
The Copa Casino is permanently moored dockside at a location known as the
"Horseshoe Site." Such site, which is leased from the Mississippi Department of
Economic and Community Development and the Mississippi State Port Authority, is
between the East and West Piers of the Mississippi State Port in Gulfport,
Mississippi. This location, which includes 8.3 acres of land based facilities,
will accommodate surface parking for approximately 840 vehicles. The leased
facilities also include a docking structure which accommodates the Copa Casino
ship and will allow for mooring of additional vessels. The docking structure
also includes a roadway and pedestrian walk which provides access to the Copa
Casino entrance.
As in Nevada, the Mississippi operations are conducted 24 hours a day every
day of the year. Present operations provide for the offering of complimentary
food and beverage on a limited basis. Group arrangements, known as "junkets,"
are not conducted.
MARKETING
Reno, Nevada. The central component of the Company's marketing philosophy is
to utilize travel wholesalers to attract group and air wholesale business to the
hotel/casino. This philosophy is based on offering attractive, well-furnished,
large hotel accommodations and quality food and beverages at prices slightly
lower than those of most major hotel/casinos in Reno. Management believes this
strategy has historically enabled the Company to maintain high levels of hotel
occupancy.
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Significant group and air wholesale market areas continue to be Western
Canada, the Pacific Northwest and Northern California. The Company continues to
expand its marketing areas by adding additional air wholesalers and has been
successful in obtaining wholesale business in Central and Eastern Canada, the
Midwest, Southwest and Southern California.
In addition to the group and air wholesale business, the Company is
aggressively packaging and marketing convention and military reunion business
which require 300 rooms or less. Other travel package arrangements are also
being promoted which are geared toward individual travelers. The Company
undertakes, from time to time, direct advertising in select Western cities in
order to promote and increase the individual traveler business.
The Company uses a flexible approach to pricing its rooms which is designed
to maintain high occupancy levels. Hotel rooms are offered at discount prices to
travel wholesalers, as much as six months in advance of arrival, for block sales
of rooms used in travel packages. This is particularly important to the Company
because of the impact of hotel occupancy on the level of gaming activity. The
Company is particularly dependent upon group business from November through
February because of the seasonal decline in other sources of business. During
these months, a substantial amount of the Sands Regency's hotel capacity is
normally prebooked 30 to 180 days in advance on a cancelable basis. During the
summer months, the Company relies on direct advertising of its room rates to
attract individual customers.
The Sands Regency is the lead hotel/casino in the Reno area for several
major travel wholesalers who serve major cities in the West, Midwest and
Southwest United States and in Western and Central Canada. Group and air
wholesale business accounted for approximately 59% of the hotel's occupancy in
fiscal 1996 compared to 61% in fiscal 1995.
Most advertising for the Sands Regency is done by travel wholesalers in
their markets. The Company also advertises directly in its major United States
markets through printed publications, especially during periods of the year when
group business operates at reduced levels.
Gulfport, Mississippi. The Company has positioned the Copa Casino as a
casino for local residents. Emphasis has been placed on providing a casual and
friendly atmosphere. To maintain this marketing position, the Company's goal is
to provide its products and services at values favored by the Company's guests.
The Company also uses numerous, in-house promotional programs to attract local
residents and other customers. These Company-sponsored promotional and special
event programs include gaming and slot tournaments, football season promotions
and give-a-way programs.
The Company has implemented a variety of outside advertising campaigns in
order to attract "drive-up" gaming customers. This includes billboard within a
100-mile radius of Gulfport and local newspaper, radio and television
advertising. In addition, the Company has implemented drive-up promotions and
programs to generate more frequent customer visits and to identify valued
customers. Direct mail programs, which have resulted in positive customer
responses, will continue to be undertaken to encourage more frequent visits by
customers.
In fiscal 1997, the Company plans to acquire a computerized slot player
tracking and marketing system which will improve the Company's ability to offer
different and more diverse promotions. The system will also provide player
tracking information so as to allow the Company to reward gaming customers with
complimentary and other promotional goods and services.
The Company has also pursued marketing efforts toward developing group
business, primarily bus charters and, beginning in October 1996, will expand
these efforts to include tour and travel air charters. Through these efforts,
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the Company has attracted bus charters from various areas within a 500-mile
radius including Atlanta, Georgia and Florida.
The Company will continue to utilize various marketing strategies with a
goal of increasing the frequency of casino visits by its customers which
includes implementing programs to identify and retain selected valued customers
and the establishment of promotional programs which cater to senior citizens.
The Company has employed sales representatives to market to tour operators,
travel agents, social groups, corporations and associations.
COMPETITION
Reno, Nevada. The Company competes in the greater Reno area with
approximately sixteen major casinos and hotel/casinos, some of which are larger
than the Sands Regency. In addition, there are numerous other smaller casinos in
the greater Reno area. The Company competes for its customers based upon gaming
activities, room rates, room size and quality of rooms, food, beverages and
location. In the last twelve months, competitors of the Company have constructed
approximately 2,700 hotel rooms including a new hotel/casino with 1,700 rooms.
This resulted in an increase in Reno area available hotel rooms of approximately
20%. There are also an additional 800 hotel rooms currently under construction
by other competitors of the Company and governmental approval has been granted
to construct an additional 2,188 hotel rooms. Such governmental approval does
not provide assurance that all of these rooms will be built. If construction is
completed on all hotel rooms presently under construction or approved for
construction, the hotel room capacity in the greater Reno area will increase by
approximately an additional 19%. In the event all approved hotel rooms are
built, and depending on the time frames during which they are completed,
management of the Company believes that this added capacity may have an adverse
effect on operations of the Company.
The Company's Reno operations compete, to a lesser extent, with gaming
operations in other parts of the state of Nevada, such as Laughlin, Las Vegas
and Lake Tahoe. California currently sponsors a state lottery and allows other
non-casino style gaming, including parimutuel wagering, card parlors, bingo and
off-track betting. The Company believes that such non-casino style gaming does
not have a significant impact on the Company's operations. The Company believes,
however, that the legalization of casino-style gaming in California could have a
material impact on the Company's operations.
Gulfport, Mississippi. The Company's operations on the Gulf Coast of
Mississippi are in competition with numerous gaming operations currently
established or to be established on vessels or barges moored on the Gulf Coast
of Mississippi, and on boats or barges cruising or moored on the Mississippi
River. Currently there are ten dockside gaming facilities, excluding the
Company, operating along the Gulf Coast of Mississippi, including one in Bay
Saint Louis, one in Gulfport and eight in Biloxi. There are also two gaming
facilities presently planned along the Gulf Coast which are licensed and under
construction.
Along the Mississippi River, there are presently eighteen Mississippi
dockside casino facilities; one in Natchez, four in Vicksburg, two in
Greenville, one near Lula and ten in Tunica. There are two additional proposed
casino operations to be located along the Mississippi River in Vicksburg and
Greenville which have been granted gaming licenses. There is also one casino
currently in operation on an Indian reservation near Philadelphia, Mississippi.
In addition to the above, there are also numerous other proposed Mississippi
casino operations along the Mississippi River and the Gulf Coast. Requiring both
site approval and gaming licenses, such proposed operations are at various
stages in the developmental process without assurances that development and
operation will occur.
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In addition to direct competition which the Company faces in the Mississippi
market, the Company faces competition from riverboats and a possibly reopened
land-based casino in the State of Louisiana, which is an important market area
for the Company's Gulfport casino. Current Louisiana legislation permits
unlimited stakes gaming and a total of fifteen riverboat licenses and one
land-based license have been authorized statewide. At present, there are
thirteen riverboats in operation. Besides these State of Louisiana gaming
operations, it is also anticipated that gaming may be implemented on Indian
reservations near Gulfport and New Orleans.
In the event that all, or a significant number, of these proposed facilities
are licensed, built and operated, management of the Company believes that this
added capacity may have an adverse effect on its Gulfport casino operation.
Management believes that the principal competitive factors will include ease of
access, availability of parking, attractiveness of casino vessels and
surrounding property, proximity to other gaming facilities, and quality of food
and entertainment offered.
General. To a significantly lesser extent, the Company competes with gaming
facilities in New Jersey, Colorado, South Dakota, Illinois, Iowa and other parts
of the world. The Company also competes with various gaming operations on Indian
land, including those located in California, Oregon, Washington, Connecticut,
Michigan, Minnesota and Wisconsin. Indian casino gaming has become a growing
sector of the gaming industry as a result of the Indian Gaming Regulatory Act of
1988, which generally permits unrestricted gaming on Indian land in any state
that allows similar forms of gaming, whether or not restricted. Other states may
legalize various forms of gaming that may compete with the Company. In any
jurisdiction where the Company may commence operations, it will face competition
for desirable sites and qualified personnel.
EMPLOYEES
At June 30, 1996, the Company employed 979 people at the Sands Regency in
Reno, Nevada, including 91 salaried employees and 888 hourly employees. The Copa
Casino employed 466 people, including 57 salaried employees and 409 hourly
employees. None of the Company's employees is represented by a union. The
Company has not experienced any work stoppages or other significant labor
problems and management considers its labor relations to be good.
REGULATION AND LICENSING-GAMING
Nevada. The ownership and operation of casino gaming facilities in Nevada
are subject to (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulation. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming
Control Board ("Nevada Board") and the City of Reno, (together, the "Nevada
Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures
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for internal fiscal affairs and the safeguarding of assets and revenues,
providing reliable record keeping and requiring the filing of periodic reports
with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) to provide a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
Zante operates the Sands Regency hotel/casino and is required to be licensed
by the Nevada Gaming Authorities. The gaming license requires a periodic payment
of fees and taxes and is not transferable. The Company is registered by the
Nevada Commission as a publicly traded corporation ("Registered Corporation")
and as such, it is required periodically to submit detailed financial and
operating reports to the Nevada Commission and furnish any other information
which the Nevada Commission may require. No person may become a stockholder of,
or receive any percentage of profits from Zante without first obtaining licenses
and approvals from the Nevada Gaming Authorities. The Company and Zante have
obtained from the Nevada Gaming Authorities the various registrations,
approvals, permits and licenses required in order to engage in gaming activities
in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Zante in
order to determine whether such individual is suitable or should be licensed as
a business associate of a gaming licensee. Officers, directors and certain key
employees of Zante must file applications with the Nevada Gaming Authorities and
may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the Company who are
actively and directly involved in gaming activities of Zante may be required to
be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause which
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or Zante, the companies involved would have to
sever all relationships with such person. In addition, the Nevada Commission may
require the Company or Zante to terminate the employment of any person who
refuses to file appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial review in Nevada.
The Company and Zante are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities and similar financing transactions by Zante must be
reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Zante, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition,
Zante, the Company, and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the direction of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate the Company's gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the Company's gaming properties) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of any
gaming license or the appointment of a supervisor could (and revocation of any
gaming license would) materially adversely affect the Company's gaming
operations.
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Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of the directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or operations of the
Company, or any of its gaming affiliates, or any other action which the Nevada
Commission finds to be inconsistent with holding the Company's voting securities
for investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company or Zante,
the Company (i) pays that person any dividend or interest upon voting securities
of the Company, (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation or similar
transaction.
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The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. The
Company's stock certificates do bear such a legend.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior approval
of the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environmental for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who has become involved in a gaming venture outside of
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Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
Mississippi. The ownership and operation of a gaming business in Mississippi
is subject to extensive laws and regulations, including the Mississippi Gaming
Control Act (the "Mississippi Act") and the regulations (the "Mississippi
Regulations") promulgated thereunder by the Mississippi Gaming Commission (the
"Mississippi Commission") and the Mississippi State Tax Commission Regulations
for Gaming Establishments ("Mississippi Tax Regulations") promulgated by the
Mississippi State Tax Commission ("Mississippi Tax Commission"). The Mississippi
Commission and Mississippi Tax Commission (together the "Mississippi Gaming
Authorities") are empowered to oversee and enforce the Mississippi Act. Gaming
in Mississippi can be legally conducted only on floating vessels of a certain
minimum size in navigable waters of the Mississippi River or in waters of the
State of Mississippi (so called dockside gambling) which lie adjacent and to the
south (principally in the Gulf of Mexico) of the counties of Hancock, Harrison
and Jackson, and only in counties in Mississippi in which the registered voters
have not voted to prohibit such activities. The voters in Jackson County, the
southeastern most county of Mississippi, have voted to prohibit gaming in that
county. However, gaming could be approved in Jackson County in any subsequently
held referendum.
The underlying policy of the Mississippi Act is to ensure that gaming
operations in Mississippi are conducted (i) honestly and competitively, (ii)
free of criminal and corruptive influences, and (iii) in a manner which protects
the rights of the creditors of gaming operations. The laws, regulations and
supervisory procedures of the Mississippi Act seek to (i) establish and maintain
response accounting practices and procedures; (ii) maintain effective control
over the financial practices of licensees, including establishing minimum
procedures for internal fiscal affairs and safeguarding assets and revenues,
providing reliable record keeping, and making periodic reports to the
Mississippi Gaming Authorities; and (iii) provide a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on the Company.
The Mississippi Act requires that a person (including any corporation or
other entity) must be licensed to conduct gaming activities in Mississippi. A
license will be issued only for a specified location which has been approved as
a gaming site by the Mississippi Commission prior to issuing such license.
Gaming licenses are issued for an initial two year period and are renewable
every two years thereafter. The Mississippi Act also requires that each officer
or director of a gaming licensee, or other person who exercises a material
degree of control over the licensee, either directly or indirectly, must be
found suitable by the Mississippi Commission. The Mississippi Commission will
not issue a license or make a finding of suitability unless it is satisfied,
only after an extensive investigation paid for by the applicant, that the
persons associated with the gaming licensee or applicant for a license are of
good character, honesty and integrity, with no relevant or material criminal
record. In addition, the Mississippi Commission will not issue a license unless
it is satisfied that the licensee is adequately financed or has a reasonable
plan to finance its proposed operations from acceptable sources, and that
persons associated with the applicant have sufficient business probity,
competence and experience to engage in the proposed gaming enterprise. Other
parties, including the Partnership's or the Company's lenders, holders of
evidences of indebtedness, underwriters and employees, may be required to be
licensed, and such applications for licensing, if any, may be denied for any
cause deemed reasonable by the Mississippi Commission. The
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<PAGE> 11
Mississippi Commission may refuse to issue a work permit to a gaming employee
(i) if the employee has committed larceny, embezzlement or any crime of moral
turpitude, or knowingly violated the Mississippi Act or Mississippi Regulations,
or (ii) for any other reasonable cause.
The Partnership holds the gaming license to the Copa Casino gaming facility
in Gulfport, Mississippi. Patrician, GCI and Artemis, all wholly-owned
subsidiaries of the Company, have been approved as partners of the Partnership.
The license is not transferrable.
In October 1994, the Mississippi Gaming Commission adopted a regulation
requiring, as a condition of licensure or license renewal, that a gaming
establishment's site development plan include certain infrastructure facilities
in close proximity to the casino complex which will amount to at least 25% of
the cost of the casino facility. Parking facilities, roads, sewage and water
systems or facilities normally provided by governmental entities do not meet the
infrastructure requirement. The Mississippi Gaming Commission found the Copa
Casino to be in compliance with this regulation as a result of its construction
of a general purpose pier facility and other improvements that inure to the
benefit of the Mississippi State Port Authority.
The Mississippi Commission has the power to deny, limit, condition, revoke
and suspend any license, finding of suitability or registration, or fine any
person, as it deems reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Commission may fine any licensee or
persons who was found suitable up to $100,000 for each violation of the
Mississippi Act or the Mississippi Regulations, which is the subject of an
initial complaint, and up to $250,000 for each such violation which is the
subject of any subsequent complaint. The Mississippi Act provides for judicial
review of any final decision of the Mississippi Commission by petition to a
Mississippi Circuit Court, but the filing of such petition does not necessarily
stay any action taken by the Mississippi Commission pending a decision by the
Circuit Court.
The Partnership must submit detailed financial and operating reports to the
Mississippi Gaming Authorities. Substantially all loans, leases, sales of
securities and other financing transactions entered into by the Partnership must
be reported to, and, in some cases, approved by, the Mississippi Gaming
Authorities.
Under the Mississippi Regulations, a gaming license may not be held by a
publicly traded company, although an affiliate corporation, such as the Company,
may be publicly held so long as the Company receives the approval of the
Mississippi Commission. The Company has received such approval of the
Mississippi Commission. In addition, approval of any public offering of the
securities of the Company must be obtained from the Mississippi Commission if
any part of the proceeds from that offering are intended to be used to
construct, acquire or finance the operation of gaming facilities in Mississippi
or to retire or extend obligations incurred for any such purpose.
Under the Mississippi Regulations, a person is prohibited from acquiring
control of the Company without prior approval of the Mississippi Commission. The
Company is also prohibited from consummating a plan of recapitalization proposed
by management in opposition to an attempted acquisition of control of the
Company and which involves the issuance of a significant dividend to Common
Stockholders, where such dividend is financed by borrowing from financial
institutions or the issuance of debt securities. In addition, the Company is
prohibited from repurchasing any of its voting securities under circumstances
(subject to certain exemptions) where the repurchase involves more than one
percent of the Company's outstanding Common Stock at a price in excess of 110%
of the then market value of the Company's Common Stock from a person who owns
and has for less than one year owned more than three percent of the Company's
outstanding Common Stock, unless the repurchase has been approved by a majority
of the Company's shareholders voting on the issue (excluding the person from
whom the repurchase is being made) or the offer is made to all other
shareholders for the Company.
10
<PAGE> 12
Any person who, directly or indirectly, or in associations with others,
acquires beneficial ownership of more than five percent of the Common Stock of
the Company must notify the Mississippi Commission of this acquisition and may
be required to be found suitable by the Mississippi Commission. Any person who
becomes a beneficial owner of more than 10% of the Company's Common Stock must
apply for a finding of suitability by the Mississippi Commission. Furthermore,
regardless of the amount of securities purchased, any person who acquires any
beneficial ownership in the Common Stock of the Company may be required to be
found suitable if the Mississippi Commission has reason to believe that the
acquisition and ownership would be inconsistent with the declared policy of
Mississippi. Any person who is required to be found suitable must apply for a
finding of suitability from the Mississippi Commission within 30 days after
being requested to do so, and must deposit with the State Tax Commission a sum
of money which is adequate to pay the anticipated investigatory costs associated
with such finding. Any person who is found not to be suitable by the Mississippi
Commission shall not be permitted to have any direct or indirect ownership in
the Company's Common Stock. Any person who is required to apply for a finding of
suitability and fails to do so, or who fails to dispose of his or her interest
in the Company's Common Stock if found unsuitable, is guilty of a misdemeanor.
If a finding of suitability with respect to any person is not applied for where
required, or if it is denied or revoked by the Mississippi Commission, the
Company is not permitted to pay such person for services rendered, or to employ
or enter into any contract with such person.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi, and
corporations whose stock is publicly traded that are affiliated with those
operations, may be injurious to stable and productive corporate gaming. The
Mississippi Commission has established a regulatory scheme to ameliorate the
potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to (i) assure the financial
stability of corporate gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environmental for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof (commonly referred to as
"greenmail") and before a corporate acquisition opposed by management can be
consummated. Mississippi's gaming regulations also requires prior approval by
the Mississippi Commission if the Company were to adopt a plan of
recapitalization proposed by the Company's Board of Directors in opposition to a
tender offer made directly to its stockholders for the purposes of acquiring
control of the Company.
Neither the Partnership, the Company nor any controlled affiliate may engage
in gaming activities in Mississippi and outside of Mississippi without approval
of the Mississippi Commission. The Mississippi Commission may require, among
other things, that there be adequate governmental regulation of gaming in the
out-of-state location and that there is a means of the Mississippi Commission to
have access to information concerning the out-of-state gaming operations and
persons associated with them.
REGULATION AND LICENSING - ALCOHOLIC BEVERAGES
Nevada. The sale of alcoholic beverages by the Company is subject to
supervision, control and regulation by the City of Reno, which issues licenses
deemed to be nontransferable, revocable privileges, and which has full power to
limit, condition, suspend or revoke such licenses. The Company is presently
licensed to sell alcoholic beverages. Any adverse regulatory act with respect to
this license could have an adverse effect upon the operations of the Company.
11
<PAGE> 13
Mississippi. The sale of alcoholic beverages by the Copa Casino is subject
to regulation by the Mississippi State Tax Commission, which issues licenses
which are both revocable and non-transferable, and which has full power to
limit, condition, suspend or revoke any such license. The Partnership is
currently licensed to sell alcoholic beverages as an "On-Premises Retailer." Any
adverse regulatory act with respect to this license could have an adverse effect
upon the operation of the Partnership. The sale of light wine and beer by Copa
Casino is also subject to regulation by the Mississippi State Tax Commission,
which issues licenses which are both revocable and non-transferable, and which
has the full power to limit, condition, suspend or revoke any such license.
However, the enforcement of laws regulating the acquisition, use, sale and
distribution of light wine and beer is left to local law enforcement agencies.
The Partnership is currently licensed to sell light wine and beer as a
"Retailer" under a beer permit and privilege license. Any adverse regulatory act
with respect to this license could have an adverse effect upon the operation of
the Partnership.
12
<PAGE> 14
ITEM 2. PROPERTIES
Reno, Nevada. The Company operates the casino and hotel towers at the Sands
Regency on a Company-owned 6.3 acre site in downtown Reno. The hotel/casino site
also includes the original three-story motor lodge and four-story hotel tower
and other buildings and facilities. Garage and surface parking is provided at
the hotel/casino site and also on a 2.7 acre site located adjacent to the
hotel/casino site. In addition, the Company's personnel office and certain
storage facilities are located one-half block from the hotel/casino site on a
Company-owned .5 acre lot. Management considers the Company's facility to be in
good condition and well-maintained.
In addition to the main hotel/casino facility, the Company owns several
smaller properties in Reno consisting of an aggregate area of approximately .6
acres.
The Company's Reno hotel/casino property is subject to aggregate
encumbrances of approximately $15.5 million as of June 30, 1996.
Gulfport, Mississippi. The Copa Casino gaming facilities are located on two
decks of a 500 foot cruise ship owned by Gulfside Casino Partnership. These two
decks also include four cocktail lounges/bars, a deli-style restaurant, a buffet
restaurant operated by a third party and a gift shop. The deck below the two
casino decks contains a surveillance area, a vault, count rooms, security and
various operations and administrative offices. An additional three decks on the
ship are available for future expansion of gaming and dining facilities. The
engines for such cruise ship are disabled. All gaming activities are conducted
while moored dockside.
The Copa Casino is permanently moored dockside at a location known as the
"Horseshoe Site." Such site, which is leased from the Mississippi Department of
Economic and Community Development and the Mississippi State Port Authority, is
between the East and West Piers of the Mississippi State Port in Gulfport,
Mississippi. This location, which includes 8.3 acres of land-based facilities,
will accommodate surface parking for approximately 840 vehicles. The leased
facilities also include a docking structure which accommodates the Copa Casino
ship and will allow for mooring of additional vessels. The docking structure
also includes a four-lane roadway and a pedestrian walk which provides access to
the Copa Casino entrance.
The initial term of the lease, as amended, is seven years and ends in
October 1999. The lease provides for three renewal periods of five years each
and one renewal period of ten years if the Partnership, within the first ten
years of the lease agreement, constructs, on the leased premises or within the
city limits of Gulfport, a hotel with a minimum of 350 units. If any of such
renewal options are exercised, the lease term will be extended under the same
terms and provisions of the lease agreement except that the rental amounts will
be adjusted and revised annually, in years six through thirty-two, in accordance
with changes in the Consumer Price Index.
The lease provides for an annual rental of $500,000 (the "Minimum Rental")
plus five percent (5%) of the gross annual gaming revenues over $25,000,000 (the
"Percentage Rental"). In addition to the Minimum Rental and Percentage Rental
set forth above, the Partnership is also required to pay, monthly, 3% of the
gross monthly revenues on all activities other than gaming (the "Additional
Percentage Rent"). The Minimum Rental is to be paid in advance, in equal monthly
installments of $41,667 on the first day of every month during the lease year.
For each month, the Percentage Rental and the Additional Percentage Rental must
be calculated and the amounts due, if any, are to be paid on or before the 10th
day of the following month.
In July 1996, Copa Casino was notified by the Mississippi Department of
Economic and Community Development and the Mississippi State Port Authority that
its lease will be cancelled and terminated at the end of the initial lease term
in October 1999 because the Copa Casino's leased site is needed by the
Mississippi State Port Authority to accommodate a purported expansion of Port
facilities. Such notice of termination, among other items,
13
<PAGE> 15
is presently the subject of litigation between the Copa Casino and the
Mississippi Department of Economic and Community Development and the Mississippi
State Port Authority as further described in Item 3. Legal Proceedings. If the
Copa Casino is required to vacate its existing site and no suitable replacement
sites can be found, the Company's results of operations could be materially
adversely affected.
ITEM 3. LEGAL PROCEEDINGS
GCI MATTER
In December 1994, a lawsuit was filed by Terry W. Green and Joel R. Carter,
Sr. ("Green and Carter") in the Chancery Court of Harrison County, Mississippi,
First Judicial District against GCI because of GCI's failure to make payments on
promissory note obligations of GCI to Green and Carter. These note obligations,
in the aggregate amount of $6 million, plus interest, are secured by a pledge of
GCI's partnership interest in GCP. Although these promissory notes and the
accrued interest thereon are obligations of GCI, they are reflected as current
liabilities in the Company's Consolidated Balance Sheets at June 30, 1996 and
1995 upon consolidation.
In addition to demanding payment of the $6 million plus interest, for which
a partial summary judgment was granted, the lawsuit by Green and Carter is
demanding the appointment of a receiver to take possession of and sell GCI's
ownership interest in GCP. The lawsuit also seeks attorneys fees in an amount
not less than $900,000 which management of the Company believes would not be
deemed a reasonable amount in the event of an unfavorable judgment against GCI.
In May 1995, GCP and Patrician were joined as necessary parties to the lawsuit.
In August 1995, a Charging Order was entered which requires GCP to respond
to inquiries by Green and Carter for the purpose, among other things, of
determining what distributions, if any, have been paid by the partnership to
either of its partners. Moreover, a court order has been granted whereby any
amounts due or to become due GCI by GCP are to be paid to Green and Carter until
the summary judgment against GCI is satisfied.
Part of the dispute with Green and Carter concerns their security interest
in GCI's ownership of GCP. GCI's interest in GCP has been reduced from an
original 60% to the present .006% interest as a result of an amendment to the
partnership agreement and a partner capital call. An amendment to the GCP
partnership agreement was entered into, effective January 1, 1993, whereby the
profit and loss allocation percentages were amended from 40% to 80% for
Patrician and from 60% to 20% for GCI. Such amendment was entered into so as to
properly reflect the relative financial risks of Patrician and GCI and to cure a
partnership breach by GCI. Specifically, and prior to the acquisition of GCI by
The Sands Regent in February 1994, GCI had breached the partnership agreement by
failing to properly contribute monies to the partnership. This resulted in
additional funding by Patrician and the amendment was entered into to cure the
breach since GCI was not in the position to contribute required funding.
An additional partner capital call occurred in January 1996 for the purpose
of improving the partnership capital structure. Patrician and Artemis complied
with the capital call and GCI failed to comply. As a result, and in accordance
with the partnership agreement, CGI's interest in GCP was reduced from 20% to
.006%. Green and Carter claim that GCI's ownership interest in GCP should be the
pre-amendment, pre-capital call 60% interest. GCI and Patrician contend that the
amended ownership interests are valid because they were undertaken for valid
business reasons and that they were permitted in accordance with the underlying
agreement that pledged GCI's interest in GCP to Green and Carter. Further, the
partnership amendments which provided, or allowed, for the change in partner
ownership interests were found to be valid in a June 1996 arbitration award
between Patrician and GCI.
In July 1996, as a result of a court hearing, the Chancery Court rendered a
judgment that the reallocation of GCI's interest in the partnership had no
effect on the lien position of Green and Carter. Further Green and Carter were
14
<PAGE> 16
given until November 1996 to exhaust their legal remedies in collecting against
the judgment. Failing collection or other resolution by November 1996, the Court
will consider additional measures including, but not limited to, the appointment
of a receiver.
GCI has filed a motion for reconsideration with the Chancery Court for which
a hearing has not yet been set.
GCI's only tangible asset, and its source of funds for repayment of the
promissory notes, is its partnership interest in GCP. The underlying promissory
notes were owed by GCI when The Sands Regent purchased GCI in February 1994 and
have not been assumed or guaranteed by The Sands Regent. GCI is neither
presently in the financial position to make any payments with respect to these
note obligations nor is it expected to be in such a position in the near future.
The ultimate resolution of such matter is not presently subject to reasonable
estimation but could include a dispossession of a 60% right to receive
partnership profits and surplus.
PORT MATTER
In July 1996, the Mississippi Department of Economic and Community
Development ("MDECD") and the Mississippi State Port Authority at Gulfport (the
"Port") filed a declaratory judgment action against GCP in the Chancery Court of
Harrison County, Mississippi, First Judicial District. Such lawsuit seeks Court
interpretation of certain provisions of the lease between MDECD and the Port and
GCP including whether the Port must approve the substitution of another gaming
vessel for the present gaming vessel and whether the Port must approve the
construction of a hotel on the lease premises. In addition to the lawsuit, MDECD
and the Port also notified GCP that its lease will be cancelled and terminated
at the end of the initial lease term in October 1999 because GCP's current
leased site is needed by the Port to accommodate a purported expansion of Port
facilities.
In August 1996, GCP filed a separate lawsuit against MDECD and the Port in
the Circuit Court of the First Judicial District of Harrison County,
Mississippi, for breach of contract, breach of covenant of good faith and fair
dealing, misrepresentation and breach of covenant of quite enjoyment. The
lawsuit seeks an award for compensatory damages in an amount not less that $20
million and a declaratory judgment quieting the lease term and allowing the
development of the leased premise. The lawsuit also requests a jury trial which
is not generally available in Chancery Court.
In connection with the filing of the above Circuit Court action, GCP has
responded to the Chancery Court action filed by the MDECD and Port by requesting
that such action be dismissed or, in the alternative, transferred and
consolidated with GCP's Circuit Court action. MDECD and the Port have, in turn,
responded by indicating it is their belief that the Chancery Court is the proper
forum and that GCP's Circuit Court action be either dismissed or transferred to
the Chancery Court. A hearing was held in Circuit Court on September 20, 1996
with respect to the MDECD and Port request to dismiss GCP's Circuit Court action
against the MDECD and Port or transfer it to Chancery Court. A ruling is
expected in October 1996.
Such legal actions between the Company and MDECD and the Port are in the
early stages and management believes that the outcome is not presently
predictable or subject to reasonable estimation.
OTHER
The Company is also a party to various other legal actions, proceedings and
pending claims arising in the normal course of its business. Management does not
expect the outcome of these claims or suits to have a material adverse effect on
the Company's financial position or results of future operations.
15
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of fiscal 1996.
16
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Common Stock of the Company is traded in the NASDAQ National Market
System under the symbol "SNDS" and the following table sets forth the range of
high and low closing sales prices as reported by NASDAQ.
<TABLE>
<CAPTION>
CASH
FOR THE YEARS ENDED JUNE 30, HIGH LOW DIVIDEND
- ---------------------------- ---- --- --------
<S> <C> <C> <C>
1995
First Quarter........... $12.25 $8.75 $.05
Second Quarter.......... 10.00 6.25 $.05
Third Quarter........... 8.00 4.50 $.05
Fourth Quarter.......... 6.00 5.06 $.05
1996
First Quarter........... $ 6.25 $4.50 $.05
Second Quarter.......... 6.25 4.50 $.05
Third Quarter........... 5.50 3.62 $.05
Fourth Quarter.......... 5.75 3.50 --
</TABLE>
- -----------
In May 1996, the Board of Directors of the Company suspended the payment of
cash dividends. The declaration and payment of dividends in the future, if any,
will be determined by the Board of Directors in light of the conditions then
existing, including the Company's earnings, financial condition, capital
requirements and other factors.
As of September 23, 1996, the Company had 170 shareholders of record and in
excess of 400 beneficial shareholders.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing under
the caption "The Sands Regent - Selected Financial Data" in the Company's 1996
Annual Report, filed as Exhibit 13 to this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
There is hereby incorporated by reference the information appearing under
the caption "The Sands Regent - Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1996 Annual
Report, filed as Exhibit 13 to this Form 10-K.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements in the
Company's 1996 Annual Report, filed as Exhibit 13 to this Form 10-K. Reference
is made to the Consolidated Financial Statements and the Notes to the
Consolidated Financial Statements in Item 14(a)(1) hereof.
With the exception of the aforementioned information and the information in
Items 6 and 7, the Company's 1996 Annual Report is not deemed filed as part of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information appearing under
the caption "Directors and Executive Officers" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on November 4, 1996,
filed or to be filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under
the caption "Compensation of Executive Officers" in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on November 4,
1996, filed or to be filed with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information appearing under
the captions "Principal Shareholders" and "Directors and Executive Officers" in
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on November 4, 1996, filed or to be filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under
the caption "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
November 4, 1996, filed or to be filed with the Securities and Exchange
Commission.
19
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
Included in Part II of this Report:
Independent Auditors' Report
Consolidated Balance Sheets -- June 30, 1996 and 1995
Consolidated Statements of Operations -- Years Ended June 30,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity -- Years Ended
June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years Ended June 30,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Included in Part IV of this Report:
As of and for the Years Ended June 30, 1996, 1995 and 1994:
Independent Auditors' Report on Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable
or the required information is shown in the financial statements or notes
thereto.
20
<PAGE> 22
(a)(3) EXHIBITS
3(a)(i) Restated Articles of Incorporation of the Company
(Exhibit 3(a) to the Company's Registration Statement
(Registration No. 2-93453) on Form S-1).*
3(a)(ii) Certificate of Amendment to the Restated Articles of
Incorporation of the Company, dated November 2, 1987
(Exhibit 4(a) to the Company's Form 10-Q for the
quarter ended December 31, 1987).*
3(b)(i) Amended and Restated Bylaws of the Company, as
amended April 29, 1985, and currently in effect
(Exhibit 3(b) to the Company's Form 10-K for the
fiscal year ended June 30, 1985).*
3(b)(ii) Resolution of Amendment to the Bylaws of the Company,
dated November 2, 1987 (Exhibit 4(b) to the Company's
Form 10-Q for the quarter ended December 31, 1987).*
3(b)(iii) Certificate of Amendment of the Amended and Restated
Code of Bylaws, as Amended, of The Sands Regent,
dated January 10, 1996.**
4(a) Amended Trust Agreement, dated February 22, 1987,
among Antonia Cladianos II as trustor and beneficiary
and Pete Cladianos, Jr. as trustee (Exhibit 4(a) to
the Company's Form 10-K for the fiscal year ended
June 30, 1987).*
4(b) Amended Trust Agreement, dated February 19, 1987,
among Pete Cladianos III as trustor and beneficiary
and Pete Cladianos, Jr. as trustee (Exhibit 4(b) to
the Company's Form 10-K for the fiscal year ended
June 30, 1987).*
10(a) Amended and Restated Stock Option Plan for Executive
and Key Employees of the Sands Regent and Forms of
Stock Option Agreements (Exhibit 4(a) to the
Company's Registration Statement (Registration No.
33-59574) on Form S-8).*
10(b) Deferred Compensation Plan for Directors of the
Company (Exhibit 10(e) to the Company's Registration
Statement (Registration No. 2-93453) on Form S-1).*
10(c) Form of Indemnity Agreement for Directors and
Officers of the Company (Exhibit 10(f) to the
Company's Form 10-K for the fiscal year ended June
30, 1988).*
10(d) Loan Agreement, dated March 31, 1993, by and between
First Interstate Bank of Nevada, National
Association, First Interstate Bank of California, The
Daiwa Bank, Limited and Zante, Inc. and the related
Term and Revolving Credit Promissory Note; Guarantee
of Loan by the Sands Regent; Deed of Trust, Fixture
Filing and Security Agreement with Assignment of
Rents (Exhibit 10(b) to the Company's Form 10-Q for
the Quarter ended March 31, 1993).*
10(e) First Amendment to Loan Agreement, dated June 27,
1994, by and between First Interstate Bank of Nevada,
National Association, The Daiwa Bank Limited and
Zante, Inc., Borrower, and The Sands Regent,
Guarantor (Exhibit 10(e) to the Company's Form 10-K
for the fiscal year ended June 30, 1994).*
21
<PAGE> 23
10(f) International Swap Dealers Association, Inc. Master
Agreement for interest rate swap, dated March
23,1994, by and between First Interstate Bank of
Nevada N.A. and Zante, Inc., and the related
Guarantee by The Sands Regent and Letter Agreement of
Confirmation (Exhibit 10(f) to the Company's Form
10-K for the fiscal year ended June 30, 1994).*
10(g) General Partnership Agreement, effective as of
December 31, 1992, between Gulfside Casino, Inc. and
Patrician, Inc. (a wholly-owned subsidiary of the
Sands Regent) (Exhibit 10(a) to the Company's Form
10-Q for the Quarter ended March 31, 1993).*
10(h) First Amendment to Gulfside Casino, a Mississippi
General Partnership, General Partnership Agreement,
dated April 15, 1994, between Gulfside Casino, Inc.
and Patrician, Inc. (both wholly owned subsidiaries
of The Sands Regent) (Exhibit 10(a) to the Company's
Form 10-Q for the Quarter ended March 31, 1994).*
10(i) Second Amendment to Gulfside Casino, a Mississippi
General Partnership, General Partnership Agreement,
dated December 9, 1994, between Gulfside Casino, Inc.
and Patrician, Inc., (both wholly-owned subsidiaries
of The Sands Regent)(Exhibit 10(a) to the Company's
Form 10-Q for the Quarter ended December 31, 1994).*
10(j) Agreement for the Purchase of Stock of the Gulfside
Casino, Inc. and certain Assets of McDonald Limited,
dated February 25,1994 (Exhibit 2(a) to the Company's
Form 8-K/A for event reporting date of February 14,
1994).*
10(k) Gulfside Casino, Inc. Settlement Agreement, dated
August 20, 1993, by and between Gulfside Casino,
Inc., a Mississippi Corporation, and Joel R. Carter,
Sr. and Terry Green (Exhibit 10(j) to the Company's
Form 10-K for the year ended June 30,1994).*
10(l) Settlement Agreement dated November 2, 1984, by and
between Hughes Properties, Inc., and Zante, Inc.
(Exhibit 10(u) to the Company's Registration
Statement (Registration No. 2-93453) on Form S-1).*
10(m) Franchise Agreement dated October 9, 1986 and as
amended on October 9, 1986, by and between Roma
Corporation and Zante, Inc. (Exhibit 10(r) to the
Company's Form 10-K for the fiscal year ended June
30, 1987).*
10(n) Agreement, dated as of January 2, 1995, between David
R. Wood and The Sands Regent.** (Exhibit 10(n) to the
Company's Form 10-K for the fiscal year ended June
30, 1995).*
10(o) Lease Agreement by and between the Mississippi
Department of Economic and Community Development and
the Mississippi State Port Authority at Gulfport and
Gulfside Casino, Inc., dated August 20, 1992. **
10(p) Amendment to Lease and Approval of Stock Purchase by
and between the Mississippi Department of Economic
and Community Development and the Mississippi State
Port Authority at Gulfport and Gulfside Casino, Inc.,
dated October 28, 1992. **
22
<PAGE> 24
10(q) Second Lease Amendment by and between the Mississippi
Department of Economic and Community Development and
the Mississippi State Port Authority at Gulfport and
Gulfside Casino, Inc., Lessee, and Gulfside Casino
Partnership, Substitute Lessee, dated May 12, 1993.
**
10(r) Third Lease Amendment by and between the Mississippi
Department of Economic and Community Development and
the Mississippi State Port Authority at Gulfport and
Gulfside Casino Partnership, dated June 21, 1994. **
13 1996 Annual Report to Shareholders.**
21 Subsidiaries: Zante, Inc., Patrician, Inc., and
Artemis, Inc., Nevada Corporations, and Gulfside
Casino, Inc., a Mississippi corporation, are wholly
owned by the Company. Patrician, Inc., Gulfside
Casino, Inc., and Artemis, Inc., are the sole
partners in Gulfside Casino Partnership, a
Mississippi general partnership.
23 Independent Auditors' Consent to the incorporation by
reference into specified registration statement on
Form S-8 of their reports contained in or
incorporated by reference into this report.**
27 Financial Data Schedule.**
-------------------------------
* Incorporated by reference
** Filed herewith
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the last quarter
of fiscal 1996.
(c) INDEX TO EXHIBITS.
(d) FINANCIAL STATEMENT SCHEDULES.
Financial statement schedules required by Regulation S-X are excluded from
the 1996 Annual Report to the Shareholders by Rule 14a-3(b)(1). See
Schedule II to the Financial Statements appearing under Item 14(a)(2)
hereof.
23
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE SANDS REGENT
Date: September 26, 1996 By: PETE CLADIANOS, JR.
-------------------
Pete Cladianos, Jr., President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
PETE CLADIANOS, JR. President (Chief September 26, 1996
- --------------------------- Executive Officer)
Pete Cladianos, Jr. and Director
KATHERENE LATHAM Chairman of the September 26, 1996
- --------------------------- Board of Directors
Katherene Latham
JON N. BENGTSON Executive Vice President, September 26, 1996
- --------------------------- Chief Operating Officer and
Jon N. Bengtson Director
DAVID R. WOOD Executive Vice President, September 26, 1996
- --------------------------- Treasurer, Chief Financial and
David R. Wood Accounting Officer and Director
PETE CLADIANOS III Executive Vice President, September 26, 1996
- --------------------------- Secretary and Director
Pete Cladianos III
JOSEPH G. FANELLI Director September 26, 1996
- ---------------------------
Joseph G. Fanelli
WELDON C. UPTON Director September 26, 1996
- ---------------------------
Weldon C. Upton
</TABLE>
24
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of The Sands Regent:
We have audited the consolidated financial statements of The Sands Regent and
subsidiaries as of June 30, 1996 and 1995, and for each of the three years in
the period ended June 30, 1996, and have issued our report thereon dated August
9, 1996. Such consolidated financial statements and report are included in your
1996 Annual Report to Shareholders and are incorporated herein by reference. Our
audits also included the consolidated financial statement schedule of The Sands
Regent and subsidiaries, listed in Item 14. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
Reno, Nevada
August 9, 1996
25
<PAGE> 27
The Sands Regent
Schedule II
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions(1) End of Year
----------- ------- -------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable:
Year ended June 30, 1996 ................... $147 $136 $(176) $107
Year ended June 30, 1995 ................... 111 92 (56) 147
Year ended June 30, 1994 ................... 72 88 (49) 111
</TABLE>
- ---------------
(1) Write-offs of uncollectible accounts receivable, net of recoveries
26
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------ ----
<S> <C> <C>
3(b)(iii) Certificate of Amendment of the Amended and
Restated Code of Bylaws, as Amended, of The
Sands Regent, dated January 10, 1996 ...............
10(o) Lease Agreement by and between the Mississippi
Department of Economic and Community Development
and the Mississippi State Port Authority at
Gulfport and Gulfside Casino, Inc., dated August
20, 1992 ...........................................
10(p) Amendment to Lease and Approval of Stock
Purchase by and between the Mississippi
Department of Economic and Community Development
and the Mississippi State Port Authority at
Gulfport and Gulfside Casino, Inc., dated
October 28, 1992 ...................................
10(q) Second Lease Amendment by and between the
Mississippi Department of Economic and Community
Development and the Mississippi State Port
Authority at Gulfport and Gulfside Casino, Inc.,
Lessee, and Gulfside Casino Partnership,
Substitute Lessee, dated May 12, 1993 ..............
10(r) Third Lease Amendment by and between the
Mississippi Department of Economic and Community
Development and the Mississippi State Port
Authority at Gulfport and Gulfside Casino
Partnership, dated June 21, 1994 ...................
13 1996 Annual Report to Shareholders .................
23 Independent Auditors' Consent to the
incorporation by reference into specified
registration statement on Form S-8 of their
reports contained in or incorporated by
reference into this report .........................
27 Financial Data Schedule ............................
</TABLE>
<PAGE> 1
EXHIBIT 3(b)(iii)
CERTIFICATE OF AMENDMENT
OF THE AMENDED AND RESTATED
CODE OF BYLAWS, AS AMENDED
OF
THE SANDS REGENT,
A NEVADA CORPORATION
The undersigned, Pete Cladianos III, hereby certifies that he
is the duly elected and acting Secretary of The Sands Regent, a Nevada
corporation (this "Corporation"), and that (i) attached hereto as Exhibit A is
a true, correct and complete copy of the amendment to Section 5.01 of Article V
of the Amended and Restated Code of Bylaws of this Corporation, as amended (the
"Bylaws") as duly adopted by Unanimous Written Consent of the Board of
Directors as of January 10, 1996; (ii) attached hereto as Exhibit B is a true,
correct and complete copy of the amendment to Section 5.05 of Article V of the
Bylaws of this Corporation as duly adopted by Unanimous Written Consent of the
Board of Directors as of January 10, 1996; (iii) attached hereto as Exhibit C
is a true, correct and complete copy of the amendment to Section 5.06 of
Article V of the Bylaws of this Corporation as duly adopted by Unanimous
Written Consent of the Board of Directors as of January 10, 1996; (iv) Section
5.08 of Article V of the Bylaws of this Corporation was deleted in its entirety
as duly adopted by Unanimous Written Consent of the Board of Directors as of
January 10, 1996; and (v) attached hereto as Exhibit D is a true, correct and
complete copy of the amendment to Section 5.09 of Article V of the Bylaws of
this Corporation as duly adopted by Unanimous Written Consent of the Board of
Directors as of January 10, 1996.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of January 10, 1996.
PETE CLADIANOS
---------------------------------
Pete Cladianos III
Secretary
<PAGE> 2
EXHIBIT A
AMENDMENT TO SECTION 5.01 OF ARTICLE V OF
THE AMENDED AND RESTATED CODE OF BYLAWS, AS AMENDED
OF THE SANDS REGENT,
A NEVADA CORPORATION
Section 5.01 of Article V of the Amended and Restated Code of
Bylaws of this Corporation, as amended, is hereby amended to read in its
entirety as follows:
"Section 5.01. Officers. The Officers of the
Corporation shall consist of a Chairman of the Board of
Directors, President, Chief Operating Officer, Treasurer/Chief
Financial Officer, one or more Executive Vice Presidents, one
or more Senior Vice Presidents, and other Vice Presidents as
the case might be, Secretary, and other such officers and
assistant officers as may be deemed necessary by the Board of
Directors of the Corporation, provided, however, that the
President of the Corporation shall be a member of the Board of
Directors. Each officer so elected shall hold office until
his successor is elected and qualified, but shall be subject
to removal at any time by the vote or written consent of a
majority of the Directors, provided, however, that a vote or
written consent of two-thirds (2/3rds) of the Directors shall
be required to remove from office the President, Chief
Operating Officer, Treasurer/Chief Financial Officer or any
Executive Vice President of the Corporation."
A-1
<PAGE> 3
EXHIBIT B
AMENDMENT TO SECTION 5.05 OF ARTICLE V OF
THE AMENDED AND RESTATED CODE OF BYLAWS, AS AMENDED
OF THE SANDS REGENT,
A NEVADA CORPORATION
Section 5.05(A) is hereby added to Article V of the Amended
and Restated Code of Bylaws of this Corporation, as amended, to read in its
entirety as follows:
"Section 5.05(A). Chief Operating Officer. Subject
to the powers of the Chairman of the Board and the President,
the Chief Operating Officer shall be the principal officer in
charge of the operations of the Corporation and shall have
such other powers and duties of management as from time to
time may be assigned to him or her by the Board of Directors
or the President."
B-1
<PAGE> 4
EXHIBIT C
AMENDMENT TO SECTION 5.06 OF ARTICLE V OF
THE AMENDED AND Restated CODE OF BYLAWS, AS AMENDED
OF THE SANDS REGENT,
A NEVADA CORPORATION
Section 5.06 of Article V of the Amended and Restated Code of
Bylaws of this Corporation, as amended, is hereby amended to read in its
entirety as follows:
"Section 5.06. Duties of the Executive Vice
President. The Executive Vice President (or if there be more
than one, the Executive Vice Presidents in the order of their
rank or, if of equal rank, then in the order designated by the
Board or, in the absence of any designation, then in the order
of their appointment) shall possess the power and may perform
the duties of the President in his absence or disability and
shall perform such other duties as the Bylaws may provide or
the Board of Directors or the President may prescribe from
time to time."
C-1
<PAGE> 5
EXHIBIT D
AMENDMENT TO SECTION 5.09 OF ARTICLE V OF
THE AMENDED AND RESTATED CODE OF BYLAWS, AS AMENDED
OF THE SANDS REGENT,
A NEVADA CORPORATION
Section 5.09 of Article V of the Amended and Restated Code of
Bylaws of this Corporation, as amended, is hereby amended to read in its
entirety as follows:
"Section 5.09. Duties of the Treasurer. The
Treasurer is the Chief Financial Officer of the Company and
shall have general custody of all the funds and securities of
the Company and have general supervision of the collection and
disbursement of funds of the Company. He shall endorse on
behalf of the Company for collection, checks, notes, and other
obligations, and shall immediately deposit the same to the
credit of the Company in such bank or banks or depositories as
the Board of Directors may designate. He may sign, with the
President, or such other person or persons as may be
designated for that purpose by the Board of Directors, all
bills of exchange or promissory notes of the Company. He
shall enter or cause to be entered regularly in the books of
the Company a full and accurate account of all money received
and paid by him on account of the Company; shall at all
reasonable times exhibit his books and accounts to any
Director of the Company upon application at the office of the
Company during business hours; and shall furnish at meetings
of the Board of Directors, or whenever required by the Board
of Directors or the President, a statement of the financial
condition of the Corporation. The Treasurer shall also
perform such other duties as may be prescribed from time to
time by the Board of Directors or by the Bylaws. The
Treasurer may be required to furnish bond for the faithful
performance of his duties in such amount as shall be
determined by the Board of Directors."
D-1
<PAGE> 1
EXHIBIT 10(o)
STATE OF MISSISSIPPI
COUNTY OF HARRISON
LEASE AGREEMENT
This Lease Agreement entered into by and between the State of
Mississippi, appearing herein by and through its duly authorized agencies, the
MISSISSIPPI DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT and the
MISSISSIPPI STATE PORT AUTHORITY AT GULFPORT, hereinafter collectively referred
to as LESSOR, and Gulfside Casinos, Inc., a Mississippi corporation,
hereinafter referred to as LESSEE, who are desirous of entering into said Lease
Agreement for the leasing of certain lands and berth space at said Port
Facility so as to facilitate a dockside/gaming entertainment operation by
LESSEE;
NOW, THEREFORE, in consideration of mutual covenants and stipulations
herein contained, the parties do mutually contract and agree, each for itself
and its heirs, successors, and assigns, as follows:
I
LEASED PREMISES
The MISSISSIPPI STATE PORT AUTHORITY AT GULFPORT and the MISSISSIPPI
DEPARTMENT of ECONOMIC AND COMMUNITY DEVELOPMENT, LESSOR, hereby lease and
provide unto Gulf Side Casinos, Inc., LESSEE, certain premises of the LESSOR,
being hereinafter referred to as the LEASED PREMISES and described in Exhibit
"A" including the following, to-wit:
Parcel 1, Berth Area
Parcel 2, Landside Area and Facility
Parcel 3, Parking Area
PROVIDED, however, that the property so described above is hereby leased to
LESSEE subject to any and all restrictions and conditions imposed upon the
LESSOR in the deeds under which the State of Mississippi obtained said land,
said deeds being on file and of record in the office of the Chancery Clerk of
the First Judicial District of Harrison County, Mississippi.
II
USE OF PREMISES
LESSEE shall use the Leased Premises for the purpose of providing a dockside
1
<PAGE> 2
gaming/entertainment operation on a vessel which may include a vessel which
complies with the Mississippi Gaming Control Act of 1990 (the "Vessel") and
which will be docked and securely moored at the Leased Premises. The Vessel is
described in Exhibit "B" which shall be prepared and attached hereto upon the
approval of the vessel by LESSOR as provided herein.
Subject to the limitations set forth below, LESSEE shall have
reasonable access to the roadways of the Port for egress and ingress and to the
areas between the Vessel's Berth Area, the Landside Area and Facility and the
Parking Area to accommodate LESSEE's operations. Such rights of ingress and
egress shall be non-exclusive and the activities on such areas and roadways
shall not interfere with the rights of the Port or its other users. LESSEE
shall have the exclusive rights to use said parking area subject to the right
of LESSOR for its use in its operation of the Port, which use shall not be
inconsistent with LESSEE's use.
It is recognized and acknowledged that the business of the Port is
commerce and shipping, and any use by the LESSEE of all or any of the Leased
Premises shall not interfere with any operations of the Port or its other
users, it being agreed that the continued operations of the Port is to have
precedence.
III
LEASEHOLD AND RELATED PAYMENTS
The payment for the Leased Premises and other necessaries furnished
hereunder to the LESSEE and its Vessel in furtherance of LESSEE's operations
shall be as follows:
(1) Beginning six (6) months from the date of the approval
provided in paragraph V(4) or upon arrival of the Vessel at the Port or upon
commencement of any improvements on the Leased Premises, whichever occurs
first, and on or before the first day of each month thereafter LESSEE shall pay
LESSOR the amount of $18,000 per month in advance until such time as LESSEE's
gaming license is issued or twelve (12) months from the date of this Lease
Agreement, whichever is first. If LESSEE does not have a gaming license within
the time allowed or any extension thereof, then the Lease may, at the option of
LESSOR, be extended upon terms mutually agreeable to the parties. In the event
an agreement to extend the terms hereof is unattainable, LESSEE shall, at the
request of the Port, remove any Vessel from the Leased Premises at LESSEE's
expense. Should, after request, the LESSEE fails to so remove the Vessel
within 30 days from such request, the LESSOR may do so at LESSEE's expense in
2
<PAGE> 3
addition to all other remedies provided under this Lease or by law.
(2) Upon obtaining a gaming license as contemplated herein, the
annual Rental for gaming operations shall be $500,000 ("Rental") plus five per
cent (5%) of the gross annual gaming revenues on the Vessel as defined in the
Mississippi Gaming Control Act over $25,000,000.00 ("Percentage Rental").
In addition to the Rental and Percentage Rental set forth above,
LESSEE shall also pay monthly to LESSOR three percent (3%) of the gross monthly
revenues on all activities other than gaming conducted by LESSEE, and/or its
assignees or sublessees or any other persons on the Leased Premises or on the
Vessel ("Additional Percentage Rental"). In-house transfers which are
presented for payment through internally generated transactions shall be exempt
from the 3% gross monthly fees.
The Rental shall be paid by LESSEE, in advance, in equal monthly
installments of $41,666.66 each on the first day of every month during the
lease year. For each month, a calculation of the Percentage Rental, as defined
herein, and the Additional Percentage Rental, as defined herein, will be made
and the amounts due paid on or before the 10th day of the next month. For such
calculation, LESSEE is to submit on or before the 20th day of each month a copy
of the monthly revenue reports submitted to the State Tax Commission showing
gross gaming revenues as defined by Mississippi Gaming Control Act of 1990, and
a report of all other gross monthly revenues from all other activities
conducted on the Vessel and the Leased Premises, along with a calculation of
the additional Rental due. LESSEE shall provide to LESSOR reasonable access at
reasonable times and places to all financial books and records related to the
operations contemplated under this Lease regardless of the location of such
books and records. Upon reasonable advance notice, LESSEE shall provide
reasonable access to all financial books and records of LESSEE's entire
operations. LESSEE's entire operations include all activities conducted on the
Vessel and the Leased Premises by any person or corporation and the other
activities of LESSEE or its affiliated persons or corporations wherever
located. Affiliated shall mean a person or corporation who owns ten percent
(10%) or more of the common stock of LESSEE or a corporation in which LESSEE
owns ten percent (10%) or more of the common stock, or any person or
corporation that can exert control over LESSEE or that LESSEE can exert control
over or any person or corporation closely connected or associated with
3
<PAGE> 4
LESSEE or dependent upon or subordinate to LESSEE. LESSEE shall furnish within
three (3) months after the end of LESSEE's fiscal year, a certified audit of
all activities conducted on the Vessel and the Leased Premises during that
year. LESSOR will accept an annual audit by an independent Certified Public
Accountant auditor at LESSEE's expense. If LESSOR has good reason to question
the audit, then the LESSOR shall have the right to audit the books. If there
is any material discrepancy in the financial information reported in the
initial audit, then the cost of such audit will be borne by LESSEE.
(3) If LESSEE shall fail to make timely payment of any and all
Rentals as set forth hereunder within ten (10) days from the due date thereof,
at the discretion of LESSOR, LESSEE will be placed in default as provided
herein or LESSEE shall pay in addition to the amount due, 4% of such amount
due. Such action by LESSOR shall not waive any other rights provided herein.
(4) The property, docking space, parking lot and other property
provided by the LESSOR hereunder are necessaries provided to the Vessel which
is to be operated and owned by LESSEE and are, therefore, liens upon the vessel
pursuant to the Federal Maritime Lien Act, 46 U.S.C. Section 971-975 and liens
pursuant to any other federal or state law. This paragraph is a stipulation
which may be entered in any court of jurisdiction as evidence of such lien.
(5) The obligation of LESSEE to continue payment of all Rental
obligations shall continue whether or not the Vessel is out of service for any
reason except as otherwise provided herein. During any three year period,
LESSEE shall be allowed one (1) period not to exceed sixty (60) days for
repairs and renovations to the Vessel. LESSEE shall not be required to pay
rent during such repair and renovation period.
IV
TERM
The term of this Lease ("Term") shall be five (5) years. The Term and
commencement of LESSEE's obligations to pay rent and other charges shall
commence six (6) months from the date of approval provided for in paragraph
V(4) or upon arrival of the Vessel at the Port or commencement of improvements
on the Leased Premises, whichever occurs first.
If LESSEE has complied with all the terms, covenants and conditions of
this Lease, as of the expiration of the Primary Term, the LESSEE shall have the
option to extend the Lease for three
4
<PAGE> 5
(3) renewal periods of five (5) years each under the same terms and provisions
of the Lease except the annual Rental for the Leased Premises shall be adjusted
and revised yearly for the sixth (6th) through the twentieth (20th) year by an
amount equal to the changes in the Consumer Price Index U.S. City Average, all
items (hereinafter called "Price Index") as provided in the Leasehold and
Related Payment Provision herein. The Price Index shall mean the average for
all items shown on the U.S. City Average for all urban consumers, using the
years 1982 through 1984 as a base of 100. Said annual Rental for the primary
term of the Lease shall be multiplied by a fraction, the numerator of which
shall represent the Price Index as it exists for the first month of the renewal
period and the denominator shall be the September, 1992, Index. The Rental
shall further be subject to the following provisions:
(A) The Price Index for the first month of the fifth year of the
Primary Term of this Lease shall be designated as the Base
Price Index;
(B) Promptly after the end of the Primary Term of the Lease and of
each year of the extended Lease thereafter, the Rental rate
shall be adjusted so that the ratio of the Price Index for the
first month following the end of said Lease year to the
adjusted Rental charges shall be the same as the ratio of the
Base Price Index to the Rental charges in the first year of
the Lease;
(C) No such adjustment shall reduce the Rental charges below the
Rental charges during the initial year of the extended Lease.
As soon as practical, after the annual anniversary of each year,
LESSOR shall notify LESSEE of such Rental adjustment and upon request provide
the supporting data that is the basis for the annual rent for the Leased
Premises.
To exercise each option to renew, LESSEE shall send, not later than
ninety (90) days prior to the date such renewal period is to begin, a written
notice to LESSOR at its office in Gulfport of LESSEE's exercise of such renewal
option. If LESSEE fails to timely give such notice of exercise of its option,
then the option shall have expired and be of no force and effect.
V
PRE-CONDITIONS FOR LESSEE OPERATIONS
Prior to commencing operation of dockside gaming activities permitted
and authorized by the Mississippi Gaming Control Act of 1990, the following
conditions must be met:
5
<PAGE> 6
(1) This Lease Agreement must be executed and in effect.
(2) LESSOR must preapprove in writing any Vessel which LESSEE
proposes to locate and operate on the Leased Premises. If prior approval is
not obtained, LESSEE shall not be allowed to permanently dock and will be
required immediately to remove the vessel at its expense. LESSOR may at its
discretion, at LESSEE's expense, remove any unapproved Vessel located at the
Port by LESSEE. If prior approval is not obtained, the Lease shall
automatically terminate as provided for hereunder.
(3) Submission of proof satisfactory to the LESSOR that LESSEE has
legal ownership or entitlement to the Vessel including a copy of Bill of Sale
or other evidence of title or the charter party, if any, showing LESSEE's
ownership interest or legal right to the Vessel.
(4) LESSEE shall have a maximum of 120 days from the date of this
lease in which to obtain approval from the United States Bankruptcy Court for
the _________ District of Texas to purchase the vessel "The Pride of Galveston"
or to purchase some other vessel acceptable to LESSOR.
(5) LESSEE shall submit all data submitted to the Mississippi
Gaming Commission for its license or otherwise and all data received from such
Commission. By entering into this Lease, LESSEE gives its full consent for
LESSOR to review and inspect and to request and receive any information from
the Mississippi Gaming Commission, law enforcement agencies or any other agency
or group related to LESSEE, its owners, operators, employees or any person or
business associated with LESSEE and, if it should be necessary or convenient
for the purposes of LESSOR, agrees to execute or have executed any consent
forms or other documents which will aid LESSOR in receiving such information.
(6) LESSEE shall submit detailed information on the Vessel,
including the size, configuration, condition, and maximum occupancy of
passengers and the name and present location of the Vessel and all documents
reflecting certifications required under the Mississippi Gaming Control Act of
1990 and regulations thereto or required by any other governmental agency.
(7) LESSEE shall submit to the LESSOR a copy of LESSEE's gaming
license filed with the Mississippi State Gaming Commission.
(8) LESSEE shall submit in writing to the LESSOR the type and
location of all
6
<PAGE> 7
business ventures and operations contemplated for the Vessel and the Leased
Premises whether operated by LESSEE or any other person. Prior to commencing
any venture or operation, LESSEE must obtain LESSOR's approval.
(9) LESSEE shall, with the assistance of a licensed marine
surveyor, perform an annual investigation to determine whether maintenance
dredging under and around the Vessel and any other area in the harbor is
necessary so as to provide adequate water depth and width in the event the
Vessel must be removed or relocated as provided in paragraph XVII of the Lease.
LESSOR shall receive copies of all dredging reports by the Marine surveyor
which shall certify at what location dredging IS necessary to provide an
adequate pathway for removal of the Vessel, if necessary. LESSEE at its own
expense, shall perform all dredging identified in the report in a timely
manner. LESSEE's failure to dredge as required shall result in automatic
termination of the Lease as provided hereunder. Whenever possible, LESSOR will
allow LESSEE to coordinate its dredging activities with the regular maintenance
dredging at the Port.
(10) At the same time as the lease payments hereunder begin in
accordance with paragraph III(1) above, LESSEE shall deposit $125,000 with
LESSOR as security for LESSEE's full performance of every term, covenant, and
condition of this Lease. If LESSEE defaults in respect to any term, provision,
covenant or condition of this Lease including, but not limited to, payment of
any Rentals, the LESSOR may use, apply or retain all or any part of the
security deposit for payment of any Rentals in default or for any other sum
which the LESSOR may expend or be required to expend by reason of LESSEE's
default. LESSEE shall immediately deposit with LESSOR additional sums of money
to bring the security amount back to the required level. If LESSEE fully
complies with all the terms, provisions and conditions of this Lease, the
security deposit or any balance thereof shall be returned to LESSEE after the
expiration of this Agreement or any extension hereof.
VI
RESPONSIBILITY FOR OPERATIONS
It is expressly understood and agreed that the LESSOR shall have no
obligation or responsibility for the LESSEE's business operations, LESSEE being
solely responsible therefor. The LESSOR shall have no obligation to furnish
any utilities including, but not limited to, electricity, water, sewer, and
gas. However, LESSOR shall provide easements for the necessary
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utilities to be located in the sole discretion of the LESSOR. LESSEE
must obtain separate meters for said utility service(s), and LESSEE shall be
responsible for maintaining utilities in accord with normal business practice.
If some, or all of the utilities cannot be metered separately, then, LESSEE
shall deposit with LESSOR an amount to be determined by LESSOR, which shall be
in addition to the security deposit required in paragraph V(9) herein, and
which will reasonably assure payment for such utility use in the event LESSEE
defaults. LESSOR shall have no obligation to furnish services including, but
not limited to, garbage or trash pickup, plumbing hookup, pest control, or any
other facilities or services, and shall not be required or expected to furnish
any equipment or labor to repair, alter, or remedy any defect, inadequacy, or
insufficiency in the Leased Premises, LESSEE agreeing to accept the physical
condition of the Leased Premises "as is" as of the effective date of this
Agreement, except as is otherwise expressly provided. It is the intention of
this Lease that LESSOR only furnish the premises described in Article I hereof.
VII
LESSEE OPERATION REQUIREMENTS
The purpose of this Lease is for LESSEE to locate a preapproved Vessel
and for construction of preapproved improvements to the Vessel and Leased
Premises, and upon issuance of a gaming license, for LESSEE to operate on a
continuous day-to-day basis, a dockside gaming operation on the approved Vessel
and for LESSEE to operate other preapproved activities on the Leased Premises.
After the Lease is executed and all other terms and conditions met,
LESSEE may bring the subject Vessel to the Leased Premises or other temporary
location approved by LESSOR, to refurbish, repair and construct improvements
thereon.
LESSOR shall provide LESSEE with a temporary location for making
repairs and improvements to the Vessel and for gaming after a gaming license is
granted to LESSEE. LESSOR shall give LESSEE up to 12 months from the date
LESSEE obtains a gaming license to complete improvements on the Leased Premises
and move the Vessel to its permanent location. However, the granting of this
12 month period is contingent upon LESSEE making reasonable progress on the
improvements. LESSOR shall have the absolute right to require LESSEE to
relocate the Vessel from its temporary location, as necessary for Port
operations.
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LESSOR shall provide LESSEE with eight (8) hours notice of LESSOR's intention
to require relocation of the Vessel.
LESSEE shall operate on a continuous day-to-day basis, except for the
time when the Vessel is taken out of service for purpose of drydock for
preapproved repairs and as a result of an Act of God as provided for hereunder,
but the Vessel shall not be removed for any period longer than 3 months, and
during the period said Vessel is not in service Rentals will continue to accrue
as provided for in Article III. At no time shall the Vessel be removed from
the Leased Premises for repair or drydock unless LESSEE obtains prior written
approval for removal and for the time period required.
LESSEE shall certify to LESSOR that work permits required under the
Mississippi Gaming Act and issued by the Gaming Commission have been duly
issued to any person involved in any activity on the Vessel or the Leased
Premises including, but not limited to, gaming, restaurant, lounge, shops,
etc., and that such permits are in full force and effect. If, however, a work
permit by the Gaming Commission is not required for any such person, LESSEE
shall perform a background investigation substantially similar to that required
for the issuance of a work permit by the Gaming Commission and certify to
LESSOR that such an investigation has been performed, that the investigation is
substantially similar to that conducted by the State, and that the employee
reflects the integrity, fidelity and character necessary to perform the
respective duties required in that activity. If information is available to
LESSOR which indicates a need for supplemental investigation, LESSEE shall
certify that a request for such additional investigation has been made to the
Mississippi Gaming Commission, if applicable, or, if applicable, that LESSEE
has performed the additional investigation. The result of the investigation
shall be certified to LESSOR.
The Vessel, the Leased Premises and all activities thereon shall meet
and comply with all applicable federal, state, county, municipal and other
governmental regulations, if any, which may be applicable.
LESSEE shall take all reasonable steps necessary to control noise
pollution and to provide adequate crowd control features on the Vessel and
Leased Premises. LESSOR has no responsibility to do so but may, in its sole
discretion, provide, at the sole expense of LESSEE, additional noise control or
crowd control as it deems necessary, which expenses shall not be
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unreasonable.
LESSEE shall use commercially reasonable efforts (i) to recruit, hire
and train Mississippi residents as and to be employees of LESSEE'S operations,
including employees performing management services, (ii) to contract with
businesses located in Mississippi, including locally owned and operated
businesses ("Mississippi Businesses"), for the construction, renovation,
maintenance and repair of improvements related to LESSEE'S operation, (iii) to
contract with Mississippi Businesses for the purchase, repair and maintenance
of equipment, furnishings and other tangible personal property used in LESSEE'S
operation and (iv) to contract with Mississippi Businesses to provide goods and
services to LESSEE'S operation.
VIII
PARKING AREA
LESSEE shall, at its own expense, maintain on the Leased Premises
adequate parking areas for the LESSEE's employees, suppliers and customers.
LESSEE shall at all times during the Lease, at its own expense: (1) Erect and
maintain sufficient floodlighting and other means of illumination to illuminate
the parking area during all twilight and evening hours; (2) Erect and maintain
a fence or other barrier suitable to and approved by LESSOR around the parking
and other areas.
IX
SECURITY
LESSEE shall have sole responsibility to provide, at its expense,
adequate security for the Vessel and the Leased Premises including security on
and off the Vessel and in the parking area. LESSOR has no responsibility to do
so but may in its sole discretion, if it determines necessary, require
additional security at LESSEE's expense which expense shall not be
unreasonable.
X
MARKETING PLAN
Prior to the commencement of LESSEE'S operation, Lessee shall submit
to Lessor a marketing plan. Said plan shall describe in detail, the methods by
which Lessee intends to attract patrons to LESSEE'S operation. This plan shall
specifically address how LESSEE, will work with and coordinate its marketing
efforts with local and state tourism groups to promote tourism, entertainment
and retirement communities in the State of Mississippi, including the Gulf
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Coast area.
XI
MAINTENANCE/REPAIR
LESSEE shall maintain the Vessel and all portions of the Leased
Premises and adjoining areas in a safe, neat and sanitary condition free of
dirt, rubbish, and unlawful obstructions. Throughout the term hereof, LESSEE,
at its expense shall take good care of, and make all necessary repairs to the
Vessel and Leased Premises and all buildings, parking areas, dock facilities,
and other improvements, regardless of whether interior or exterior, structural
or nonstructural, ordinary or extraordinary, or foreseen or unforeseen. As
used in this Article, "repairs" include all necessary replacements, renewals,
alterations, additions, and betterments. All repairs made by the LESSEE shall
be at least equal in quality and class to the original work.
LESSOR has no responsibility to do so but may in its discretion
determine whether repairs to the Vessel, Leased Premises and adjoining areas
are adequate and acceptable under this Article and may require such repairs
that LESSOR, in its sole discretion, determines are appropriate. If repairs
are not adequate or acceptable to LESSOR, the LESSOR may, at its sole
discretion, take such action as it deems appropriate, and LESSEE shall be
liable to and immediately reimburse LESSOR for all of LESSOR's associated
costs. If LESSEE fails to reimburse LESSOR, LESSOR may use funds from LESSEE's
security deposit.
XII
IMPROVEMENTS BY LESSEE
(1) LESSEE agrees, at its own expense, to cause the following
improvements, alterations and additions: (For the provisions of subsections A,
B, C, D, and E below, see Exhibit C.)
(A) To Berth Area.
All such improvements, alternations and additions shall be completed
by _____________________.
(B) to Landside Area and Facility.
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All such improvements, alterations and additions shall be
completed by ______________________.
(C) to Parking Area.
All such improvements, alterations and additions shall be
completed by _______________________.
(D) to the Vessel.
All such improvements, alterations and additions shall be
completed by _______________________.
(E) to Other Port Areas.
All such improvements, alterations and additions shall be
completed by _______________________.
(2) LESSEE shall not make any additions, alternations or
improvements which exceed $25,000 in or to the Vessel or the Leased Premises
without LESSOR's prior written consent. Additions, alterations and
improvements shall not be broken into small segments which prevent them to
exceed $25,000. Before commencing such alternations, LESSEE shall submit the
plans and specifications thereof to LESSOR, for LESSOR's written approval.
Plans and specifications shall include but not be limited to the improvements
to the Vessel and the Leased Premises including improvements necessary to
secure the Vessel at dockside. All work to be done by LESSEE shall be
performed in strict accordance with the approved plans and specifications. The
aforementioned plans and specifications and LESSEE's work shall comply with all
applicable governmental laws, rules, regulations, codes and orders. LESSEE
shall at time of completion provide LESSOR with an audited statement as to
actual construction costs of said improvements.
(3) LESSEE shall at its sole cost and expense pay all fees and
obtain all permits from competent governmental authorities and obtain a
certificate of completion (or equivalent) and all
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other approvals required to enable it to open for business. LESSEE shall
promptly furnish to LESSOR all certificates and approvals required by the
governing authorities.
(4) All materials used for such improvements, alterations and
additions shall be new and both workmanship and materials shall be of first
class quality. All architects, engineers, contractors, subcontractors,
materialmen and workmen shall be licensed (if required by law) and skilled in
their profession and trade.
(5) LESSEE shall not permit the accumulation of building supplies,
equipment, waste material, or rubbish on the Leased Premises, and during the
construction and upon completion shall cause all rubbish, implements,
materials, and equipment to be removed from the Leased Premises. If LESSEE
shall fail to remove materials, LESSOR, at its option, may remove the debris at
LESSEE's expense.
(6) LESSOR may place a representative on the job during the course
of the construction, at LESSEE's expense, for the purpose of making inspections
and insuring that LESSEE and LESSEE's contractors, suppliers and materialmen
comply with these requirements.
XIII
LESSEE'S LIENS
LESSEE shall not suffer any mechanic's or materialmen's liens to be
filed against the Leased Premises by reason of work, labor, services performed
or materials furnished to LESSEE or to anyone holding part of the Vessel or the
Leased Premises under LESSEE. If such lien shall at any time be filed against
the Vessel or the Leased Premises, LESSEE may contest the same in good faith
but notwithstanding such contest LESSEE shall, within thirty (30) days after
the filing thereof, cause such lien to be released of record by payment, bond,
or order of a court of competent jurisdiction or otherwise. In the event
LESSEE shall fail to release of record any such lien within the aforesaid
period, LESSOR may (but shall not be obligated to) remove said lien by paying
the full amount thereof or by bonding it or by any other method LESSOR deems
appropriate, without investigating the validity thereof and irrespective of the
fact that the LESSEE may contest the propriety or the amount thereof, and
LESSEE, upon demand, shall pay LESSOR the amount so paid in connection with the
discharge of said lien together with all LESSOR's expenses incurred in
connection therewith including attorneys fees. LESSOR may at its sole
discretion waive payment of such liens, and LESSEE may then contest the
validity of
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said lien, at LESSEE's own expense. Nothing contained in this Lease shall be
construed as a consent by LESSOR to subject the Vessel or the Leased Premises
to any lien or liability under the lien laws of the State of Mississippi or
otherwise.
XIV
ASSUMPTION OF EXPANSION EXPENSES
Any and all expansion, improvements or expenses on Port facilities
which, at the sole discretion of the LESSOR are reasonably necessary as a
result of LESSEE's operations under this Lease, shall be made at the expense of
LESSEE. In the event LESSOR has entered into lease agreements with other
entities whereby said entities will also conduct dockside gaming operation, and
the improvement or expansion or expense is reasonably necessary as a result of
the common use of all LESSEES, then all expenditures shall be prorated among
the LESSEES on the basis of the need for such expenditures caused by each
LESSEE. Each LESSEE's pro rata share of the costs and expenses shall be
determined by mutual agreement of the LESSEES. Should LESSEES be unable to
agree, LESSOR shall determine the allocation in its sole discretion.
These expansions, improvements and expenses may include, but are not
limited to, the following:
(1) Roadways and easements;
(2) Parking area;
(3) Supplemental security;
(4) Fire protection;
(5) Utilities - electrical, sewer, gas, water, etc.;
(6) Traffic congestion solutions on LESSOR's property;
(7) Relocation of navigation apparatuses, including but
not limited to range lights.
XV
CANCELLATION FOR EXPANSION
LESSOR shall have the right to cancel this Lease at any time after the
expiration of the Primary Term of this Lease for reason of Port expansion of
its own facilities to handle expanded shipping and related commerce activities,
unrelated to any business or enterprise which may compete with LESSEE's
operations, upon the LESSOR giving 12 months written notice to the
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LESSEE. Within the 12 months notice period, LESSEE hereby obligates
itself, its employees, agents, subsidiaries, and all others under its control
to wholly and totally remove itself from the Leased Premises. In such event,
the LESSOR shall be liable to the LESSEE for new improvements and other
structures placed on the Leased Premises and constructed by the LESSEE only to
the extent of the depreciated value thereof. For purposes of this paragraph,
the new improvements and other structures constructed by LESSEE shall be
depreciated at the rate of ten percent (10%) per annum minimum depreciation but
in any case shall be fully depreciated over the term of this Lease even if to
do so requires a higher rate of depreciation. Should it be necessary for the
LESSOR to exercise its rights under this Article, LESSOR shall use its best
efforts to aid the LESSEE in obtaining property on the Port facility for the
relocation of LESSEE's operation, and LESSEE shall have the right of first
refusal for any available location on LESSOR's premises which LESSOR determines
does not interfere with normal Port operations. If the original location of
the LESSEE should later become available for gaming activities, then LESSEE
shall have the right of first refusal for such location.
XVI
LAWS AND REGULATIONS
LESSEE shall abide by all applicable Municipal, State, and Federal
laws and regulations and the published tariff and rules and regulations of the
Mississippi State Port Authority at Gulfport.
LESSEE shall not do any act or permit any activity on the Vessel or
the Leased Premises or in any operations thereon which would constitute a
violation of any law or ordinance.
If LESSEE or its officers, directors, shareholders or key employees
shall be convicted of the breach of any state, federal or local ordinance,
relative to LESSEE's operations which conviction causes the Gaming Commission
to suspend or cancel LESSEE's gaming license, said violation shall, at the
option of the LESSOR, be sufficient grounds for immediate termination of the
Lease and removal of the Vessel at the sole expense of LESSEE. If any permits
which have been issued for the operation of the casino, gaming equipment or
sale of alcohol on the premises are suspended for a period in excess of 60
continuous days, such suspension shall at the option of LESSOR be sufficient
grounds for termination of the Lease and removal of the Vessel as provided
hereunder.
In the event any law changes or any law is interpreted by a court of
competent jurisdiction
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in a manner which renders the gaming operations of the LESSEE legally
impossible, in whole or in part, LESSEE or LESSOR may terminate the agreement
at its option upon 20 days written notice. LESSEE or LESSOR must exercise this
option within 6 months of such change or interpretation or the same shall be
null and void.
XVII
TRAFFIC CONTROL PLAN
LESSEE shall submit to LESSOR a traffic control plan. Said plan shall
describe, in detail, the method in which LESSEE intends to prevent the traffic
associated with LESSEE's operation from interfering with the normal operations
of the Port.
XVIII
INTERRUPTION OF OPERATIONS AND PLAN
FOR REMOVAL OF VESSEL
LESSEE shall submit to LESSOR a plan for removal of the Vessel for
Class 3 hurricane, and said plan shall include the time when removal will
commence. The plan must then be approved by the LESSOR. The plan for removal
and relocation of the Vessel, in addition to emergency situations, shall also
apply for removal and relocation upon the termination of the Lease. The plan
shall state the harbor or port, which will accept relocation of the Vessel, and
LESSEE must furnish in writing from the receiving harbor or port a statement
that it has approved the Vessel for relocation at its harbor and that it will
not withdraw such permission when a hurricane has entered the Gulf. If the
approving harbor or port withdraws its relocation offer, LESSEE must notify
LESSOR immediately and propose an alternative complying plan which must be
approved by LESSOR. If the Vessel is incapable of moving under it's own power,
LESSEE shall include in the removal and relocation plan a copy of an agreement
with a tug company/owner providing that the Vessel will be removed and
relocated by said tug owner/operator to the preapproved harbor at the time
provided in the plan of removal. Any relocation that is required of the Vessel
shall be at the sole expense of LESSEE. To assure performance of relocation in
the event of emergency or termination of the Lease, LESSEE shall post a bond or
similar security, not to exceed $50,000.00, as determined by LESSOR, to assure
LESSOR that LESSEE will remove the Vessel as contemplated herein. If LESSOR
shall request LESSEE to remove the Vessel when required hereunder, LESSEE's
failure to remove shall
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constitute sufficient grounds for termination of the Lease, and LESSOR may
utilize the security to accomplish the removal.
Nothing in this provision, however, will operate so as to place any
liability upon the LESSOR for damages to or by the Vessel, to the LESSOR, to
other vessels, or to any third person, all of which shall be the sole
responsibility of LESSEE.
Should a casualty, storm, or Act of God result in damages or
destruction to the majority of the Vessel or improvements on the Leased
Premises, and the Vessel or Leased Premises are rendered inoperable by such
casualty, storm or Act of God for a period of thirty (30) continuous days or
more, LESSEE shall have the right to suspend this Agreement ten (10) days after
giving written notice to the LESSOR until the LESSEE can repair LESSEE's Vessel
or improvements to the Leased Premises to such a state that it can reasonably
resume operations, provided, however, that such suspension shall not exceed
ninety (90) days. LESSEE shall use all reasonable efforts in good faith to
repair in a timely manner its Vessel, improvements and/or facilities on the
Leased Premises and resume operations as soon as reasonably possible. During
the period of such suspension, the Rental payments shall abate, and such
suspension shall have the effect of extending the current terms of this
Agreement. Failure to resume lease payments within ninety (90) days shall be
considered a breach of this Agreement, unless LESSEE can show that the
improvements, repair or restoration are under way and proceeding with due
diligence but for reasons beyond LESSEE's control the work cannot be completed
within the ninety (90) day period. In such case, LESSOR may, upon sufficient
proof that LESSEE is using its best efforts to complete the work, agree to
allow up to ninety (90) days additional time for continued restoration of the
premises. During the time period in which LESSEE is performing restoration and
repairs on the Vessel or Leased Premises, LESSOR may use the Leased Premises
for Port purposes so long as use does not interfere with repairs. Nothing
herein, however, shall abridge, modify, or change the provision of this Lease
describing the conditions imposed upon the LESSEE for Breach of Agreement. The
repair period allowed in this paragraph shall not be extended by or combined
with the repair and renovation period allowed under paragraph III(5) of this
Lease.
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XIX
INDEMNIFICATION BY LESSEE
LESSEE will protect, indemnify, and save harmless the State of
Mississippi, its political subdivisions, the Mississippi Department of Economic
and Community Development and the Mississippi State Port Authority at Gulfport,
and their employees, agents, servants, board members, commissioners, and
executive officers and directors from and against all liabilities, obligations,
claims, damages, penalties, causes of action, and expenses (including without
limitation, attorneys fees) arising or occurring during the term of the Lease
or any period during which LESSEE is occupying the Leased Premises by reason
of:
(1) Any accident, injury or death of person or loss or damage to
property occurring on the Leased Premises or Vessel, or arising out of or in
any way associated with any activity of LESSEE, its affiliated persons or
corporations, employees or assigns, on the Vessel, the Leased Premises, the
Port property or otherwise, except to the extent caused by LESSOR's sole
negligence or misconduct.
(2) Any failure on the part of LESSEE to perform or comply with
any of the terms of this Lease;
(3) The performance of any labor or services or the furnishing of
any materials or other property in respect to the Vessel or the Leased
Premises or any part thereof;
(4) Any claims for air pollution and/or water pollution or
diminution of water quality occurring as a result of any release or disposal of
petroleum based products and/or chemicals and/or hazardous substances which
occurs in connection with, in any way, LESSEE's operation, which may cause
accident, injury, or death of person or loss or damage to property.
In case any action, suit or proceeding brought against LESSOR by
reason of any such occurrence set forth in this paragraph, LESSEE, upon
LESSOR's request, will at LESSEE's expense resist and defend such action, suit
or proceeding, or cause the same to be resisted and defended by counsel
designated by LESSEE and approved by LESSOR. The obligation by LESSEE as
aforesaid shall survive any termination of this Lease.
XX
INSURANCE
LESSEE agrees to procure and maintain, at its sole cost and expense,
during the term of
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this Agreement, insurance of the types and minimum amount, as follows:
(1) Workers Compensation Insurance in full compliance with all
applicable State and Federal laws and regulations, including a specific
endorsement covering liability for Federal Longshoremen's and Harbor Workers'
Compensation Act.
(2) Employers Liability Insurance in the minimum amounts of
$1,000,000.00 per individual claim, covering injury or death to any employee
which may be outside the scope of or in addition to liability under any Workers
Compensation statute or Federal Longshoremen's and Harbor Workers Compensation
Act.
(3) Protection and Indemnity Insurance including masters and
members of crew with minimum limits of $5,000,000.00 including all provisions
of The Jones Act. Any applicable deductible per master or member and/or third
party not to be greater than $25,000.
(4) Hull Collision Insurance with minimum limits of $5,000,000.00
covering collisions with all objects fixed or floating with deductible per
occurrence not greater than $25,000.
(5) Commercial General Liability Insurance including Products and
Completed Operations covering third party liabilities of the Leased Premises,
and the LESSEE's operations anywhere in the Port area with a minimum of
$5,000,000.00 Combined Single Limit per occurrence/$ 10,000,000.00 Aggregate
for bodily injury or property damage and a deductible not greater than $25,000.
(6) Automobile Liability Insurance on all vehicles owned, leased
or operated by LESSEE while on Port property including those vehicles which are
hired or non-owned and used in the course of the LESSEE's business, with
minimum limits of $5,000,000.00 Combined Single Limit per occurrence for bodily
injury or property damage.
(7) All policies required to be carried under this paragraph shall
be written on an occurrence basis, shall name the State of Mississippi, the
Mississippi State Port Authority at Gulfport, and the Mississippi Department of
Economic and Community Development as additional insureds, and shall provide
that the insureds thereon waive subrogation against the State of Mississippi
and the said political subdivisions thereof. Said policies shall specifically
state that the insurers at risk are primary insurers and that no claim will be
made by the insurers that any other insurers of the State of Mississippi, the
State Port Authority at Gulfport, or the Mississippi Department of Economic and
Community Development are a primary or contributing
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insurer with respect to any liability covered thereby. All such policies shall
provide that the State of Mississippi, the State Port Authority at Gulfport and
the Mississippi Development of Economic and Community Development are in no way
obligated for the payment of the premiums thereon and shall provide that said
policies may not be canceled without thirty (30) days prior written notice to
the State Port Authority at Gulfport.
(8) All such policies shall be issued by insurance companies with
a current rating by Best of A-X(10) and which said companies must also be
acceptable to the LESSOR.
(9) Should LESSEE at any time during the term of this Agreement
fail to provide any insurance required herein, the LESSOR may terminate this
Agreement after fifteen (15) days written notice to LESSEE or may, but shall
not be required to, procure any of the insurance required by this section to be
carried by LESSEE, either to protect the LESSOR and/or LESSEE, and the LESSEE
shall pay to the LESSOR the costs of any premiums and other costs of procuring
said insurance to the LESSOR within fifteen (15) days after demand by the
LESSOR. Should LESSEE fail to pay such costs, LESSOR may use the security
deposit provided in paragraph V(9) to reimburse such costs.
(10) LESSEE shall provide the LESSOR with certificates of insurance
required by this Agreement in a form acceptable to the LESSOR evidencing
policies of insurance by companies or persons in amounts and with the coverages
and endorsements as required by this section. Prior to expiration of any
insurance contract as provided herein, LESSEE shall provide to LESSOR
certification evidencing renewal of said insurance.
(11) LESSEE shall provide to the LESSOR copies of all insurance
contracts insuring LESSEE's operations contemplated herein.
(12) LESSEE shall provide liquor liability insurance and other
insurance typically required for operations or business contemplated by LESSEE
on the Vessel or on the Leased Premises in an amount to be approved by LESSOR.
XXI
CONDITIONS FOR PLACEMENT OF A SIGN BY LESSEE
LESSEE may place and maintain on the Port property a sign advertising
its business. The content, exact location, materials and style of such sign
shall be subject to the LESSOR's absolute right of approval. It is understood
and agreed that said sign shall comply with all state
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or local law, rule or ordinance.
LESSEE shall, at its expense, take good care of and make all
necessary repairs to said sign. In the event LESSEE's sign is damaged, LESSEE
shall repair or replace the sign within 60 days. LESSEE shall indemnify and
hold LESSOR harmless from and against any liability loss, cost, damage, or
expense arising out of the erection, maintenance, existence or removal of the
sign, and shall repair any damage resulting from such installation maintenance
or removal. Upon termination of this Agreement, LESSEE shall remove the sign
and repair all damage caused by such removal.
XXII
ASSIGNMENT
LESSEE shall not assign, sublet, or mortgage or use as collateral for a
loan or otherwise convey any interest or right in this Lease Agreement, the
Vessel (except for the initial financing but not including additional amounts
which may be loaned thereunder), or the Leased Premises during the Initial Term
or any extensions or renewals of this Agreement without the prior written
consent of the LESSOR, which consent shall not be unreasonably withheld. LESSOR
shall have the right to approve of any change in ownership of the Lease, the
Leased Premises and/or the Vessel. LESSOR shall have the right to approve any
sublease, assignment or any sort of transfer in the Lease Agreement, the Leased
Premises or the Vessel and LESSEE's failure to obtain prior approval shall be
sufficient grounds for termination of this Lease as provided hereunder. Any
attempt by the LESSEE to act otherwise shall render this Agreement null and void
at the sole option of LESSOR, and the LESSOR shall become entitled to immediate
possession of the Leased Premises, including all improvements thereon.
XXIII
TARIFF CHARGES
This Lease Agreement is subject to the Rules and Regulations and
Tariff duly published by the Mississippi State Port Authority. In the event of
a conflict between the tariff and this Agreement, the Lease Agreement shall
prevail, and conflicting tariff charges are not in addition to Rental payments
as set forth herein unless for additional services outside of the rights under
this Lease.
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XXIV
HOLDING OVER
Any holding over after the expiration of the Initial Term or Extended
Term, as applicable, shall be subject to the statutory double rent provided for
hold over tenants. In all other respects, if LESSEE shall remain in occupancy
as a hold-over tenant, LESSEE shall otherwise be subject to the terms and
conditions specified herein. Nothing set forth herein shall be construed to
authorize any such holding over or to limit LESSOR's remedies in the event
thereof.
XXV
RIGHT OF ENTRY
LESSOR or its designee shall have the right to enter the Vessel and
Leased Premises for all lawful purposes and to whatever extent necessary or
appropriate to enable LESSOR to exercise all of its rights under this Lease.
The exercise by LESSOR of its rights to entry hereunder shall not be construed
as an eviction of LESSEE, and the rent payable hereunder shall not abate by
reason thereof.
XXVI
DEFAULT AND TERMINATION OF AGREEMENT
The occurrence of any of the following events shall constitute default
by LESSEE under this Lease:
(1) LESSEE's failure to pay any installment of rent or any other
obligation hereunder involving the payment of money and such failure shall
continue for a period of ten (10) days after the LESSOR gives written notice of
such default.
(2) LESSEE's willful failure to provide records or accurately
report gross revenues as provided for hereunder which such failure shall
continue for a period of ten (10) days after the LESSOR gives written notice of
such default.
(3) LESSEE's failure to comply with any term, provision, or
covenant of this Lease, within 10 days after written notice thereof to LESSEE
except as specifically provided for herein to the contrary.
(4) LESSEE's filing of a Petition seeking bankruptcy protection or
being adjudged insolvent.
(5) LESSEE deserting or vacating or commencing to desert or vacate
the Leased Premises
22
<PAGE> 23
and/or LESSEE's removal or attempt to remove the Vessel permanently or
temporarily from the Leased Premises without prior written consent of LESSOR,
excepting to comply with any state or federal rules or regulations.
(6) LESSEE's doing or permitting to be done anything which creates
a lien upon the Vessel or the Leased Premises without prior written consent.
(7) The subleasing or assigning or any sort of transfer which
substantially changes the ownership interest, title or otherwise of the Vessel
or any business or venture from the currently approved owner or operator to any
other entity or person without prior written consent of LESSOR.
(8) LESSEE's failure to comply with any laws of the federal,
state, county, municipal or any other governmental authority.
(9) Suspension of any permits or licenses for a period in excess
of 60 continuous days.
(10) Interference with Port shipping and commerce operations by
LESSEE its assignees or sublessees.
Without waiving any other rights and without any notice or demand
whatsoever, LESSOR may take any one or more of the actions permissible at law
to insure performance by LESSEE of LESSEE's covenants and obligations under
this Lease. LESSEE agrees to reimburse LESSOR on demand for any expenses
including attorneys fees which LESSOR may incur in effecting compliance with
LESSEE's obligations under this Lease, and LESSEE further agrees that LESSOR
shall not be liable for any damages resulting to the LESSEE for such actions.
Upon default LESSOR may enter upon and take possession of the Leased Premises
and all improvements thereto and continue to demand from LESSEE the monthly
Rentals and other charges provided for in this Lease.
If a default should occur which is beyond any control of the LESSEE
such as passage of a new law which would allow only Mississippians to own any
interest in a gaming operation, then LESSEE shall have twelve (12) months time
to cure such default. During this time, LESSEE shall pay all Rental and other
charges provided in this Lease.
23
<PAGE> 24
XXVIII
SURRENDER, REMOVAL AND RESTORATION BY LESSEE
On the last day of the term or on the sooner termination thereof or as
a result of default as provided herein, LESSEE shall:
(1) Peaceably surrender the Leased Premises including all
improvements thereto, broom clean and in good order and condition and repair
except for reasonable wear and tear; and
(2) LESSEE shall remove from the Leased Premises all equipment,
signs, movable furniture and trade fixtures installed by LESSEE at its expense.
Any such property not so removed may, at LESSOR's election and, without
limiting LESSOR's right to compel removal thereof by mandatory injunction, the
right of which is hereby granted by LESSEE, be deemed to be abandoned by LESSEE
to LESSOR.
Any damage to the Leased Premises caused by LESSEE in the removal of
LESSEE's property shall be repaired by LESSEE at its expense.
Title to all alterations, additions, improvements and repairs on the
Leased Premises shall vest in LESSOR from the date of installation and the same
shall remain on and be surrendered to LESSOR with the Leased Premises as a
part thereof without disturbance and without charge. This clause specifically
does not apply to the Vessel.
XXIX
LEGAL EXPENSES: REMEDIES CUMULATIVE
If LESSEE breaches or fails to comply with any provision of the
Agreement, the LESSEE shall reimburse the LESSOR for all costs, including
reasonable attorneys fees, in enforcing the LESSOR's rights under this
Agreement.
LESSOR's and LESSEE's rights and remedies in the enforcement of this
Lease shall be cumulative and may be exercised and enforced concurrently. Any
right or remedy conferred upon LESSOR or upon LESSEE tinder this Lease shall
not be deemed to be exclusive of any
24
<PAGE> 25
other right of remedy LESSOR or LESSEE may have at law or in equity.
XXX
WAIVER
Waiver by LESSOR of any breach of any term, covenant, or condition
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or any other term, covenant or condition herein contained. No
covenant, term or condition of this Lease shall be deemed to be waived unless
such waiver shall be in writing signed by LESSOR.
XXXI
ENTIRE AGREEMENT
This Lease and the exhibits attached hereto all of which form a part
hereof set forth all the covenants, promises, agreements, conditions and
understandings between LESSOR and LESSEE concerning the Leased Premises. There
are not oral agreements or understandings between the parties hereto affecting
this Lease and this Lease supersedes and cancels any and all provisions,
negotiations, arrangements, agreements and understandings, if any, between the
parties hereto and with respect to the subject matter hereof and none thereof
shall be used to interpret or construe this Lease. Except as otherwise
provided for herein no subsequent alteration, amendment, change or addition to
this Lease shall be binding upon the LESSOR or LESSEE unless reduced to writing
and signed by each of them.
XXXII
CAPTIONS AND INTERPRETATIONS
The captions, section numbers, article numbers and indices appearing
in this Lease in no way define, limit, construe or describe the scope or intent
of such section or articles of this Lease. The language in all parts of this
Lease shall, in all cases, be construed as a part of the whole according to its
fair meaning and not strictly for or against LESSOR or LESSEE. Should a court
be called upon to interpret a provision hereof, no weight shall be given, nor
shall any construction or interpretation be influenced by any presumption of
preparation of the Lease by LESSOR or by LESSEE.
XXXIII
PARTIAL INVALIDITY
If any term, covenant, or condition of this Lease or the application
thereof to any person or
25
<PAGE> 26
circumstance shall to any extent be invalid or unenforceable, the remainder of
this Lease or the application of such term, covenant or condition to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Lease shall be valid and shall be enforced to the fullest extent permitted by
law.
XXXIV
SUCCESSORS
All rights and liabilities herein given to or imposed upon the
respective parties hereto shall, except as may otherwise herein be provided,
extend to and bind the respective heirs, executors, administrators, successors
and assigns of the said parties. No right shall, however, inure to the benefit
of any assignee of LESSEE unless the assignment to such assignee has been made
in accordance with the provisions set forth in this instrument with respect to
such assignment.
XXXV
SURVIVAL OF LESSEE'S OBLIGATIONS
All obligations of LESSEE which by their nature involve performance,
and any particular, after the end of the term or after the end of any Extended
Term, as applicable, which cannot be ascertained to have been fully performed
until after the end of such term or Extended Term, as the case may be, shall
survive the expiration or sooner termination of the term or Extended Term, as
the case may be.
XXXVI
NOTICES
Any notice required to be given under this Agreement shall be deemed
given when deposited in the United States Mail, postage prepaid, certified
mail, to the parties at the addresses below:
LESSOR: Mississippi State Port Authority at Gulfport
Executive Director
P.O. Box 40
Gulfport, MS 39502
LESSEE: Gulfside Casinos, Inc.
c/o Don Laughlin
Riverside Resort Hotel & Casinos
1650 Casino Drive
Laughlin, Nevada 89029
26
<PAGE> 27
With a copy to: Hugh Keating, Esquire
Registered Agent of Gulfside Casinos, Inc.
P.O. Drawer W
Gulfport, MS 39502
XXXVII
GOVERNING LAW
This Lease shall be governed by, construed, and enforced in accordance
with the laws of the State of Mississippi.
WITNESS OUR SIGNATURES, this the 20th day of August
---------- -----------------,
1992.
-
ATTEST: GULFSIDE CASINOS, INC.
[SIG] By: [SIG]
------------------------------------
Title
ATTEST: MISSISSIPPI STATE PORT AUTHORITY
AT GULFPORT
[SIG] By: /s/ CHARLES WEBB
------------------------------------
Charles Webb, President
ATTEST: MISSISSIPPI DEPARTMENT
OF ECONOMIC AND COMMUNITY
DEVELOPMENT
[SIG] By: /s/ JIMMY HEIDEL
------------------------------------
Jimmy Heidel, Executive Director
27
<PAGE> 28
[SEAL]
[MAP]
MISSISSIPPI STATE PORT AUTHORITY AT GULFPORT
EXHIBIT "A" PARCEL: BERTH AREA LEASED PREMISES (4.1677 A.+/-) PARCEL NO. 1
Sht. 1 of 6
<PAGE> 29
LEGAL DESCRIPTION PARCEL 9.1 BERTH AREA
That certain parcel of land and property situated and being in Section 9,
T8S,R11W City of Gulfport, Harrison County, Ms., and more particularly
described as follows:
Commencing at the intersection of the center line of the L. & N. R.R. (CSX)
R.O.W. and the G. & S.I. R.R. (I.G.G.R.R.) R.O.W.; thence 500 degrees 14'16"W a
distance of 830.87 ft. to a point; thence S31 degrees 05'44"E a distance of
619.92 ft. to a point on the South R.O.W. of U.S. Hwy. 90; thence N70 degrees
21'12"E a distance of 50.07 ft. to a point;
thence S36 degrees 57'19"E a distance of 108.66 ft. to a point;
thence S69 degrees 14'55"E a distance of 60.0 ft. to a point;
thence N67 degrees 04'35"E a distance of 41.35 ft. to a point;
thence S32 degrees 09'04"E a distance of 2378.70 ft. to a point;
thence N57 degrees 50'56"E a distance of 100.0 ft. to a point;
thence S31 degrees 52'58"E a distance of 537.81 ft. to a point;
thence S31 degrees 53'29"E a distance of 548.21 ft. to a point;
thence S57 degrees 52'12"W a distance of 272.32 ft. to the POINT OF BEGINNING;
thence S57 degrees 52'12"W a distance of 133.65 ft. to a point;
thence S32 degrees 01'15"E a distance of 998.46 ft. to a point;
thence N57 degrees 52'12"E a distance of 200.0 ft. to a point;
thence N34 degrees 54'51"W a distance of 600.75 ft. to a point;
thence N36 degrees 43'07"W a distance of 16.38 ft. to a point;
thence N57 degrees 50'56"E a distance of 30.21 ft. to a point;
thence N36 degrees 48'37"W a distance of 256.86 ft. to a point;
thence N51 degrees 43'38"W a distance of 128.8 ft. to the point of beginning.
Said parcel contains 0.3828 acres, more or less, of fast lands and 3.7849 acres,
more or less, of bottom lands for a total of 4.1677 acres, more or less.
[SIG]
James R. Clarke, R.L.S.
July 13, 1992
[SEAL]
EXHIBIT "A" PARCEL NO. 1 Berth Area
Sht. 2 of 6 92-7-63
<PAGE> 30
[SEAL]
[MAP]
MISSISSIPPI STATE PORT AUTHORITY AT GULFPORT
EXHIBIT "A" PARCEL: LANDSIDE AREA & FACILITY LEASED PREMISES (1.7291 A.+/-)
PARCEL NO. 2
Sht. 3 of 6
<PAGE> 31
[SEAL]
[MAP]
MISSISSIPPI STATE PORT AUTHORITY AT GULFPORT
EXHIBIT "A" PARCEL: PARKING AREA LEASED PREMISES (4.8819 A.+/-) PARCEL NO. 3
Sht. 5 of 6
<PAGE> 32
LEGAL DESCRIPTION OF PARCEL No. 3: PARKING AREA
That certain parcel of land and property situated and being in Section 9, T8S,
R11W, City of Gulfport, Harrison County, Ms., and more particularly described
as follows:
Commencing at the intersection of the center line of the L. & N. R.R. ( CSX )
R.O.W. and the G. & S.I. R.R. ( I.G.G.R.R. ) R.O.W.; thence SOO degrees 14'
16" W a distance of 830.87 ft. to a point; thence S31 degrees 05'
44" E a distance of 619.92 ft. to a point on the South R.O.W. of
U.S. Hwy. 90; thence N70 degrees 21' 12" E a distance of 50.07
ft. to a point;
thence S36 degrees 57' 19" E a distance of 108.66 ft. to a point;
thence S69 degrees 14' 55" E a distance of 60.0 ft to a point;
thence N67 degrees 04' 35" E a distanc of 41.35 ft. to a point;
thence S32 degrees 09' 04" E a distance of 2378.70 ft. to a point;
thence N57 degrees 50' 56" E a distance of 100.0 ft. to a point;
thence S31 degrees 52' 58" E a distance of 537.81 ft. to the POINT OF BEGINNING;
thence S77 degrees 02' 46" E a distance of 295.74 ft. to a point;
thence S32 degrees 11' 47" E a distance of 253.02 ft. to a point;
thence S13 degrees 56' 25" W a distance of 164.83 ft. to a point;
thence S32 degrees 06' 40" E a distance of 353.35 ft. to a point;
thence S57 degrees 50' 56" W a distance of 300.72 ft. to a point;
thence N32 degrees 09' 04" W a distance of 4.74 ft. to a point;
thence N36 degrees 48' 37" W a distance of 256.86 ft. to a point;
thence N51 degrees 43' 38" W a distance of 128.8 ft. to a point;
thence N57 degrees 52' 12" E a distance of 272.32 ft. to a point;
thence N31 degrees 53' 29" W a distance of 548.21 ft. to the point of beginning.
Said parcel contains 4.8819 acres, more or less.
/s/ JAMES R. CLARKE
-----------------------------
James R. Clarke, R.L.S.
July 13, 1992
[SEAL]
EXHIBIT "A" PARCEL NO. 3 Parking Area
Sht. 6 of 6 92-7-63
<PAGE> 33
EXHIBIT "C"
Article XII, IMPROVEMENTS BY LESSEE, are as follows:
(A) TO BERTH AREA:
Prior to commencing gaming at dockside, LESSEE will secure all
necessary dredging permits and contract to dredge the permanent mooring area to
accommodate the vessel. Mooring dolphins will be installed to secure the
vessel. Concrete and timber piers will be constructed to handle the
anticipated loads, plus a safety factor, metal gang-ways will interconnect
piers to vessels and will be designed to service the anticipated loads plus a
safety factor. Water, sewer, telephone, power and television utility
connections will be connected to the vessel and supported from pier structure.
Plans and specifications will be submitted to the Mississippi State Port
Authority for review and approval in accord with the applicable provisions of
the lease. All such improvements, alterations and additions shall be completed
within twelve (12) months from date of receipt of gaming license.
(B) TO LAND SIDE AREA AND FACILITY:
LESSEE will install a covered unloading/loading canopy and walkway to
protect patrons from inclement weather. A dining and entertainment complex
consisting of at least twenty thousand (20,000) square feet will be constructed
in conformity with all applicable local, state and federal regulations and
designed and constructed in such a manner as to withstand hurricane winds but
be readily demolished and removed when necessary. Landscaping, area lighting
and a decorative gazebo will be installed to compliment the vessel.
The canopy, covered walkways, landscaping, area lighting and gazebo
will be constructed within twelve (12) months from the date of the issuance of
a gaming license. All other such improvements, alterations and additions
shall be completed within five (5) years from the date of issuance of a state
gaming license.
Plans and specifications will be submitted to the Mississippi State
Port Authority for review and approval in accord with the applicable provisions
of the lease.
(C) PARKING AREA:
LESSEE will make the following improvements to the leased area for
patron parking:
Sub-surface draining systems which comply with all applicable local,
state and federal regulations and requirements for storm water collection and
release on property owned by the Mississippi State Port Authority.
Asphalt pavement for parking of automobiles and buses in such a manner
so as to allow the use of that area for tractor trailer parking and maneuvering
in the event LESSOR shall have use of the property in the future as provided
for in the Lease.
Area lighting which will meet or exceed all applicable local, state
and federal regulations.
Paving, striping and legends and traffic signed to direct pedestrians
and vehicles. Striping will include handicap spaces as required by all local,
state and federal laws and regulations.
Plans and specifications will be submitted to the Mississippi State
Port Authority for review and approval in accord with the applicable provisions
of the lease.
All such improvements, alterations and additions shall be completed
prior to the
Page 1 of 2 pages
<PAGE> 34
commencement of gaming operations open to the public.
(D) TO THE VESSEL:
For any Vessel preapproved in accordance with this lease, all
necessary improvements, alterations and additions shall be completed prior to
the commencement of gaming operations open to the public. Plans and
specifications will be submitted to the Mississippi State Port Authority for
review and approval in accord with the applicable provisions of the lease.
(E) TO OTHER PORT AREAS:
See applicable lease provisions.
Page 2 of 2 pages
<PAGE> 1
EXHIBIT 10(p)
STATE OF MISSISSIPPI
COUNTY OF HARRISON
AMENDMENT TO LEASE AND APPROVAL
OF STOCK PURCHASE
WHEREAS, the State of Mississippi, through its duly authorized
agencies, the Mississippi State Port Authority at Gulfport, and the Mississippi
Department of Economic and Community Development, hereinafter referred to as
Lessor, entered into a lease agreement with Gulfside Casinos, Inc., hereinafter
referred to as Lessee, providing for the leasing of certain property at the
Mississippi State Port Authority at Gulfport, Mississippi (the "Lease"); and
WHEREAS, Article XXII of the Lease provides that Lessor has the right
to approve of any change of ownership of Gulfside Casino, Inc.; and
WHEREAS, Stanley B. McDonald purchased a majority of the outstanding
shares of stock in Gulfside Casino, Inc. from Don Laughlin; and
WHEREAS, Lessor does desire to give its approval of the acquisition of
the majority of Gulfside Casino, Inc., stock by Stanley B. McDonald; and
WHEREAS, Lessee changed its name to Gulfside Casino, Inc., evidenced
by amended Articles of Incorporation filed on October 5, 1992; and
WHEREAS, the parties hereto are desirous of amending the Lease
Agreement in certain particulars;
NOW, THEREFORE, in consideration of the mutual covenants and
stipulations contained in the Lease, the parties do mutually contract and agree
as follows:
1. The State of Mississippi, acting through its duly authorized
agencies, the Mississippi State Port Authority at Gulfport and the Mississippi
Department of Economic and Community Development, does hereby approve the
purchase of a majority of the shares of Gulfside Casino, Inc.'s stock by
Stanley B. McDonald.
2. The Lessee hereunder shall be Gulfside Casino, Inc., a
Mississippi Corporation.
3. The effective date of said Lease between Lessor and Gulfside
Casino, Inc. shall be October 5, 1992.
4. The Lease shall be amended as follows:
<PAGE> 2
XXII
NOTICES
LESSEE: Gulfside Casino, Inc.
c/o Stanley B. McDonald
Suite 2200, 520 Pike Street
Seattle, WA 98101
and
Hugh D. Keating, Registered Agent
Dukes, Dukes, Keating & Faneca, P.A.
P.O. Drawer W
Gulfport, MS 39502
WITNESS OUR SIGNATURES, this the 25th day of October, 1992.
GULFSIDE CASINO, INC.
BY: [SIG]
----------------------------------
TITLE: President
MISSISSIPPI STATE FORT AUTHORITY
AT GULFPORT
BY: [SIG]
----------------------------------
TITLE: President
MISSISSIPPI DEPARTMENT OF
ECONOMIC AND COMMUNITY
DEVELOPMENT
BY: [SIG]
----------------------------------
TITLE:
----------------------------------
<PAGE> 1
EXHIBIT 10(q)
STATE OF MISSISSIPPI
COUNTY OF HARRISON
SECOND LEASE AMENDMENT
This Second Lease Amendment entered into between the State of
Mississippi appearing herein by and through its duly authorized agencies, the
MISSISSIPPI DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT and the
MISSISSIPPI STATE PORT AUTHORITY AT GULFPORT, hereinafter collectively referred
to as LESSOR and Gulfside Casino, Inc., hereinafter referred to as LESSEE.
WHEREAS, on August 20, 1992, LESSOR and LESSEE entered into a certain
Lease Agreement ("Lease"); and on October 28, 1992, LESSOR and LESSEE entered
into a Lease Amendment thereto; and
WHEREAS, LESSOR and LESSEE are desirous of again amending said Lease
in certain particulars;
NOW THEREFORE, in consideration of the mutual covenants and
stipulations contained in the Lease, the parties do mutually contract and agree
as follows:
1. ARTICLE I - LEASED PREMISES
Article I - Leased Premises is amended as follows:
(a) Exhibit "A", which contains the description of the LEASED
PREMISES, is replaced with Exhibit "A-1" attached hereto and incorporated
herein by reference, which contains the revised description of the LEASED
PREMISES, which reflects the agreement that the Vessel contemplated hereunder
will be docked at the north end of the main ship harbor rather than on the
southwest end of the East Pier. However, in the event that LESSEE is unable to
obtain the necessary permits and approvals for the dredging and mitigation
required for the location of the LESSEE on the LEASED PREMISES described in
Exhibit "A-1", the premises described in Exhibit "A" shall once again become
the LEASED PREMISES.
(b) The following paragraph shall be added as the new second
paragraph of Article I - Leased Premises:
1
<PAGE> 2
"LESSEE agrees to acquire the leasehold interests
currently held by the Center of International Seamen and
Truckers, Inc., which is the subject of a Lease Agreement with
LESSOR dated April 1, 1992 for the sum of One Hundred Ninety
Thousand Dollars ($190,000.00), and the leasehold interests of
I.T.O. Corporation which is the subject of a lease agreement
with LESSOR dated September 14, 1990 for a sum not to exceed
Two Hundred Fifty Thousand Dollars ($250,000.00). These
acquisitions shall be completed by July 1, 1993 or within ten
(10) days of LESSEE's receipt of the permits and approvals for
the dredging and mitigation required for the location of
LESSEE to the LEASED PREMISES described in Exhibit "A-1",
whichever is later. Once said acquisitions are complete, the
above described properties will become part of the LEASED
PREMISES. LESSEE's failure to acquire the referenced
leasehold properties shall at the option of the LESSOR
constitute a default under the Lease."
(c) The following language is added as a new last paragraph to Article
I of the Lease Agreement:
"If LESSOR elects to utilize the southwest end of the
East Pier for a dockside gaming operation and if LESSEE has
fully complied with the terms and conditions of this Lease,
LESSEE shall have the exclusive right to place a dockside
gaming operation at its former location as described in
Exhibit "A". Said right shall expire five (5) years from the
date of October 5, 1992. The exercise of such right shall be
subject to the following conditions:
(a) LESSOR shall notify LESSEE in
writing of its intent to lease the above-described
location for use as a dockside gaming operation.
2
<PAGE> 3
LESSEE must notify LESSOR within thirty (30)
days from the date of receipt of LESSOR's
notice of intent to lease for dockside gaming
purposes of LESSEE's acceptance to lease said
location.
(b) The new lease agreement shall
contain substantially the same terms and
conditions as contained in this Lease
Agreement as existed prior to the Second
Amendment set forth herein.
(c) If LESSEE declines to lease said
location or fails to reply to LESSOR's
notice, LESSOR may negotiate for the lease of
said location with other interested parties.
Notwithstanding the foregoing, LESSOR is under
no obligation to lease said location to LESSEE
or to a third party during the five (5) year
period specified above or at any other time."
2. ARTICLE 11 - USE OF PREMISES
The following language shall be added to the second paragraph of
Article II:
"Gulfport Towing Company, Inc. shall have the
right to utilize the roadway included in the
description of the LEASED PREMISES contained in
Exhibit A-1, for ingress and egress to its leased
premises which is the subject of the lease agreement
between Gulfport Towing Company, Inc. and LESSOR
dated July 30, 1983."
3
<PAGE> 4
3. ARTICLE IV - TERM
The following paragraph is added immediately prior to the second to
the last paragraph of Article IV - Term of the Lease Agreement:
"In addition to the three (3) renewal periods of five
(5) years each, LESSEE shall have the option to further extend
the Lease for an additional period of ten (10) years if
LESSEE, within the first ten (10) years of this Agreement,
constructs, on the Leased Premises or within the city limits
of Gulfport, Mississippi, a Hotel with a minimum of 350 units,
and has complied with all terms, covenants and conditions of
the Lease. If such renewal option is exercised, the Lease
term may be extended under the same terms and provisions of
this Lease Agreement except that the annual Rentals for the
Leased Premises shall be adjusted and revised yearly by an
amount equal to the changes in the Consumer Price Index U.S.
City Average all items, in the manner set forth above."
4. ARTICLE VII - LESSEE'S OPERATION REQUIREMENTS
(a) The following sentences shall be added to paragraph 3 of
Article VII:
"In the event LESSEE is unable to obtain the
necessary permits and approvals for the dredging and
mitigation required for the location of the LESSEE on the
LEASED PREMISES described in Exhibit "A-1", LESSEE shall have
the remaining portion of the above-described twelve (12) month
period to locate the Vessel to LEASED PREMISES described in
Exhibit "A". However, in no instance shall LESSEE have less
than six (6) months from the date LESSEE receives written
notification from the proper governmental agencies of LESSEE's
inability to obtain said permits and approvals to move the
Vessel to the LEASED PREMISES described in Exhibit "A".
LESSEE shall,
4
<PAGE> 5
within five (5) days of the receipt of said notification,
provide LESSOR with a copy thereof. LESSEE's right to move to
the Exhibit "A-1" location shall expire when the permits
thereafter are granted or when the Vessel is moved to the
Exhibit "A"location, whichever may first occur."
(b) The following language shall be added as the new paragraphs 9
and 10 of Article VII:
"LESSEE shall have the right to dredge and fill
portions of the Berth Area south of the fast land, all of
which is described in Exhibit "A-1". Prior to performing any
dredging or filling, LESSEE shall obtain written approval from
LESSOR, which shall specifically state which portions of the
Berth Area may be dredged or filled subject to the appropriate
permits or approvals required by law. All fill must be
contained behind sheet pile to prevent the reliction of such
fill. Said dredging and filling shall not encroach on Dole's
and Chiquita's existing berthing areas.
As provided in this Lease Agreement, LESSEE is
required to obtain all permits and approvals required or
necessary in connection with dredging, filling and mitigation.
However, LESSOR will use its reasonable efforts to assist
LESSEE in obtaining the necessary permits and approvals to
facilitate LESSEE's relocation to its permanent site. LESSOR
agrees to allow LESSEE to utilize LESSOR's name in the attempt
to obtain such approvals and permits and to utilize LESSOR's
mitigation site. LESSOR's agreement to assist shall in no way
relieve LESSEE of its sole obligation and duty to obtain such
permits and approvals."
(c) The following language shall be added as the last five (5)
paragraphs of Article VII:
5
<PAGE> 6
"LESSOR shall, if required by law or any regulatory
agency with jurisdiction, remove, cleanup and cure at its
expense any and all hazardous waste, toxic or non-toxic
substances and materials or contaminants of type or nature
whatsoever, known or unknown, which existed prior to LESSEE's
entry into use and possession of the Leased Premises described
in Exhibit "A-1".
LESSEE covenants that it will ensure that it is in
compliance with environmental laws, including laws that impose
cleanup obligations upon termination of this Lease. LESSEE
further covenants that it will limit its use of the Leased
Premises to activities disclosed herein, and shall at all
times conduct its operations as contemplated herein so as not
to release hazardous substances or subject LESSOR to cleanup
costs. LESSEE shall not without prior written consent of
LESSOR, install any tanks or equipment containing asbestos or
PCBs.
LESSEE shall comply with all environmental laws and
obtain all necessary permits. All environmental permits shall
be issued in the name of LESSEE. If any release of hazardous
substances shall occur during the term of this Lease, LESSEE
shall notify LESSOR of any releases, although LESSEE shall
remain responsible for reporting any releases to the
appropriate governmental agency.
LESSEE shall provide to LESSOR a copy of any
environmental reports, studies or analyses with regard to the
Leased Premises. LESSOR shall, at its option, at termination
of this Lease, request LESSEE to perform an environmental
assessment of the Leased Premises to establish whether adverse
environmental conditions were caused by the LESSEE and
6
<PAGE> 7
therein require LESSEE at its expense to perform approved
cleanup of the Leased Premises.
LESSEE shall assume full responsibility to pay for
and implement any investigation, cleanup, or other response
action required in relation to any release of hazardous
substances or other environmental condition during the term of
this Lease. Any response action required shall be performed
to the satisfaction of LESSOR and in compliance with law and
regulatory agencies."
5. ARTICLE XII - IMPROVEMENTS BY LESSEE
(a) The following new paragraph "(7)" shall be added to Article
XII of the Lease Agreement:
"(7) LESSEE shall have the right to construct a small
marina in the Berth Area south of the fast land, all of which
is described in Exhibit "A-1" to be used in conjunction with
LESSEE's gaming operation. Before commencing construction of
said marina, LESSEE must obtain LESSOR's written approval of
the size and location thereof, and must obtain all appropriate
and necessary permits or approvals therefor. LESSOR shall
also have the right, as provided in paragraph (2) of this
Article, to approve the plans and specifications of the
marina. LESSEE shall not be required to utilize the LESSOR's
linehandlers to assist vessel(s) which may berth at said
marina. However, if LESSEE utilizes LESSOR's linehandlers,
LESSEE shall pay the applicable tariff charge for such
services. Said marina shall not in any way interfere with the
use of the Port for commerce and shipping."
7
<PAGE> 8
(b) Notwithstanding the provisions herein, the second sentence of
the first paragraph of Section (B) of Exhibit "C", which provides for the
construction of a dining and entertainment complex, is hereby deleted in its
entirety.
6. ARTICLE XVIII - INTERRUPTION OF OPERATIONS AND PLANS FOR REMOVAL OF
VESSEL
The last sentence of the first paragraph of Article XVIII of the Lease
Agreement is hereby amended as follows:
"LESSEE's failure to remove the Vessel shall at
option of LESSOR constitute sufficient grounds for termination
of the Lease, unless LESSEE has obtained written approval from
the Civil Defense allowing the Vessel to remain at the Port."
7. ARTICLE XXII - ASSIGNMENT
(a) The following language is added as a new second paragraph to
Article XXII:
"It is LESSOR's understanding that LESSEE is
negotiating to sub-let a portion of Dole Fresh Fruit Company's
("Dole") leasehold property at the Port. LESSOR will not
participate in such negotiations, but will consider a request
for any such sublease in strict accordance with the lease
agreement between Dole and LESSOR."
(b) The following additional language is added as a new third
paragraph to Article XXII:
"LESSOR does hereby ratify and approve the
substitution, transfer, conveyance and assignment of the
LESSEE's right, title and interest under the Lease Agreement
dated August 20, 1992, and effective October 5, 1992, and all
amendments thereto, to Gulfside Casino Partnership, a
Mississippi general partnership, comprised of Gulfside Casino,
8
<PAGE> 9
Inc., a Mississippi corporation, and Patrician, Inc., a Nevada
corporation, authorized to transact and conduct business in
the State of Mississippi."
8. ARTICLE XXXVI - NOTICES
This Article is hereby amended to provide that notice to the LESSEE
shall be deemed given when deposited in the United States mail, postage
prepaid, certified mail, to the parties at the addresses below:
LESSOR: Mississippi State Port Authority
at Gulfport
Executive Director
P.O. Box 40
Gulfport, MS 39502
LESSEE: Gulfside Casino Partnership
c/o Pete Cladianos, Jr.
P.O. Box 1600
Gulfport, MS 39502
With copy to: Hugh D. Keating, Attorney
Gulfside Casino Partnership
P.O. Drawer W
Gulfport, MS 39502
All terms and conditions under the original Lease Agreement and the
Amendment dated October 28, 1992 which have not been amended shall remain
unchanged and remain in full force and effect.
WITNESS OUR SIGNATURES, this the 12th day of May 1993.
ATTEST: MISSISSIPPI DEPARTMENT OF ECONOMIC
AND COMMUNITY DEVELOPMENT, LESSOR
[SIG] By: /s/ JAMES B. HEIDEL
--------------------------
James B. Heidel
Executive Director
ATTEST: MISSISSIPPI STATE PORT AUTHORITY AT
GULFPORT, LESSOR
[SIG] By: /S/ DOUG MEDLEY
--------------------------
Doug Medley
President
9
<PAGE> 10
ATTEST: GULFSIDE CASINO, INC., LESSEE
[SIG] By: [SIG]
--------------------------
Title:
--------------------------
ATTEST: GULFSIDE CASINO PARTNERSHIP,
SUBSTITUTE LESSEE
[SIG] By: [SIG]
--------------------------
Title:
--------------------------
10
<PAGE> 11
EXHIBIT "A-1"
HORSESHOE LEASE AREA
[MAP]
<PAGE> 12
LEGAL DESCRIPTION
HORSESHOE LEASE AREA
B & M NO. 1736
A parcel located in Section 9, Township 8 South, Range 11 West, City of
Gulfport, Harrison County, Mississippi, more particularly described as follows:
BEGINNING at the intersection of the South right-of-way of U.S. Highway 90 and
the East right-of-way of Mid-South Railroad and thence N 70 degrees 21' 12" E
along said South right-of-way for a distance of 66.73 feet; thence S 06 degrees
18' 29" W for a distance of 1119.44 feet; thence N 59 degrees 01' 22" E for a
distance of 372.54 feet; thence S 30 degrees 58' 38" for a distance of 557.82
feet; thence S 07 degrees 19' 22" W for a distance of 539.39 feet; thence S 45
degrees 01' 03" E for a distance of 256.07 feet to the North limits of the
Commercial Harbor of the Mississippi State Port at Gulfport; thence S 59
degrees 01' 22" W along said North limits for a distance of 650.07 feet; thence
N 30 degrees 58' 38" W along said North limits for a distance of 269.31 feet;
thence S 59 degrees 01' 22" W along said North limits for a distance of 178.10
feet to the East right-of-way of Mid-South Railroad; thence along said East
right-of-way the following seven calls: N 27 degrees 07' 21" W for a distance
of 63.00 feet; thence along a curve to the right having a radius of 412.50 feet
for a distance of 203.99 feet; thence N 01 degrees 12' 39" E for a distance of
46.14 feet; thence along a curve to the right having a radius of 762.50 feet
for a distance of 177.39 feet; thence N 14 degrees 32' 25" E for a distance of
177.70 feet; thence along a curve to the left having a radius of 1197.71 feet
for a distance of 172.09 feet; thence N 06 degrees 18' 29" E for a distance of
1481.55 feet to the South right-of-way of U.S. Highway 90 and the POINT OF
BEGINNING. The above described parcel contains 11.1 acres, more or less, of
fast lands and 11.1 acres, more or less, of bottom lands for a total of 22.2
acres, more or less.
Revised
4/21/93
<PAGE> 1
EXHIBIT 10(r)
STATE OF MISSISSIPPI
COUNTY OF HARRISON
THIRD-LEASE AMENDMENT
This Third Lease Amendment entered into between the State of
Mississippi appearing herein by and through its duly authorized agencies, the
MISSISSIPPI DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT and the
MISSISSIPPI STATE PORT AUTHORITY AT GULFPORT, hereinafter referred to as LESSOR
and Gulfside Casino Partnership d/b/a Copa Casino, hereinafter referred to as
LESSEE.
WHEREAS, on August 20, 1992, LESSOR and LESSEE entered into that
certain Lease Agreement ("Lease"); and on October 28, 1992, LESSOR and LESSEE
entered into a Lease Amendment thereto; and on May 12, 1993, LESSOR and LESSEE
entered into a Second Lease Amendment thereto; and
WHEREAS, LESSOR and LESSEE are desirous of again amending said Lease
in certain particulars;
NOW, THEREFORE, in consideration of the mutual covenants and
stipulations contained in the Lease, the parties do mutually contract and agree
as follows:
1. ARTICLE I - LEASED PREMISES
(a) The first sentence of the second paragraph of Article I -
Leased Premises - as amended by the Second Lease Amendment dated May 12,
1993, shall be amended as follows:
"LESSEE has acquired the leasehold interest formerly held by
the Center of International Seaman and Truckers, Inc., which
was subject to the lease agreement with LESSOR dated April 1,
1992 for the sum of One Hundred Ninety Thousand Dollars
($190,000), and LESSEE agrees to acquire the leasehold
interest of I.T.O. Corporation which is the subject of a lease
agreement with LESSOR dated July 10, 1985 for an amount equal
to the cost associated with the relocation and reconstruction
of existing office facilities or construction of new office
facilities for I.T.O. Corporation on, and to the property
described in Exhibit "I" attached hereto and incorporated
herein by reference.
(b) The last two sentences of section (b) of Article I - Leased
Premises of the Second Lease Amendment dated May 12, 1993, are hereby deleted
and two (2) new paragraphs are added as follows:
"The Lessee has paid the sum of $190,000 to the Center of
International Seamen and Truckers, Inc. As a result, the
leasehold interests of said Center of International Seamen and
Truckers, Inc. described in the lease dated April 1, 1992, has
been and is hereby canceled and is hereby transferred and
leased unto the LESSEE herein which now constitutes part of
the Leased Premises."
"Once the relocation and reconstruction or new construction
for the I.T.O. Corporation offices facilities is completed and
accepted by the LESSOR, whichever the case may be, the LESSOR
shall immediately re-enter into possession of the Leased
Premises described in that certain Lease Agreement dated July
10, 1985, between I.T.O. Corporation and the LESSOR herein and
LESSOR shall cause I.T.O. Corporation to vacate and surrender
the quiet use, enjoyment and possession of the Leased Premises
described therein. Immediately thereafter, LESSOR shall
provide LESSEE with notice that said Leased Premises have been
vacated and abandoned by I.T.O. Corporation and such premises
shall be and hereby are granted, conveyed, and leased unto the
LESSEE herein and shall become part of the Leased Premises."
<PAGE> 2
2. ARTICLE IV - TERM
(a) The first sentence of the first paragraph of Article IV - TERM
as stated in the original Lease Agreement dated August 20, 1992 shall be
amended as follows:
"The term of this Lease ("Term") shall be seven (7) years."
(b) The first sentence of the second paragraph of Article IV -
TERM as stated in the original Lease Agreement dated August 20, 1992 shall be
amended as follows:
"If LESSEE has complied with all the terms, covenants and
conditions of this Lease, as of the expiration of the Primary
Term, the LESSEE shall have the option to extend the Lease for
three (3) renewal periods of five (5) years each under the
same terms and conditions of the Lease except the annual
rental for the leased premised shall be adjusted and revised
yearly for the eighth (8th) through the twenty-second (22nd)
year by an amount equal to the changes in the Consumer Price
Index U.S. City Average, all items (hereinafter called "Price
Index") as provided in the Leasehold and Related Payment
provision herein."
3. ARTICLE III - LEASEHOLD AND RELATED PAYMENTS
The following sentence shall be added as the new second sentence of
the first paragraph of Section 2 of Article III - LEASEHOLD AND RELATED
PAYMENTS;
"During the 6th and 7th year of the Primary Term, the annual
Rental shall be adjusted and revised yearly by an amount equal
to the Consumer Price Index in the manner set out in Article
IV - Term."
All terms and conditions under the original Lease Agreement and
the Amendments thereto which have not been amended by this Agreement shall
remain unchanged and remain in full force and effect.
WITNESS OUR SIGNATURES, this the 21st day of June, 1994.
ATTEST: Mississippi Department of Economic
and Community Development
[SIG] By: /s/ James B. Heidel
-------------------------------
James B. Heidel
Executive Director
ATTEST: Mississippi State Port Authority
at Gulfport
[SIG] By: /s/ H. E. Blakeslee
-------------------------------
H. E. Blakeslee
ATTEST: Gulfside Casino Partnership
------------------------------
[SIG] By: Patrician, Inc., General Partner
Name: /s/ Pete Cladianos, Jr.
-------------------------------
Pete Cladianos, Jr.
Title: President
<PAGE> 1
EXHIBIT 13
LOGO
LOGO LOGO
1996 ANNUAL REPORT
<PAGE> 2
THE SANDS REGENT
- --------------------------------------------------------------------------------
The Company owns and operates The Sands Regency Hotel/Casino in downtown
Reno, Nevada and, through three wholly-owned subsidiaries, owns Gulfside Casino
Partnership which owns and operates the Copa Casino in Gulfport, Mississippi.
RENO, NEVADA PROPERTIES AND OPERATIONS
The Sands Regency Hotel/Casino, located in Reno, Nevada, has approximately
27,000 square feet of gaming space which offers 20 table games, two keno games
and 690 slot machines. The complex has 938 hotel rooms, including 32 suites of
various sizes, and also includes three restaurants, a "Winchell's Donut House",
a "Pizza Hut", an "Arbys" restaurant operated by a third party, a
"Baskin-Robbins" and an "Orange Julius" operated by a third party and three
cocktail lounges.
The Company's facilities also include a gift shop, a video arcade, a
beauty/barber shop and a liquor store, each operated by third parties, a health
club, a swimming pool and over 10,000 square feet of convention and meeting
space which can seat up to 650 people. The Company maintains six parking areas
on its main hotel/casino property and adjacent to it, including two parking
garages, with a total combined capacity for approximately 1,000 vehicles.
The Company's property holdings also include a .5 acre lot, located
one-half block from the hotel/casino site, used for the Company's personnel
office and for storage and several smaller properties located in Reno
aggregating approximately .6 acres.
The Company's Reno hotel/casino operations are conducted 24 hours a day
every day of the year. Although the Company offers, on a very limited basis,
complimentary hotel accommodations to select customers, no group arrangements
known as "junkets" are conducted.
GULFPORT, MISSISSIPPI PROPERTIES AND OPERATIONS
The Copa Casino, which is owned and operated by Gulfside Casino Partnership
("GCP"), commenced operations in September 1993. The three partners in Gulfside
Casino Partnership, Patrician, Inc. ("Patrician"), Gulfside Casino, Inc. ("GCI")
and Artemis, Inc. ("Artemis") are all wholly owned by the Company.
The Copa Casino is located aboard a 500 foot cruise ship owned by the
partnership. In Mississippi, all gaming facilities must be constructed on
floating facilities on or juxtapositional to approved navigable waterways. Such
facilities need not cruise into the waterways and, as such, become permanently
moored as dockside gaming facilities. The Copa Casino is also permanently
moored.
The Copa Casino consists of approximately 24,000 square feet of gaming area
located on two decks. The Copa offers 717 slot machines and 26 table games,
including craps, roulette, blackjack, caribbean stud, let it ride and big six.
In addition, the facility also includes four cocktail lounges/bars, a deli-style
restaurant, a buffet restaurant operated by a third party and various ancillary
services and facilities.
The Copa Casino is permanently moored dockside at a location known as the
"Horseshoe Site." Such location, which is leased to the partnership by the
Mississippi Department of Economic and Community Development and the Mississippi
State Port Authority, is between the East and West Piers of the Mississippi
State Port in Gulfport, Mississippi. This location, which includes 8.3 acres of
land based facilities, will accommodate surface parking for approximately 840
vehicles. The leased facilities also include a docking structure which
accommodates the Copa Casino ship. The docking structure also includes a roadway
and pedestrian walk which provides access to the Copa Casino entrance.
As in Nevada, the Mississippi operations are conducted 24 hours a day every
day of the year. Present operations provide for the offering of complimentary
food and beverage on a limited basis. Group arrangements, known as "junkets" are
not conducted.
<PAGE> 3
TO OUR STOCKHOLDERS
- --------------------------------------------------------------------------------
1996 was a difficult year in which we achieved some satisfaction in the
midst of numerous frustrating events. In Mississippi, and despite much
adversity, it appears that we have been successful in achieving profitable
operating results from the Copa Casino. This is due, in part, to marketing
efforts to expand our customer base and to attract and retain repeat business.
Our efforts to control costs have also contributed to improved Copa
profitability.
Unfortunately, achieving profitable operating results at the Copa has been
somewhat overshadowed by a dispute and lawsuit with our landlord, the
Mississippi State Port Authority. We have been attempting, for several years, to
build a hotel at our Mississippi site, to do other landbased development and to
replace our existing ship with a barge. This required the approval of the Port
which approval was refused on numerous occasions. We had undertaken discussions
with the Port to find a new location for the Copa because of the Port's
indication that our current site would be needed by the Port in the future.
These discussions seemed to be positive concerning a specific location and then
broke down because the Port significantly changed its position. Thereafter, in
July, the Port notified the Copa that the Copa's lease would be canceled and
terminated at the end of the initial lease term in October 1999, because the
Port purportedly needs the Copa's current location for expansion of Port
facilities. The Port also filed a lawsuit against the Copa requesting the court
to rule that, among other things, the lease does allow for the Port's
termination of the lease.
The Copa subsequently filed a legal action against the Port, in Mississippi
Circuit Court, for breach of the lease agreement, failure to deal fairly and in
good faith and various misrepresentions to us. We are asking the court to allow
us to develop our site, replace our gaming vessel and require the Port to
provide the Copa Casino a lease comparable to that of the Port's other gaming
tenant. Because of the past damages we have suffered by the Port's continued
refusal to allow us to grow and expand, we are also asking for compensation for
our lost profits and opportunities.
In addition to the above, the lawsuit by two former shareholders of one of
our subsidiary companies, Gulfside Casino, Inc., is ongoing without an immediate
resolution in sight. These two former shareholders have not been paid amounts
due them under promissory note oligations which existed prior to The Sands
Regent's 1994 acquisition of Gulfside Casino, Inc. Gulfside Casino, Inc.'s only
source of funds to pay these obligations is its ownership interest in the Copa
Casino. Because of the Port, and other reasons, the Copa has not been in the
position to make partner distributions to provide payment on these promissory
notes. A court hearing has been set for November in which the appointment of a
receiver may be considered.
As in many lawsuits, we can not predict the outcomes of the above actions.
In the meantime, we will continue our efforts to improve our operating results
and will continue to strive for excellence in the services we provide to our
guests.
In Reno, we continue to be disappointed in our operating results.
Competition has been fierce with the addition of approximately 2,700 hotel rooms
to the Reno area market in the last year. This equates to an increase in the
number of available hotel rooms of approximately 20% which is significant. In
addition to the added Reno area hotel rooms, Mega-resorts and other hotel rooms
continue to be built in Las Vegas at an amazing pace. We believe that these new
Las Vegas resorts, combined with attractive Las Vegas air service, have also
contributed to the competitive pressures on our, and other Reno area
hotel/casino, operations.
In order to improve our Reno operating results in the long term, we are
undertaking various improvements to our Reno facilities to allow us to attract
and retain our valued customers. First and foremost, we are renovating our main
casino area, many of our hotel rooms and the exterior of our facilities. On the
exterior of
2
<PAGE> 4
- --------------------------------------------------------------------------------
our hotel/casino complex, we have resurfaced and overlayed some of our parking
areas. We have also repainted the exterior of all of our facilities using a
different color scheme so as to give a new appearance to our hotel towers and
other buildings. Our hotel room renovation, which has been generally completed,
consisted of carpeting, wallcovering and furniture repairs and replacements, as
needed.
Our main casino remodeling, which is presently underway, will be a complete
facelift resulting in a brand new appearance designed to take us into the 21st
century. We are, or will be, changing our carpet, redoing the wallcoverings and
ceiling tiles and changing many light fixtures and decorative chandeliers. We
are also changing the casino floor layout of our slot machines to create a
vibrant customer friendly atmosphere.
Along with the casino remodeling, we have acquired, and are currently
installing, a new state-of-the-art computerized player marketing/tracking
system. Geared primarily to the slot players, but also to be utilized for our
keno and table game customers, this program will provide us with many new
marketing tools. It will allow us to offer some innovative marketing programs to
attract new customers and to reward our current guests for their patronage of
our gaming facilities.
We believe all of these improvements and changes will enhance our Reno
operation and will ultimately contribute to a growth in revenues and profits.
Unfortunately, it is still very difficult to project when we will see the fruits
of our labor. Nevertheless, we will continue to use our best efforts to control
costs, and to improve revenues. In Mississippi, we will continue with the
efforts that have contributed to our current operating successes. We will also
diligently and feverishly pursue our objective to improve our Mississippi
facilities with a goal to be a long-term successful hotel/casino operation.
As always, we appreciate our many fine customers and guests and the
exemplary services provided by our honored and loyal employees in both Reno and
Mississippi.
Respectfully,
[SIG]
Pete Cladianos, Jr.
President and Chief Executive Officer
Reno, Nevada
September 26, 1996
3
<PAGE> 5
THE SANDS REGENT
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
For the years ended June 30,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- -------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating revenues(1)................. $60,410 $ 60,973 $51,446 $43,877 $41,264
Income (loss) from operations......... 4,675 (11,748) 8,178 8,608 7,633
Net income (loss)..................... 2,042 (11,428) 7,730 5,481 4,877
Net income (loss) per share........... $ .45 $ (2.54) $ 1.76 $ 1.27 $ .97
Cash dividends per share.............. $.15.... $ .20 $ .20 $ .20 $ .15
OPERATING DATA:
Casino square footage(2).............. 51,000 51,000 51,000 27,000 27,000
Number of slot machines(2)............ 1,407 1,459 1,483 783 783
Number of hotel rooms(2).............. 938 938 938 938 938
Average hotel occupancy rate.......... 82.9% 87.1% 89.7% 89.0% 89.3%
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments(2)..................... $11,557 $ 12,214 $ 9,804 $ 3,274 $ 9,674
Total assets(2)....................... 64,311 66,253 82,268 56,559 53,917
Long-term debt(2)..................... 14,816 17,808 27,559 13,676 14,448
Total stockholders' equity(2)......... 33,216 31,849 44,138 35,423 30,719
</TABLE>
- ---------------
(1) Revenues are net of complimentaries.
(2) Information presented as of the end of the period.
4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
COMPARISON OF 1996 TO 1995
For the year ended June 30, 1996, revenues decreased to $60.4 million
compared to $61 million for fiscal 1995 and income from operations increased to
$4.7 million as compared to a loss from operations of approximately $11.7
million in fiscal 1995. For the same comparable periods, net income increased
from a net loss of $11.4 million, or a $2.54 loss per share, in fiscal 1995 to
net income of $2 million, or $.45 per share, in fiscal 1996. The decrease in
revenues is composed of an increase in revenues from the Copa Casino which was
offset by a decrease in revenues from the Sands Regency. The increases in income
from operations, net income and net income per share are a result of the prior
year recognition of an impairment in value of long-lived assets of the Copa
Casino and GCI of $17.5 million which did not occur in fiscal 1996. In addition,
income from operations, net income and net income per share have been positively
affected from improved operating results from the Copa Casino and negatively
impacted from declining operating results at the Sands Regency in fiscal 1996
compared to fiscal 1995. Management believes that the decline in Reno revenue
and profits is due to increased competition from new and expanded Reno area
hotel/casinos and from the Las Vegas mega-resorts.
The decrease in lodging revenue of $673,000, in the year ended June 30,
1996 compared to the prior year, is due to a decrease in Sands Regency hotel
occupancy at a lower average daily room rate. In fiscal 1995, hotel occupancy
was 87.1% at an average daily room rate of approximately $33. In fiscal 1996,
hotel occupancy was 82.9% at an average daily room rate of $32.
The increase in gaming revenue of $395,000 million is comprised of an
increase in gaming revenue from the Copa Casino of approximately $2.7 million
which was offset by a decrease in gaming revenue at the Sands Regency of
approximately $2.3 million. The decrease in gaming revenue in Reno, which is
primarily slot revenue, is due to the decrease in hotel occupancy and a decrease
in gaming revenue per occupied room. Gaming revenue per occupied room decreased
from $77 in the year ended June 30, 1995 to approximately $73 in the year ended
June 30, 1996.
The decrease in food and beverage revenue of $313,000 includes a decrease
in food revenue at the Sands Regency of approximately $369,000 and the
elimination of Copa Casino buffet revenue of approximately $266,000. During
approximately the first four months of fiscal 1995, the Copa Casino was involved
in the operation of a buffet style restaurant located on its facilities.
Thereafter, such buffet style restaurant was operated by a third party. The
decrease in Sands Regency food revenue is primarily due to the decrease in hotel
occupancy. These decreases were partially offset by improved Copa Casino food
and beverage revenues as a result of an overall increase in business volumes.
The increase in other revenue of $326,000 is principally comprised of a
gain on the sale of a small motel previously owned and operated by the Sands
Regency of $506,000 and a decrease in retail liquor store sales of approximately
$267,000. In August 1994, the retail liquor store business, which was operated
by the Company in Reno, was sold to a third party. Such third party now operates
the retail liquor store in Company owned facilities for rent and other
consideration paid to the Company. The increase in complimentary lodging, food
and beverage, deducted from revenue, of $298,000 is primarily due to an increase
in complimentary lodging in Reno, as a result of changes in the Company's
lodging programs and packages offered to attract and retain guests.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
- --------------------------------------------------------------------------------
The increase in gaming costs and expenses of $380,000 is comprised of, for
the Copa Casino, an increase in gaming taxes and licenses of $259,000, a
decrease in estimated health benefit costs of $163,000 and a decrease in the
cost of complimentary goods and services provided to Copa Casino guests of
$124,000. The net remaining increase is attributable to the Sands Regency and
includes an increase in the cost of complimentary goods and services in the
amount of $185,000, due to increased complimentary services provided to Sands
Regency guests, and general increases in salaries, wages and benefits and other
costs.
The decrease in food and beverage costs and expenses of $225,000, in fiscal
1996 compared to fiscal 1995, consists primarily of the elimination of costs and
expenses associated with the buffet style restaurant at the Copa Casino. The
decrease in other costs and expenses of $295,000 is primarily due to the
elimination of costs and expenses associated with the sale of the retail liquor
store business in August 1994 which was previously operated by the Sands
Regency.
The increase in maintenance and utilities costs and expenses of $381,000 in
the year ended June 30, 1996, compared to the year ended June 30, 1995, is
principally due to hurricane preparedness costs and expenses for the Copa
Casino, both in general and for Hurricane Opal. The increase in general and
administrative costs and expenses of $1.1 million consists primarily of
increased advertising, promotional and customer solicitation costs for the Copa
Casino of approximately $790,000 and increased legal costs of approximately
$190,000 related, in part, to the Copa Casino's leased site development conflict
with the Mississippi State Port Authority.
The prior year recognition of an impairment of long-lived assets of $17.5
million, which did not occur in fiscal 1996, consisted of a write-down of Copa
Casino property and equipment of $10.7 million and the write-off of goodwill,
which originated when GCI was purchased in February 1994, of approximately $6.8.
The impairment was based upon political and market conditions and an analysis,
at June 30, 1995, of projected undiscounted future cash flows.
The decrease in depreciation and amortization expense of $784,000 includes
the elimination of goodwill amortization of $366,000 as a result of the
write-off of Gulfside Casino, Inc. goodwill in June 1995 when the Company
recognized an impairment in long-lived assets associated with the Copa Casino.
Likewise, due to the recognition of such impairment, the decrease in
depreciation and amortization expense also includes a decrease in Copa Casino
depreciation expense of approximately $585,000.
The decrease in interest expense, in fiscal 1996 compared to fiscal 1995,
is primarily a result of a reduction in interest-bearing debt owed by the
Company.
As further indicated in the Company's Notes to the Consolidated Financial
Statements, the decrease in the statutory rate to arrive at the effective income
tax rate, in the current fiscal year, is primarily a result of the tax effect of
tax-free interest income earned by the Company and the utilization of general
business credits. The increase in the effective income tax rate from the
statutory rate in the prior year is primarily the result of the prior year
write-off of goodwill in connection with the recognition of impairment in
long-lived assets.
As is true for other hotel/casinos in the Reno area, demand for the
Company's facilities declines in the winter. Operating margins and, to a lesser
extent, revenues are lower during the second and third fiscal quarters due to
lower room rates and a lower level of gaming play per occupied room. The Sands
Regent has not been affected as severely as many other hotel/casinos in the Reno
area because the Company attracts high levels of group business during that
period. This group business and the Company's flexible pricing strategy have
historically enabled the Company to maintain relatively high levels of hotel
occupancy. Management
6
<PAGE> 8
- --------------------------------------------------------------------------------
anticipates that the trend of experiencing lower operating margins in the second
and third quarters of each fiscal year will continue.
It appears that such seasonal trends are also applicable to the Copa Casino
in Gulfport, Mississippi. However, because of the limited amount of time that
the Copa has been in operation, the relatively limited amount of time that
gaming has existed on the Mississippi gulfcoast and the rapid expansion of
gaming in Mississippi and nearby Louisiana, the nature and extent of seasonal
fluctuations, if any, are subject to change.
COMPARISON OF 1995 TO 1994
A significant reason for the increases in revenue and costs and expenses in
fiscal 1995, compared to fiscal 1994, was due to the consolidation of GCP
operating results for all of fiscal 1995. The Company increased its ownership in
GCP, which owns and operates the Copa Casino, to 100% in February 1994 when the
Company acquired all of the issued and outstanding capital stock of GCI. Prior
to such acquisition, the Company, through a wholly owned subsidiary, held a 40%
equity ownership interest in GCP and accounted for it under the equity method of
accounting.
For the year ended June 30, 1995, revenues increased to $61 million
compared to $51.4 million for fiscal 1994. Such increase was due to the
inclusion of Copa Casino revenues, on a consolidated basis, for the entire 1995
fiscal year. For the same comparable annual periods, income from operations
decreased from $8.1 million in fiscal 1994 to a loss from operations of
approximately $11.7 million in fiscal 1995 and net income decreased from $7.7
million, or $1.76 per share, to a net loss of $11.4 million or $2.54 per share.
The decrease in income from operations was primarily a result of the recognition
of an impairment in value of long-lived assets of the Copa Casino and GCI of
$17.5 million and a decline in revenues and profits from the Reno operations.
Net income and net income per share decreased because of the decrease in income
from operations and due to a non-recurring $5.1 million pre-tax gain from the
sale of non-operating real property in Reno, Nevada that occurred in fiscal
1994. Management believes that the decline in Reno revenue and profits was due
to adverse weather conditions in Nevada and California during the second and
third quarters of fiscal 1995, increased competition from the new Las Vegas
mega-resorts and construction delays on Interstate 80 west of Reno, which is a
major artery to Northern California, during the first fiscal quarter.
The decrease in lodging revenue of $315,000 in the year ended June 30,
1995, compared to the prior year, was due to a decrease in hotel occupancy and
the sale of a motel property. Sold by the Company in March 1994, the motel
property contributed approximately $223,000 to lodging revenue in fiscal 1994.
Occupancy at the Reno, Nevada hotel (the Copa Casino does not have hotel/motel
rooms) decreased from 89.7% in fiscal 1994 to 87.1% in fiscal 1995. For the same
comparable periods, the average room rate increased slightly from approximately
$32 to $33.
The increase in gaming revenue of $11.6 million was composed of gaming
revenue from the Copa Casino of $13.1 million which was offset by a decrease in
gaming revenue at the Sands Regency in Reno of approximately $1.5 million. The
decrease in gaming revenue in Reno, which is primarily slot revenue, was due to
the decrease in hotel occupancy and a decrease in gaming revenue per occupied
room. Gaming revenue per occupied room decreased from $79 in the year ended June
30, 1994 to $77 in the year ended June 30, 1995.
The increase in food and beverage revenue of $837,000 includes the addition
of Copa Casino revenue of $1 million. Such increase was offset by a decrease in
revenue from the Reno operation due to the decrease in hotel occupancy. The
related increase in food and beverage costs and expenses of $539,000 was
primarily due to the addition of Copa Casino results of operations. Costs and
expenses from the Reno operation did not
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
- --------------------------------------------------------------------------------
decrease proportionally, relative to the decrease in revenue, due to an increase
in food and beverage product costs.
The decrease in other revenue of $2.1 million was composed of a decrease in
retail liquor store sales from the Reno operation of $2.7 million which has been
partially offset by additional other revenue from the Copa Casino of $462,000.
In August 1994, the retail liquor store business, which was operated by the
Company, was sold to a third party. Such third party now operates the retail
liquor store in Company owned facilities for rent and other consideration paid
to the Company. The related decrease in other costs and expenses of $2.6 million
is principally due to the elimination of costs and expenses associated with the
retail liquor store.
The increases in complimentary lodging, food and beverage, deducted from
revenue, and gaming costs and expenses of $466,000 and $7.3 million,
respectively, were primarily due to the inclusion of the Copa Casino.
Approximately $339,000 of the increase in gaming costs and expenses was
attributable to the Reno operation and includes increases in salaries, wages and
benefits, the cost of complimentary goods and services provided to patrons and
general operating supplies.
The increase in lodging costs and expenses of $510,000 was primarily due to
an increase in hotel salaries, wages and benefits in Reno. Certain general
salary, wage and benefit increases were implemented, primarily in fiscal 1995,
in order to remain competitive. The increases in maintenance and utilities and
general and administrative costs and expenses of $1.2 million and $3.6 million,
respectively, were principally due to the addition of Copa Casino results of
operations. The Copa Casino general and administrative costs and expenses
included significant advertising, marketing and promotional costs.
The recognition of an impairment of long-lived assets of $17.5 million in
fiscal 1995 was made on a basis consistent with the provisions of 1995 issued
accounting standards and consisted of a write-down of Copa Casino property and
equipment of $10.7 million and the write-off of goodwill, which originated when
GCI was purchased in February 1994, of approximately $6.8. The impairment was
based upon political and market conditions and an analysis of projected
undiscounted future cash flows. Operating results subsequent to fiscal 1995 will
be positively impacted due to the elimination of goodwill amortization expense
and reduced depreciation expense.
The increase in depreciation and amortization of $1.3 million was due to
additional depreciation from the Copa Casino of $1 million and the added
amortization of goodwill of $244,000 associated with the acquisition of GCI in
February 1994. The remaining goodwill associated with GCI was written-off in
fiscal 1995 and is included in the impairment of long-lived assets.
The slight decrease in interest and other income of approximately $35,000
was due to the non-inclusion of interest earned on advances to GCP of
approximately $284,000 in the year ended June 30, 1994 which was then included
on a pre-consolidation basis. Upon consolidation in the fiscal 1995, such
intercompany income/expense items are eliminated. The above decrease was
partially offset by an increase in interest income from the Reno operation as a
result of the investment of additional excess funds in the 1995 fiscal year as
compared to the 1994 fiscal year.
The increase in interest expense of $1.3 million in the year ended June 30,
1995, compared to the year ended June 30, 1994, was partially a result of
additional interest expense from the Copa Casino of $406,000 and from GCI of
$237,000. In addition, interest expense increased by approximately $619,000 as a
result of additional borrowings by the Company, in fiscal 1994, to finance the
operation and expansion of the Copa
8
<PAGE> 10
- --------------------------------------------------------------------------------
Casino at interest rates higher in the current fiscal year than in the
comparable prior fiscal year. The interest expense of GCI is to former
shareholders of GCI and has not been paid by GCI.
The equity in loss of unconsolidated affiliate in fiscal 1994 represents
the Company's proportionate share, under the equity method of accounting, of
loss from GCP that occurred prior to the date of acquisition of GCI and the
associated remaining interest in GCP in February 1994. Subsequent to such date,
the results of operations of GCP are included on a consolidated basis.
The increase in the effective income tax rate or, alternatively, decrease
in income tax benefit rate, in the current year compared to the prior year, is
the result of the current year write-off of goodwill through an increase in
amortization expense of $244,000 and the ultimate elimination of the remaining
goodwill balance of $6.8 million upon recording the impairment in long-lived
assets. The write-off of goodwill is not deductible for income tax purposes.
CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital deficit of $2.4 million at June 30, 1996 was
approximately the same as at June 30, 1995. The negative working capital is
principally due to the fiscal 1995 reclassification of certain debt obligations
from long-term to current. Payments under these obligations, evidenced by
promissory notes, are due by GCI to two former shareholders and are past due.
Such former shareholders have been granted a monetary judgment against GCI for
the principal and interest amounts due as further described in Note 10 of the
Company's Notes to Consolidated Financial Statements in the 1996 Annual Report.
As a result, the $6 million balances are now classified as current obligations.
At June 30, 1996, cash, cash equivalents and short-term investments
increased to $11.6 million compared to $12.2 million at June 30, 1995. Cash and
cash equivalents provided from operating activities for the years ended June 30,
1996, 1995 and 1994 was $5.1 million, $7.3 million and $7.5 million
respectively. Although the Company's operations and capital expenditures are
financed primarily from funds generated from operations and borrowings,
approximately $5.7 million in cash was generated in fiscal 1994 from the sale of
non-operating real property in Reno, Nevada and approximately $735,000 in cash
was generated in fiscal 1996 from the sale of non-hotel/casino properties. In
fiscal 1994, cash was also generated through the issuance of long-term debt of
$5.5 million. In fiscal 1996 and 1994, cash was generated from the net disposal
of short-term investments of $1.7 million and $293,000, respectively. In fiscal
1995, cash of $1.7 million was used for the net acquisition of short-term
investments. Management considers short-term investments, which generally mature
in one year or less, to be equivalent to cash.
Uses of cash included the Company's payment of dividends in the amounts of
$675,000, $899,000 and $877,000 and payments of long-term debt of $3.1 million,
$703,000 and $419,000 in fiscal years 1996, 1995 and 1994, respectively. Cash
was also utilized for the acquisition of property and equipment in the amounts
of $2.6 million, $2.7 million and $4 million in the years ended June 30, 1996,
1995 and 1994, respectively. Approximately $3 million of property and equipment
acquired in fiscal 1994 represented original property purchases of the Copa
Casino after GCI was acquired in February 1994 and included in the consolidated
group. The remaining property and equipment acquisition amounts, for the years
indicated, represent primarily furniture, fixtures and equipment replacements
and additions. Cash payments of $756,000 in fiscal 1995 and $962,000 in fiscal
1994 were made to satisfy accounts payable for the preceeding years purchase of
property and equipment items.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
- --------------------------------------------------------------------------------
The Company also advanced cash to GCP, prior to the Company's acquisition
of GCI in February 1994, of $4.8 million in fiscal 1994. Subsequent to the
acquisition of GCI, an additional $2.9 million was advanced to GCP by the
Company in fiscal 1994. The Company also expended approximately $1.8 million in
fiscal 1994 to acquire a 100% ownership interest in GCI which is net of the cash
acquired upon the consolidation of GCI and GCP of $1.6 million.
As of June 30, 1996, the Company held cash, cash equivalents and short-term
investments in excess of cash needed for the operation of its hotel/casino in
Reno, Nevada and casino in Gulfport, Mississippi of approximately $9 million.
Such amount is available for expansion, investment and other opportunities that
the Company may find attractive. The Company generally invests its excess cash
in securities which are readily marketable and are not subject to significant
market value fluctuations.
The Company has a revolving term loan from several Banks with an
outstanding principal balance as of June 30, 1996 of $15.6 million. The Company
was not in compliance with certain of the financial covenants contained in the
agreement governing this loan at June 30, 1996. Subsequent to that date, the
Company entered into an agreement with the Banks whereby compliance with these
covenants is waived at June 30, 1996 and certain of the covenants are modified,
or compliance there to waived, until the quarter ended September 30, 1997 at
which time the Company expects to be in compliance with the covenants. As
consideration for such waiver and covenant modifications, the Banks have
required the Company to presently pay the April 1, 1997 scheduled principal
reduction payment in the amount of $1.7 million and to make an additional
permanent principal payment in the amount of $1.25 million.
The Company's previous major expansion plans in Reno have been cancelled
due to current adverse market conditions and the uncertainty of future market
growth. The Company has also allowed the local government approval of its
expansion program to expire. In the near term, the Company will concentrate its
resources on renovating and improving existing Reno facilities and services.
Future expansion plans will be considered based upon future market conditions
and the need to add hotel rooms and other major facilities.
In July 1996, GCP received notice from the Mississippi Department of
Economic and Community Development and the Mississippi State Port Authority
(the"Port") that GCP's lease for the present Copa Casino site would not be
extended beyond its initial term of October 1999 because GCP's site was needed
by the Port. Such notice of termination, among other things, is the subject of
litigation among the parties. If GCP is required to vacate the current leased
site in October 1999, the Company's results of operations could be materially
adversely affected.
Inflation has had only a slight impact on the Company's operating results.
Cost and expense increases have generally been passed on to the customers
through moderate price increases, higher table limits and upgraded slot machine
denominations.
10
<PAGE> 12
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
OPERATING REVENUES:
Gaming $43,996,174 $ 43,601,124 $31,990,341
Lodging 9,132,778 9,805,719 10,120,918
Food and beverage 7,882,377 8,195,340 7,357,963
Other 2,175,831 1,850,111 3,990,280
----------- ------------ -----------
63,187,160 63,452,294 53,459,502
Less complimentary lodging, food and
beverage included above 2,776,918 2,479,087 2,013,048
----------- ------------ -----------
60,410,242 60,973,207 51,446,454
----------- ------------ -----------
OPERATING COSTS AND EXPENSES:
Gaming 22,205,937 21,826,156 14,517,504
Lodging 5,158,603 5,193,683 4,683,308
Food and beverage 6,499,231 6,724,601 6,185,677
Other 665,220 960,201 3,533,687
Maintenance and utilities 4,604,013 4,222,854 2,999,173
General and administrative 12,967,352 11,878,463 8,261,707
Impairment of long-lived assets -- 17,496,282 --
Depreciation and amortization 3,635,219 4,418,769 3,087,613
----------- ------------ -----------
55,735,575 72,721,009 43,268,669
----------- ------------ -----------
INCOME (LOSS) FROM OPERATIONS 4,674,667 (11,747,802) 8,177,785
----------- ------------ -----------
OTHER INCOME (DEDUCTIONS):
Interest and other income 591,126 549,978 584,950
Interest expense (2,394,743) (2,562,889) (1,300,644)
Equity in loss of unconsolidated affiliate -- -- (1,077,537)
Gain on disposition of non-operating property -- -- 5,197,874
----------- ------------ -----------
(1,803,617) (2,012,911) 3,404,643
----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES 2,871,050 (13,760,713) 11,582,428
INCOME TAX (PROVISION) BENEFIT (828,688) 2,332,892 (3,852,531)
----------- ------------ -----------
NET INCOME (LOSS) $ 2,042,362 $(11,427,821) $ 7,729,897
=========== ============ ===========
NET INCOME (LOSS) PER SHARE $ 0.45 $ (2.54) $ 1.76
=========== ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,498,722 4,497,588 4,395,100
=========== ============ ===========
</TABLE>
- ------------
See notes to consolidated financial statements.
11
<PAGE> 13
THE SANDS REGENT
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $11,356,980 $10,356,150
Short-term investments 200,000 1,857,503
Accounts and notes receivable, less allowance for
possible losses of $107,000 and $147,000 400,018 477,352
Inventories 789,199 719,052
Prepaid federal income taxes 141,369 --
Deferred federal income tax asset -- 15,543
Prepaid expenses and other assets 979,555 946,374
----------- -----------
Total current assets 13,867,121 14,371,974
PROPERTY AND EQUIPMENT:
Land 8,094,823 8,101,601
Buildings, ship and improvements 45,376,570 45,106,360
Equipment, furniture and fixtures 21,762,273 20,974,442
Construction in progress 231,264 507,131
----------- -----------
75,464,930 74,689,534
Less accumulated depreciation and amortization 28,051,014 25,986,710
----------- -----------
47,413,916 48,702,824
OTHER ASSETS:
Deferred federal income tax asset 899,908 1,526,589
Note receivable 1,244,263 1,250,898
Other 885,705 401,007
----------- -----------
3,029,876 3,178,494
----------- -----------
$64,310,913 $66,253,292
=========== ===========
</TABLE>
- ------------
See notes to consolidated financial statements.
12
<PAGE> 14
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,281,286 $ 2,046,893
Accrued salaries, wages and benefits 1,686,932 1,886,964
Other accrued expenses 1,376,101 1,316,883
Federal income taxes payable -- 384,210
Deferred federal income tax liability 126,469 --
Current maturities of long-term debt 10,789,021 10,905,995
------------ ------------
Total current liabilities 16,259,809 16,540,945
LONG-TERM DEBT 14,816,286 17,807,655
OTHER 18,723 56,151
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $.05 par value, 20,000,000 shares
authorized, 6,898,722 shares issued 344,936 344,936
Additional paid-in capital 13,073,803 13,073,803
Retained earnings 42,152,191 40,784,637
------------ ------------
55,570,930 54,203,376
Treasury stock, at cost; 2,400,000 shares (22,354,835) (22,354,835)
------------ ------------
33,216,095 31,848,541
------------ ------------
Total stockholders' equity $ 64,310,913 $ 66,253,292
========== ==========
</TABLE>
13
<PAGE> 15
THE SANDS REGENT
CONSOLIDATED STATEMENTS
OF CASH FLOWS
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,042,362 $(11,427,821) $ 7,729,897
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,635,219 4,418,769 3,087,613
Impairment of long-lived assets -- 17,496,282 --
(Gain) loss on disposal of property and equipment (482,978) 78,322 (4,983,998)
Noncash interest income from unconsolidated
affiliate -- -- (302,363)
Equity in loss of unconsolidated affiliate -- -- 1,077,537
Amortization of imputed interest expense -- 17,100 60,900
(Increase) decrease in accounts and notes
receivable 77,334 (147,281) 44,794
(Increase) decrease in inventories (70,147) 397,516 (202,794)
(Increase) decrease in prepaid expenses and other
current assets (33,181) 189,362 494,147
(Increase) decrease in other assets (494,904) 31,273 25,764
Increase (decrease) in accounts payable 332,286 (612,013) (499,437)
Increase (decrease) in accrued salaries, wages and
benefits (200,032) 218,733 (559,254)
Increase in other accrued expenses 59,218 604,404 180,857
Increase (decrease) in federal income taxes
payable (525,579) 563,165 (894,084)
Change in deferred federal income taxes 768,693 (4,442,575) 2,271,615
Decrease in other liability (37,428) (37,428) --
------------ ----------- ------------
Net cash provided by operating activities 5,070,863 7,347,808 7,531,194
------------ ----------- ------------
INVESTING ACTIVITIES:
Purchase of short-term investments (583,257) (3,251,250) (10,000)
Sale and maturity of short-term investments 2,240,760 1,528,747 303,394
Payments received on note receivable 6,635 7,547 2,555
Additions to property and equipment (2,588,447) (2,657,280) (3,983,943)
Proceeds from sale of property, equipment and other
assets 735,320 32,756 6,062,445
Investment in and advances to unconsolidated
affiliate -- -- (4,761,403)
Payments to acquire company and related note
receivable, net of cash acquired -- -- (1,787,641)
------------ ----------- ------------
Net cash used in investing activities (188,989) (4,339,480) (4,174,593)
------------ ----------- ------------
</TABLE>
- ---------------
See notes to consolidated financial statements.
14
<PAGE> 16
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Payment of accounts payable for prior year purchases
of property and equipment (97,893) (756,487) (962,360)
Issuance of long-term debt -- -- 5,500,000
Payments on long-term debt (3,108,343) (702,796) (418,947)
Issuance of common stock -- 37,500 100,000
Payment of dividends on common stock (674,808) (899,444) (876,594)
----------- ----------- ----------
Net cash provided by (used in) financing activities (3,881,044) (2,321,227) 3,342,099
----------- ----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 1,000,830 687,101 6,698,700
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,356,150 9,669,049 2,970,349
----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $11,356,980 $10,356,150 $9,669,049
=========== =========== ==========
Supplemental cash flow information:
Note receivable acquired upon sale of property and
equipment $ -- $ -- $1,261,000
=========== =========== ==========
Property and equipment acquired by accounts payable $ -- $ 59,489 $ 844,190
=========== =========== ==========
Accounts payable converted to long-term debt $ -- $ 118,726 $ --
=========== =========== ==========
Other liabilities included in investment in and
advances to unconsolidated affiliate $ -- $ -- $ 38,684
=========== =========== ==========
Issuance of common stock to acquire company $ -- $ -- $1,762,500
=========== =========== ==========
Interest paid, net of amount capitalized $ 2,022,546 $ 2,254,248 $1,400,993
=========== =========== ==========
Federal income taxes paid $ 1,075,000 $ 1,550,000 $2,475,000
=========== =========== ==========
</TABLE>
15
<PAGE> 17
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
--------------------- Paid-in Retained ------------------------
Shares Amount Capital Earnings Shares Amount Total
---------- --------- ------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JULY 1, 1993 6,735,722 $336,786 $11,181,953 $46,258,599 2,400,000 $(22,354,835) $35,422,503
Net income -- -- -- 7,729,897 -- -- 7,729,897
Shares issued on
exercise of stock
options 16,000 800 99,200 -- -- -- 100,000
Shares issued for
acquisition of
subsidiary 141,000 7,050 1,755,450 -- -- -- 1,762,500
Cash dividends ($.20
per share) -- -- -- (876,594) -- -- (876,594)
--------- -------- ----------- ----------- --------- ------------ -----------
BALANCES, JUNE 30, 1994 6,892,722 344,636 13,036,603 53,111,902 2,400,000 (22,354,835) 44,138,306
Net loss -- -- -- (11,427,821) -- -- (11,427,821)
Shares issued on
exercise of stock
options 6,000 300 37,200 -- -- -- 37,500
Cash dividends ($.20
per share) -- -- -- (899,444) -- -- (899,444)
--------- -------- ----------- ----------- --------- ------------ -----------
BALANCES, JUNE 30, 1995 6,898,722 344,936 13,073,803 40,784,637 2,400,000 (22,354,835) 31,848,541
Net income -- -- -- 2,042,362 -- -- 2,042,362
Cash dividends ($.15
per share) -- -- -- (674,808) -- -- (674,808)
--------- ------- ----------- ----------- --------- ------------ -----------
BALANCES, JUNE 30, 1996 6,898,722 $344,936 $13,073,803 $42,152,191 2,400,000 $(22,354,835) $33,216,095
========= ======== =========== =========== ========= ============ ===========
</TABLE>
- ---------------
See notes to consolidated financial statements.
16
<PAGE> 18
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Sands
Regent and its wholly-owned subsidiaries Zante, Inc. ("Zante"), Patrician, Inc.
("Patrician"), Artemis, Inc. ("Artemis") and Gulfside Casino, Inc. ("GCI"), and
Gulfside Casino Partnership ("GCP") (together the "Company"). Patrician, GCI and
Artemis are the sole partners in GCP. All of the issued and outstanding stock of
GCI was acquired by The Sands Regent on February 25, 1994. Such acquisition has
been accounted for under the purchase method of accounting. Artemis was formed
by the Company and became the third partner in GCP in April 1995.
Prior to the acquisition of GCI, the Company accounted for its 40% equity
investment in GCP under the Equity Method of Accounting. Upon acquisition of a
100% interest in GCP, the accounts of GCP have been consolidated with those of
the Company. Such consolidation includes the results of operations and cash
flows of GCI and GCP from the date of acquisition forward.
All significant intercompany balances and transactions have been eliminated
in consolidation.
(b) NATURE OF OPERATIONS
The Company owns and operates The Sands Regency Hotel/Casino in Reno,
Nevada and the Copa Casino in Gulfport, Mississippi. The Copa Casino, which is
owned by GCP, was licensed and commenced operations in September 1993. The
Company's operations are conducted in the hotel/casino industry and include
gaming activities, hotel, restaurant and other related support facilities.
Because of the integrated nature of these operations, the Company is considered
to be engaged in one industry segment.
Casino operations are subject to extensive regulation in the States of
Nevada and Mississippi by the respective state Gaming Authorities. Management
believes that the Company's procedures for supervising casino operations and
recording casino and other revenues comply in all material respects with the
applicable regulations.
(c) OPERATING REVENUES
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
Lodging, food and beverage furnished without charge to customers are
included in gross revenues at a value which approximates retail and then
deducted as complimentary services to arrive at net revenues. The cost of such
complimentary services is charged to gaming operating costs and expenses.
The estimated costs of providing the complimentary services are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Hotel $ 380,869 $ 215,661 $ 218,288
Food and beverage 2,073,504 2,185,106 1,458,350
Other 39,112 32,896 19,057
---------- ---------- ----------
$2,493,485 $2,433,663 $1,695,695
========== ========== ==========
</TABLE>
17
<PAGE> 19
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
Other operating revenue is comprised of hotel/casino ancillary services
including a retail liquor store owned and operated by the Company through August
1994 at which time the business was sold to a third party. Related costs and
expenses are included in other operating costs and expenses.
(d) CASH AND CASH EQUIVALENTS
Cash equivalents include all short-term investments with an original
maturity of three months or less. Such investments, carried at cost which
approximates market, are readily marketable with no significant investment in
any individual issuer.
(e) SHORT-TERM INVESTMENTS
The Company accounts for its short-term investments in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115-
"Accounting for Certain Investments in Debt and Equity Securities". This
statement requires that unrealized gains and losses on securities defined as
"available-for-sale" will be excluded from income and be reported in a separate
component of stockholders' equity. Securities that the Company has the ability
and positive intent to hold to maturity are classified as "held-to-maturity" and
are reported at the lower of aggregate cost or market. As of June 30, 1996, the
Company's short-term investments were not subject to the provisions of SFAS No.
115.
(f) INVENTORIES
Inventories consist primarily of food, beverage and operating supplies and
are stated at the lower of cost (determined on an average cost basis) or market.
(g) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of impairment write-downs to
estimated net realizable values. Depreciation and amortization is computed
primarily by the straight line method over the estimated useful lives of the
assets. These lives range between 5 to 35 years for buildings, ship and
improvements and 5 to 20 years for equipment, furniture and fixtures. Assets
sold or otherwise disposed of are removed from the property accounts and the
resulting gains or losses are included in income.
(h) GOODWILL
In fiscal 1995, goodwill, which represented the excess of cost over net
assets of the acquisition of GCI in February 1994, was written-off to reflect
the net realizable value of long-lived assets on a basis consistent with the
provisions of recently issued accounting standards as more fully described
below. Prior to such write-down, goodwill was being amortized on a straight-line
basis over a period of 20 years.
(i) IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121- "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of " was issued by the Financial Accounting Standards Board in March 1995. The
Company adopted the provisions of SFAS No. 121 during the fourth quarter of the
year ended June 30, 1995 which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for
18
<PAGE> 20
- --------------------------------------------------------------------------------
long-lived assets and certain identifiable intangibles to be disposed of. The
Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable.
(j) STOCK-BASED COMPENSATION AWARDS
Statement of Financial Accounting Standards ("SFAS") No. 123- "Accounting
for Awards of Stock-Based Compensation" was issued by the Financial Accounting
Standards Board in October 1995 and effective for the Company's fiscal year
ending June 30, 1997. This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions where equity securities are issued for goods and services. It
defines a fair value based method of accounting for an employee stock option, or
similar equity instrument, and encourages such method of accounting for all
employee stock compensation plans. However, and as allowed by SFAS No. 123, the
Company intends to continue to follow the provisions of APB Opinion No. 25-
"Accounting for Stock Issued to Employees" which measures compensation costs for
employee stock compensation plans using the intrinsic value based method of
accounting. The Company believes that the adoption of SFAS No. 123 will not have
a material effect on the financial position or results of operations of the
Company.
(k) INCOME TAXES
Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109- "Accounting for
Income Taxes". In accordance with SFAS No. 109, the asset and liability method
of accounting for income taxes is utilized whereby deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(l) FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with reporting and disclosure requirements of the Statement
of Financial Accounting Standards ("SFAS") No. 107- "Disclosures about Fair
Values of Financial Instruments", the Company calculates the fair value of
financial instruments and includes this additional information in the Company's
Notes to Consolidated Financial Statements when the fair value is different than
the book value of those financial instruments. When fair value is equal to book
value, no additional disclosure is made. Fair value is determined using quoted
market prices whenever available. When quoted market prices are not available,
the Company uses alternative valuation techniques such as calculating the
present value of estimated future cash flows utilizing discount rates
commensurate with the risks involved.
(m) CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and short-term investments. The Company maintains cash in bank accounts with
balances, at times, in excess of Federally insured limits. The Company has not
experienced any losses in such accounts.
19
<PAGE> 21
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
(n) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by using the weighted average
number of shares and common stock equivalents outstanding for the period.
(o) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 -- SHORT-TERM INVESTMENTS
Short-term investments consist of certificates of deposit which are carried
at cost, which approximates market.
NOTE 3 -- NOTE RECEIVABLE
The note receivable is due in monthly principal and interest payments
calculated over 30 years using an annual interest rate of prime plus 2% (10.25%
at June 30, 1996). Subject to a minimum interest rate of 8%, the interest rate
shall be adjusted semi-annually. The unpaid balance is payable in full in March
1999. The note is secured by a first deed of trust on motel real property in
Reno, Nevada and is a joint and several obligation of, and guaranteed by, the
makers.
NOTE 4 -- ACQUISITION OF COMPANY
On February 25, 1994, The Sands Regent acquired all of the issued and
outstanding stock of GCI which resulted in the acquisition of the remaining
ownership interest in GCP. Summarized operating data of GCP under the equity
method of accounting prior to being consolidated with the Company when GCI was
acquired is as follows:
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Revenue $12,146,082
Costs and expenses 14,579,144
Net loss 3,089,777
Company's equity in net loss, net of
intercompany eliminations 1,077,537
</TABLE>
On a stand alone basis, GCP generated net income of $326,000 in the year
ended June 30, 1996 and incurred a net loss of $12.4 million in the year ended
June 30, 1995. Approximately $10.7 million of the loss in fiscal 1995 was due to
a write-down of GCP long-lived assets to estimated net realizable value on a
basis consistent with the provisions of accounting standards as more fully
described in Note 5. As of June 30, 1996, GCP's total liabilities exceeded its
total assets by $12.7 million. Such excess of total liabilities over total
assets results from advances by the Company to GCP, aggregating $20.9 million
including accrued interest, which are reflected as liabilities of GCP.
20
<PAGE> 22
- --------------------------------------------------------------------------------
Management of GCP has sought approval to construct land-based facilities,
which are planned to include a hotel, and has requested approval to replace its
floating casino facility. Such approvals, which are required from the GCP's
landlord, the Mississippi State Port Authority at Gulfport, have, to date, been
refused. Management believes that development of its leasehold site is necessary
in order for the Copa Casino to be ultimately successful and has filed a legal
action against the Mississippi State Port Authority as more fully described in
Note 10.
NOTE 5 -- IMPAIRMENT OF LONG-LIVED ASSETS
Based upon political and market conditions and an analysis of projected
undiscounted future cash flows of the GCI and GCP calculated in accordance with
the provisions of SFAS No. 121 -- "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of ", the Company made a
determination during the year ended June 30, 1995 that the carrying amount of
certain long-lived assets of GCI and GCP may not be recoverable. The resultant,
calculated impairment of long-lived assets necessitated a write-down of $17.5
million as follows: 1) $6.8 million of Goodwill which represented the excess of
cost over net assets of the acquisition of GCI in February 1994; 2) $5.3 million
for the GCP ship which contains the Copa Casino operation; 3) $3.7 million for
the GCP leasehold improvements at the Copa Casino operating site; and 4) $1.7
million for Copa Casino gaming equipment, primarily slot machines. The estimated
net realizable values of these long-lived assets at June 30, 1995 were
determined by calculating the present value of estimated expected future GCI and
GCP cash flows using a discount rate commensurate with the risks involved.
21
<PAGE> 23
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
NOTE 6 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Bank term and revolving line of credit loan; interest at prime
or LIBOR plus an amount in excess of such amounts,
respectively, of up to 2% and 3.65%, depending on defined
performance levels of the Company (a blended rate of 7.9%
utilized at June 30, 1996); collateralized by a first deed of
trust on the real property and equipment used in the Reno,
Nevada hotel/casino operation; interest payable monthly;
principal due semi-annually in such amounts so as to reduce
the advanced and unpaid principal balance to the maximum
scheduled unpaid balance due as of specified dates; payable in
full in 2000 $15,553,000 $18,565,000
Contract payable to International Game Technology ("IGT") by
GCP; amended in August 1996 to include principal and interest
payments of $55,000, including interest at 10% per annum, due
monthly commencing September 1, 1996 through August 1, 1999 at
which time the remaining unpaid principal balance of $3.2
million is due in full; secured by certain gaming equipment 4,052,307 4,052,307
Notes payable by GCI to former minority stockholders of GCI
issued under a settlement agreement; interest payable at 6%
per annum in semi-annual payments; principal payable annually
in the amount of $600,000 beginning in November 1994 until
November 1998 when the remaining unpaid balances are due in
full; principal payments in the aggregate amount of $1.2
million past due; no interest paid since May 1994; entire
principal balances included in current maturities at June 30,
1996 and 1995; secured by GCI's partnership interest in GCP 6,000,000 6,000,000
Other -- 96,343
----------- -----------
25,605,307 28,713,650
Less current maturities 10,789,021 10,905,995
----------- -----------
Long-term portion $14,816,286 $17,807,655
=========== ===========
</TABLE>
The bank loan is covered under a loan agreement which requires the Company
to comply with certain financial covenants, restricts future encumbrances and
requires certain existing major shareholders of the Company to continue to hold
a significant ownership interest in the Company and to be involved in the
management of the Company. The financial covenants include restrictions on
investment activities and the sale or other disposition of a significant portion
of the Company's assets and also limit annual capital expenditures. The
financial covenants additionally require the maintenance of certain financial
ratios and restrict the payment of dividends if an event of default has
occurred. The loan agreement also requires that no shareholder, other than the
existing major shareholders, may own 20% or more of the issued and outstanding
voting stock of the Company. The bank waived non-compliance with certain of the
bank loan covenants at June 30, 1996 and provided for modification of certain
covenants, or waiver of compliance therewith, until the quarter ended September
30, 1997. As consideration for such waivers and covenant modifications, the bank
22
<PAGE> 24
- --------------------------------------------------------------------------------
has required the Company to presently pay the April 1, 1997 scheduled principal
reduction payment in the amount of $1.7 million and to make an additional
principal payment in the amount of $1.25 million which is included in current
maturities.
Long-term debt at June 30, 1996 is payable as follows:
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------- -----------
<S> <C>
1997 $10,789,021
1998 3,965,819
1999 4,380,062
2000 6,470,405
-----------
$25,605,307
===========
</TABLE>
The Company entered into an interest rate swap agreement, effective April
1, 1994, to fix the variable interest rate due on the bank term and revolving
line of credit loan. Under such agreement, the Company pays the bank interest at
a fixed rate of 6.25% per annum on the notional amount and the bank pays the
Company interest at a variable rate (currently 5.5%) based on the London
Interbank Offer Rate ("LIBOR") on the notional amount. The notional amount of
the swap coincides with the maximum amount of amortized borrowings that may be
made under the bank term and revolving line of credit loan (currently $15.6
million). The notional amount may be reduced by the Company, in whole or in
part, upon notice by the Company to the bank and a fair market settlement of
such reduction between the parties. The fair value of the interest rate swap
agreement is an asset of $25,104 at June 30, 1996 which was based on estimated
termination values. The interest rate swap is subject to market risk as interest
rates fluctuate.
Of the total interest expense of $2,395,000, $2,563,000 and $1,365,000 in
1996, 1995 and 1994, respectively, none, none and $64,000 has been capitalized
into construction costs.
NOTE 7 -- STOCK OPTION AND STOCK INCENTIVE PLANS
The Company's amended and restated stock option plan provides for the
granting of incentive stock options as well as non-qualified stock options to
executives and key employees. The plan permitted for the grant of options
covering a maximum of 500,000 shares of the Company's common stock. The Company
has reserved shares to cover these requirements. The plan will continue until
the year 2002, unless terminated earlier. Under the plan, the per share exercise
price of an option cannot be less than 100% of the fair market value of the
shares at date of grant or 110% of the fair market value in the case of
incentive stock options granted to stockholders owning more than 10% of the
outstanding common shares. The options generally vest 20% each year after grant.
23
<PAGE> 25
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
The following is a summary of activity under the Company's stock option
plan:
<TABLE>
<CAPTION>
Incentive Options
---------------------------
Number Average Price
of Shares per Share
--------- -------------
<S> <C> <C>
Outstanding, July 1, 1993 229,000 $ 9.01
Options cancelled (63,000) (11.41)
Options exercised (16,000) (6.25)
------- -------
Outstanding, June 30, 1994 150,000 8.29
Options cancelled (36,000) (10.50)
Options exercised (6,000) (6.25)
------- -------
Outstanding, June 30, 1995 108,000 7.67
Options granted 250,000 3.58
Options cancelled (24,000) (6.25)
Options exercised -- --
------- -------
Outstanding, June 30, 1996 334,000 $ 4.71
======= =======
</TABLE>
At June 30, 1996, options to purchase 60,000 shares of the Company's stock
were exercisable and 11,864 shares were available for grant under the stock
option plan.
NOTE 8 -- FEDERAL INCOME TAXES
The income tax (provision) benefit consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Current $ (59,995) $(2,109,683) $(1,580,916)
Deferred (768,693) 4,442,575 (2,271,615)
--------- ----------- -----------
$(828,688) $ 2,332,892 $(3,852,531)
========= =========== ===========
</TABLE>
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Federal statutory tax rate 35.0% (35.0)% 35.0%
Surtax exemption (1.0) 1.0 (1.0)
Write-off of goodwill -- 17.8 --
Tax effect of tax-free interest income (2.5) (0.4) --
General business credits (2.3) (0.5) (1.0)
Other (0.3) 0.1 0.3
---- ----- ----
28.9% (17.0)% 33.3%
==== ===== ====
</TABLE>
24
<PAGE> 26
- --------------------------------------------------------------------------------
The components of the Company's net deferred federal income tax asset are
as follows at June 30:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
License acquisition costs $ 1,697,021 $ 1,836,026
Pre-opening costs 559,614 817,899
Alternative minimum tax credit 523,386 --
Accrued expenses 160,276 279,131
Other 52,671 79,337
----------- -----------
2,992,968 3,012,393
----------- -----------
Deferred tax liabilities:
Property and equipment (1,876,410) (1,141,338)
Prepaid expenses (333,049) (321,768)
Other (10,070) (7,155)
----------- -----------
(2,219,529) (1,470,261)
----------- -----------
Net deferred federal income tax asset $ 773,439 $ 1,542,132
=========== ===========
</TABLE>
The Company has a March 31 tax year-end.
NOTE 9 -- LEASE COMMITMENTS
GCP leases its Mississippi dockside facilities from the Mississippi
Department of Economic and Community Development ("MDECD") and the Mississippi
State Port Authority in Gulfport, Mississippi (the "Port"). The lease provides
for an initial lease term of seven years commencing in October 1992. The lease
also provides for three extension options of five years each and a final
extension option of ten years. The final ten year extension option may only be
exercised if GCP constructs, within the city limits of Gulfport, Mississippi, a
mimimum of 350 hotel/motel rooms during the first ten years of the lease
agreement.
The lease provides for a monthly base rent of $41,667 plus 5% of gross
annual gaming revenue in excess of $25 million. Additionally, the lease requires
monthly payments equal to 3% of non-gaming revenue. Beginning in October 1997,
the base rent shall be adjusted, annually, in accordance with changes in the
consumer price index.
In July 1996, GCP was notified by MDECD and the Port that its lease will be
canceled and terminated at the end of the initial lease term in October 1999
because the Company's current leased site is needed by the Port to accommodate a
purported expansion of Port facilities. Such notice of termination, among other
items, is presently the subject of litigation between GCP and MDECD and the Port
as further described in Note 10.
In addition to the Mississippi dockside facilities lease, the Company
leases certain equipment under operating leases expiring in 1997.
Total rental expense charged to operations was $538,000, $534,000 and
$217,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
25
<PAGE> 27
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
Future minimum payments under the remaining noncancellable term of
operating leases are as follows:
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------- ----------
<S> <C>
1997 $ 506,000
1998 500,000
1999 500,000
2000 125,001
----------
$1,631,001
==========
</TABLE>
NOTE 10 -- CONTINGENCIES
GCI matter
In December 1994, a lawsuit was filed in a Mississippi Chancery Court
against GCI because of GCI's failure to make payments on promissory note
obligations of GCI to two of its former shareholders. These note obligations, in
the aggregate amount of $6 million, plus interest, are secured by a pledge of
GCI's partnership interest in GCP. Although these promissory notes and the
accrued interest thereon are obligations of GCI, they are reflected as current
liabilities in the Company's Consolidated Balance Sheets at June 30, 1996 and
1995 upon consolidation.
In addition to demanding payment of the $6 million plus interest, for which
a partial summary judgment was granted, the lawsuit is demanding the appointment
of a receiver to take possession of and sell GCI's ownership interest in GCP.
The lawsuit also seeks attorneys fees in an amount not less than $900,000 which
management of the Company believes would not be deemed a reasonable amount in
the event of an unfavorable judgment against GCI. In May 1995, GCP and Patrician
were joined as necessary parties to the lawsuit.
In August 1995, a Charging Order was entered which requires GCP to respond
to inquiries by the two former GCI shareholders for the purpose, among other
things, of determining what distributions, if any, have been paid by the
partnership to its partners. Moreover, a court order was granted whereby any
amounts due or to become due GCI by GCP are to be paid to the two former
shareholders, pro-rata, until the their judgments against GCI are satisfied.
Part of the dispute with the two former shareholders concerns their
security interest in GCI's ownership of GCP. GCI's interest in GCP has been
reduced from an original 60% to the present .006% interest as a result of an
amendment to the partnership agreement and a partner capital call. An amendment
to the GCP partnership agreement was entered into, effective January 1, 1993,
whereby the profit and loss allocation percentages were amended from 40% to 80%
for Patrician and from 60% to 20% for GCI. Such amendment was entered into so as
to properly reflect the relative financial risks of Patrician and GCI and to
cure a partnership breach by GCI. Specifically, and prior to the acquisition of
GCI by the Sands Regent in February 1994, GCI had breached the partnership
agreement by failing to properly contribute monies to the partnership. This
resulted in additional funding by Patrician and the amendment was entered into
to cure the breach since GCI was not in the position to contribute required
funding.
An additional partner capital call occurred in January 1996 for the purpose
of improving the partnership capital structure. Patrician and Artemis complied
with the capital call and GCI failed to comply. As a result,
26
<PAGE> 28
- --------------------------------------------------------------------------------
and in accordance with the partnership agreement, as amended, GCI's interest in
GCP was reduced from 20% to .006%. The two former shareholders of GCI claim that
GCI's ownership interest in GCP should be the pre-amendment, pre-capital call
60% interest. GCI and Patrician contend that the amended ownership interests are
valid because they were undertaken for valid business reasons and that they were
permitted in accordance with the underlying agreement that pledged GCI's
interest in GCP to the two former GCI shareholders. Further, the partnership
amendments which provided, or allowed, for the change in partner ownership
interests were found to be valid in a June 1996 arbitration award between
Patrician and GCI.
In July 1996, as a result of a court hearing, the Chancery Court rendered a
judgement that the reallocation of GCI's interest in the partnership had no
effect on the lien position of the two former GCI shareholders. Further, the two
former shareholders were given until November 1996 to exhaust their legal
remedies in collecting against the judgement. Failing collection or other
resolution by November 1996, the Court shall consider additional measures
including, but not limited to, the appointment of a receiver.
GCI has filed a motion for reconsideration with the Chancery Court for
which a hearing has not yet been set.
GCI's only tangible asset, and its source of funds for repayment of the
promissory notes, is its partnership interest in GCP. These two former
shareholder promissory notes were owed by GCI when The Sands Regent purchased
GCI in February 1994 and have not been assumed or guaranteed by The Sands
Regent. GCI is not presently in the financial position to make any payments with
respect to these note obligations nor is it expected to be in such a position in
the near future. The ultimate resolution of such matter is not presently subject
to reasonable estimation but could include a dispossession of a 60% right to
receive partnership profits and surplus.
Port matter
In July 1996, the Mississippi Department of Economic and Community
Development ("MDECD") and the Mississippi State Port Authority at Gulfport (the
"Port") filed a declaratory judgement action against the Copa Casino in a
Mississippi Chancery Court. Such lawsuit seeks Chancery Court interpretation of
certain provisions of the lease between MDECD and the Port and the Copa Casino
including whether the Port may terminate the lease on a date certain, whether
the Port must approve the substitution of another gaming vessel for the present
gaming vessel and whether the Port must approve the construction of a hotel on
the leased premises. In addition to the lawsuit, MDECD and the Port also
notified the Copa Casino that its lease will be canceled and terminated at the
end of the initial lease term in October 1999 because the Copa Casino's current
leased site is needed by the Port to accommodate a purported expansion of Port
facilities.
In August 1996, the Company filed a separate lawsuit against MDECD and the
Port in Mississippi Circuit Court for breach of contract, breach of covenant of
good faith and fair dealing, misrepresentation and breach of covenant of quiet
enjoyment. The lawsuit seeks an award for compensatory damages in an amount not
less than $20 million and a declaratory judgement quieting the lease term and
allowing the development of the leased premise. The lawsuit also requests a jury
trial which is not generally available in Chancery Court.
In connection with the filing of the Circuit Court action, the Company has
responded to the Chancery Court action filed by the MDECD and Port by requesting
that such action be dismissed or, in the alternative, transferred and
consolidated with the Company's Circuit Court action. MDECD and the Port have,
in turn, responded by indicating it is their belief that the Chancery Court is
the proper forum and that the Company's
27
<PAGE> 29
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
- --------------------------------------------------------------------------------
For the years ended June 30, 1996, 1995, 1994
Circuit Court action be either dismissed or transferred to the Chancery Court. A
Circuit Court hearing has been scheduled for September 20, 1996 with respect to
the MDECD and Port request to dismiss the Company's Circuit Court action or
transfer it to Chancery Court.
Such legal actions between the Company and MDECD and the Port are in the
early stages and management believes that the outcome is not presently
predictable or subject to reasonable estimation.
Other
In February 1996, GCP's hurricane evacuation plan was approved by the
Mississippi State Port Authority and, as a result, GCP's standard two-year
gaming license was renewed by the Mississippi Gaming Commission. The hurricane
plan had previously been under review by the Mississippi State Port Authority
and GCP had, since August 1995, been operating under provisional gaming
licenses.
The Company is party to other legal actions, proceedings and pending claims
arising in the normal conduct of business. Management believes that the final
outcomes of these matters will not have a material adverse effect upon the
Company's financial position or results of operations.
NOTE 11 -- CONDENSED QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1996
Operating revenues $16,054,749 $14,037,918 $15,299,849 $15,017,726
Income from operations 2,217,331 336,522 1,247,123 873,691
Net income (loss) 1,188,329 (3,841) 543,797 314,077
Net income (loss) per share $0.26 -- $0.12 $0.07
1995
Operating revenues $16,363,237 $13,553,357 $14,384,163 $16,668,603
Income (loss) from operations 1,884,116 158,165 888,411 (14,678,494)
Net income (loss) 833,234 (292,738) 323,772 (12,292,089)
Net income (loss) per share $0.19 $(0.07) $0.07 $(2.73)
</TABLE>
NOTE 12 -- SUBSEQUENT EVENT (UNAUDITED)
On September 20, 1996, a hearing was held in Mississippi Circuit Court with
respect to the MDECD and Port request to dismiss the Company's Circuit Court
action against the MDECD and Port or transfer it to Chancery Court. A ruling is
expected in October 1996.
28
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and
Shareholders of The Sands Regent:
We have audited the accompanying consolidated balance sheets of The Sands
Regent and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The Sands Regent and
subsidiaries as of June 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1996 in conformity with generally accepted accounting principles.
As discussed in Note 5 to the consolidated financial statements, during the
year ended June 30, 1995 the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and reported a loss for impairment of
long-lived assets of $17.5 million.
[SIG]
Deloitte & Touche LLP
Reno, Nevada
August 9, 1996
29
<PAGE> 31
- --------------------------------------------------------------------------------
CORPORATE OFFICERS
<TABLE>
<S> <C>
Pete Cladianos, Jr. David R. Wood
President and Chief Executive Officer Executive Vice President,
Treasurer and Chief Financial Officer
Katherene Latham
Chairman of the Board Pete Cladianos III(1)
Executive Vice President and Secretary
Jon N. Bengtson
Executive Vice President and Joseph G. Fanelli
Chief Operating Officer
Weldon C. Upton
David R. Wood
Executive Vice President, PUBLIC ACCOUNTANTS
Treasurer and Chief Financial Officer Deloitte & Touche LLP
Reno, Nevada
Pete Cladianos III
Executive Vice President and Secretary SECURITIES COUNSEL
Latham & Watkins
BOARD OF DIRECTORS Costa Mesa, California
Katherene Latham(1)
Chairman of the Board TRANSFER AGENT & REGISTRAR
Chase Mellon Shareholder Services, LLC
Pete Cladianos, Jr.(1) Ridgefield Park, New Jersey
President and Chief Executive Officer
Jon N. Bengtson
Executive Vice President and
Chief Operating Officer
</TABLE>
- ------------
(1) Standing for re-election to the Board of Directors at the November 4, 1996
Annual Meeting.
FORM 10-K REPORT
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K is available to shareholders without charge by writing
to The Sands Regent, Attention: David R. Wood, 345 North Arlington Avenue, Reno,
Nevada 89501.
30
<PAGE> 32
LOGO
345 N. ARLINGTON AVENUE - RENO, NV 89501 - (702) 348-2200
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Sands Regent:
We consent to the incorporation by reference in Registration Statement No.
33-59574 of the Sands Regent on Form S-8 of our reports dated August 9, 1996,
appearing and incorporated by reference in the Annual Report on Form 10-K of The
Sands Regent for the year ended June 30, 1996.
Deloitte & Touche LLP
Reno, Nevada
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 11,356,980
<SECURITIES> 200,000
<RECEIVABLES> 507,018
<ALLOWANCES> 107,000
<INVENTORY> 789,199
<CURRENT-ASSETS> 13,867,121
<PP&E> 75,464,930
<DEPRECIATION> 28,051,014
<TOTAL-ASSETS> 64,310,913
<CURRENT-LIABILITIES> 16,259,809
<BONDS> 14,816,286
0
0
<COMMON> 344,936
<OTHER-SE> 32,871,159
<TOTAL-LIABILITY-AND-EQUITY> 64,310,913
<SALES> 7,882,377
<TOTAL-REVENUES> 60,410,242
<CGS> 6,499,231
<TOTAL-COSTS> 34,528,991
<OTHER-EXPENSES> 21,206,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,394,743
<INCOME-PRETAX> 2,871,050
<INCOME-TAX> 828,688
<INCOME-CONTINUING> 2,042,362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,046,362
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
