<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
Commission File Number 0-20538
-----------------------------------------------------
CASINO AMERICA, INC.
Delaware 41-1659606
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
711 Washington Loop, Biloxi, Mississippi 39530
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 436-7000
Securities Registered Pursuant To Section 12(b) Of The Act: None
Securities Registered Pursuant To Section 12(g) Of The Act:
Common Stock, $.01 Par Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Company is $39,258,318, based on the last reported sale price of $2.06 per
share on July 18, 1997 on the Nasdaq National Market, multiplied by 19,057,436
shares of Common Stock outstanding and held by non-affiliates of the Company on
such date.
As of July 18, 1997, the Company had a total of 23,360,187 shares of Common
Stock outstanding.
___________________
(1) Affiliates for the purpose of this item refer to the directors, executive
officers and/or persons owning 10% or more of the Company's common stock,
both of record and beneficially; however, this determination does not
constitute an admission of affiliate status for any of these individual
stockholders.
<PAGE>
DOCUMENT INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
Document Part of Form 10-K into which Incorporated
-------- -----------------------------------------
<S> <C>
Casino America's Definitive Proxy Statement for its Part III
Annual Meeting of Stockholders to be held
September 25, 1997
</TABLE>
<PAGE>
INDEX
PAGE
----
PART I................................................................... 2
ITEM 1. BUSINESS..................................................... 2
ITEM 2. PROPERTIES................................................... 23
ITEM 3. LEGAL PROCEEDINGS............................................ 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 26
PART II.................................................................. 27
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER'S MATTERS........................................ 27
ITEM 6. SELECTED FINANCIAL DATA...................................... 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 29
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................... 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 63
PART III................................................................. 63
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 63
ITEM 11. EXECUTIVE COMPENSATION....................................... 63
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ............. 63
PART IV.................................................................. 63
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K..................................................... 63
SIGNATURES............................................................. 64
1
<PAGE>
PART I
------
ITEM 1. BUSINESS.
GENERAL
Casino America is a leading developer, owner and operator of dockside and
riverboat casinos and related facilities in the United States. The Company owns
100% of, and operates, four dockside or riverboat casino facilities. All of the
Company's casino properties are based on a tropical island theme and operate
under the "Isle of Capri Casino" name. The Company owns and operates a dockside
casino and hotel in Biloxi, Mississippi (the "Isle-Biloxi"), a dockside casino
and recreational vehicle park in Vicksburg, Mississippi (the "Isle-Vicksburg"),
a dockside riverboat casino and hotel in Bossier City, Louisiana (the "Isle-
Bossier City"), and two riverboat casinos operating from a single facility on a
site approximately one mile from Lake Charles, Louisiana (the "Isle - Lake
Charles"). In August 1996, the Company consolidated its ownership interest in
the Isle-Bossier City and the Isle-Lake Charles and expanded its operations at
the Isle-Lake Charles by adding a second riverboat casino. See "--Recent
Acquisitions--LRGP Acquisition," "--Recent Acquisitions--SCGC-- Acquisition,"
"--Recent Acquisitions--Grand Palais Acquisition" and "--Recent Developments--
Senior Secured Notes Offering and Retirement of Mortgage Notes." The Company
also owns and operates Pompano Park, a harness racing track in Pompano Beach,
Florida, midway between Miami and West Palm Beach off of Interstate 95.
The Company was incorporated in Delaware in February 1990 under the name of
Kana Corporation as a vehicle to raise capital for the acquisition of or
investment in a business enterprise. In April 1992 the name of the Company was
changed to Anubis II Corporation ("Anubis"). In June 1992, Riverboat
Corporation of Mississippi (the "Biloxi Gaming Subsidiary"), Riverboat Services,
Inc. (the "Consulting Subsidiary") and Casino Career Training Center, Inc. (the
"Training Subsidiary") became wholly owned subsidiaries of Anubis via stock-for-
stock exchanges (collectively, the "Reorganization"). Prior to the
Reorganization, the Biloxi Gaming Subsidiary and the Consulting Subsidiary were
owned by Bernard Goldstein and members of his family and the Training Subsidiary
was owned by Messrs. James E. Ernst and Allan B. Solomon. In connection with
the Reorganization, Anubis changed its name to Casino America, Inc., and Messrs.
Goldstein, Ernst and Solomon took over management of the Company.
At the time of the Reorganization, the Biloxi Gaming Subsidiary was
developing the Isle-Biloxi; the Consulting Subsidiary provided riverboat and
dockside casino consulting services to a related party; and the Training
Subsidiary provided training for casino employees in connection with gaming
activities.
The Biloxi Gaming Subsidiary currently owns and operates the Isle-Biloxi.
Riverboat Corporation of Mississippi-Vicksburg, a wholly owned subsidiary of the
Company, currently owns and operates the Isle-Vicksburg. Louisiana Riverboat
Gaming Partnership ("LRGP"), a general partnership in which wholly owned
subsidiaries of the Company are the sole partners, owns and operates the Isle-
Bossier City. St. Charles Gaming Company ("SCGC") and Grand Palais Riverboat,
Inc. ("GPRI") each own a riverboat casino and operate jointly at the Isle-Lake
Charles. The Consulting Subsidiary provides riverboat and dockside casino
consulting and management services. The Company and its operating subsidiaries
now train their casino employees on an ongoing basis and the Training Subsidiary
is inactive.
2
<PAGE>
STRATEGY
The Company's business strategy, which has been implemented in its existing
operations, emphasizes the operation and development of value-oriented gaming
facilities and complementary amenities with a tropical island theme using the
"Isle of Capri Casino" brand name. Management believes that the consistent use
of the Isle of Capri Casino name and associated theme has created a readily
identifiable brand image connoting excitement, quality and value, complemented
by the Company's emphasis on customer service and non-gaming entertainment
amenities. The Company seeks to identify slot-oriented customers and active
casino patrons through its use of database marketing and generate repeat
visitors to the Company's gaming facilities. Management believes that its
strategy fosters customer loyalty, enhances the Company's ability to compete
effectively in its existing markets, and facilitates the efficient and cost-
effective development of gaming facilities in new markets. The Company also
believes that good community relations are fundamental to its success and, as a
result, takes an active role in community activities in each jurisdiction in
which it has gaming facilities.
The Company has historically identified and entered new gaming markets which
it believes provide attractive long-term opportunities, sometimes entering those
markets with the assistance of a joint venture partner. The Company has
consolidated its ownership interests in its existing facilities and anticipates
that most of its near-term focus will be on expanding those facilities and
pursuing other development opportunities. The Company anticipates adding
complementary amenities, such as hotels and additional restaurants at its
existing facilities, in order to compete effectively in its markets and provide
customers with a complete entertainment and resort experience designed to
increase a customer's length of stay at and use of the Company's facilities. The
Company also expects to continue reviewing gaming opportunities in new markets
on the basis of demographic, regulatory, competitive and other factors. The
Company's strategy when entering new markets has been to develop its projects in
phases when appropriate. By reducing the amount of its initial capital
commitment, the Company is able to utilize cash flow from operations to help
fund subsequent phases and increase the funds available for its other projects.
Phased development also allows the Company to better assess market size,
customer preferences and competitive factors and adapt the nature and scope of
new facilities accordingly. The Company's strategy of making investments through
joint ventures may be implemented in connection with the development of its
existing properties and the entry into new gaming markets if the Company
believes that such a strategy is appropriate, and if it is able to identify
suitable joint venture partners which provide supplemental expertise and
resources. In that regard, the Company has formed a joint venture with Nevada
Gold & Casinos, Inc. for the development of a casino facility in Black Hawk,
Colorado. The joint venture, subject to certain conditions and pending the
obtaining of satisfactory financing, intends to develop a facility containing
approximately 1,100 slot machines, 25 blackjack and poker tables, restaurants, a
parking garage containing in excess of 1,000 spaces and other related amenities.
The Company will own approximately 55% of the joint venture and has entered into
an agreement to manage the facility developed by the joint venture for a fee.
MARKETING
The Company attracts customers to its casinos by designing and implementing
marketing strategies and promotions that emphasize their tropical island theme
and promote repeat visitation and customer loyalty. For example, the Company
offers membership in its Island Gold Players Club to its customers and "V.I.P."
services to higher wagering and repeat gaming patrons. The Island Gold Players
Club is a promotional activity in which members accumulate points that can be
exchanged for benefits such as casino cash tokens, prizes and complimentary
services. In addition, Island Gold Players Club members receive tournament
priority and monthly newsletters and a daily "free pull" on a slot machine
offering awards up to $100,000. Further, the Company uses the Island Gold
Players Club to track patron slot play and develop a customer database, which
the Company utilizes in its marketing programs. As of April 27, 1997, the
Company had enrolled approximately 2.2 million members in the Island Gold
Players Club.
The Company intends to emphasize food and entertainment amenities to enhance
its customer-friendly
3
<PAGE>
atmosphere with a view toward attracting repeat customers. In that regard, the
Company has developed Farraddays', a branded restaurant featuring steak and
seafood and offering upscale dining in a casual, nautical setting designed to
promote an atmosphere of exploration and adventure. The Company has recently
opened a Farraddays' at the Isle-Bossier City and, during fiscal 1998, plans to
open additional Farraddays' facilities at the Isle-Lake Charles, the Isle-
Vicksburg and the Isle-Biloxi. In addition, during fiscal 1997, the Company
opened a 14,000 square foot entertainment facility at the Isle-Lake Charles
which has enabled the Company to offer performances by entertainers including
Wayne Newton and events including live boxing. The Company has also enhanced the
Isle-Vicksburg's non-gaming amenities by expanding an outdoor entertainment area
located at the edge of the Mississippi River. The location of the entertainment
area is such that it offers an exceptional view of the river and enables the
Isle-Vicksburg to offer live performances by entertainers as well as other
events.
To encourage group sales, the Company utilizes bus programs, corporate and
hotel sales programs and golf package programs with hotels and golf courses
located near its casinos. The Company's Biloxi hotel is included in the Holiday
Inn worldwide reservations system which the Company believes provides the hotel
with significant marketing benefits.
The Company has increased its reliance on database marketing in order to best
identify the segments of the population that are most likely to be attracted to
the Company's facilities. Database marketing helps the Company to identify those
customers and potential customers that are most likely to be attracted by the
Company's emphasis on slot machine play. The Company also places significant
emphasis on attracting local residents and seeks to maintain a strong local
identity in each market in which it operates by staging and supporting special
events. The Company further enhances its facilities' appeal to local patrons by
encouraging enrollment in the Island Gold Players Club and offering its members
attractive amenities.
The Company uses television, radio, outdoor and print media to promote its
services and to achieve greater name recognition. To further enhance the Isle of
Capri Casino tropical theme, the Company engaged a well-known actor to narrate
the Company's television and radio advertisements.
CURRENT OPERATIONS
The Isle-Bossier City
The Isle-Bossier City, which commenced operations on May 20, 1994, is one of
only four licensed gaming facilities currently operating in the
Shreveport/Bossier City market, the closest gaming market to the Dallas/Ft.
Worth, Texas metropolitan area. The Isle-Bossier City is located on a 38-acre
site along the Red River approximately 1/4 mile from the Isle of Capri Boulevard
exit off Interstate 20. The Isle-Bossier City consists of a dockside riverboat
casino, a land-based entertainment and support pavilion and parking on-site for
1,200 cars, of which 940 are accommodated in an attached parking garage.
Additional overflow parking is available nearby on weekends. The Isle-Bossier
City features the Company's festive tropical island theme throughout the
facility. The features of the land-based pavilion include towering palm trees,
exotic rock formations and a waterfall. The riverboat also features a tropical
decor, including signage and lighting fixtures. To enhance the tropical island
experience, patrons are served by friendly, attentive support staff dressed in
tropical attire.
The riverboat offers 30,000 square feet of gaming space on three levels with
1,038 slot machines and 52 table games and video poker bars. The approximately
72,200 square-foot land-based pavilion offers a variety of non-gaming amenities,
including three restaurants, a gift shop, an entertainment lounge area, a large
nine-screen television wall featuring sporting events, an Island Gold Players
Club Booth and administrative offices. During fiscal 1997, the Company spent
approximately $4.5 million on improvements at the pavilion which included the
expansion of existing restaurant and entertainment facilities, the addition of a
new water feature and the addition of Farraddays', a 107-seat, nautically themed
restaurant developed by the Company. In addition to Farraddays', restaurant
offerings at the Isle-Bossier City include Calypso's, a 352-seat buffet style
restaurant, and Tradewinds,
4
<PAGE>
a 40-seat delicatessen and fast food outlet. In addition, live entertainment is
featured in the Caribbean Cove Showroom, an entertainment facility which can
accommodate up to 500 guests.
The Isle-Bossier City is readily accessible from an exit off Interstate 20
onto Isle of Capri Boulevard, a four-lane road leading directly to the entrance
of the facility. Approaching the Isle-Bossier City, customers enter a multi-lane
porte cochere providing convenient access to free valet parking, an attached
parking garage or surface parking lots.
The Shreveport/Bossier City market is among the leading riverboat gaming
markets in the United States. The Company believes that the Isle-Bossier City
attracts customers from three primary groups: (a) local residents; (b) residents
of northeastern Texas; and (c) residents of the Dallas/Ft. Worth metropolitan
area which has a population of approximately 4.5 million and is located
approximately 180 miles west on Interstate 20. Approximately 550,000 and 1.8
million people live within 50 and 100 miles, respectively, of the Isle-Bossier
City.
The Isle-Bossier City is one of four comparably sized facilities currently
operating in the Shreveport/Bossier City market, all of which opened between
April, 1994 and October, 1996. Overall, there is currently an aggregate of
approximately 120,000 square feet of casino floor space in use in the
Shreveport/Bossier City market.
The Company owns and operates the 234-room Isle of Capri Hotel, located
approximately 2.5 miles east of the Isle-Bossier City on Interstate 20, from
which the Company offers shuttle service to the Isle-Bossier City.
The Shreveport/Bossier City hotel market consists of approximately 5,350
hotel/motel rooms. Hotel occupancy during 1993, prior to the introduction of
gaming, averaged approximately 43.1%. During 1994, occupancy rates rose to
approximately 70.2% with the heaviest demand during the peak summer months.
During 1995, occupancy increased to 72.5% and in 1996, occupancy was
approximately 91.1%. One of the Isle-Bossier City's competitors is currently
constructing a 606-room all-suite hotel, and several of the area's hotels have
incorporated upgrades to their facilities due to the increasing demand for
quality, overnight accommodations. The Company believes that the Isle of Capri
Hotel is well positioned to take advantage of increasing demand in the
Shreveport/Bossier City hotel market.
The Isle-Lake Charles
The Isle-Lake Charles, which commenced operations on July 29, 1995, is one of
two riverboat gaming facilities (each comprised of two licensed riverboats) in
the Lake Charles, Louisiana market and one of three gaming facilities in
southwest Louisiana (a land-based Indian-owned casino is located in Kinder,
Louisiana 35 miles northeast of Lake Charles). On July 12, 1996, the Isle-Lake
Charles began operating its second riverboat casino, the Grand Palais, which
became the fourth licensed riverboat casino in the Lake Charles market. Lake
Charles is currently the closest casino gaming market to Houston, Texas, a
metropolitan area with a population of approximately 4.2 million located
approximately 145 miles west on Interstate 10. The Isle-Lake Charles is located
on a 16-acre site along the Calcasieu River adjacent to Interstate 10 in
Calcasieu Parish, one mile from the City of Lake Charles. The Isle-Lake Charles
commenced operations in July of 1995 with an approximately 27,500 square-foot
riverboat casino which presently contains approximately 24,700 square feet of
gaming space with 892 slot machines and 46 table games on three levels. A
fourth level of that riverboat contains approximately 9,000 square feet of
entertainment space. The Grand Palais consists of an approximately 41,700
square foot riverboat casino containing approximately 24,200 square feet of
gaming space with 944 slot machines and 48 table games on two levels. The Grand
Palais offers a large bar and foyer when customers enter the boat and a spacious
third level where the Company may provide a variety of non-gaming and
entertainment amenities.
The Isle-Lake Charles opened a new $30 million, 105,000 square foot land-based
pavilion in May 1996. The new pavilion is based on a tropical theme, including
rock formations, waterfalls, water arches with jets of water shooting up to 30
feet in the air, ponds with porcelain sea life and flower beds landscaped in the
shape of playing
5
<PAGE>
card suits. The expansion of the Isle-Lake Charles' land-based non-gaming
amenities is intended to attract Texas patrons previously drawn to similar
amenities at the land-based casino in Kinder. The pavilion provides panoramic
views of the lake and the city of Lake Charles with separate entrances to each
of the riverboats. In addition, the lighted rooftop rotunda is topped by the
Isle of Capri parrot, reaching approximately 145 feet above the ground and
visible from the interstate.
The new pavilion offers a wide variety of non-gaming amenities, including
Calypso's, a 489-seat buffet style restaurant; Tradewinds grill and restaurant
and Caribbean Cove, which share 220 seats in the pavilion and feature a free,
live Caribbean-themed revue entitled "Island Fever"; the Tropics bar; the Banana
Cabana gift shop and the Island Gold Players Club booth. The pavilion includes a
14,000 square foot activity center, designed for special events, including live
boxing, televised pay-per-view events, concerts, banquets and also includes
meeting facilities and administrative offices. The Isle-Lake Charles provides
free valet parking or free self-parking for more than 2,000 vehicles, including
approximately 1,400 spaces in an attached parking garage from which patrons can
access the pavilion by elevator. The Company is currently developing the Inn at
the Isle, a 240-room hotel, at the Isle-Lake Charles. The hotel is scheduled to
open in September, 1997. The Company is also currently constructing a
Farraddays' restaurant at the Isle-Lake Charles which is scheduled to open in
September 1997.
The Company believes that the Isle-Lake Charles attracts customers from three
primary groups: (a) residents of southeast Texas, particularly from the Houston
metropolitan area which has a population of approximately 4.2 million people,
and is located 145 miles to the west on Interstate 10, and the population
centers of Beaumont, Galveston, Orange and Port Arthur, Texas; (b) local area
residents; and (c) tourists. Approximately 480,000 and 1.6 million people live
within 50 and 100 miles, respectively, of the Isle-Lake Charles. Like the Isle-
Bossier City, a significant portion of the business of the Isle-Lake Charles is
(and will continue to be) derived from residents of Texas, where casino gaming
has not been legalized. See "Regulatory Matters."
The Isle-Lake Charles was the second gaming facility to enter the Lake
Charles, Louisiana market and the third gaming facility to enter the southwest
Louisiana market. Two riverboats, containing an aggregate of approximately
55,000 square feet of casino floor space, are currently operated by Players
International from a single location in the City of Lake Charles approximately
two miles from the site of the Isle-Lake Charles. In addition, a land-based,
Indian-owned casino opened in January 1995 in Kinder, Louisiana, approximately
35 miles northeast of the site of the Isle-Lake Charles. Management believes
that the Isle-Lake Charles has several competitive advantages in the Lake
Charles gaming market. The Isle-Lake Charles, with its location at the western
end of the Lake Charles gaming market, is the first gaming facility reached by
patrons arriving from the west, including Texas. The Company believes that the
Inn at the Isle, once completed, will enable the Company to attract patrons from
Texas, and more effectively compete in the Lake Charles market. Moreover,
management believes that its convenient, free on-site parking facilities further
enhance the advantages of the Isle-Lake Charles' location. The Company believes
that the addition of the Grand Palais to the site of the Isle-Lake Charles has
enabled the Company to more effectively compete with the existing two-boat
operation in Lake Charles and the land-based casino in Kinder. In addition,
although land-based casinos are generally preferred by gaming customers to
riverboat casinos (because of, among other things, the requirement of cruising),
the two-boat operation at the Isle-Lake Charles provides at least one boat at
dockside at all times. Moreover, the land-based casino in Kinder requires a
total of approximately 70 miles more per round trip for patrons from Texas.
The Isle-Biloxi
The Isle-Biloxi, which commenced operations on August 1, 1992, was the first
gaming facility to open in Mississippi. The Isle-Biloxi currently consists of a
50,000 square-foot dockside casino containing 32,500 square feet of gaming space
with 1,200 slot machines and 42 table games on two levels, an adjacent land-
based pavilion, a 367-room hotel and on-site parking for more than 1,100
vehicles. The Company has continuously expanded and upgraded the Isle-Biloxi in
order to enhance its long-term competitive position in the Mississippi Gulf
Coast market. The major components of the expansion and upgrading have been the
addition of a 367-room, 15-story
6
<PAGE>
hotel tower and a 32,000 square-foot land-based pavilion providing a variety of
non-gaming amenities and enhancements to the casino. The improvements, which
were completed during fiscal 1996, focused on the transformation of the Isle-
Biloxi into a more customer-friendly resort destination that the Company
believes has resulted in a significant increase in the number of its casino
visitors. The enhancement of the island-themed decor in the casino and the
themed amenities are designed to further increase identification of the Isle of
Capri Casino brand name and distinguish the Isle-Biloxi from its competitors,
most of which offer a distinctive theme in the Mississippi Gulf Coast market.
The 367-room Isle of Capri Casino Crowne Plaza hotel facility and the casino
are directly accessible through the pavilion. The Company believes that the
hotel fills an important niche in the Mississippi Gulf Coast market, which has
been believed to suffer from a lack of quality hotel rooms. The hotel is
included in the Crowne Plaza and Holiday Inn Worldwide reservation system. Named
Crowne Plaza Resort of the Year for 1995, the hotel offers spacious rooms, most
with balconies overlooking Point Cadet Marina, and provides amenities including
meeting rooms, full room service, a heated pool and access to exercise
facilities (which include a jacuzzi, dry sauna and massage facility). The
Company reserves a portion of the rooms for selected casino patrons at all
times. The Isle-Biloxi directly markets to organizations to attract convention
and group traffic, which the Company believes accounted for approximately 10% of
the Isle-Biloxi's casino revenue. The hotel offers more than 15,000 square feet
of meeting space for such events.
The 32,000 square-foot, 50-foot high atrium-style pavilion offers a wide
variety of non-gaming amenities. The pavilion features three dining facilities:
Calypso's, a 280-seat buffet style restaurant; Coral Reef, a 146-seat fine
dining facility; and Tradewinds Grill, where visitors can enjoy a "Cheeseburger
in Paradise," and Caribbean Cove, which together share 88 seats. Calypso's and
Coral Reef provide panoramic views of the Gulf of Mexico and Deer Island. The
Caribbean Cove is an open-air lounge area located at the center of the pavilion,
surrounded by a dramatic fountain and an entertainment stage, which offers
seating for an additional 116 people. The pavilion's entertainment area features
a Las Vegas-style revue, performances of which are scheduled several times
daily. Musical performances by other groups and artists are also scheduled
throughout the day. The pavilion also features Banana Cabana, a gift shop, and a
lounge area designed to provide a comfortable waiting area for bus patrons.
The casino provides customers with the impression of a traditional land-based
casino, rather than that of a floating pavilion casino. Guests approach the
facility on a four-lane ramp divided by a series of cascading waterfalls
featuring four sculptured dolphins and enter a four-lane porte cochere, which
serves as the main valet parking and bus drop off area. The casino is also
directly accessible through an entrance which is situated adjacent to the
primary self-parking areas. The casino is highly visible and directly accessible
from the pavilion and features 40-foot high ceilings and a dramatic waterfall to
enhance the visual experience. Further enhancing the tropical ambiance, music
from the pavilion's entertainment area, which features steel drums and
Caribbean-oriented melodies, is audible throughout the casino.
The Company believes that the Isle-Biloxi attracts customers from four primary
groups: (a) local area residents; (b) Alabama, Florida and Georgia residents,
primarily from along the Gulf Coast; (c) tourists; and (d) residents of
southeastern Louisiana, including those from the New Orleans and Baton Rouge
metropolitan areas. There are approximately 660,000 and 2.9 million people
residing within 50 and 100 miles, respectively, of Biloxi and the Company
believes that this population base has provided a significant portion of the
Isle-Biloxi's business. Biloxi is the easternmost city on the Mississippi Gulf
Coast where casino gaming is presently permitted. As a result, Biloxi is
currently the closest gaming market to Mobile, Alabama, located approximately 45
miles east of Biloxi on Interstate 10. The Company believes that approximately
23% of the Isle-Biloxi's customer base is derived from Alabama, particularly the
Mobile metropolitan area. The Mississippi Gulf Coast, with its 26 miles of white
sand beaches and approximately 18 golf courses open to the public, is a major
regional tourist destination which attracted approximately six million visitors
in 1996. The tourist season is heaviest from May to September, which the Company
believes contributes to some seasonality in the Isle-Biloxi's business.
7
<PAGE>
At present, 11 gaming facilities (including the Isle-Biloxi), comprising
approximately 540,000 square feet of casino floor space, are located along the
Mississippi Gulf Coast. Eight facilities are located in Biloxi and collectively
account for approximately 370,000 square feet of casino floor space. Two other
facilities are located in Gulfport, approximately 10 miles west of Biloxi, and
one is located in Bay St. Louis, approximately 30 miles west of Biloxi.
Management believes that the location of the Isle-Biloxi affords it several
significant competitive advantages. The Isle-Biloxi is located on Casino Row, a
cluster of four casinos at the eastern end of U.S. Highway 90, affording
visitors the convenience and visual impact of four gaming facilities located
within walking distance. With its location at the eastern end of Biloxi, Casino
Row is the first area reached by visitors from Alabama, Florida and Georgia. The
facilities at the Isle-Biloxi allow it to more fully realize the benefits of its
superior location. The Company believes that the Isle-Biloxi offers customers a
resort destination, instead of a day-trip site, where customers can extend their
use of the casino.
A number of the Company's competitors in the Mississippi Gulf Coast have
either purchased existing hotels in the area, are presently building, or have
announced plans to build, additional hotels. The Mississippi Gulf Coast hotel
market consists of approximately 9,500 hotel/motel rooms, with the greatest
concentration located in Biloxi and Gulfport. More than 4,000 additional
hotel/motel rooms have been proposed or are currently under construction in the
Mississippi Gulf Coast market, including 1,800 rooms due to open in December,
1998 at the site of the Beau Rivage approximately two miles from the Isle-
Biloxi, and 1,100 rooms due to open in early 1998 at the Imperial Palace,
approximately three miles from the Isle-Biloxi. In addition, Grand Casinos is
in the process of adding a second, 500-room hotel to its Biloxi facility, and
Casino Magic, located next door to the Isle-Biloxi, is presently constructing a
370-room hotel at its property. (See "Risk Factors - Competition"). Hotel
occupancy is generally highest in the peak tourist months between May and
September. In calendar 1996, hotel occupancy rates in the market averaged
approximately 69%. Occupancy at the Isle-Biloxi since the opening of its hotel
in August 1995 has averaged approximately 90%.
The Isle-Vicksburg
The Isle-Vicksburg, which commenced operations on August 9, 1993, was the
first of four gaming facilities to open in the Vicksburg, Mississippi area. The
Isle-Vicksburg is located on a site consisting of approximately 18 acres along
the Mississippi River, approximately one mile north of Interstate 20. The Isle-
Vicksburg originally opened with a riverboat and barge casino containing
approximately 21,000 square feet of gaming space and a temporary land-based
facility. The temporary facilities were subsequently replaced in May 1994 with a
32,000 square-foot dockside casino, a 12,000 square-foot land-based pavilion
containing a variety of non-gaming amenities and administrative offices. The
Isle-Vicksburg provides on-site parking for 900 vehicles, and a 13-acre site
located approximately 1/2 mile from the casino provides off-site parking for 200
vehicles and a 67-space recreational vehicle park.
The land-based pavilion features Calypso's, a 206-seat buffet-style restaurant
(as well as 36 seats on a patio overlooking the Mississippi River), and the
Tradewinds delicatessen, which includes seating for 60 people and live
entertainment. The Company plans to open a Farraddays' restaurant at the site
of the Isle-Vicksburg during fiscal 1998. In addition, other amenities include
a reception area, an Island Gold Club Players booth and a Banana Cabana gift
shop. Patrons are provided easy access to the second level of the floating
pavilion casino from the land-based pavilion by means of either escalator or a
wide stairway which offers patrons panoramic views of the Mississippi River
through a wall of windows. The floating pavilion casino provides a spacious and
exciting gaming environment on two levels containing 802 slot machines and 36
table games, including a poker room with seven tables. The casino features a
tropical island theme and decor including exotic rock formations, cascading
waterfalls, towering palm trees and tropical-themed slot machine signage and
lighting fixtures, the Caribbean's Sports Bar and the High Roller Hut (with $5,
$25 and $100 slots).
The 67-space recreational vehicle park features amenities including a 1,200
square-foot guest services facility, swimming pool and hot tub, shower and
laundry facilities, cable television and telephone capability and a
8
<PAGE>
message, fax and mail center. Recreational vehicle park guests receive a
complimentary breakfast, free shuttle service to the Isle-Vicksburg and a casino
coupon book. The recreational vehicle park is heavily marketed through the
casino, an outdoor billboard campaign on major interstates and monthly and
annual advertisements in recreational vehicle park publications. The
recreational vehicle park frequently is fully occupied on weekends and holidays
and offers the Isle-Vicksburg a substitute to a hotel facility.
The Company believes that the Isle-Vicksburg attracts customers from three
primary groups: (a) local and area residents, primarily from Vicksburg and
Jackson, Mississippi; (b) northeastern Louisiana residents; and (c) tourists.
Vicksburg is approximately 45 miles west of Jackson, Mississippi, a metropolitan
area with a population of approximately 420,000. The Isle-Vicksburg is directly
accessible from Jackson on Interstate 20, and a significant portion of the Isle-
Vicksburg's business comes from Jackson residents. Approximately 530,000 and 1.5
million people live within 50 and 100 miles, respectively, of the Isle-
Vicksburg. Vicksburg, a river port city best known as the site of an historic
Civil War battle and the home of the Vicksburg National Military Park and
Cemetery, drew approximately 900,000 visitors in 1996.
The Isle-Vicksburg is one of four gaming facilities currently operating an
aggregate of approximately 105,000 square feet of casino floor space in the
Vicksburg area. The Isle-Vicksburg is the second largest casino in the Vicksburg
area. Other regional casino competition includes one dockside gaming facility in
Natchez, Mississippi (approximately 60 miles south of Vicksburg and 80 miles
southwest of Jackson); three dockside gaming facilities in Greenville,
Mississippi, (approximately 80 miles north of Vicksburg and 90 miles northwest
of Jackson); and a land-based, Indian-owned casino near Philadelphia,
Mississippi (approximately 115 miles northeast of Vicksburg and 70 miles
northeast of Jackson). Management believes that the Isle-Vicksburg enjoys
certain competitive advantages in the Vicksburg gaming market based on its
convenient location. The Isle-Vicksburg is located approximately one mile from
an exit off Interstate 20 which provides easy access from Jackson and the
surrounding areas. Only one other competitor in Vicksburg is located closer to
Interstate 20 than the Isle-Vicksburg. The Isle-Vicksburg also offers ample
parking on-site and immediately adjacent to the facility. Management further
believes that the gaming and non-gaming facilities and the distinctive tropical
theme provide one of the most exciting and spacious gaming environments in the
Vicksburg market.
Pompano Park
On June 30, 1995, the Company acquired Pompano Park, a harness racing track
located in Pompano Beach, Florida, midway between Miami and West Palm Beach.
Pompano Park is the only racetrack licensed to conduct harness racing in
Florida. Pompano Park also broadcasts its racing events through simulcast and
off-track betting facilities. Pompano Park is comprised of approximately 180
acres of owned land used for harness racing operations and 143 acres of leased
land used for training operations. The Company has a four-year option to
purchase the leased land at a cost of $12 million, plus cost of living
adjustments. The Company believes that, because of its size and location,
Pompano Park would be an attractive location for casino gaming if casino gaming
is ever legalized in Florida and the site is available for gaming under
applicable law. Pompano Park competes against numerous other pari-mutuel
facilities, including thoroughbred and dog race tracks and jai alai frontons,
located throughout south Florida. During fiscal 1997, Pompano Park conducted
approximately 187 live racing programs.
In connection with the acquisition of Pompano Park, the Company agreed to pay
to the sellers specified additional consideration if, and for so long as (i)
casino gaming may legally be conducted by the Company at Pompano Park or (ii) as
a result of the purchase of the pari-mutuel license acquired in connection with
the acquisition of Pompano Park, the Company may legally conduct casino gaming
at any other location. The additional consideration would be an amount equal to
$25 million plus 5% of the gaming net win (as defined), payable monthly. The $25
million portion of such amount would be payable $10 million at such time as the
Company receives all licenses, permits or approvals necessary to conduct such
casino gaming operations and $15 million at such time as the Company opens such
a casino gaming facility to the public. The Company's obligation
9
<PAGE>
to pay any such additional consideration will terminate if casino gaming has not
been legally permitted at Pompano Park within six years after the closing of the
acquisition of Pompano Park.
Pompano Park can accommodate up to 14,500 customers and parking for up to
4,000 automobiles. The six-story, air-conditioned facility includes a box seat
area, clubhouse and dining room accommodations, a large grandstand area and food
and beverage facilities which range from fast food stands to indoor dining
areas. The grandstand building also contains the Company's executive and
administrative offices. The grounds surrounding the grandstand are extensively
landscaped and the track is easily accessible from surrounding communities from
an extensive freeway system.
Effective January 1, 1997, the Company began operating a limited stakes (with
a maximum $10 pot) poker room at Pompano Park. Such activities do not constitute
casino gaming or create any obligation for additional consideration in
connection with the acquisition of Pompano Park. The Company operates 23 tables
from 5 p.m. to 2 a.m. on each evening that live racing is held at Pompano Park.
The Company must distribute at least 50% of the net proceeds (reflecting its
direct costs of operating poker rooms) to supplement its purses for harness
races and breeders' awards. See "Regulatory Matters--Florida."
Effective July 1, 1996, Pompano Park offers "full card" simulcasting of
harness races from any harness track outside of Florida for wagering at Pompano
Park, even on days in which no races are held at Pompano Park. Florida recently
reduced both its tax rate on retransmission of its simulcast signal from 3.3% to
2.4% of "handle" (i.e., the aggregate contributions to pari-mutuel pools) and
the surcharge applied to simulcast races from $100 per race to a fixed fee of
$500 per day, regardless of the number of races. See "Regulatory
Matters--Florida."
COMPETITION
General
Competition in the gaming industry is intense in the markets where the Company
operates gaming facilities. As new gaming opportunities arise in existing
gaming jurisdictions, in new gaming jurisdictions and on Indian-owned lands, new
or expanded operations by others can be expected to increase competition for the
Company's existing and future operations and could limit new opportunities for
the Company or result in the saturation of certain gaming markets. Casino
gaming does not have a long operating history in the jurisdictions where the
Company operates gaming facilities and, therefore, the effects of competition in
these jurisdictions cannot be predicted with any degree of certainty. Many of
the Company's competitors have more gaming industry experience, are larger and
have greater financial resources than the Company. As a result, increased
competition could have a material adverse effect on the Company. In addition,
management believes that large, well-financed gaming facility operators have
become attracted to Biloxi, and may take interest in other of the Company's
markets as well.
Bossier City Operations
The Isle-Bossier City is one of four comparably sized gaming facilities
currently licensed and operating in the Shreveport/Bossier City market, each of
which has comparable amenities. The Isle-Bossier City will face increased
competition from existing competitors to the extent that they add to or enhance
existing amenities. In that regard, Binion's Horseshoe Casino is currently
constructing a 606-room all-suites hotel at its dockside riverboat casino
location in Bossier City, and a larger riverboat. In addition to existing
competition, the granting of additional gaming licenses in the
Shreveport/Bossier City market or the relocation of existing licenses to that
market from elsewhere in the State of Louisiana would increase competition for
the Isle-Bossier City. In that regard, Hilton recently received approval to
relocate its riverboat from New Orleans to Shreveport to operate as part of a
joint venture with Harrah's. In addition, a joint venture involving Hollywood
Casinos was awarded the
10
<PAGE>
last available license to develop a casino in Bossier City. Although the
Louisiana Gaming Control Board subsequently re-opened the application period
with respect to the Hollywood Casinos' license, management believes that the
license will likely be awarded to an operator in the Shreveport/Bossier City
market. Therefore, it is likely, in management's opinion, that up to six
dockside riverboat casinos eventually will be operating in the
Shreveport/Bossier City market, where only four currently operate. In addition,
legislation was passed during the 1997 legislative session which permits up to
15,000 square feet of slot machines to operate at Louisiana Downs, a
thoroughbred racing facility located approximately 6 miles east of the Isle-
Bossier City. Prior to commencing operation of slot machines at the facility,
voter approval in a parish-wide election is required, and the Louisiana
Legislature must pass legislation during a fiscal session assessing a tax on the
slot operations. However, if ultimately approved, such operations may have an
adverse effect on the Isle-Bossier City. Moreover, the legalization of casino
gaming in Texas could have a material adverse effect on the Isle-Bossier City.
Lake Charles Operations
The Isle-Lake Charles is one of two riverboat gaming facilities operating in
the Lake Charles, Louisiana market. The Isle-Lake Charles' riverboat
competitor, Players International, operates two riverboats and a 134-room hotel
facility from a single location in the City of Lake Charles approximately two
miles from the site of the Isle-Lake Charles. In addition, a land-based,
Indian-owned casino with approximately 68,500 square feet of gaming space is
operating in Kinder, Louisiana, approximately 35 miles to the northeast of the
Isle-Lake Charles. Riverboats in the Lake Charles market are subject to
cruising requirements, which makes a land-based casino more desirable to many
gaming customers. Players International and the Company each hold two gaming
licenses and operate two riverboats from a single facility. (Louisiana, unlike
certain other jurisdictions, does not permit license holders to operate a second
boat out of the same location without a gaming license for each boat.) In
addition to existing competition, the granting of additional gaming licenses in
the Lake Charles market or the relocation of existing licenses from elsewhere in
the State of Louisiana to that market would increase competition for the Isle-
Lake Charles. In addition, legislation was passed during the 1997 legislative
session which permits up to 15,000 square feet of slot machines to operate at
Delta Downs, a quarterhorse racing facility located approximately 25 miles west
of the Isle-Lake Charles. Prior to commencing operation of slot machines at the
facility, voter approval in a parish-wide election is required, and the
Louisiana Legislature must pass legislation during a fiscal session assessing a
tax on the slot operations. However, if ultimately approved, such operations
may have an adverse effect on the Isle-Lake Charles. Moreover, the legalization
of casino gaming in Texas would have a material adverse effect on the Isle-Lake
Charles.
Biloxi Operations
Eleven gaming facilities (including the Isle-Biloxi), with an aggregate of
approximately 540,000 square feet of casino floor space, are located along the
Mississippi Gulf Coast. Eight facilities are located in Biloxi and collectively
account for approximately 370,000 square feet of casino floor space. Two of the
other three facilities are located in Gulfport, approximately 10 miles from
Biloxi, and the other is located in Bay St. Louis approximately 30 miles from
Biloxi. Because Mississippi law does not limit the number of gaming licenses
that may be granted, there may be increases in the number of gaming facilities
along the Mississippi Gulf Coast and the surrounding areas, which could have a
material adverse effect on the Isle-Biloxi. In addition, the Company believes
that many of its competitors will add to or enhance their existing amenities and
new competitors will enter the Mississippi Gulf Coast market. Mirage Resorts,
Inc. is currently developing, and has received a gaming license to open, a
casino and resort in Biloxi, at a site approximately two miles from the Isle-
Biloxi. The project, which the Company believes will include an 1,800-room
hotel, is scheduled to open in late 1998. In addition, an "Imperial Palace"
casino and hotel is currently being built and will be located on the Back Bay in
Biloxi, approximately three miles from the Isle-Biloxi. This development is
expected to include a hotel facility containing approximately 1,100 rooms.
Similarly, Grand Casinos is currently constructing a second 500-room hotel at
its site in Biloxi, and Casino Magic is constructing a 370-room hotel at its
location immediately adjacent to the Isle-
11
<PAGE>
Biloxi. Furthermore, two gaming companies are seeking the necessary approvals to
develop casinos adjacent to Interstate 10, which if developed, could have an
adverse affect on the Isle-Biloxi's operation. Certain existing and future
competitors have more extensive financial resources than does the Company.
Intense competition on the Mississippi Gulf Coast has contributed to the closure
of three gaming facilities in that area and one other is operating under
bankruptcy protection. In addition, the legalization of casino gaming in Alabama
would increase competition for, and would have a material adverse effect on, the
Isle-Biloxi.
Vicksburg Operations
The Isle-Vicksburg is one of four gaming facilities currently operating an
aggregate of approximately 105,000 square feet of casino floor space in the
Vicksburg area. The Isle-Vicksburg is the second largest casino in the
Vicksburg area. Two competitors have hotels on their site and the competitor
closest to the Isle-Vicksburg has a hotel within 1/2 mile of its casino. (The
Isle-Vicksburg does not contain a hotel, but operates a 67-space recreational
vehicle park located 1/2 mile from its facilities.) Other local casino
competition includes one gaming facility in Natchez, Mississippi (approximately
60 miles south of Vicksburg and 80 miles southwest of Jackson); three gaming
facilities in Greenville, Mississippi (approximately 80 miles north of Vicksburg
and 90 miles northwest of Jackson); and a land-based, Indian-owned casino near
Philadelphia, Mississippi (approximately 115 miles northeast of Vicksburg and 70
miles northeast of Jackson). Because Mississippi does not limit the number of
gaming licenses that may be granted, there may be increases in the number of
gaming facilities in Vicksburg and elsewhere in counties bordering the
Mississippi River, which could have a material adverse effect on the Isle-
Vicksburg. There have been recent reports that Horseshoe Gaming is considering
the development of a casino and hotel in Vicksburg on property currently owned
by Lady Luck Gaming. While the Mississippi statutes specify that gaming may
only be held on the Mississippi River and on navigable waters within counties
bordering the Mississippi River, several controversies have arisen concerning
the exact permissible locations of casinos within this statutory language.
Specifically, there have been several attempts to expand gaming as far east of
the Mississippi River as possible. It is likely that these controversies and
efforts to expand gaming east of the Mississippi River will continue. There is
currently an action pending in a Mississippi state court involving an appeal of
a decision by the Mississippi Gaming Commission denying site approval in
connection with a proposed casino development by Horseshoe Gaming in the eastern
part of Warren County, the county in which the Isle-Vicksburg is located,
between the Isle-Vicksburg and its primary market of Jackson, Mississippi. In
the event sites are approved in the eastern part of Warren County, the Isle-
Vicksburg would be adversely affected.
RECENT DEVELOPMENTS
Issuance of Senior Secured Notes and Debt Refinancing
On August 6, 1996, the Company issued $315 million in aggregate principal
amount of its 12-1/2% Senior Secured Notes due 2003 (the "Notes"). The proceeds
of the issuance of the Notes were used, in part, to retire or defease all of the
Company's 11-1/2% First Mortgage Notes due 2001 in the aggregate principal
amount of $105 million, refinance other indebtedness, and finance the purchase
by the Company of the 50% interest not owned by it in LRGP, which at the time of
purchase owned 50% of the common stock of SCGC.
Management Changes
Effective July 24, 1996, the Company's Chief Operating Officer, Juris Basens,
and its Vice President of Marketing, David Paltzik, resigned from the Company.
In addition, the general manager of the Isle-Vicksburg resigned effective July
23, 1996. President John Gallaway assumed the position of Chief Operating
Officer following Mr. Basens' resignation. Effective August 5, 1996, Edward
Reese joined the Company as Vice President - Construction & Design; effective
March 17, 1997, James Guay joined the Company
12
<PAGE>
as Vice President of Marketing; and effective April 7, 1997, Timothy Hinkley,
who had previously been the General Manager of the Isle-Biloxi, became the
Company's Senior Vice President of Operations.
Goldstein Family Equity Purchase and Rights Offering
On March 11, 1996, the Company sold an aggregate of 1,020,940 shares of its
Common Stock, at a price of $5.875 per share, to Bernard Goldstein, the Chairman
and Chief Executive Officer of the Company, and three members of his family (the
"Goldstein Family Equity Purchase"). Proceeds from the sale totaled
approximately $6.0 million. A portion of the proceeds was used to retire
approximately $1.6 million in loans payable to Mr. Goldstein and a related
party, which amount includes accrued interest.
In connection with the Goldstein Family Equity Purchase, the Company issued to
its shareholders (other than those shareholders participating in the Goldstein
Family Equity Purchase), and certain other of its securityholders, rights
("Rights") to purchase up to 4,296,085 shares of Common Stock at the same price,
and in the same pro rata amount, as shares purchased in the Goldstein Family
Equity Purchase (the "Rights Offering"). A total of 3,079,980 shares of Common
Stock were issued in connection with the Rights Offering, resulting in net
proceeds to the Company of approximately $18.1 million.
RECENT ACQUISITIONS
The Company has recently completed the following acquisitions as part of its
overall strategy to consolidate its ownership interests in its gaming
facilities.
LRGP Acquisition
On August 6, 1996, the Company acquired (the "LRGP Acquisition") the remaining
50% interest in LRGP not owned by it from Louisiana River Site Development, Inc.
The consideration for the LRGP Acquisition included (i) $85 million in cash,
(ii) five-year warrants to purchase 500,000 shares of the Company's common stock
at an exercise price of $10.50 per share and (iii) $1.5 million in cash per year
for seven years, payable monthly beginning on October 1, 1998.
Grand Palais Acquisition
On May 3, 1996, the Company purchased all of the outstanding common stock of
GPRI in a bankruptcy proceeding under Chapter 11 of the United States Bankruptcy
Code. GPRI owns the Grand Palais, gaming equipment, certain other furniture,
fixtures and equipment, all necessary gaming licenses issued by the State of
Louisiana, and other permits and authorizations. The aggregate consideration
paid by the Company in connection with the Grand Palais Acquisition was
approximately $60.8 million, consisting of cash in the amount of approximately
$7.5 million, approximately $37.1 million in notes and assumed indebtedness and
2,250,000 shares of Common Stock and five-year warrants to purchase an
additional 500,000 shares of Common Stock at an exercise price of $10.00 per
share. In connection with the acquisition of the Grand Palais, Bernard
Goldstein, the Chairman of the Company, and three of his sons (including Robert
Goldstein, a director of the Company) pledged certain of their assets for the
issuance of a letter of credit to secure the repayment of a portion of the
principal of certain notes issued to effect the Grand Palais Acquisition. The
Company issued to two of Mr. Goldstein's sons (other than Robert Goldstein) a
five-year warrant to purchase 12,500 shares of Common Stock at an exercise price
of $5.875 per share. On July 12, 1996, the Louisiana Gaming Control Board
authorized the commencement of gaming on the Grand Palais and, pursuant to such
approval, the Grand Palais opened on such date.
13
<PAGE>
SCGC Acquisition
On May 3, 1996, the Company purchased from Crown Casino Corporation ("Crown
Casino") the remaining 50% interest in SCGC (the other 50% of which is owned by
LRGP), in exchange for 1,850,000 shares of Common Stock, a five-year warrant to
purchase an additional 416,667 shares of Common Stock at an exercise price of
$12.00 per share which can be exercised only by exchanging up to $5 million
principal amount of indebtedness owed to Crown Casino for any such shares, and
the restructuring of certain indebtedness owed to Crown Casino.
FUTURE DEVELOPMENT OPPORTUNITIES
Although the Company intends to focus primarily on the development of its
existing properties in the near term, the Company also intends to continue to
pursue new development opportunities in jurisdictions where gaming has been
legalized and may be legalized in the future. There can be no assurance if or
when necessary approvals for existing or future development opportunities will
be obtained. In addition, there are significant regulatory, financial, business
and other risks inherent in the development, construction and operation of any
new gaming facility. There can be no assurance that the Company will be
successful in dealing with such matters. The Company believes that its operating
experience and its ability to enter new markets quickly will enable it to
compete for new gaming opportunities.
Black Hawk, Colorado
The Company has formed a joint venture with Nevada Gold & Casinos, Inc. for
the development of a casino in Black Hawk, Colorado. The joint venture, subject
to certain conditions and obtaining financing, intends to develop a facility
containing approximately 1,100 slot machines, 25 blackjack and poker tables,
restaurants, a parking garage containing approximately 1,000 spaces and other
related amenities. The Company will own approximately 55% of the joint venture
and will manage the facility developed by the joint venture for a fee. The
project is estimated to cost approximately $100 million and is contingent upon
finding funding for the project that is non-recourse to the Company (other than
with respect to a limited completion guarantee and certain indemnity
obligations) on acceptable terms. The development is expected to take
approximately eighteen months to complete from the commencement of excavation
activities. If the project financing is obtained, the Company currently
anticipates making capital investments into the project totaling approximately
$9 million. Additionally, the Company plans to provide a completion capital
commitment of up to $5 million, if required to enable the facility to commence
operations by April 1, 1999. Gaming in Colorado is subject to significant
limitations, including hours of operation and a $5 betting limit.
Hotel Development Activities
The Company is currently developing the Inn at the Isle, a 240-room hotel
located at the Isle-Lake Charles. The Company presently intends, subject to its
ability to obtain suitable financing, to pursue the construction and
development, either alone or with one or more business partners, of additional
hotel facilities adjacent to the Isle-Bossier City and the Isle-Lake Charles.
In June 1996, the Company entered into a letter of intent, which has since
expired according to its terms, to form a joint venture with a developer of
hotel properties for the purpose of developing, owning and operating hotel
properties. The Company may seek other business partners to assist in
developing and operating hotels at one or more of its gaming facilities or, in
the event the Company does not enter an arrangement to develop, own and operate
hotels with a business partner, the Company intends to develop, own and operate
such facilities alone, provided that the Company is able to obtain acceptable
financing. There can be no assurance that acceptable financing can be obtained,
and the Company's efforts to obtain such financing or joint venture partners, on
terms acceptable to it, have, to date, not been successful.
14
<PAGE>
Cripple Creek, Colorado
The Company owns 1.6 acres of land and leases an additional 1.3 acres of land
in Cripple Creek, Colorado for use in connection with a possible gaming
development in Cripple Creek. The property is located at the eastern end of the
Cripple Creek gaming market, and would be the first gaming facility reached by
patrons from Colorado Springs and other areas to the east. The Company may
develop the property with a joint venture partner or alone or sell its interest
in the property.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 6,000 employees. A
marine crew at the Isle-Lake Charles has elected union representation by the
Seafarer's International Union. None of the Company's other employees is subject
to a collective bargaining agreement. The Company believes that its relationship
with its employees is satisfactory.
REGULATORY MATTERS
Mississippi
In June 1990, Mississippi enacted legislation legalizing dockside casino
gaming for counties along the Mississippi River, which is the western border for
most of the state, and the Gulf Coast, which is the southern border for most of
the state. The legislation gave each of those counties the opportunity to hold a
referendum on whether to allow dockside casino gaming within its boundaries.
Mississippi law permits gaming licensees to offer unlimited stakes gaming on a
24-hour basis and to issue house credit for qualifying patrons. The minimum
legal age for gaming is 21. The law does not restrict the amount or percentage
of space on a vessel that may be utilized for gaming.
The legislation also does not limit the number of licenses that the
Mississippi Gaming Commission can grant for a particular area and does not
impose different conditions on different licensees.
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation. The Company was required to
register as a publicly traded holding company under the Mississippi Act. The
Company's gaming operations are subject to regulatory control by the Mississippi
Gaming Commission, the state tax commission (the "Tax Commission") and various
other local, city and county regulatory agencies (hereinafter collectively
referred to as the "Mississippi Gaming Authorities"). Subsidiaries of the
Company (the "Gaming Subsidiaries") have obtained gaming licenses from the
Mississippi Gaming Authorities to operate the Isle-Biloxi and the Isle-
Vicksburg. Effective October 29, 1991, the Mississippi Gaming Commission adopted
gaming regulations applicable to the Company and the Gaming Subsidiaries.
The licenses held by the Gaming Subsidiaries have terms of two years and are
not transferable. New licenses will need to be obtained at the end of each two-
year period. There can be no assurance that new licenses can be obtained. The
Isle-Biloxi received a second license in April 1996 and the Isle-Vicksburg
obtained a second license in February 1997. The Mississippi Gaming Commission
may at any time revoke, suspend, condition, limit or restrict a license or
approval to own shares of stock in the Gaming Subsidiaries for any cause deemed
reasonable by such agency. Substantial fines for each violation of gaming laws
or regulations may be levied against the Gaming Subsidiaries, the Company and
the persons involved. A violation under the gaming license held by a Gaming
Subsidiary may be deemed a violation of all the other licenses held by the
Company.
A Gaming Subsidiary must submit detailed financial, operating and other
reports to the Mississippi Gaming
15
<PAGE>
Commission and/or the Tax Commission periodically. Numerous transactions,
including without limitation, substantially all loans, leases, sales of
securities and similar financing transactions entered into by a Gaming
Subsidiary must be reported to or approved by the Mississippi Gaming Commission.
The Company is also required to periodically submit detailed financial and
operating reports to the Mississippi Gaming Commission and furnish any other
information which the Mississippi Gaming Commission may require.
The directors, officers and key employees of the Company and its subsidiaries
who are actively and directly engaged in the administration or supervision of
gaming, or who have any other significant involvement with or influence over the
activities of a Gaming Subsidiary, must be found suitable therefor and may be
required to be licensed by the Mississippi Gaming Commission. The finding of
suitability is comparable to licensing, and both require submission of detailed
personal financial information followed by a thorough investigation. The
applicant is required to pay all costs of investigation. There can be no
assurance that such persons will be found suitable by such commission. An
application for a finding of suitability of an individual may be denied for any
cause deemed reasonable by the issuing agency. Changes in licensed positions
must be reported to the issuing agency. In addition to its authority to deny an
application for a finding of suitability, the Mississippi Gaming Commission has
jurisdiction to disapprove a change in corporate position. If the Mississippi
Gaming Commission were to find a director, officer or key employee unsuitable
for licensing or unsuitable to continue having a relationship with a Gaming
Subsidiary, the Gaming Subsidiary would have to suspend, dismiss and sever all
relationships with such person. The Gaming Subsidiary would have similar
obligations with regard to any person who refuses to file appropriate
applications. Each gaming employee must obtain a work permit which may be
revoked upon the occurrence of certain specified events.
Any individual who is found to have a material relationship to, or material
involvement with, the Company may be required to be investigated in order to be
found suitable or be licensed as a business associate of a Gaming Subsidiary.
Key employees, controlling persons or others who exercise significant influence
upon the management or affairs of the Company may also be deemed to have such a
relationship or involvement.
Beneficial owners of more than 5% of the Company's voting securities must be
found suitable by the Mississippi Gaming Commission. Any person who acquires
more than 5% of the voting securities of the Company must report the acquisition
to the Mississippi Gaming Commission. Any beneficial owner of the Company's
voting securities (whether or not a controlling stockholder) may be required to
be found suitable if such commission has reason to believe that such ownership,
without a finding of suitability, would be inconsistent with the declared policy
of the State of Mississippi. If the stockholder who is required to be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners.
Any stockholder found unsuitable and who holds, directly or indirectly, any
beneficial ownership of shares of Common Stock beyond such period of time as may
be prescribed by the Mississippi Gaming Commission may be guilty of a
misdemeanor. Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do so by the
Mississippi Gaming Commission may be found unsuitable. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder of or to have any other relationship with it, a Gaming
Subsidiary or the Company (a) pays the unsuitable person any dividends or
interest upon any securities of the Gaming Subsidiary or any payments or
distribution of any kind whatsoever, (b) recognizes the exercise, directly or
indirectly, of any voting rights in its securities by the unsuitable person, or
(c) pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific circumstances. In
addition, if the Mississippi Gaming Commission finds any stockholder unsuitable,
such stockholder must immediately divest himself of all of such stockholder's
securities in the Gaming Subsidiary and/or the Company.
The regulations provide that a change in control of the Company may not occur
without the prior approval of the Mississippi Gaming Commission. Mississippi law
prohibits the Company from making a public offering of its securities without
the approval of the Mississippi Gaming Commission if any part of the proceeds of
the offering
16
<PAGE>
is to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi, or to retire or extend obligations incurred for one
or more such purposes. The Mississippi Gaming Commission has the authority to
grant a continuous approval of securities offerings and has granted such
approval for the Company, subject to an annual renewal thereof.
Regulations of the Mississippi Gaming Commission prohibit certain repurchases
of securities of publicly traded corporations registered with the Mississippi
Gaming Commission, including holding companies such as the Company, without
prior approval of the Mississippi Gaming Commission. Transactions covered by
these regulations are generally aimed at discouraging repurchases of securities
at a premium over market price from certain holders of greater than 3% of the
outstanding securities of the registered publicly traded corporation. The
regulations of the Mississippi Gaming Commission also require prior approval for
a "plan of recapitalization" as defined in such regulations.
The Company is required to maintain in the State of Mississippi current stock
ledgers, which may be examined by the Mississippi 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 Mississippi Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company also is required
to render maximum assistance in determining the identity of the beneficial
owner.
The Mississippi Act requires that certificates representing shares of Common
Stock bear a legend to the general effect that the securities are subject to the
Mississippi Act and regulations of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has the authority to grant a waiver from the
legend requirement, which the Company has obtained. The Mississippi Gaming
Authorities, through the power to regulate licenses, have the power to impose
additional restrictions on the holders of the Company's securities at any time.
The Mississippi Gaming Commission has enacted regulations requiring that, as a
condition to licensure or subsequent licensure, an applicant provide a plan to
develop infrastructure facilities amounting to 25% of the cost of the casino and
a parking facility capable of accommodating 500 cars. "Infrastructure
facilities" include any of the following: a 250-room hotel, theme park, golf
course, marina, tennis complex, or any other facilities approved by the
Mississippi Gaming Commission, but do not include parking facilities, roads,
sewage and water systems or civic facilities. The Mississippi Gaming Commission
may reduce the number of rooms required in a hotel, where it is shown to the
satisfaction of the Mississippi Gaming Commission that sufficient rooms are
available to accommodate the anticipated number of visitors.
The Company's future gaming operations outside of Mississippi are also subject
to approval by the Mississippi Gaming Commission.
Gaming taxes aggregating 12% of the gross gaming revenues of the Company with
respect to its Biloxi operations and Vicksburg operations are payable to the
State of Mississippi and the cities of Biloxi and Vicksburg. These taxes are
payable monthly. Additionally, license fees and annual fees based on the number
of games made available for play are payable to the State of Mississippi and the
City of Vicksburg and Biloxi.
The laws and regulations permitting and governing Mississippi casino gaming
were recently adopted. Consequently, the interpretation and application of such
Mississippi laws and regulations will evolve over time. Changes in such laws or
regulations could have a material adverse effect on the Company.
Louisiana
In July 1991, the Louisiana legislature adopted legislation permitting certain
types of gaming activity on certain rivers and waterways in Louisiana. The
legislation granted authority to supervise riverboat gaming
17
<PAGE>
activities to the Louisiana Riverboat Gaming Commission and the Riverboat Gaming
Enforcement Division of the Louisiana State Police (the "Louisiana Enforcement
Division"). The Louisiana Riverboat Gaming Commission was authorized to hear and
determine all appeals relative to the granting, suspension, revocation,
condition or renewal of all licenses, permits and applications. In addition, the
Louisiana Riverboat Gaming Commission established regulations concerning
authorized routes, duration of excursions, minimum levels of insurance,
construction of riverboats and periodic inspections. The Louisiana Enforcement
Division was authorized to investigate applicants and issue licenses,
investigate violations of the statute and conduct continuing reviews of gaming
activities.
However, in May 1996, the regulatory oversight of riverboat gaming was
transferred to the Gaming Board. In a special legislative session held in March
and April of 1996, the Louisiana legislature adopted the Louisiana Gaming
Control Law (the "Gaming Control Law"), which is designed to consolidate the
regulatory oversight of four forms of gaming--riverboat, video poker, the land-
based casino in New Orleans, and Indian gaming--into one board, this being the
Gaming Board. The Gaming Board will now oversee all licensing matters for
riverboat casinos, the land-based casino, video poker, and certain aspects of
Indian gaming other than those limited responsibilities reserved to the
Louisiana State Police (the "Louisiana State Police"). The Gaming Board will be
composed of nine voting members appointed by the governor, five of whom have
been appointed. The Gaming Board held its first meeting on July 10, 1996, at
which it adopted a set of emergency rules conferring certain authority to the
Chairman. On July 12, 1996, the Gaming Board (acting through the Chairman)
issued all necessary approvals to operate the Grand Palais and formally
authorized the commencement of gaming on the Grand Palais. Pursuant to that
approval, the Grand Palais opened on July 12, 1996.
The Gaming Control Law abolished the Louisiana Riverboat Gaming Commission,
effective May 1, 1996. Likewise, the Gaming Control Law removed all riverboat
licensing authority from the Louisiana Enforcement Division, reserving to the
Louisiana State Police only the authority to license "non-key gaming employees"
and "nongaming vendors." The Gaming Board will now make all licensing and
permitting determinations--whether for operators, key employees, or
manufacturers and supplier--with regard to riverboat gaming. However, the
Louisiana State Police will continue to be involved broadly in gaming
enforcement, reporting to the Gaming Board. The Gaming Control Law provides that
the Louisiana State Police will continue to conduct suitability investigations,
will continue to audit, investigate, and enforce compliance with standing
regulations, will initiate enforcement and administrative actions, and will
perform "all other duties and functions necessary for the efficient,
efficacious, and thorough regulation and control of gaming activities and
operations under the [Gaming] Board's jurisdiction."
The Gaming Control Law did not abolish the Louisiana Riverboat Economic
Development and Gaming Control Act, which is the 1991 statute that authorized
gaming on certain rivers and waterways in Louisiana (the "Riverboat Act"). The
Gaming Control Law has amended the Riverboat Act to the extent that it has
transferred licensing and regulatory authority to the Gaming Board; otherwise,
the Riverboat Act remains in effect, with the Gaming Board now being authorized
to enforce the Riverboat Act. (For instance, the fifteen licenses that the
Riverboat Act authorizes remain unaffected; the statutory terms of those
licenses remain unaffected; the taxation terms of the Riverboat Act remain
unaffected.) The Gaming Control Law also provides that any rules or regulations
"promulgated by entities whose powers have been transferred to the [Gaming]
Board shall be considered valid and remain in effect until repealed by the
[Gaming] Board...." Accordingly, the rules that the Louisiana Riverboat Gaming
Commission previously adopted still remain in effect. Meantime, the Louisiana
State Police continues to enforce the rules and regulations that the Louisiana
Enforcement Division previously adopted.
The Riverboat Act continues to authorize issuance of up to 15 licenses to
conduct gaming activities on riverboats of new construction in accordance with
applicable law. However, no more than six licenses may be granted to riverboats
operating from any one parish.
In issuing a license, the applicant must be found to be a person of good
character, honesty and integrity and a person whose prior activities, criminal
record, if any, reputation, habits, and associations do not pose a threat to
18
<PAGE>
the public interest of the State of Louisiana or to the effective regulation and
control of gaming, or create or enhance the dangers of unsuitable, unfair or
illegal practices, methods and activities in the conduct of gaming or the
carrying on of business and financial arrangements in connection therewith. The
Gaming Board will not grant a license unless it finds that: (i) the applicant is
capable of conducting gaming operations, which means that the applicant can
demonstrate the capability, either through training, education, business
experience, or a combination of the above, to operate a gaming casino; (ii) the
proposed financing of the riverboat and the gaming operations is adequate for
the nature of the proposed operation and from a source suitable and acceptable
to the Gaming Board; (iii) the applicant demonstrates a proven ability to
operate a vessel of comparable size, capacity and complexity to a riverboat so
as to ensure the safety of its passengers; (iv) the applicant submits a detailed
plan of design of the riverboat in its application for a license; (v) the
applicant designates the docking facilities to be used by the riverboat; (vi)
the applicant shows adequate financial ability to construct and maintain a
riverboat; and (vii) the applicant has a good faith plan to recruit, train and
upgrade minorities in all employment classifications.
Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding 5% or
greater interests in the licensee, and persons exercising influence over a
licensee ("Affiliated Gaming Persons"), are subject to the application and
suitability requirements of the Louisiana gaming law.
The Louisiana gaming law specifies certain restrictions relating to the
operation of riverboat gaming, including the following: (i) except in
Shreveport/Bossier City, gaming is not permitted while a riverboat is docked,
other than the 45 minutes between excursions, and during times when dangerous
weather or water conditions exist; (ii) except in Shreveport/Bossier City, each
round-trip riverboat cruise may not be less than three nor more than eight hours
in duration, subject to specific exceptions; (iii) agents of the Louisiana State
Police are permitted on board at any time during gaming operations; (iv) gaming
devices, equipment and supplies may only be purchased or leased from permitted
suppliers; (v) gaming may only take place in the designated gaming area while
the riverboat is upon a designated river or waterway; (vi) gaming equipment may
not be possessed, maintained or exhibited by any person on a riverboat except in
the specifically designated gaming area, or a secure area used for inspection,
repair or storage of such equipment; (vii) wagers may be received only from a
person present on a licensed riverboat; (viii) persons under 21 are not
permitted in designated gaming areas; (ix) except for slot machine play, wagers
may be made only with tokens, chips or electronic cards purchased from the
licensee aboard a riverboat; (x) licensees may only use docking facilities and
routes for which they are licensed and may only board and discharge passengers
at the riverboat's licensed berth; (xi) licensees must have adequate protection
and indemnity insurance; (xii) licensees must have all necessary federal and
state licenses, certificates and other regulatory approvals prior to operating a
riverboat; and (xiii) gaming may only be conducted in accordance with the terms
of the license and the rules and regulations adopted by the Louisiana
Enforcement Division.
An initial license to conduct riverboat gaming operations is valid for a term
of five years. LRGP was issued an initial operator's license by the Louisiana
Enforcement Division with respect to the Isle-Bossier City on December 22, 1993,
and SCGC was issued an initial operator's license by the Gaming Board with
respect to the Isle-Lake Charles on March 14, 1995. The license to operate the
Grand Palais was issued to a previous owner and the Grand Palais ceased
operations as a result of the bankruptcy of GPRI. The Company acquired the Grand
Palais and has been advised by the chief counsel to the Gaming Board that it
will treat the running of the five-year license period as having been suspended
from June 6, 1995 until the date gaming operations commenced on the Grand Palais
(July 12, 1996). The Louisiana gaming law provides that a renewal application
for the period succeeding the initial five-year term of the operator's license
must be made to the Gaming Board on an annual basis. The application for renewal
consists of a statement under oath of any and all changes in information,
including financial information, provided in the previous application.
The transfer of a license or permit or an interest in a license or permit is
prohibited. The sale, purchase, assignment, transfer, pledge or other
hypothecation, lease, disposition or acquisition (a "Transfer") by any person of
securities which represents 5% or more of the total outstanding shares issued by
a corporation that holds a license is subject to Gaming Board approval. A
security issued by a corporation that holds a
19
<PAGE>
license must generally disclose these restrictions. Prior Gaming Board approval
is required for the Transfer of any ownership interest of 5% or more in any non-
corporate licensee or for the Transfer of any "economic interest" of 5% or more
in any licensee or Affiliated Gaming Person. An "economic interest" is defined
for purposes of a Transfer as any interest whereby a person receives or is
entitled to receive, by agreement or otherwise, a profit, gain, thing of value,
loan, credit, security interest, ownership interest or other benefit.
Accordingly, approval is being sought with respect to the LRGP Acquisition.
Fees for conducting gaming activities on a riverboat include (i) $50,000 per
riverboat for the first year of operation and $100,000 per year per riverboat
thereafter, plus (ii) 18-1/2% of net gaming proceeds.
A licensee must notify and/or seek approval from the Gaming Board in
connection with any withdrawals of capital, loans, advances or distributions in
excess of 5% of retained earnings for a corporate licensee, or of capital
accounts for a partnership or limited liability company licensee, upon
completion of any such transaction. The Gaming Board may issue an emergency
order for not more than 10 days prohibiting payment of profits, income or
accruals by, or investments in a licensee. Riverboat gaming licensees and their
affiliated gaming persons must notify the Louisiana Gaming Control Board sixty
(60) days prior to the receipt by any such persons of any loans or extensions of
credit, or modifications thereof. The Board is required to investigate the
reported loan, extension of credit, or modification thereof, and to determine
whether an exemption exists on the requirement of prior written approval, and if
not such exemption is applicable, to either approve or disapprove the
transaction. If the Board disapproves, the transaction cannot be entered into
by the licensee or affiliated gaming person. The Company is an affiliated
gaming person of its subsidiaries which hold the licenses to conduct riverboat
gaming at the Isle-Bossier City and the Isle-Lake Charles.
During the 1996 special session of the Louisiana legislature, legislation was
passed which provided for local option elections to be held in November 1996
which gave voters in each parish within the state the opportunity to decide
whether the various forms of gaming permitted under Louisiana law, including
riverboat gaming, were permissible in each parish. In November 1996, voters in
Calcasieu and Bossier parishes, the parishes in which the Isle-Lake Charles and
Isle-Bossier City are located, respectively, voted favorably to permit the
continuation of riverboat gaming.
During the 1996 special session of the Louisiana legislature, legislation was
also enacted placing a constitutional amendment limiting the expansion of gaming
on the ballot for a state-wide election. In October 1996, voters passed the
constitutional amendment. As a result, local option elections are required
before new or additional forms of gaming can be brought into a parish.
During the 1997 regular session of the Louisiana legislature, a bill was
passed which, subject to favorable parish-wide local option elections and
passage of legislation assessing a tax, would permit the operation of up to
15,000 square feet of slot machines at three (3) horse racing facilities in
Louisiana, two of which are located in the parishes in which the Isle-Lake
Charles and the Isle-Bossier City are located. See "Competition - Bossier City
Operations" and "Competition - Lake Charles Operations."
Proposals to amend or supplement Louisiana's riverboat gaming statute are
frequently introduced in the Louisiana state legislature. No assurance can be
given that changes in Louisiana gaming law will not occur or that such changes
will not have a material adverse effect on the Company's business in Louisiana.
Florida
On June 15, 1995, the Florida Department of Business and Professional
Regulation, acting through its division of pari-mutuel wagering (the
"Division"), issued its final order (the "Order") approving PPI, Inc. ("PPI"), a
wholly owned subsidiary of the Company, as a pari-mutuel wagering permit holder
with respect to
20
<PAGE>
harness and quarter horse racing at Pompano Park. Pursuant to the Order and the
relevant provisions of Chapter 550 of the Florida Statutes and the applicable
rules and regulations thereunder (the "Florida Statute"), PPI also was granted a
license to conduct harness racing at Pompano Park for the racing season
commencing July 1, 1995 and ending June 30, 1996 on a total of 198 evening
racing dates. The Division has approved PPI's license to conduct a total of 183
live evening racing performances for the season beginning July 1, 1996 to June
30, 1997. PPI intends to seek approval to increase the number of live evening
races. Although PPI does not presently intend to conduct quarter horse racing
operations at Pompano Park, it may do so in the future, subject to Division
approval. The transfer of 10% or more of stock of a pari-mutuel racing permit
holder such as PPI would require the prior approval of the Division.
The Florida Statute establishes minimum purse requirements for breeders and
owners, license fees and the tax structure on pari-mutuel permit holders. The
Division may revoke or suspend any permit or license upon the willful violation
by the permit holder or licensee of any provision of the Florida Statute. In
lieu of suspending or revoking a permit or license, the Division may impose
various civil penalties against the permit holder or licensee. Penalties so
imposed may not exceed $1,000 for each count or separate offense.
Pursuant to Division order and recent enactments to the Florida Statute, PPI
is also authorized to conduct full-card pari-mutuel wagering at Pompano Park on
simulcast harness races from outside Florida throughout the racing season and on
night thoroughbred races within Florida if the thoroughbred permitholder has
decided to simulcast night races. Pompano Park has been granted the exclusive
right in Florida to conduct full-card simulcasting of harness racing on days in
which no live racing is held at Pompano Park, although, on such days, Pompano
Park must offer to rebroadcast its simulcast signals to other pari-mutuel
facilities (other than thoroughbred parks). In addition, Pompano Park may
transmit its live races into any dog racing or jai alai facility throughout
Florida, including Dade and Broward counties, for intertrack wagering. The
Florida Statute establishes the percentage split between Pompano Park and the
other facilities receiving such signals. Recent legislation in Florida provided
certain reductions in applicable tax and license fees related to intertrack
wagering on broadcasts of simulcast harness racing and thoroughbred racing. The
Company believes that simulcast rights at Pompano Park and the recent changes in
the Florida Statute are important to the results of operations of PPI.
Effective January 1, 1997, the Florida Statute permits pari-mutuel facilities
to be licensed by the Division to operate card rooms in those counties in which
a majority vote of the County Commission has been obtained and a local ordinance
has been adopted. Card rooms can only be operated at pari-mutuel facilities on
days that the facility is running live races. The hours of operation extend from
two hours before the post time of the first live race and continue until two
hours after the conclusion of the last live race at the racing facility.
Thoroughbred racing facilities must choose between operating card rooms or
simulcasting night races from outside the state, but cannot do both (and if
electing to simulcast night races, they will be required to retransmit the night
simulcast signal to certain other pari-mutuel facilities, including Pompano
Park).
The card room operator is the "house" and will deal the cards. The house can
charge a fee per player or establish a "rake" for each game. The only card games
that have been authorized are "nonbanking" games (i.e., those in which the house
is not allowed to play against the players). The winnings of any player in a
single round, hand or game may not exceed $10.00 and all card games must be
played with tokens or chips.
Card rooms may be operated and managed on behalf of the parimutuel permit
holder by card room management companies, which specifically require a special
license from the Division. Similarly, all employees of the card room management
company or the card room operator need to obtain a specific occupational license
($50 per license) from the Division before they can work in the card room. There
is no statutory limit on the number of card tables allowed in a card room,
however, the annual license fee for the first card table is $1,000 and $500 for
each table thereafter. The card room's annual occupational license fee is $250.
Each card room operator is required to pay a tax of 10% of the card room
operator's monthly gross receipts from card room operations. "Gross receipts"
is defined as the total amount of money received by a card room from any person
for participation in authorized games. At least 50% of the monthly "net
proceeds," if any, at
21
<PAGE>
Pompano Park must be distributed as follows: 47% to supplement purses for
harness racing, and 3% to supplement breeders' awards during the next ensuring
race meet. "Net proceeds" are the total amount of gross receipts received by a
card room operator from card room operations, less direct operating expenses as
defined in the statute.
The Division is currently promulgating rules to give effect to the foregoing
provisions of the Florida Statute.
Texas and Alabama Legalization Potential
Casino gaming is currently prohibited in several jurisdictions adjacent to
Louisiana and Mississippi. As a result, residents of these jurisdictions,
principally Texas and Alabama, comprise a significant portion of the customers
of the Isle-Bossier City and the Isle-Biloxi, respectively. It is anticipated
that residents of Texas will comprise a significant portion of the customers of
the Isle-Lake Charles.
Although casino gaming is not currently permitted in Texas and the Texas
Attorney General has issued an opinion that gaming in Texas would require an
amendment to the Texas Constitution, the Texas legislature has considered
various proposals to authorize casino gaming. No gaming legislation was enacted
in the most recent legislative session ended May 29, 1995. If the Texas
legislature (which meets every two years in odd-numbered years) does not enact
legislation to amend the Texas Constitution in a special session, the next
opportunity for the enactment of such legislation would be in 1997. Although
special sessions may be called by the Texas Governor for matters that were
pending in the preceding regular legislative session, Texas Governor George Bush
has publicly opposed the legalization of gaming in Texas. A constitutional
amendment would require a two-thirds vote of those present and voting in each
house of the Texas legislature and approval by the electorate in a referendum.
The legalization of casino gaming in Texas at or near the primary market areas
of the Isle-Bossier City or the Isle-Lake Charles, including the Dallas/Ft.
Worth and Houston areas, would have a material adverse effect on the Company.
Casino gaming is currently illegal in Alabama due to a constitutional
prohibition against lotteries. Several attempts have been made to pass a
resolution of the Alabama legislature providing for a statewide referendum on
the repeal of the pertinent section of the Alabama Constitution prohibiting
lotteries. This action would require a three-fifths vote of each house of the
legislature, followed by a statewide referendum. Both the Governor and the
Attorney General of Alabama have stated their opposition to legalized casino
gaming, even though pari-mutuel wagering and limited charitable bingo exist
within the state. The legalization of casino gaming in Alabama would have a
material adverse effect on the Isle-Biloxi, both because the Mobile metropolitan
area is a major market for the Isle-Biloxi and because a substantial portion of
the Isle-Biloxi's customers are residents of areas east of Mobile, including
Florida and Georgia, and pass though the Mobile area when traveling to Biloxi.
NON-GAMING REGULATION
The Company is subject to certain federal, state and local safety and health,
employment and environmental laws, regulations and ordinances that apply to non-
gaming businesses generally, such as the Clean Air Act, Clean Water Act,
Occupational Safety and Health Act, Resource Conservation Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act and the Oil
Pollution Act of 1990. The Company has not made, and does not anticipate making,
material expenditures with respect to such environmental laws and regulations.
However, the coverage and attendant compliance costs associated with such laws,
regulations and ordinances may result in future additional costs to the
Company's operations. For example, in 1990 the U.S. Congress enacted the Oil
Pollution Act of 1990 to consolidate and rationalize mechanisms under various
oil spill response laws. The Department of Transportation has promulgated
regulations requiring owners and operators of certain vessels to establish
through the Coast Guard evidence of financial responsibility for clean-up of oil
pollution. This requirement has been satisfied by proof of adequate insurance.
22
<PAGE>
The riverboats operated by the Company in Louisiana must comply with U.S.
Coast Guard requirements as to boat design, on-board facilities, equipment,
personnel and safety. The riverboats must hold Certificates of Documentation and
Inspection issued by the U.S. Coast Guard. The U.S. Coast Guard requirements
also set limits on the operation of the riverboats and require individual
licensing of certain personnel involved with the operation of the riverboats.
Loss of a riverboat's Certificate of Documentation and Inspection could preclude
its use as a riverboat casino.
Any permanently moored vessel used for casino operations in Mississippi must
meet the fire safety standards of the Mississippi Fire Prevention Code and the
Life Safety Code and the Standards for the Construction and Fire Protection of
Marine Terminals, Piers and Wharfs of the National Fire Protection Association.
Additionally, any establishment to be constructed for dockside gaming must meet
the Southern Building Code or the local building code, if such a local building
code has been implemented at the casino's site.
While permanently moored vessels, such as the Isle-Biloxi and the Isle-
Vicksburg casino barges, are not required to hold Certificates of Inspection
from the U.S. Coast Guard, the Mississippi Gaming Commission has engaged the
American Bureau of Shipping (the "ABS") to inspect and certify all casino barges
with respect to stability and single compartment flooding integrity, in
accordance with Mississippi regulations. All casino barges must be inspected
prior to licensing every two years. Inspections subsequent to initial licensing
must be performed by the ABS or other company approved by the Gaming Commission.
All shipboard employees of the Company, even those who have nothing to do with
its operation as a vessel, such as dealers, waiters and security personnel, may
be subject to the Jones Act which, among other things, exempts those employees
from state limits on workers' compensation awards.
ITEM 2. PROPERTIES.
The Company owns the three floating pavilions at the Isle-Biloxi location as
well as the floating pavilion at the Isle-Vicksburg location. LRGP owns the
riverboat casino at the Isle-Bossier City location. SCGC and GPRI, respectively,
own the riverboat casinos at the Isle-Lake Charles. The Company also owns or
leases all of its gaming and non-gaming equipment.
The Company leases its executive offices in Biloxi, Mississippi pursuant to
two leases. The first term of the first lease terminates on July 20, 1997.
Monthly rent is $2,442 plus an annual increase of 4%. The Company has the option
to renew for two additional three-year periods. The first term of the second
lease terminates on May 17, 1997. Monthly rent is $3,333 plus an annual increase
of 4%. The Company has the option to renew for two additional three-year terms.
The Company leases the Biloxi berth (the "Berth Lease") from the Biloxi Port
Commission at an initial annual rent of the greater of $500,000 (the "Minimum
Rent") or 1% of the gross gaming revenues received from the operations at the
site, net of state and local gaming taxes. The lease terminates on July 1, 1999,
but is renewable at the option of the Company for eight additional terms of five
years each. For each of the renewal terms, the amount of the Minimum Rent is
adjusted to reflect any increase in the cost of living index, limited to 6% for
each renewal period.
The Company leases land-based facilities in Biloxi from the City of Biloxi
(the "Casino Lease") at an annual rent of (i) $500,000 per year (the "Base
Rent"), plus (ii) 3% of the gross gaming revenues received from the operations
at the site, net of state and local gaming taxes and fees, in excess of $25
million. The lease terminates on July 1, 1999 but is renewable at the option of
the Company for six additional terms of five years each and a seventh option
renewal term, concluding on January 31, 2034. For each of the renewal terms, the
amount of the Base Rent is adjusted to reflect any increase in the Consumer
Price Index limited to 6% for each renewal period. The Company was required to
make certain parking, landscaping, utilities and other related improvements,
23
<PAGE>
amounting to $1.4 million, the payments for which are being applied as a rent
credit ratably over the initial term of the Casino Lease. In addition, in order
to lease the property subject to the Casino Lease, the Company acquired the
leasehold interest of Coastal Cruise Lines, Inc. and The Factory, Inc., the
original lessee, for consideration of $1,000,000 per year for ten years
resulting in monthly installments of $83,333.
In April 1994, the Company entered an Addendum to the Casino Lease, which
requires the Company to pay 4% of gross non-gaming revenues received from
operations at the Isle-Biloxi, net of sales tax, comps and discounts. Additional
rent will be due to the City of Biloxi for the amount of any increase from and
after January 1, 2016 in the rent due to the State Institutions of Higher
Learning under a lease between the City of Biloxi and the State Institutions of
Higher Learning (the "IHL Lease") and for any increases in certain tidelands
leases between the City of Biloxi and the State of Mississippi.
In April 1994, in connection with the construction of a hotel, the Company
entered a lease for additional land adjoining the Isle-Biloxi. The Company first
acquired the leasehold interest of Sea Harvest, Inc., the original lessee, for
consideration of $8,000 per month for a period of ten years. The Company's lease
is with the City of Biloxi, Mississippi, for an initial term of 25 years, with
options to renew for six additional terms of 10 years each and a final option
period with a termination date commensurate with the termination date of the IHL
Lease, but in no event later than December 31, 2085. Annual rent (which includes
payments to be made pursuant to the purchase of a related leasehold interest) is
$404,000, plus 4% of gross non-gaming revenue, as defined. The annual rent is
adjusted after each five-year period based on increases in the Consumer Price
Index, limited to a 10% increase in any five-year period. The annual rent will
increase 10 years after the commencement of payments pursuant to a termination
of lease and settlement agreement to an amount equal to the sum of annual rent
had it been $500,000 annually plus adjustments thereto based on the Consumer
Price Index.
In June 1993, the Company entered into a lease for the exclusive use of
approximately 133 parking spaces and the additional use of 169 spaces in another
parking lot from the hours of 6:00 p.m. to 6:00 a.m. daily on property adjacent
to the Isle-Biloxi. The rent is $50,000 per year and the lease expires in June
1997. The Company has also entered a joint venture arrangement to sub-lease
property for the construction of a two-level parking garage next to the Isle-
Biloxi. The Company pays 50% of the rent, which is (i) $96,000 per year until
November 2000 to acquire the leasehold interest of the original lessee of the
property, plus (ii) $25,000 per month to the City of Biloxi, the lessor, plus
annual increases attributable to the Consumer Price Index (limited to 3% per
rental year) until the first option renewal period ends on November 30, 1995
and, thereafter, $25,000 per month, plus annual increases attributable to the
Consumer Price Index (limited to 3% per rental year) until the second option
renewal period ends on November 30, 2000. If the property is leased to a third
party, with the consent of the Company and its joint venture partner, for use of
the property as a gaming site, certain expenses, up to a maximum of $940,000,
will be refunded.
The Company owns approximately 13.1 acres of land in the City of Vicksburg,
Mississippi for use in connection with the Isle-Vicksburg. The Company owns an
additional 13 acres in Vicksburg on which it has off-site parking for 260
vehicles and operates a 67-vehicle recreational vehicle park. The Company
entered a lease for approximately five acres of land adjacent to the Isle-
Vicksburg to be used for additional parking.
The Company owns approximately 38 acres in Bossier City, Louisiana for use in
connection with the Isle-Bossier City, and owns a 234-room hotel located on
approximately 10.5 acres of land on Interstate 20 in Bossier City, Louisiana.
The hotel is located 2.5 miles east of the Isle-Bossier City and five miles west
of the Louisiana Downs horse racing track.
The Company owns approximately 180 acres, and leases an additional 143 acres,
at Pompano Park. The lease ends on July 1, 1999. The annual rent is $1.00 plus
all maintenance and operating expenses of the premises. The Company has the
exclusive option to purchase the premises during the term of the lease for not
less than $12 million.
The Company also owns two additional riverboat casinos and one floating
pavilion that are currently held for
24
<PAGE>
sale. The riverboat casinos and the floating pavilions were previously used by
the Company at the Isle-Biloxi and one of the riverboats and the floating
pavilion were previously used by the Company at the Isle-Vicksburg.
SCGC owns approximately 2.7 acres and leases approximately 10.5 acres of land
in Calcasieu Parish, Louisiana for use in connection with the Isle-Lake Charles,
which it also intends to use in connection with the Grand Palais. The lease
commenced on March 24, 1995 and has an initial term of five years. The annual
rent on the leased property is $750,000 for the first four years and $900,000
for the fifth year of the initial term. The Company has the option to renew the
lease for seven additional terms of five years each. For the first renewal term,
the rent increases each year by 5% or the percentage increase in the average
consumer price index for Calcasieu Parish, Louisiana for the previous 12 month
period, whichever is higher. Rent for the second and all subsequent renewal
terms will be no less than the rent for the last year of the preceding term,
subject to market adjustments upward based upon the rent paid by other riverboat
gaming operators in Louisiana and Mississippi for comparable property usages.
The rent for the fourth and all subsequent renewal terms will not be less than
$1.5 million per year. The Company also leases an additional 5.75 acres of land
in Calcasieu Parish. The lease commenced on July 17, 1995 and has an initial
term of five years. The annual rent on the leased property is $100,000 for the
initial term. The Company has the option to renew the lease for seven additional
terms of five years each. For the first renewal term, the rent increases each
year by 5% or the percentage increase in the average consumer price index for
Calcasieu Parish, Louisiana for the previous 12-month period, which ever is
higher. Rent for the second and all subsequent renewal terms will be no less
then the rent for the last year of the preceding term, subject to market
adjustments upward based upon the rent paid by other riverboat gaming operators
in Louisiana and Mississippi for comparable property usage.
The Company owns 1.6 acres and leases 1.3 acres of land in Cripple Creek,
Colorado. The lease has an initial term of 25 years, with options to renew for
seven additional terms of 10 years each. Annual rent under the lease for the
first year of the lease is $250,000 and increases at the rate of $10,000 per
year to a maximum annual rent of $300,000. The amount of the rent is also
adjusted seven years after the rent commencement date and every two years
thereafter to reflect any increase in the Consumer Price Index (limited to 4%
for each year), applied cumulatively and in the aggregate. The Company has an
option to purchase the leased land at a price, depending on the date of
exercise, of $3.2 million to $5.0 million, or $5.0 million as adjusted by
increases in the Consumer Price Index if exercised after the year 2009.
Substantially all of the Company's property is presently pledged as collateral
for the Senior Secured Notes. See Note 4 of Notes to Consolidated Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named, along with two gaming equipment suppliers, 41 of
the country's largest gaming operators and four gaming distributors (the "Gaming
Industry Defendants") in a consolidated class action lawsuit pending in Las
Vegas, Nevada. The suit alleges that the Gaming Industry Defendants violated
the Racketeer Influenced and Corrupt Organizations Act by engaging in a course
of fraudulent and misleading conduct intended to induce people to play their
gaming machines based upon a false belief concerning how those gaming machines
actually operate, as well as the extent to which there is actually an
opportunity to win on any given play. The suit seeks unspecified compensatory
and punitive damages. The actions are in the early stages of discovery and
preliminary motions. The Company is unable at this time to determine what
effect, if any, the suit would have on its financial position or results of
operations.
The Company has challenged a Louisiana statute which, effective January 1,
1996, would permit the Bossier Parish Police Jury to levy an additional 50 cent
boarding fee per passenger against LRGP. The Company's challenge of the statute
was denied at the state trial court level, however, the Company has appealed
that decision.
25
<PAGE>
No briefing schedule has been set by the appellate court; therefore, the Company
is unable at this time to determine whether it will ultimately be successful in
its appeal. If the Company is ultimately unsuccessful in its appeal, it would
have a liability, as of April 27, 1997, of approximately $2.3 million for prior
unpaid boarding fees, plus a continuing 50 cent fee per passenger at the Isle-
Bossier City. As of April 27, 1997, the Company has fully accrued for this
contingent liability, and the Company is continuing to accrue for these boarding
fees as incurred.
The Company and its Chairman, Bernard Goldstein, were named as defendants in a
lawsuit entitled "Martin B. Greenberg v. Casino America, Inc. and Bernard
Goldstein, individually" which was filed on January 23, 1997 in the United
States District Court for the Southern District of Florida, Fort Lauderdale
Division. The lawsuit alleges that the Company breached a contract of
employment between Mr. Greenberg and the Company in connection with Mr.
Greenberg's employment as chairman of the Company's Pompano Park subsidiary.
The suit makes a claim for damages against the Company, and against its
Chairman, in an unspecified amount. The action is in the early stages of
discovery and preliminary motions; therefore, the Company is unable to determine
at this time what effect, if any, the suit would have on its financial position
or results of operations.
The Company is engaged in various matters of litigation and has a number of
unresolved claims pending. While the ultimate liability with respect to such
litigation and claims cannot be determined at this time, it is the opinion of
management that such liability is not likely to be material to the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the Company's 1997 fiscal year.
26
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information. The following table sets forth, for the calendar
periods indicated, (a) the high and low bid quotations for the Common Stock as
reported on the Nasdaq Small-Cap Market until May 10, 1993 and (b) the high and
low sale prices on the Nasdaq National Market thereafter. The quotations
reflect interdealer prices, without retail mark-up or commissions, and may not
necessarily represent actual transactions. All prices listed have been adjusted
to reflect the Company's three-for-two stock dividend distributed in June 1993
and the Company's three-for-two stock dividend distributed in April 1994.
Fiscal Year Ended April 30, 1996
First Quarter.................... 17.50 13.25
Second Quarter................... 16.00 6.50
Third Quarter.................... 8.00 5.12
Fourth Quarter................... 8.38 5.38
Fiscal Year Ended April 27, 1997
First Quarter.................... 9.75 5.75
Second Quarter................... 7.38 4.38
Third Quarter.................... 5.13 2.56
Fourth Quarter................... 3.38 1.75
Fiscal Year Ending April 28, 1998
First Quarter (through July18, 1997).. 2.82 1.94
(b) Holders of Common Stock. As of July 18, 1997, there were 712 holders of
record of the Common Stock.
(c) Dividends. The Company has never paid any dividends with respect to its
Common Stock and the current policy of the Board of Directors is to retain
earnings to provide for the growth of the Company. In addition, the
Company's indenture with respect to the Senior Secured Notes limits, and
the indenture with respect to the Notes will limit, the Company's ability
to pay dividends. See "Item 8 -- Financial Statements and Supplementary
Data -- Casino America, Inc. -- Notes to Consolidated Financial Statements
-- Note 4." Consequently, no cash dividends are expected to be paid on the
Common Stock in the foreseeable future. Further, there can be no assurance
that the current and proposed operations of the Company will generate the
funds needed to declare a cash dividend or that the Company will have
legally available funds to pay dividends. In addition, the Company may
fund part of its operations in the future from indebtedness, the terms of
which may prohibit or restrict the payment of cash dividends. If a holder
of Common Stock is disqualified by the regulatory authorities from owning
such shares, such holder will not be permitted to receive any dividends
with respect to such stock. See "Item 1--Business--Regulatory Matters."
27
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial information has been derived from
the consolidated financial statements of the Company and should be read in
conjunction with the consolidated financial statements and notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Year Year Year Year
ended ended ended ended ended
April 27, April 30, April 30, April 30, April 30,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues $ 375,602 $ 157,963 $ 127,537 $ 144,633 $ 58,664
Operating income 28,523 2,378 20,154 39,915 17,587
Income (loss) before
income taxes and extra-
ordinary item (10,354) 4,888 30,012 31,555 15,451
Net income (loss) (21,051) 1,555 18,069 20,353 10,042
Net income (loss) before
before extraordinary item per
common and common equivalent share
Primary (.39) .10 1.16 1.28 .71
Fully diluted (.39) .10 1.15 1.28 .68
- -------------------------------------------------------------------------------------------------------------------------
April 27, April 30, April 30, April 30, April 30,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (IN THOUSANDS)
Total Assets $ 528,421 $ 226,474 $ 211,899 $ 176,538 $ 58,484
Long-term debt including
current portion 379,522 139,778 138,857 126,649 34,051
Stockholders' equity 77,973 50,270 42,015 23,650 14,945
</TABLE>
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified
in its entirety by, the consolidated financial statements, including the notes
thereto, included elsewhere in this Form 10-K.
The following discussion includes "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In particular,
statements concerning the effects of increased competition in the Company's
markets, the effects of regulatory and legislative matters, the Company's plans
to make capital investments at its facilities, including, without limitation,
considerations to develop a casino as the Isle-Black Hawk in Black Hawk,
Colorado and to develop hotels at the Isle-Bossier City and the Isle-Lake
Charles and the expansion of non-gaming amenities at all facilities, are forward
looking statements. Although the Company believes that the expectations
reflected in such forward looking statements are reasonable, there can be no
assurance that such expectations are reasonable or that they will be correct.
Actual results may vary materially from those expected. Important factors that
could cause actual results to differ with respect to the Company's planned
capital expenditures principally include a lack of available capital resources,
construction and development risks such as shortages of materials and labor and
unforeseen delays resulting from a failure to obtain necessary approvals, and
the Company's limited experience in developing hotel operations. Other
important factors that could cause the actual results to differ materially from
expectations are discussed under "Risk Factors" in the prospectus dated
August 1, 1996 relating to the issuance of the Company's Senior Secured Notes.
GENERAL
The Company's results of operations for the fiscal year ended April 27, 1997
reflect the consolidated operating results from all of the Company's
subsidiaries, including the Isle-Biloxi, the Isle-Vicksburg, the Isle-Bossier
City, the Isle-Lake Charles and Pompano Park, Inc. ("PPI"). The LRGP
Acquisition consummated on August 6, 1996, gave the Company 100% ownership in
the Isle-Bossier City and the Isle-Lake Charles, allowing the Company to
consolidate their results of operations beginning in the quarter ended October
31, 1996. Previously, the Company reported its interests in the Isle-Bossier
City and the Isle-Lake Charles using the equity method of accounting. The
Company believes that its results of operations for the periods subsequent to
the LRGP Acquisition are not readily comparable to the results of operations
from periods prior to the LRGP Acquisition primarily because of the
consolidation of the results of operations of the Isle-Bossier City and the
Isle-Lake Charles. Furthermore, the historical results of operations reflect
the Isle-Lake Charles as a single riverboat operation, whereas the Isle-Lake
Charles has operated two riverboats since July 12, 1996 as a result of the GPRI
Acquisition. In addition, the land-based pavilion at the Isle-Lake Charles was
expanded in May of 1996. Because of the lack of comparable information on a
consolidated basis, the following discussion will focus on certain events that
affected the Company's consolidated operations during the fiscal year ended
April 27, 1997 and comparable data on a location basis. The Company's results
of operations for the fiscal year ended April 30, 1996 reflect the Company's
equity in income of the Isle-Bossier City and the Isle-Lake Charles, which
commenced operations on May 20, 1994 and July 29, 1995, respectively. In
addition, the fiscal 1996 results of operations were impacted by the substantial
expansion of the Isle-Biloxi, which included the addition of a hotel and
enhancements to the land-based pavilion and the casino, completed in August 1995
and the acquisition of Pompano Park in June 1995.
The Company believes that the results of operations for the fiscal years ended
April 27, 1997, April 30, 1996 and April 30, 1995 may not be indicative of the
results of operations for future periods primarily because of the substantial
present and expected future increase in gaming competition for gaming customers
in each of the Company's markets as new casinos open and as existing casinos add
to or enhance their facilities. The Company believes that seasonality does not
have a significant effect on its business.
29
<PAGE>
RESULTS OF OPERATIONS
Fiscal Year Ended April 27, 1997 - Consolidated Company
Total revenue for the fiscal year ended April 27, 1997 was $375.6 million
which included $322.7 million of casino revenue, $11.7 million of rooms revenue,
$2.1 million of management fees, $19.4 million of pari-mutuel commissions,
simulcast fees and admissions, and $19.7 million of food, beverage and other
revenue. The consolidated revenue of the Company has been impacted by the
inclusion of the Isle - Bossier City and the Isle - Lake Charles into the
Company's consolidated financial statements since August 6, 1996 and by the GPRI
operations since July 12, 1996. Revenues do not reflect the retail value of
any complimentaries. Also, as a result of the LRGP Acquisition, management fees
were not reported for the periods subsequent to the date of acquisition because
these amounts were eliminated in consolidation.
Casino operating expenses for the fiscal year ended April 27, 1997 totaled
$64.3 million, or 19.9% of casino revenue versus 21.4% for the fiscal year ended
April 30, 1996. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino. The
improvement in operating expenses as a percentage of casino revenues is
attributed to the Company's expense reduction efforts combined with a shift to
direct response marketing.
Operating expenses for the fiscal year ended April 27, 1997 also included room
expenses of $4.5 million from the hotels at the Isle - Biloxi and the Isle -
Bossier City. These expenses were those directly relating to the cost of
providing hotel rooms. Other costs of the hotels are shared with the casinos
and are presented in their respective expense categories.
State and local gaming taxes paid in Mississippi and Louisiana totaled $61.8
million for the fiscal year ended April 27, 1997, which is consistent with the
each states' applicable gaming tax rate for previous periods.
Pari-mutuel operating costs of Pompano Park totaled $16.0 million in fiscal
1997. Such costs consist primarily of compensation, benefits, purses, simulcast
fees and other direct costs of track operations.
Food and beverage expenses totaled $14.3 million for the fiscal year ended
April 27, 1997. These expenses are comprised primarily of the salaries, wages
and benefits, and the operating expenses of these departments.
Marine and facilities expenses totaled $20.7 million for the fiscal year ended
April 27, 1997 and include salaries, wages and benefits, operating expenses of
the marine crews, insurance, housekeeping and general maintenance of the
riverboats and floating pavilions.
Marketing and administrative expenses totaled $128.8 million for the fiscal
year ended April 27, 1997. Marketing expenses included salaries, wages and
benefits of the marketing and sales departments as well as promotions,
advertising, special events and entertainment. Administrative expenses included
administration and human resource department expenses, rent, new development
activities, professional fees, property taxes and franchise taxes.
Depreciation and amortization expense was $27.1 million for the fiscal year
ended April 27, 1997. These expenses relate to capital expenditures and
acquisition of leasehold improvements, and berthing and concession rights, as
well as the amortization of intangible assets.
Preopening expenses of $2.5 million for the fiscal year ended April 27, 1997
represent salaries, wages and benefits, training, marketing and other non-
capitalized costs which were expensed as incurred in connection with the opening
of the Grand Palais Riverboat.
30
<PAGE>
Interest expense was $38.7 million for the fiscal year ended April 27, 1997
net of interest income of $1.6 million. There was no capitalized interest
during fiscal 1997. Interest expense relates to the indebtedness incurred in
connection with the acquisition of property, equipment, leasehold improvements
and berthing and concession rights, as well as indebtedness relating to the
purchase of the remaining interest in LRGP, SCGC and the purchase of GPRI.
The Company had a loss before extraordinary item of $8.8 million for the
fiscal year ended April 27, 1997, primarily as a result of the settlement of the
Louisiana Double Jackpot dispute which resulted in a charge of $4.1 million, a
valuation charge of $7.0 million taken against the Company's property held for
development or sale and the increased competition within the Company's markets
beginning in the quarter ended October 31, 1996. In addition, the Company
recorded an extraordinary after-tax charge of $12.3 million primarily resulting
from the issuance of the Senior Secured Notes in August 1996. The tax benefit
resulting from this extraordinary loss was $6.6 million. The Company's
effective tax rate of approximately 27.9% for the fiscal year ended April 27,
1997 was less than the statutory rate primarily due to non-deductible goodwill
amortization and the valuation allowance.
Fiscal Year Ended April 27, 1997 Compared to Fiscal Year Ended April 30, 1996 -
Operating Results - By Location
Isle-Biloxi
For the fiscal year ended April 27, 1997 the Isle-Biloxi had total revenue of
$89.5 million of which $75.3 million was casino revenue, compared to total
revenue of $74.8 million of which $66.3 million was casino revenue for fiscal
year 1996. The increase in revenues relates to increased occupancy and a full
period of operations of its 367-room hotel which opened on August 1, 1995.
Operating income before management fees for fiscal year 1997 totaled $14.5
million or 16.2% of total revenue, compared to $10.4 million or 13.9%, before
preopening expenses of $1.3 million, for fiscal year 1996. The increases in
operating income and operating income margin are primarily due to full period
operations and improved operating efficiencies following the start up of hotel
operations.
Isle-Vicksburg
For fiscal year 1997, the Isle-Vicksburg had total revenue of $53.0 million of
which $50.5 million was casino revenue, compared to total revenue of $59.6
million of which $57.7 million was casino revenue for fiscal year 1996.
Operating income before management fees for fiscal year 1997 totaled $9.1
million or 17.2% of total revenue, compared to $12.1 million or 20.3%, for
fiscal year 1996. The decrease in revenue and operating income is primarily a
result of increased competition and overall weakness of the market.
Isle-Bossier City
For fiscal year 1997, the Isle-Bossier City had total revenue of $146.1
million of which $136.2 million was casino revenue, compared to total revenue of
$154.6 million of which $145.6 million was casino revenue for fiscal year 1996.
Operating income before management fees for fiscal year 1997, which includes a
settlement charge of $7.4 million related to the Louisiana Double Jackpot
Dispute and $2.4 million of expenses related to the Bossier City Head Tax Case,
totaled $16.7 million or 11.4% of total revenue, compared to $43.1 million or
27.9%, for fiscal year 1996. The general decrease in revenue and operating
margin primarily reflects the impact of the changes described above, increased
promotional activities by the Isle-Bossier City and its competitors in the
market and the addition of a new competitor into the market in October 1996.
31
<PAGE>
Isle-Lake Charles
For fiscal year 1997, the Isle-Lake Charles had total revenue of $128.2
million of which $124.2 million was casino revenue, compared to total revenue of
$57.3 million of which $56.6 million was casino revenue for fiscal year 1996.
The increase in revenues relates to the opening of its expanded land-based
pavilion in May 1996 and the commencement of operations of GPRI on July 12,
1996. Operating income before management fees for fiscal year 1997 totaled
$15.0 million or 11.7% of total revenue, before preopening expenses associated
with a second riverboat of $2.5 million compared to an operating income of $4.6
million or 8.0%, before preopening expenses of $4.2 million, for fiscal year
1996. The operating performance at the Isle-Lake Charles has been positively
impacted by the addition of the second riverboat casino and the Company's
efforts to reduce operating expenses.
Pompano Park
For fiscal year 1997, the Pompano Park had total revenue of $23.4 million of
which $19.4 million was pari-mutuel commissions, simulcast fees and admissions,
compared to total revenue of $17.5 million of which $15.1 million was pari-
mutuel commissions, simulcast fees and admissions for fiscal year 1996. The
increase in revenues was substantially due to the beginning of dark day
simulcasting in May 1996 and the addition of a limited stakes poker room in
January 1997. Operating income for fiscal year 1997 totaled $0.1 million or
0.4% of total revenue, compared to $0.3 million or 1.7%, for fiscal year 1996.
Fiscal Year Ended April 30, 1996 - Consolidated Company
Total revenue for the fiscal year ended April 30, 1996 was $158.0 million
which included $123.9 million of casino revenue, $4.4 million of rooms revenue,
$6.3 million of management fees, $15.1 million of pari-mutuel commissions,
simulcast fees and admissions, and $8.2 million of food, beverage and other
revenue. The total revenue of the Company had been impacted by the acquisition
of Pompano Park in June 1995 and the opening of a 367-room hotel at the Isle-
Biloxi offset slightly by a decrease in casino revenues at the Isle-Vicksburg
attributed to increased promotional activity by competitors in the market.
Casino operating expenses for the fiscal year ended April 30, 1996 totaled
$26.5 million, or 21.4% of casino revenue versus 22.1% for the fiscal year ended
April 30, 1995. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino.
Operating expenses for the fiscal year ended April 30, 1996 also included room
expenses of $2.9 million from the hotel at the Isle - Biloxi. These expenses
were those directly relating to the cost of providing hotel rooms. Other costs
of the hotels are shared with the casinos and are presented in their respective
expense categories.
State and local gaming taxes paid in Mississippi totaled $15.1 million for the
fiscal year ended April 30, 1996, which is consistent with the applicable gaming
tax rate for previous periods.
Pari-mutuel operating costs of Pompano Park totaled $11.4 million in fiscal
1996. Such costs consist primarily of compensation, benefits, purses, simulcast
fees and other direct costs of track operations.
Food and beverage expenses totaled $5.7 million for the fiscal year ended
April 30, 1996. These expenses are comprised primarily of the salaries, wages
and benefits, and the operating expenses of these departments.
Marine and facilities expenses totaled $10.1 million in fiscal 1996 and
include salaries, wages and benefits, operating expenses of the marine crews,
insurance, housekeeping and general maintenance of the riverboats and floating
pavilions.
32
<PAGE>
Marketing and administrative expenses totaled $57.4 million for fiscal 1996.
Marketing expenses included salaries, wages and benefits of the marketing and
sales departments as well as promotions, advertising, special events and
entertainment. Administrative expenses included administration and human
resource department expenses, rent, new development activities, professional
fees, property taxes and franchise taxes. The administrative expenses also
include a $1.5 million charge for costs associated with the September 1995
withdrawal of the Company's registration statement and cancellation of its
previously planned public offering of securities and $2.5 million in
administrative and promotional expenses for Pompano Park.
Depreciation and amortization expense was $12.1 million for fiscal 1996.
These expenses relate to capital expenditures and acquisition of leasehold
improvements, and berthing and concession rights, as well as the amortization of
intangible assets.
Preopening expenses of $1.3 million in fiscal 1996 represent salaries,
benefits, training, marketing and other non-capitalizable costs which were
expensed as incurred in connection with the opening of the new hotel at the
Isle-Biloxi. Fiscal 1995 preopening expenses of $0.5 million relate to the
expansion of facilities at the Isle-Vicksburg.
Interest expense was $13.9 million, net of interest income of $1.4 million and
net of capitalized interest of $1.5 million, in fiscal 1996. Interest expense
relates to the indebtedness incurred in connection with the acquisiton of
property, equipment, leasehold improvements and berthing and concession rights
including debt incurred to finance the new hotel and pavilion and furniture,
fixtures and equipment at the Isle-Biloxi, as well as additional indebtedness
relating to land purchased for new development and the acquisition of Pompano
Park.
The Company had net income of $1.6 million for fiscal 1996. This included an
$11.8 million pretax one-time charge which included $9.3 million related to the
write-down of two riverboats, a barge and certain gaming equipment, all of which
were reclassified during the year as being held for sale, as well as $2.5
million related to abandoned projects and certain other costs associated with a
change in executive management. In addition, the Company incurred a $0.3 million
charge in connection with accounting for deferred taxes related to its
investment in SCGC and a $1.2 million pretax loss on disposal of an airplane and
other equipment. The Company's net income for fiscal 1996 includes $16.4
million, representing the Company's equity in the income of LRGP and SCGC (which
includes $1.3 million for the Company's share of the net losses of SCGC). The
Company also incurred a pretax charge of approximately $1.5 million for legal,
printing and accounting costs associated with the September 1995 withdrawal of
the Company's registration statement and the proposed transactions relating
thereto. The Company's effective income tax rate was 73% for fiscal 1996. The
high effective tax rate was due to a $0.7 million fourth quarter adjustment to
prior years' taxes and the exclusion of the Company's share of the net loss of
SCGC in its calculation of income taxes. Earnings per share were $0.10 in
fiscal 1996.
Fiscal Year Ended April 30, 1996 Compared to Fiscal Year Ended April 30, 1995 -
Operating Results - By Location
Isle-Biloxi
For the fiscal year ended April 30, 1996 the Isle-Biloxi had total revenue of
$74.8 million of which $66.3 million was casino revenue, compared to total
revenue of $57.6 million of which $54.2 million was casino revenue for fiscal
year 1995. The increase in revenues relates primarily to the addition of a 367-
room hotel which opened on August 1, 1995. Operating income for fiscal year
1996 totaled $10.4 million before preopening expenses of $1.3 million, or 13.9%
of total revenue, compared to $9.1 million or 16.0% for the prior year. The
decrease in operating income margin was primarily due to lower margins from the
operations of the non-gaming amenities added to the property during fiscal 1996.
33
<PAGE>
Isle-Vicksburg
For fiscal year 1996, the Isle-Vicksburg had total revenue of $59.6 million of
which $57.7 million was casino revenue, compared to total revenue of $66.4
million of which $63.4 million was casino revenue for fiscal year 1995.
Operating income for fiscal year 1996 totaled $12.1 million or 20.3% of total
revenue, compared to $17.9 million, before preopening expenses of $0.5 million,
or 26.5%, for fiscal year 1995. The decrease in revenue, operating income and
operating margin is primarily a result of increased competition within the
market.
Isle-Bossier City
For fiscal year 1996, the Isle-Bossier City had total revenue of $154.6
million of which $145.6 million was casino revenue, compared to total revenue of
$151.1 million of which $142.3 million was casino revenue for fiscal year 1995.
Operating income before management fees for fiscal year 1996 totaled $43.1
million or 27.9% of total revenue, compared to $51.9 million or 34.3%, for
fiscal year 1995. The decrease in revenue, operating income and operating
margin reflects the impact of increased promotional activities by the Isle-
Bossier City and its competitors in the market.
Isle-Lake Charles
For fiscal year 1996, the Isle-Lake Charles had total revenue of $57.3 million
of which $56.6 million was casino revenue. Operating income before management
fees for fiscal year 1996 totaled $4.6 million or 8.0% of total revenue, before
preopening expenses of $4.2 million. The Isle-Lake Charles commenced operations
on July 29, 1995.
Pompano Park
For fiscal year 1996, the Pompano Park had total revenue of $17.5 million of
which $15.1 million was pari-mutuel commissions, simulcast fees and admissions.
Operating income for fiscal year 1996 totaled $0.3 million or 1.7% of total
revenue. Pompano Park was acquired by the Company in June 1995.
LIQUIDITY AND CAPITAL RESOURCES
At April 27, 1997, the Company had cash and cash equivalents of $51.8 million
compared to $18.6 million at April 30, 1996 and approximately $5.5 million
available under lines of credit. The increase in cash is primarily a result of
the proceeds received from the Rights Offering and issuance of the Senior
Secured Notes. Fiscal 1997 operating activities provided $17.5 million of cash
flow to the Company as compared to $11.8 million in fiscal 1996.
The Company invested $21.5 million in property and equipment in fiscal 1997,
primarily for the completion of land-based facilities at the Isle-Lake Charles,
the purchase of equipment and the construction of a limited stakes poker room at
Pompano Park, which opened in January 1997.
On May 3, 1996, the Company purchased all of the common stock of GPRI. The
aggregate consideration paid by the Company in the Grand Palais Acquisition was
approximately $60.8 million, consisting of cash in the amount of approximately
$7.5 million, notes and the assumption of indebtedness of approximately $37.1
million, 2,250,000 shares of Common Stock and warrants to purchase an additional
500,000 shares of Common Stock at an exercise price of $10.00 per share. On the
same date, the Company consummated the SCGC Acquisition for 1,850,000 shares of
Common Stock and restructured the terms of an existing $20.0 million note
previously issued to Crown Casino.
In July and August, 1996 the Company received an aggregate of $18.1 million
from the issuance of 3,079,980 shares of common stock issued pursuant to the
Rights Offering.
34
<PAGE>
On August 6, 1996, the Company issued $315.0 million of 12-1/2% Senior Secured
Notes due 2003. Interest on the Senior Secured Notes is payable semiannually on
each February 1 and August 1, commencing February 1, 1997, through maturity.
Part of the proceeds from the Senior Secured Notes were used to retire or
defease long-term debt, including the 11-1/2% First Mortgage Notes due 2001. The
proceeds were also used to pay accrued interest and other costs of $16.4 million
and to acquire the remaining 50% interest in LRGP and LRG Hotels, L.L.C. held by
Louisiana Riverside Development, Inc. The consideration for the LRGP Acquisition
included $85 million in cash, five year warrants to purchase 500,000 shares of
common stock at an exercise price of $10.50 per share, and $1.5 million per year
for seven years, payable monthly, beginning October 1, 1998.
The Company anticipates that its principal near-term capital requirements will
relate to the completion of a 241-room hotel at the Isle-Lake Charles,
renovations to the land-based facilities at the Isle-Bossier City and the Isle-
Vicksburg, additional hotel projects adjacent to the Isle-Bossier City and the
Isle-Lake Charles, the development of a Farradday's restaurant at each the
Company's casino locations and the purchase of land and other costs related to
the development of a casino in Black Hawk, Colorado. The Company also
anticipates that capital improvements approximating $11.5 million will be made
during fiscal 1998 to maintain its existing facilities and remain competitive in
its markets.
An important component of the Company's operating strategy will be to develop,
open and operate, either directly, through the hotel joint venture or otherwise,
hotel facilities at its gaming facilities in order to attract additional gaming
patrons and encourage longer visits to and a greater level of play at the
Company's casinos. The Company began construction of a $10.5 million, 241-room
hotel facility at the Isle-Lake Charles in March 1997. This hotel is expected
to open in September 1997. The Company is currently seeking financing and/or a
joint venture partner or partners for a hotel adjacent to the Isle-Bossier City,
and another hotel adjacent to the Isle-Lake Charles. Construction of these two
hotel facilities will not begin until such financing and/or joint venture
partner or partners are obtained.
Although the Company is not presently committed to making any significant
capital expenditures or investment into a new gaming market, the Company
believes that, in addition to the developing hotels, it will be necessary to
make certain capital improvements to its land-based facilities at the Isle-
Bossier City and the Isle-Vicksburg and that enhancements to its non-gaming
amenities will be important to its operations. The Company may, in the future,
also consider expanding its casino square footage and hotel capacity at the
Isle-Biloxi. In addition, the Company may consider making investments in
jurisdictions where gaming is not presently permitted, but in which it believes
that gaming may be legalized in the future.
The Company expects that available cash and cash from future operations will
be adequate to fund the aforementioned transactions, planned capital
expenditures, debt service and working capital requirements. However, no
assurance can be made that the Company will have sufficient capital resources to
make all of the capital expenditures described above or such capital investments
that may be necessary to remain competitive in the Company's markets. In
addition, the Indenture governing the Senior Secured Notes places certain limits
on the Company's ability to incur additional indebtedness and to make certain
investments. The Company is highly leveraged and, as a result, may be unable to
obtain debt or equity financing on terms acceptable to the Company. As a result
limitations on the Company's capital resources could delay certain plans with
respect to capital improvements at its existing properties. Furthermore, the
Company will continue to evaluate its planned capital expenditures at each
location in light of the operating performance of the respective facilities at
such locations.
35
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
("SFAS") No. 128, "Earnings per Share", which will become effective for both
interim and annual periods ending after December 15, 1997. SFAS No. 128 will
require companies to disclose basic and diluted earnings per share. Basic
earnings per share will be calculated based on the weighted average common
shares outstanding and would exclude common stock equivalents from the
calculation. The requirements of SFAS No. 128, based on current circumstances,
will not have a significant effect on the Company's earnings per share
calculations.
36
<PAGE>
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
CASINO AMERICA, INC.
Report of Independent Auditors............................................ 38
Consolidated Balance Sheets, April 27, 1997 and April 30, 1996............ 39
Consolidated Statements of Operations, Years ended April 27, 1997,
April 30, 1996 and 1995.................................................. 41
Consolidated Statements of Stockholders' Equity, Years ended
April 27, 1997, April 30, 1996 and 1995.................................. 42
Consolidated Statements of Cash Flows, Years ended
April 27, 1997, April 30, 1996 and 1995.................................. 43
Notes to Consolidated Financial Statements................................ 45
37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Casino America, Inc.
We have audited the accompanying consolidated balance sheets of Casino
America, Inc. as of April 27, 1997 and April 30, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended April 27, 1997, April 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Casino America,
Inc. at April 27, 1997 and April 30, 1996, and the consolidated results of its
operations and its cash flows for the years ended April 27, 1997, April 30, 1996
and 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
June 17, 1997
38
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS APRIL 27 APRIL 30
------ ------------ ------------
1997 1996
------------ ------------
Current assets:
Cash and cash equivalents............. $ 51,846,000 $ 18,585,000
Accounts receivable:
Related parties..................... 315,000 3,171,000
Other............................... 4,793,000 1,764,000
Income tax receivable................. 11,014,000 --
Deferred income taxes................. 5,350,000 1,001,000
Prepaid expenses and other assets..... 5,097,000 2,858,000
------------ ------------
Total current assets.............. 78,415,000 27,379,000
Property and equipment--Net............. 285,234,000 129,306,000
Other assets:
Investment in and advances to joint
ventures............................. -- 34,281,000
Notes receivable-Related party........ -- 4,700,000
Other investments..................... 2,250,000 2,250,000
Property held for development or sale. 7,943,000 15,840,000
Licenses and other intangible
assets, net of accumulated
amortization of $2,894,000.......... 69,997,000 --
Goodwill, net of accumulated
amortization of $2,963,000........... 66,297,000 --
Berthing, concession, and
leasehold rights, net of
accumulated amortization
of $1,522,000 and $1,209,000,
respectively......................... 4,746,000 5,060,000
Deferred financing costs, net of
accumulated amortization of
$1,378,000 and $1,229,000,
respectively......................... 11,565,000 4,327,000
Prepaid expenses, deposits and other.. 1,974,000 3,331,000
------------ ------------
164,772,000 69,789,000
------------ ------------
Total assets...................... $528,421,000 $226,474,000
============ ============
See notes to consolidated financial statements.
39
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
APRIL 27 APRIL 30
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ------------ ------------
Current liabilities:
Current maturities of long-term debt........ $ 14,905,000 $ 8,884,000
Accounts payable--Trade..................... 10,871,000 6,169,000
Accrued liabilities:
Interest.................................. 9,898,000 5,802,000
Payroll and payroll related............... 16,238,000 6,333,000
Property and other taxes.................. 6,669,000 6,880,000
Progressive jackpots and slot club awards. 5,566,000 1,851,000
Other..................................... 5,391,000 2,392,000
------------ ------------
Total current liabilities............... 69,538,000 38,311,000
Long-term debt, less current maturities....... 364,617,000 130,894,000
Deferred income taxes......................... 16,293,000 6,999,000
Stockholders' equity:
Preferred stock, $.01 par value;
2,050,000 shares and 2,000,000 shares,
respectively authorized; none issued....... -- --
Common stock, $.01 par value;
45,000,000 shares authorized; shares
issued and outstanding: 23,345,287 and
16,038,882, respectively................... 233,000 160,000
Class B common stock, $.01 par value;....... -- --
3,000,000 shares authorized; none issued
Additional paid-in capital.................. 62,538,000 13,857,000
Retained earnings........................... 15,202,000 36,253,000
------------ ------------
Total stockholders' equity.............. 77,973,000 50,270,000
------------ ------------
Total liabilities and stockholders'
equity................................. $528,421,000 $226,474,000
============ ============
See notes to consolidated financial statements.
40
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------------------------
APRIL 27 APRIL 30 APRIL 30
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Casino................................ $322,677,000 $123,936,000 $117,613,000
Rooms................................. 11,694,000 4,422,000 --
Management fee--Joint ventures........ 2,110,000 6,308,000 4,613,000
Pari-mutuel commissions and fees...... 19,405,000 15,063,000 --
Food, beverage, and other............. 19,716,000 8,234,000 5,311,000
------------ ------------ ------------
Total revenue...................... 375,602,000 157,963,000 127,537,000
Operating expenses:
Casino................................ 64,301,000 26,484,000 26,044,000
Rooms................................. 4,527,000 2,911,000 --
Gaming taxes.......................... 61,769,000 15,116,000 13,924,000
Pari-mutuel........................... 15,987,000 11,375,000 --
Food and beverage..................... 14,280,000 5,745,000 3,516,000
Marine and facilities................. 20,717,000 10,109,000 6,407,000
Marketing and administrative.......... 128,777,000 57,408,000 47,886,000
Valuation charge...................... 7,000,000 9,257,000 --
Restructuring charge.................. -- 2,541,000 --
Preopening expenses................... 2,500,000 1,311,000 483,000
Loss on disposal of equipment......... 72,000 1,217,000 178,000
Depreciation and amortization......... 27,149,000 12,111,000 8,945,000
------------ ------------ ------------
Total operating expenses........... 347,079,000 155,585,000 107,383,000
------------ ------------ ------------
Operating income........................ 28,523,000 2,378,000 20,154,000
Interest expense........................ (40,332,000) (15,293,000) (14,029,000)
Interest income:
Unconsolidated joint ventures......... 203,000 747,000 2,961,000
Other................................. 1,418,000 622,000 1,022,000
Equity in income (loss) of
unconsolidated joint ventures.......... (166,000) 16,434,000 19,904,000
------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item..................... (10,354,000) 4,888,000 30,012,000
Income tax provision (benefit).......... (1,560,000) 3,333,000 11,943,000
------------ ------------ ------------
Income (loss) before extraordinary item. (8,794,000) 1,555,000 18,069,000
Extraordinary loss on extinquishment
of debt, net of applicable tax
benefit of $6,600,000.................. (12,257,000) -- --
------------ ------------ ------------
Net income (loss)....................... $(21,051,000) $ 1,555,000 $ 18,069,000
============ ============ ============
Income (loss) before extraordinary item
per common and common equivalent share. $ (0.39) $ 0.10 $ 1.16
Extraordinary loss per common and
common equivalent share................ (0.55) -- --
------------ ------------ ------------
Net income (loss) per common and common
equivalent share....................... $ (0.94) $ 0.10 $ 1.16
============ ============ ============
Weighted average common and common
equivalent shares...................... 22,481,000 15,721,000 15,604,000
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES ADDITIONAL TOTAL
OF COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1994................. 14,782,489 $148,000 $ 6,873,000 $ 16,629,000 $ 23,650,000
Exercise of stock options............. 64,715 1,000 220,000 -- 221,000
Issuance of stock for services........ 5,920 -- 75,000 -- 75,000
Net income............................ -- -- -- 18,069,000 18,069,000
---------- -------- ----------- ------------ ------------
Balance, April 30, 1995................. 14,853,124 149,000 7,168,000 34,698,000 42,015,000
Issuance of common stock for Rights 1,020,940 10,000 5,988,000 -- 5,998,000
Offering.............................
Exercise of stock options............. 145,218 1,000 566,000 -- 567,000
Issuance of stock for compensation.... 18,100 -- 115,000 -- 115,000
Issuance of stock for services........ 1,500 -- 20,000 -- 20,000
Net income............................ -- -- -- 1,555,000 1,555,000
---------- -------- ----------- ------------ ------------
Balance, April 30, 1996................. 16,038,882 160,000 13,857,000 36,253,000 50,270,000
Issuance of common stock
for Rights Offering.................. 3,079,980 31,000 17,850,000 -- 17,881,000
Issuance of common stock for
acquisitions.......................... 4,100,000 41,000 27,074,000 -- 27,115,000
Issuance of warrants for acquisitions. -- -- 3,333,000 -- 3,333,000
Exercise of stock options............. 65,625 1,000 165,000 -- 166,000
Issuance of stock for compensation.... 60,800 -- 259,000 -- 259,000
Net loss.............................. -- -- -- (21,051,000) (21,051,000)
---------- -------- ----------- ------------ ------------
Balance, April 27, 1997................. 23,345,287 $233,000 $62,538,000 $ 15,202,000 $ 77,973,000
========== ======== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------------------------
APRIL 27 APRIL 30 APRIL 30
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ (21,051,000) $ 1,555,000 $ 18,069,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 27,149,000 12,111,000 8,945,000
Amortization of bond discount and
deferred financing costs.............. 1,294,000 705,000 786,000
Deferred income taxes........................ (1,837,000) (1,440,000) 5,544,000
Equity in (income) loss of
unconsolidated joint ventures............... 166,000 (16,434,000) (19,904,000)
Write-down of assets held for sale........... 7,000,000 9,257,000 --
Extraordinary item (net of taxes)............ 12,257,000 -- --
Other........................................ 445,000 1,346,000 308,000
Changes in current assets and liabilities,
net of acquisitions:
Receivables............................... (5,231,000) 179,000 (3,952,000)
Prepaid expenses and other assets......... (854,000) 675,000 (932,000)
Accounts payable and accrued expenses..... (1,843,000) 3,802,000 (321,000)
------------- ------------ ------------
Net cash provided by operating activities...... 17,495,000 11,756,000 8,543,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............. (21,490,000) (22,201,000) (46,584,000)
Net cash paid for acquisitions................. (80,495,000) (7,959,000) --
Increase in notes receivable and other
investments................................... -- -- (6,950,000)
Proceeds from disposals of property and
equipment..................................... 739,000 2,767,000 1,408,000
Advances to joint ventures..................... -- -- (10,553,000)
Repayments and distributions from joint
ventures...................................... 1,845,000 3,014,000 43,413,000
(Increase) decrease in restricted cash......... -- 12,171,000 (499,000)
Deposits and other............................. 2,236,000 (1,332,000) (986,000)
------------- ------------ ------------
Net cash used in investing activities.......... (97,165,000) (13,540,000) (20,751,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................... 318,168,000 10,500,000 15,000,000
Principal payments on borrowings and
cash paid to retire debt...................... (210,341,000) (14,908,000) (7,941,000)
Deferred financing costs....................... (12,943,000) (785,000) (1,226,000)
Proceeds from sale of stock and
exercise of options........................... 18,047,000 6,565,000 221,000
------------- ------------ ------------
Net cash provided by financing
activities.................................... 112,931,000 1,372,000 6,054,000
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.............................. 33,261,000 (412,000) (6,154,000)
Cash and cash equivalents at beginning
of year....................................... 18,585,000 18,997,000 25,151,000
------------- ------------ ------------
Cash and cash equivalents at end of year $ 51,846,000 $ 18,585,000 $ 18,997,000
============= ============ ============
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments for:
Interest, net of amounts
capitalized...................... $ 37,092,000 $14,417,000 $13,259,000
Income taxes--net................. 9,328,000 (341,000) 7,758,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Debt issued for:
Land.............................. $ -- $ -- $ 2,290,000
Property and equipment............ 514,000 4,316,000 2,125,000
Insurance premiums................ 1,073,000 855,000 --
Acquisitions:
Debt assumed...................... (37,142,000) -- --
Stock issued...................... (27,115,000) -- --
Warrants issued................... (3,333,000) -- --
See notes to consolidated financial statements.
44
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Casino America,
Inc. and its wholly owned subsidiaries (the Company). On May 3, 1996, the
Company acquired 100% of Grand Palais Riverboat, Inc. (GPRI) and a 50% interest
in St. Charles Gaming Company, Inc. (SCGC). On August 6, 1996 the Company
acquired the 50% interests in Louisiana Riverboat Gaming Partnership (LRGP) and
LRG Hotels, LLC and LRGP's 50% interest in SCGC, which were owned by outside
parties. As of August 6, 1996, LRGP, LRG Hotels, LLC and SCGC became wholly
owned subsidiaries of the Company. Prior to this date, the Company's
investments in these subsidiaries were accounted for using the equity method of
accounting. All material intercompany balances and transactions have been
eliminated in consolidation.
Certain reclassifications have been made to the prior-year financial
statements to conform to the 1997 presentation.
The Company is engaged in the business of developing, owning, and operating
riverboat and dockside casinos and related facilities. The Company commenced
operations in Biloxi, Mississippi, and Vicksburg, Mississippi, on August 1, 1992
and August 9, 1993, respectively. LRGP commenced operations in Bossier City,
Louisiana on May 20, 1994 and SCGC and GPRI commenced operations in Lake
Charles, Louisiana on July 29, 1995 and July 12, 1996, respectively.
The preparation of financial statements in conformity with generally accepted
accounting principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as revenues and expenses during the reporting period. Actual
amounts when ultimately realized could differ from those estimates.
Fiscal Year End
Effective April 27, 1997, the Company changed from an April 30 fiscal year end
to a fiscal year consisting of four, thirteen week quarters, which is also known
as a "four-five-four" fiscal year. This "four-five-four" fiscal year creates
more comparability of the Company's quarterly operations, by having an equal
number of weeks (13) and week-end days (26) in each quarter. Fiscal 1998
commenced on April 28, 1997 and will end April 26, 1998.
Cash and Cash Equivalents
The Company considers cash and all highly liquid investments with a maturity
at the time of purchase of three months or less to be cash equivalents. Cash and
cash equivalents are placed primarily with a high-credit-quality financial
institution. At April 27, 1997, cash equivalents were invested primarily in
short-term commercial paper and treasuries. The carrying amount of cash and cash
equivalents approximates fair value because of the short maturity of these
instruments.
45
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the following estimated useful lives:
YEARS
-----
Leasehold improvements................. 10--31
Buildings and land improvements........ 25
Riverboats and floating pavilions...... 25
Furniture, fixtures, and equipment..... 5--10
Interest capitalized during the years ended April 27, 1997, April 30, 1996 and
1995 totaled $0, $1,525,000 and $1,006,000, respectively. Depreciation expense
for the years ended April 27, 1997, April 30, 1996 and 1995 totaled $22,740,000,
$11,788,000 and $8,632,000, respectively.
Debt Acquisition Costs
The costs of issuing long-term debt have been capitalized and are being
amortized using the effective interest method over the term of the related debt.
Berthing, Concession, and Leasehold Rights
Berthing, concession, and leasehold rights are recorded at cost and are being
amortized over approximately twenty years using the straight-line method.
Licenses, Goodwill and Other Intangible Assets
Licenses, goodwill and other intangible assets principally represent the
excess purchase price the Company paid in acquiring the net identifiable
tangible assets of SCGC, GPRI and LRGP. The license costs included in this line
reflect the value attributed to the Louisiana gaming licenses acquired through
these purchases. The remaining intangible assets balance has been classified as
goodwill and other intangible assets. These assets are being amortized over a
twenty-five year period using the straight-line method.
Revenue and Promotional Allowances
Casino revenue is the net win from gaming activities which is the difference
between gaming wins and losses. Casino revenues are net of accruals for
anticipated payouts of progressive electronic gaming device jackpots.
Revenue does not include the retail amount of food, beverage, and other items
provided gratuitously to customers, which totaled $30,259,000, $13,797,000, and
$9,987,000 for the years ended April 27, 1997, April 30, 1996 and 1995,
respectively. The estimated cost of providing such complimentary services, which
is included in casino expense, was $24,911,000, $11,608,000, and $7,960,000 for
the years ended April 27, 1997, April 30, 1996 and 1995, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the years
ended April 27, 1997, April 30, 1996 and 1995 totaled $15,696,000, $7,085,000
and $5,665,000, respectively.
46
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preopening Expenses
Preopening expenses, which consist principally of payroll and marketing costs,
are expensed as incurred.
Net income (loss) per Common Share
Net income (loss) per common and common equivalent share is based on the
weighted-average number of common shares outstanding during the period plus, in
periods in which they have a dilutive effect, the effect of common shares
contingently issuable upon the exercise of warrants and stock options.
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share," which
will become effective for both interim and annual periods ending after December
15, 1997. SFAS No. 128 will require companies to disclose basic and diluted
earnings per share. Basic earnings per share will be calculated based on the
weighted average common shares oustanding and would exclude common stock
equivalents from the calculation. The requirements of SFAS No. 128, based on
current circumstances, will not have a significant effect on the Company's
earnings per share calculations.
Stock Options
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" in accounting for its stock
option plans and accordingly, does not recognize compensation cost.
2. ACQUISITIONS
Pompano Park
On June 30, 1995, the Company acquired 100% of Pompano Park ("Pompano Park"),
a harness racing track located in Pompano, Florida, for approximately
$8,000,000. The acquisition was accounted for as a purchase, and the results of
operations of Pompano Park have been included in the consolidated income
statement from the date of acquisition. Pro forma operating results giving
effect to the Pompano Park acquisition have not been provided because the pro
forma effect of the acquisition was not material to the operating results of the
Company. If casino gaming is legally permitted in Florida at the Pompano Park
site by June 30, 2001, the Company is required to pay additional consideration
to the seller amounting to $25,000,000 plus 5% of net gaming win, as defined.
The probability of the Company paying such additional consideration is remote;
however, if such payments are made in the future, they would be accounted for as
additional purchase price and allocated to goodwill. Such goodwill will be
amortized over a period to be determined at date of payment not to exceed 40
years.
Grand Palais Riverboat, Inc.
On May 3, 1996, the Company purchased all of the outstanding shares of common
stock of Grand Palais Riverboat, Inc. (GPRI) in a bankruptcy proceeding.
Pursuant to the Plan of Reorganization adopted in such bankruptcy proceeding,
the Company purchased 100% of the shares of the reorganized GPRI, which at the
time of closing owned the Grand Palais Riverboat, gaming equipment, certain
other furniture, fixtures and equipment,
47
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
all necessary gaming licenses issued by the State of Louisiana, and other
permits and authorizations. The acquisition was accounted for as a purchase,
and the operating results of GPRI have been included in the Company's
consolidated income statement from the date operations commenced. GPRI
commenced operations on July 12, 1996 as part of a two-riverboat operation with
SCGC. The aggregate consideration paid by the Company in connection with the
GPRI acquisition was approximately $60.8 million, consisting of $7.5 million in
cash, approximately $37.1 million in promissory notes and assumed indebtedness.
The Company also issued 2,250,000 shares of its common stock, and five-year
warrants to purchase an additional 500,000 shares of common stock at an exercise
price of $10 per share, to GPRI's former secured debt holders. Additionally, in
connection with the Grand Palais Acquisition, Bernard Goldstein, the Chairman of
the Company, and three of his sons (including Robert Goldstein, a director of
the Company) pledged certain of their assets for the issuance of a letter of
credit to secure the repayment of a portion of the principal of certain notes
issued to effect the Grand Palais Acquisition. The Company issued to two of Mr.
Goldstein's sons (other than Robert Goldstein) a five-year warrant to purchase
12,500 shares of Common Stock at an exercise price of $5.875 per share.
St. Charles Gaming Company, Inc.
On May 3, 1996, the Company also purchased the remaining 50% interest in SCGC
not already owned by LRGP (SCGC Acquisition), in exchange for 1,850,000 shares
of the Company's common stock and a five-year warrant. The warrant allows the
seller to convert its note payable to LRGP (up to a maximum of $5,000,000) to
416,667 shares of common stock of the Company at an exercise price of $12 per
share. The purchase agreement also provided for the restructuring of certain
indebtedness owed to the seller. The acquisition was accounted for as a
purchase, however, the operating results of SCGC were still accounted for under
the equity method of accounting as the Company did not obtain a controlling
interest in SCGC.
Louisiana Riverboat Gaming Partnership
On August 6, 1996, the Company acquired the remaining 50% interest in LRGP
held by outside parties (LRGP Acquisition). The consideration for the
acquisition was $85 million in cash, five-year warrants to purchase 500,000
shares of the Company's common stock at an exercise price of $10.50 per share
and $1.5 million per year for seven years, payable monthly beginning on October
1, 1998. The acquisition was accounted for as a purchase, and as a result of
this acquisition, the operating results of LRGP and SCGC, from the acquisition
date forward are consolidated in the Company's income statement.
48
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Information
The following unaudited consolidated pro forma information shows the 1997 and
1996 results of the Company's operations as though the SCGC Acquisition, LRGP
Acquisition and the acquisition of GPRI had occurred at May 1, 1995. Other than
amortization of the related intangible assets and interest on debt incurred to
effect the GPRI Acquisiton, adjustments related to the pre-bankruptcy operations
of GPRI have not been included in the pro forma results of operations for the
fiscal year ended April 30, 1996 because the pre-bankruptcy operations of GPRI
were very limited and substantially different than the post-acquisition
operations. The pro forma results are not necessarily indicative of the future
results or actual results that would have occurred had the purchase been made at
the beginning of the period presented.
FOR THE FISCAL YEAR ENDED
APRIL 27,1997 APRIL 30,1996
-------------- -------------
Total revenue $ 440,439,000 $ 363,473,000
Loss before extraordinary item (13,907,000) (9,647,000)
Net loss (26,164,000) (9,647,000)
Net loss per common and common
equivalent share $ (1.17) $ (0.42)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
APRIL 27 APRIL 30
------------ ------------
1997 1996
------------ ------------
Property and equipment:
Land and land improvements.......... $ 35,468,000 $ 25,485,000
Leasehold improvements.............. 98,388,000 50,130,000
Buildings and improvements.......... 32,358,000 6,099,000
Riverboats and floating pavilions... 92,876,000 33,591,000
Furniture, fixtures, and equipment.. 81,214,000 35,835,000
Construction in progress........... 3,269,000 375,000
------------ ------------
343,573,000 151,515,000
Less: Accumulated depreciation. 58,339,000 22,209,000
------------ ------------
$285,234,000 $129,306,000
============ ============
49
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
APRIL 27 APRIL 30
------------ -------------
1997 1996
------------ -------------
12-1/2% senior secured notes............ $315,000,000 $ -
11-1/2% note payable, due in quarterly
installments of $588,235, including
interest, through June 2001............ 10,000,000 -
Variable rate note (9-1/2% at April 27,
1997), due in monthly installments of
$196,500, including interest, through
February 2000.......................... 6,678,000 -
Variable rate note (9-1/2% at April 27,
1997), due in monthly installments of
$137,283, including interest, with the
remaining principal and interest
due September 1999.................... 3,437,000 -
9-1/4% note payable, due in monthly
installments of $128,545, including
interest, through July 1998............ 2,994,000 -
6% note payable, due in monthly
installments of $165,729, including
interest, through July 1999............ 2,833,000 -
12-1/2% note payable due, in monthly
installments of $125,000, including
interest, beginning October 1997
through October 2004................... 5,909,000 -
11-1/2% first mortgage notes, less
unamortized discount of $1,727,000, due
November 2001................. - $ 103,273,000
Variable rate note (10-1/4% at April 30,
1996 and 10-1/2% at April 27, 1997),
due in monthly installments of
$188,000, including interest, with the
remaining principal and interest due
October 2000........................... 13,912,000 14,670,000
8% note payable, due in monthly
installments of $83,334, including
interest, through July 2002............ 3,420,000 4,906,000
12% note payable, principal due in
November 1996.......................... - 3,625,000
9-1/4% note payable to bank, due in
February 1997.......................... - 1,664,000
8% note payable due in monthly
installments of $11,365, including
interest, through December 2015........ 1,317,000 1,347,000
Variable rate note (9-1/4% at April 30,
1996 and April 27, 1997), due in
monthly installments ranging from
$11,458 to $34,722, including
interest, with the remaining principal
and interest due June 2000............. 4,445,000 4,861,000
9-1/4% note payable, due in monthly
installments ranging from $46,045 to
$97,595, including interest, through
October 1999........................... 2,706,000 3,354,000
Other................................... 6,871,000 2,078,000
------------ -------------
379,522,000 139,778,000
Less: Current maturities................ 14,905,000 8,884,000
------------ -------------
Long-term debt.......................... $364,617,000 $ 130,894,000
============ =============
50
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 6, 1996, the Company issued $315,000,000 of 12-1/2% Senior Secured
Notes due 2003 (the "Senior Secured Notes"). Interest on the Senior Secured
Notes is payable semiannually on each February 1 and August 1 through maturity.
The Senior Secured Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after August 1, 2000 at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest to the redemption date, if redeemed during the 12-month period
beginning on August 1 of the years indicated below:
Year Percentage
---- ----------
2000................................... 106.250%
2001................................... 103.125%
2002 and thereafter.................. 100.000%
The Senior Secured Notes restrict, among other things: (i) the incurrence of
additional debt, except under certain circumstances including meeting certain
pro forma coverage tests; (ii) the payment of dividends on and redemptions of
capital stock; (iii) the businesses in which the Company may engage; (iv) the
use of proceeds from the sale of assets; (v) transactions with affiliates; (vi)
the creation of liens; and (vii) sale and leaseback transactions. At April 27,
1997, no dividends were permitted to be paid under these restrictions.
Part of the proceeds from the Senior Secured Notes were used to prepay or
defease long-term debt, including the $105,000,000 of 11-1/2% First Mortgage
Notes due 2001. The proceeds were also used to pay accrued interest and other
costs, as well as to consummate the LRGP Acquisition.
The Company has $5,500,000 available in bank lines of credit. As of April 27,
1997, the Company had no outstanding balances under these lines of credit.
Substantially all of the Company's assets are pledged as collateral for long-
term debt. At April 27, 1997, the Company was either in compliance with all
debt covenants or waivers had been obtained.
The aggregate principal payments due on total long-term debt over the next
five years and thereafter are as follows:
For the Fiscal Year Ending
1998................. $ 14,905,000
1999................. 12,318,000
2000................. 9,859,000
2001................. 17,913,000
2002................. 2,925,000
Thereafter........... 321,602,000
------------
$379,522,000
============
The fair value of the 12-1/2% Senior Secured Notes, estimated based on quoted
market prices, was approximately $315,000,000 at April 27, 1997. The carrying
value of the Company's other short-term and long-term obligations approximates
fair value at April 27, 1997.
51
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LEASE COMMITMENTS
The Company has an agreement with the Biloxi Port Commission which provides
the Company with certain docking rights. This agreement expires July 1999, with
eight renewal options of five years each. Annual rentals are the greater of
$500,000 or 1% of gross monthly gaming revenue, as defined. Annual rent during
each renewal term is adjusted for increases in the Consumer Price Index, limited
to 6% for each renewal period.
In addition, the Company leases certain land, buildings, and other
improvements from the City of Biloxi under a lease and concession agreement.
This agreement expires on July 1999, with options to renew for seven additional
terms of five years each. Annual rent is $500,000 plus 3% of gross gaming
revenue, as defined, in excess of $25,000,000. Annual rent during each renewal
term is adjusted for increases in the Consumer Price Index, limited to 6% for
each renewal period. This agreement also allows rent credits to be amortized
over the initial term of the lease, for costs and expenses incurred by the
Company for construction of certain improvements to the leased assets. Such rent
credits, net of accumulated amortization, are included in prepaid expenses in
the consolidated balance sheet.
In April 1994, the Company entered an Addendum to the lease with the City of
Biloxi, which requires the Company to pay 4% of gross non-gaming revenues
received as defined, net of sales tax, comps and discounts. Additional rent will
be due to the City of Biloxi for the amount of any increase from and after
January 1, 2016 in the rent due to the State Institutions of Higher Learning
under a lease between the City of Biloxi and the State Institutions of Higher
Learning (the "IHL Lease") and for any increases in certain tidelands leases
between the City of Biloxi and the State of Mississippi.
In April 1994, in connection with the construction of a hotel, the Company
entered a lease for additional land. The Company first acquired the leasehold
interest of Sea Harvest, Inc., the original lessee, for consideration of $8,000
per month for a period of ten years. The Company's lease is with the City of
Biloxi, Mississippi, for an initial term of 25 years, with options to renew for
six additional terms of 10 years each and a final option period with a
termination date commensurate with the termination date of the IHL Lease, but in
no event later than December 31, 2085. Annual rent (which includes payments to
be made pursuant to the purchase of a related leasehold interest) is $404,000,
plus 4% of gross non-gaming revenue, as defined. The annual rent is adjusted
after each five-year period based on increases in the Consumer Price Index,
limited to a 10% increase in any five-year period. The annual rent will increase
10 years after the commencement of payments pursuant to a termination of lease
and settlement agreement to an amount equal to the sum of annual rent had it
been $500,000 annually plus adjustments thereto based on the Consumer Price
Index.
In February 1995, in conjunction with its planned Colorado operation, the
Company entered into a lease agreement for the use of land. The lease has an
initial term of 25 years, with options to renew for seven additional terms of 10
years each. The base rent is $250,000 per year increased by $10,000 each year
until the annual rent is $300,000. After seven years, and every two years
thereafter, the annual rent is adjusted based on increases in the Consumer Price
Index, limited to a 4% increase in any two-year period.
In March and July 1995, the Company entered into agreements to lease the two
parcels of land that comprise the Calcasieu Parish riverboat casino site. The
lease has an initial term of five years with seven five-year renewal options.
During the initial term, the leases require annual aggregate rental payments of
$850,000 in years one through four, and $1,000,000 in year five, payable
monthly. During the first renewal term, the rent will be increased annually by
the greater of 5% or the percentage increase in the average Consumer Price Index
for Calcasieu Parish, Louisiana for the previous twelve-month period. During
the second through seventh renewal terms, the lessor and the Company will
attempt to set the rent equal to 100% of the rent paid by other riverboat gaming
operators in Louisiana and Mississippi for the comparable property usage, or if
no agreement can be made, then the parties will appoint real estate appraisers
to set the rent for each renewal term. However in no
52
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
event shall the annual rent be less than $1,600,000 during the fourth and all
subsequent renewal terms. In addition, the Company will pay all real estate
taxes, except for taxes due on the unimproved value of the property.
Minimum rental obligations under all noncancelable operating leases with terms
of one year or more as of April 27, 1997, are as follows:
For the Fiscal Year Ending
1998................. $ 4,148,000
1999................. 3,798,000
2000................. 2,880,000
2001................. 1,821,000
2002................. 1,603,000
Thereafter........... 17,879,000
-----------
$32,129,000
===========
Rent expense for operating leases was approximately $7,140,000, $4,076,000,
and $3,085,000 for the years ended April 27, 1997, April 30, 1996 and 1995,
respectively. Such amounts include contingent rentals of $2,543,000, $1,288,000,
and $833,000 for the years ended April 27, 1997, April 30, 1996 and 1995,
respectively.
6. RELATED PARTY TRANSACTIONS
During the years ended April 30, 1996 and 1995, the Company incurred
construction costs of approximately $2,391,000 and $3,501,000, respectively,
which were paid to related parties. As of April 27, 1997, there were no
outstanding amounts owed to related parties for construction services.
During the year ended April 30, 1996, the Company repaid $1,556,000 in loans
and interest payable to the Chairman and Chief Executive Officer and a related
party.
The Company provides management services to all of its wholly owned riverboat
casino entities, pursuant to respective management agreements. Management fees
for these services are based upon a percentage of each entity's revenue and
operating income, as defined in the management agreements. The revenue under the
management agreements is eliminated through consolidation. However, the
management services provided by the Company to LRGP and SCGC prior to these
entities becoming wholly owned subsidiaries of the Company as of the August 6,
1996 acquisition date, are reflected as management fee--joint ventures in the
accompanying consolidated income statements.
53
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
Income tax expense (benefit) consist of the following:
For the Fiscal Year Ended
April 27 April 30 April 30
------------ ------------ ------------
1997 1996 1995
Current:
Federal........... $(6,219,000) $ 3,976,000 $ 4,501,000
State............. (104,000) 797,000 1,898,000
----------- ----------- -----------
(6,323,000) 4,773,000 6,399,000
Deferred:
Federal........... (1,569,000) (1,561,000) 5,599,000
State............. (268,000) 121,000 (55,000)
----------- ----------- -----------
(1,837,000) (1,440,000) 5,544,000
----------- ----------- -----------
$(8,160,000) $ 3,333,000 $11,943,000
=========== =========== ===========
A reconciliation of income tax expense (benefit) to the statutory corporate
federal tax rate of 35% is as follows:
For the Fiscal Year Ended
April 27 April 30 April 30
------------ ------------ ------------
1997 1996 1995
Statutory tax expense (benefit)...... $(10,224,000) $ 1,181,000 $ 10,477,000
Effects of:
State taxes....................... (68,000) 1,048,000 1,225,000
Goodwill.......................... 834,000 -- --
Valuation allowance............... 903,000 -- --
Adjustment to prior years' taxes.. -- 720,000 --
Other--Net........................ 395,000 384,000 241,000
------------ ----------- ------------
$ (8,160,000) $ 3,333,000 $ 11,943,000
============ =========== ============
54
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's net deferred income tax liability are
as follows:
April 27 April 30
------------- ------------
1997 1996
Deferred tax liabilities:
Property and equipment......... $ 30,646,000 $12,866,000
LRGP........................... -- 940,000
Other.......................... 1,042,000 59,000
------------ -----------
Total deferred tax liabilities... 31,688,000 13,865,000
Deferred tax assets:
Dividends...................... 496,000 680,000
Write-down of assets held for 5,690,000 3,240,000
sale..........................
Preopening costs............... 2,514,000 1,500,000
Accrued expenses............... 5,836,000 1,600,000
Alternative minimum tax credit. 3,775,000 1,186,000
Net operating losses........... 17,591,000 --
Other.......................... 1,600,000 341,000
------------ -----------
Total deferred tax assets........ 37,502,000 8,547,000
Valuation allowance on (16,757,000) (680,000)
deferred tax assets............. ------------ -----------
Net deferred tax asset........... 20,745,000 7,867,000
------------ -----------
Net deferred tax liability....... $ 10,943,000 $ 5,998,000
============ ===========
At April 27, 1997, the Company's alternative minimum tax credit can be carried
forward indefinitely to reduce future regular tax liabilities. Additionally, as
of April 27, 1997, the Company has net operating loss carry-forwards of
$17,591,000 for income tax purposes, with expiration dates from 2008 to 2012.
Approximately $16,500,000 of net operating losses are subject to limitation
under the consolidated tax return regulation, which may limit the amount
ultimately utilized.
55
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK
Stock-based compensation.
Under the Company's 1992 and 1993 Stock Option Plans, as amended, a maximum of
1,058,750 and 1,200,000 options, respectively, may be granted to directors,
officers, and employees. The plans provide for the issuance of incentive stock
options and nonqualified options which have a maximum term of 10 years and are,
generally, exercisable in yearly installments of 25%, commencing one year after
the date of grant.
<TABLE>
<CAPTION>
Stock options outstanding are as follows:
WEIGHTED
1997 AVERAGE EXERCISE 1996 1995
OPTIONS PRICE OPTIONS OPTIONS
<S> <C> <C> <C> <C>
Outstanding options at beginning of fiscal year... 1,518,188 $8.30 1,327,599 1,120,814
fiscal year
Options granted................................... 777,500 3.56 493,375 308,750
Options exercised................................. (65,625) 3.86 (145,218) (64,715)
Options canceled.................................. (249,925) 9.06 (157,568) (37,250)
--------- ---------- ---------
Outstanding options at end of fiscal yeasr....... 1,980,138 $6.49 1,518,188 1,327,599
========= ========== =========
</TABLE>
Weighted average fair value of options granted during fiscal 1997 was $4.54.
The following table summarizes information about stock options outstanding at
April 27, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- -----------------------------
Weighted average Weighted Weighted Weighted
Ranges of Number remaining average Number average
exercise prices outstanding contractual life exercise price exercisable exercise price
- --------------- ----------- ---------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ .89-$5.69 966,001 8.56 $ 3.70 258,501 $ 4.99
5.88-11.25 684,262 8.38 6.97 253,506 7.32
11.56-18.00 329,875 6.53 13.67 290,813 13.67
--------- ---------
$.89-$18.00 1,980,138 8.16 $ 6.49 802,820 $ 8.87
========= =========
</TABLE>
56
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Proforma information regarding net income and earnings per share is required by
SFAS 123, (Accounting for Stock-based Compensation). Had compensation costs for
the Company's two stock option plans been determined based on the fair value at
the grant dates for awards in fiscal 1996 and 1997 consistent with the
provisions of SFAS 123, the Company's net earnings and earnings per share would
have been reduced to the pro forma amounts disclosed below:
For the Fiscal Year Ended
APRIL 27, 1997 APRIL 30, 1996
--------------- --------------
Net income (loss) - as reported $ (21,051,000) $ 1,555,000
Net income (loss) - pro forma $ (21,527,000) $ 1,470,000
Income (loss) per share - as reported $ (0.94) $ 0.10
Income (loss) per share - pro forma $ (0.96) $ 0.09
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in fiscal 1997 and 1996: options vest at 25% per year for four years
beginning with the grant date dividend yield of 0%; expected volatility of .85;
risk-free interest rate of 7.1% and 6.9%, respectively; and expected lives of 6
years.
The pro forma effect on net income (loss) for fiscal 1997 and fiscal 1996 is
not representative of the pro forma effect on net income for future years
because it does not take into account pro forma compensation expense related to
grants made prior to fiscal 1996 or the potential for issuance of additional
stock options in future years.
Warrants
The Company has the following outstanding warrants:
NUMBER OF
----------------- EXERCISE
DATE ISSUED EXPIRATION DATE WARRANTS SHARES PRICE
---------------- --------- ------- --------
February 1993........ October 31, 1997 900,000 900,000 $ 5.33
June 1995............ June 9, 2001 1 416,667 $12.00
May 1996............. May 3, 2001 1 12,500 $ 5.88
May 1996............. May 3, 2001 500,000 500,000 $10.00
May 1996............. May 3, 2001 1 416,667 $12.00
August 1996.......... August 6, 2001 500,000 500,000 $10.50
Rights Offering
On March 11, 1996, the Company sold an aggregate of 1,020,940 shares of its
common stock at a price of $5.875 per share to the Chairman and Chief Executive
Officer of the Company and three members of his family. On March 1, 1996, when
the Board adopted resolutions authorizing the Company's officers to consummate
the sale of these shares, the last reported sales price on NASDAQ was $5.75 per
share. Proceeds from the sale totaled $5,998,000.
57
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's board of directors authorized the offering (the "Offering"), on
a pro rata basis, of rights to purchase shares of the Company's common stock at
a price of $5.875 per share at a ratio of approximately one share for every four
shares owned to its shareholders of record on March 15, 1996. The primary
purpose of the Offering was to ensure that all shareholders have the same
opportunity to purchase shares of the Company's common stock as has been
afforded to the Chairman and Chief Executive Officer of the Company and his
family.
The Offering expired on July 26, 1996. The number of shares sold through the
Offering was 3,079,980, resulting in proceeds totaling $17,881,000.
9. STOCKHOLDER RIGHTS PLAN
In February 1997, the Company adopted a Stockholder Rights Plan. The Plan is
designed to preserve the long-term value of the shareholders' investment in the
Company. Under the Plan, each shareholder will receive a distribution of one
Right for each share of the Company's outstanding common stock. The Rights were
distributed to shareholders of record on March 3, 1997 and will expire ten years
thereafter. Each right entitles the holder to purchase one one-thousandth
(1/1,000) of a share of a new series of participating preferred stock at an
initial exercise price of $12.50. Initially the rights are represented by the
Company's common stock certificates and are not exercisable. The rights become
exercisable shortly after a person or group acquires beneficial ownership of 15%
or more of the Company or publically announces its intention to commence a
tender or exchange offer that would result in the 15% beneficial ownership
level. Under certain circumstances involving a buyer's acquisition of a 15%
position in the Company, all Rights holders except the buyer will be entitled to
purchase common stock at half price. If the Company is acquired through a
merger, after such an acquisition, all Rights holders except the buyer will be
entitled to purchase stock in the buyer at half price. The Company may redeem
the rights at one cent each at any time before a buyer acquires 15% of the
Company's stock.
10. RESTRUCTURING CHARGE
During January 1996, the Company recorded an $2,541,000 pretax restructuring
charge. The components of the restructuring charge include $1,991,000 related to
costs associated with the change in executive management and $550,000 related to
costs associated with certain abandoned projects.
11. VALUATION CHARGE
During fiscal 1996 the Company recorded a valuation charge of $9,257,000
related to the write-down of two riverboats, a barge and certain gaming
equipment, which were not being used in operations and were reclassified as
assets held for sale. The assets were written down based upon written and oral
purchase/lease option agreements at that time. During fiscal 1997, the Company
did not place any of these assets into service, nor sell any of these assets and
the purchase/lease agreements that were in effect at the end of fiscal 1996
expired. As a result, the Company has revised its estimate of fair value less
cost to sell these assets, and has recorded an additional write down of
$6,000,000 based on current negotiations with potential buyers. After these
charges, these assets have a net carrying value of approximately $5,000,000.
The Company is actively marketing these assets for sale.
Additionally, the Company wrote off $1,000,000 of design and development
costs related to a project for which the Company revised the original scope.
58
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. EXTRAORDINARY ITEM
The Company incurred a pre-tax extraordinary loss totaling $18,857,000 related
to the refinancing of its 11-1/2% First Mortgage Notes and other debt in early
August of 1996. The extraordinary loss included early payment premiums, as well
as the write-off of consent fees and debt acquisition costs. The tax benefit
from the extraordinary loss was approximately $6,600,000.
13. INVESTMENTS IN LRGP AND SCGC
On January 4, 1993, LRGP was formed with the Company as a 50% owner. LRGP
commenced operations on May 20, 1994 in Bossier City, Louisiana. In August
1996, as previously discussed, the Company acquired the other 50% interest in
LRGP, causing LRGP to become a wholly-owned subsidiary of the Company.
Summarized results of operations of LRGP are as follows:
Year Ended April 30
--------------------------
1996 1995
------------ ------------
Total revenue..................... $150,846,000 147,012,000
Operating income.................. 38,381,000 44,097,000
Net income........................ 34,453,000 40,162,000
Summarized balance sheet information for LRGP is as follows:
APRIL 30
------------
1996
------------
Current assets................................. $ 6,950,000
Property and equipment, net.................... 49,204,000
Investment in and advances to affiliates....... 67,832,000
Other assets................................... 335,000
------------
Total assets................................ $124,321,000
============
Other current liabilities...................... $ 27,834,000
Long-term debt, less current maturities........ 27,500,000
Partners' capital.............................. 68,987,000
------------
Total liabilities and partners' capital..... $124,321,000
============
On June 9, 1995, LRGP acquired a 50% interest in SCGC, which operates a
riverboat casino in Lake Charles, Louisiana, for $1,000,000 cash and a
$20,000,000 note payable ($10,000,000 outstanding at April 27, 1997) to the
seller. The note bears interest at 11 1/2% and requires equal quarterly
principal payments commencing June 1996 through June 2000 with interest payable
monthly. Additionally, the Company has issued a warrant that allows the seller
to convert 50% of the outstanding principal balance of the note payable (up to a
maximum of $5,000,000) into 416,667 shares of common stock of the Company at $12
per share. The difference between the carrying amount of the investment and
LRGP's equity in SCGC's net assets is being amortized on a straight-line basis
over 25 years.
59
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Also, as discussed previously, on May 3, 1996, the Company purchased the 50%
of SCGC not owned by LRGP and in August 1996, in conjunction with the Company's
acquisition of LRGP, the Company acquired the 50% interest in SCGC owned by
LRGP, making SCGC a wholly owned subsidiary of the Company.
Summarized results of operations of SCGC from the date of LRGP's acquisition
of SCGC to April 30, 1996 are as follows:
Total revenue.............. $57,263,000
Operating loss............. (643,000)
Net loss................... (5,346,000)
Summarized balance sheet information for SCGC as of April 30, 1996 is as
follows:
APRIL 30
-----------
1996
-----------
Current assets.................... $ 7,142,000
Property and equipment, net....... 69,919,000
Other assets........... 10,126,000
-----------
Total assets................ $87,187,000
===========
Current liabilities:
Advances from and notes
payable to related parties.... $48,787,000
Other.......................... 44,357,000
Long-term debt, less current
maturities....................... 637,000
Partners' deficit................. (6,594,000)
-----------
Total liabilities and
partners' deficit.......... $87,187,000
===========
14. EMPLOYEE BENEFIT PLAN
The Company has a defined-contribution, profit-sharing plan, including 401(k)
plan provisions, covering substantially all of its employees. The Company's
contribution expense related to this plan was approximately $633,000, $328,000,
and $203,000 for the years ended April 27, 1997, April 30, 1996 and 1995,
respectively. The Company's contribution is based on a percentage of employee
contributions and may include an additional discretionary amount.
60
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. LITIGATION
The Company has challenged a statute that permits the Bossier Parish Police
Jury to levy an additional $.50 boarding fee per passenger against LRGP
begininng January 1, 1996 (Boarding Fee Case). The Company's challenge has been
denied at the state court level, however, the Company believes there are
grounds for appeal and has appealed the decision. If the ruling is upheld the
Company would have a liability, as of April 27, 1997, of approximately
$2,300,000 for prior unpaid boarding fees plus a continuing $.50 fee per
passenger at LRGP. This liability has been fully recorded as of fiscal year end
1997, however, because a portion of these disputed boarding fees were incurred
in the period prior to the LRGP Acquisition, the Company capitalized the portion
of the pre-acquisition contingency that would have been recorded by the third
party's interests, as additional purchase price, which will be amortized as an
intangible asset over 25 years. Therefore, only $1,801,000 of this liability is
reflected as an expense in the Company's 1997 income statement.
In April 1997, the Company settled a dispute with the Louisiana Gaming Control
Board and the Louisiana State Police, Riverboat Gaming Division, concerning the
deductability of double jackpots at LRGP and SCGC for the purposes of
determining the amount of gaming taxes owed (Double Jackpot Settlement). As a
result the Company recorded a liability of approximately $8,100,000, however,
because the dispute related to occurrences in the period prior to the SCGC
Acquisition and the LRGP Acquisition, the Company capitalized the portion of the
pre-acquisition contingency that would have been recorded by the third party's
interest, as additional purchase price, which will be amortized as an intangible
asset over 25 years. Therefore, $4,045,000 of this liability is reflected as an
expense in the Company's 1997 income statement.
The Company has been named, along with two gaming equipment suppliers, 41 of
the country's largest gaming operators, and four gaming distributors (the
"Gaming Industry Defendants") in a consolidated class action lawsuit pending in
Las Vegas, Nevada. The suits alleges that the Gaming Industry Defendants
violated the Racketeer Influenced and Corrupt Organizations Act by engaging in a
course of fraudulent and misleading conduct intended to induce people to play
their gaming machines based upon a false belief concerning how those gaming
machines actually operate, as well as the extent to which there is actually an
opportunity to win on any given play. The suit seeks unspecified compensatory
and punitive damages. The actions are in the early stages of discovery and
preliminary motions. The Company is unable at this time to determine what
effect, if any, the suit would have on its financial position or results of
operations.
The Company is engaged in various matters of litigation and has a number of
unresolved claims pending. While the ultimate liability with respect to such
litigation and claims cannot be determined at this time, it is the opinion of
management that such liability is not likely to be material to the Company's
consolidated financial position or results of operations.
16. SUBSEQUENT EVENTS
Black Hawk, Colorado
In June 1997, the Company entered into a joint venture agreement to develop a
casino facility in Black Hawk, Colorado. The project is estimated to cost
approximately $100 million and is contingent upon finding funding for the
project that is non-recourse to the Company (other than with respect to a
limited completion guarantee and certain imdemnity obligations) on acceptable
terms. The development is expected to take approximately eighteen months to
complete from the commencement of excavation activities. If the project
financing is obtained, the joint venture agreement requires the Company to make
capital investments into the project totaling approximately $9 million.
Additionally, the Company plans to provide a completion capital commitment of
up to $5 million if required to enable the facility to commence operations by
April 1, 1999.
61
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended
1996
----------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenue................................. $32,418,000 $ 35,691,000 $ 42,960,000 $ 46,436,000
Operating income (loss)................. 2,112,000 2,185,000 (7,570,000) 5,651,000
Net income (loss)....................... 2,334,000 2,044,000 (6,547,000) 3,724,000
Net income (loss) per common and
common equivalent share................ 0.15 0.13 (0.44) 0.23
Quarters Ended
1997
-------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 27
----------- ------------ ------------ --------------
Revenue................................. $48,117,000 $107,039,000 $110,385,000 $110,058,000
Operating income (loss)................. 4,205,000 4,954,000 12,861,000 6,503,000
Net income (loss) before extraordinary
item................................... 2,917,000 (4,957,000) 769,000 (7,527,000)
Net income (loss)....................... 2,917,000 (17,210,000) 769,000 (7,527,000)
Net income (loss) before extraordinary
item per common and common equivalent
share.................................. 0.14 (0.21) 0.03 (0.32)
Net income (loss) per common and common
equivalent share..................... 0.14 (0.74) 0.03 (0.32)
</TABLE>
The second quarter of fiscal 1997 includes an extraordinary after-tax charge
of $12,257,000 related to the refinancing of the Company's 11-1/2% First
Mortgage Notes and other debt in early August 1996.
The fourth quarter of fiscal 1997 was adversely affected by $5,846,000 in
charges related to the Double Jackpot Settlement and the Boarding Fee Case and a
$1,600,000 adjustment to taxes related to the reversal of tax benefits related
to previous losses which are not recognizable under generally accepted
accounting principles according to FASB 109. The tax benefits from these losses
will be recognizable when the related entities become taxable. Also, in the
fourth quarter of fiscal 1997, the Company recorded a $7,000,000 valuation
charge related to the write down of property held for development or sale.
The Company recorded a $11,798,000 valuation and restructuring charge in the
third quarter of fiscal 1996.
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
--------
ITEM 10, "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT," ITEM 11,
"EXECUTIVE COMPENSATION," ITEM 12, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" and ITEM 13, "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" have been omitted from this report and incorporated by reference
into a definitive proxy statement to be filed with the Commission within 120
days after the end of the fiscal year covered by this report.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report.
1. Financial Statements.
The following financial statements of the Company and reports of
independent auditors are included on pages 37 to 62 of this Form
10-K:
CASINO AMERICA, INC.
Report of Independent Auditors
Consolidated Balance Sheets - April 27, 1997 and
April 30, 1996
Consolidated Statements of Operations - Years ended
April 27, 1997 and April 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years
ended April 27, 1997 and April 30, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended
April 27, 1997 and April 30, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statements Schedules.
None required or applicable.
3. Exhibits.
A list of the exhibits included as part of this Form 10-K is set
forth in the Exhibit Index that immediately precedes such exhibits,
which is incorporated herein by reference.
(b) Reports on Form 8-K. Current report on Form 8-K was filed on February
24, 1997 in connection with a shareholders rights plan adopted by the Company.
63
<PAGE>
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.
CASINO AMERICA, INC.
Dated: July 25, 1997 By: /s/ Bernard Goldstein
----------------------
Bernard Goldstein,
Chairman of the Board, Chief
Executive Officer, and Director
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.
Dated: July 25, 1997 /s/ Bernard Goldstein
-------------------------------------
Bernard Goldstein, Chairman of the
Board, Chief Executive Officer and
Director (Principal Executive
Officer)
Dated: July 25, 1997 /s/ John M. Gallaway
-------------------------------------
John M. Gallaway, President,
Chief Operating Officer and Director
Dated: July 25, 1997 /s/ Rexford A. Yeisley
-------------------------------------
Rexford A. Yersley, Chief Financial
Officer (Principal Financial
and Accounting Officer)
Dated: July 25, 1997 /s/ Allan B. Solomon
-------------------------------------
Allan B. Solomon, Executive Vice
President, Secretary, General
Counsel and Director
Dated: July 25, 1997 /s/ Emanuel Crystal
-------------------------------------
Emanuel Crystal, Director
Dated: July 25, 1997 /s/ Robert S. Goldstein
-------------------------------------
Robert S. Goldstein, Director
Dated: July 25, 1997 /s/ Alan J. Glazer
-------------------------------------
Alan J. Glazer, Director
64
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
3.1 Certificate of Incorporation of Casino America, Inc., as
amended.(5)
3.2 Bylaws of Casino America, Inc., as amended.(5)
3.2A Amendment to Bylaws of Casino America, Inc.
Dated February 7, 1997
4.1 Specimen Certificate of Common Stock.(2)
4.3A Specimen Warrant Agreement with respect to warrants to purchase
900,000 shares of the Company's Common Stock.(3)
4.3B Form of Warrant Agreement with respect to warrants to purchase
500,000 shares of the Company's Common Stock.(13)
4.4A Warrant, dated June 9, 1995, of Crown Casino Corporation to
purchase up to 416,667 shares of Common Stock of Casino America,
Inc.(7)
4.4B Warrant, dated May 3, 1996, of Crown Casino Corporation to
purchase up to 416,667 shares of Common Stock of Casino America,
Inc.(8)
4.5 Indenture dated November 1, 1993 between the Company and Shawmut
Bank Connecticut, National Association, as Trustee.(4)
4.5A First Supplemental Indenture dated as of April 29, 1994 between
the Company and Shawmut Bank Connecticut, National Association,
as Trustee.(4)
4.5B Second Supplemental Indenture dated as of March 8, 1995 between
the Company and Shawmut Bank Connecticut, National Association,
as Trustee.(7)
4.5C Third Supplemental Indenture dated as of May 3, 1996 between the
Company and Fleet National Bank, as Trustee.(8)
4.5D Fourth Supplemental Indenture, dated as of July 26, 1996 between
the Company and Fleet National Bank, as Trustee.(8)
4.6 Indenture dated as of August 1, 1996 between the Company and
Fleet National Bank, as Trustee.(8)
4.7 Casino America, Inc. hereby agrees to furnish to the Securities
and Exchange Commission, upon its request, the instruments
defining the rights of holders of long term debt where the total
amount of securities authorized thereunder does not exceed 10% of
Casino America, Inc.'s total consolidated assets.
4.8 Rights Agreement dated as of February 7, 1997 between Casino
America, Inc. and Norwest Bank Minnesota, N.A., as Rights
Agent.(14)
10.1 Amended and Restated Berth Rental Agreement dated May 12, 1992
between the Biloxi Port Commission and Riverboat Corporation of
Mississippi.(2)
65
<PAGE>
10.2 Biloxi Waterfront Project Lease dated May 12, 1986 with Point
Cadet Development Corporation.(2)
10.3 Addendum to Lease Agreement, dated August 1, 1992, between the
City of Biloxi, Mississippi, Point Cadet Development Corporation,
and Riverboat Corporation of Mississippi.(4)
10.3A Second Addendum to Lease, dated April 9, 1994, by and between the
City of Biloxi, Mississippi, Point Cadet Development Corporation,
the Biloxi Port Commission and Riverboat Corporation of
Mississippi.(4)
10.3B Third Addendum to Casino Lease, dated April 26, 1995, by and
between the City of Biloxi, Mississippi, Point Cadet Development
Corporation, the Biloxi Port Commission and Riverboat Corporation
of Mississippi.(7)
10.4 Declaration of Shared Facilities Agreement for the Isle of Capri
Casino and Hotel, Biloxi, Mississippi, dated as of April 26,
1995, made by Riverboat Corporation of Mississippi.(7)
10.5 Intercreditor Agreement, dated as of May 1, 1995, by and among
The Peoples Bank, Shawmut Bank of Connecticut, N.A. and Riverboat
Corporation of Mississippi.(7)
10.6 Agreement for Sale and Purchase by and between the Company and
Pompano Park Associates, Limited Partnership, dated as of
November 8, 1994.(7)
10.6A Variable Gaming Adjustment Covenant made as of June 30, 1995 by
PPI, Inc. in favor of Pompano Park Associates, Limited
Partnership.(7)
*10.7 Casino America, Inc. 1992 Stock Option Plan.(1)
*10.8 Casino America, Inc. 1992 Stock Option Plan Amendment.(3)
*10.9 Casino America, Inc. 1993 Stock Option Plan, as amended.(7)
*10.10 Casino America, Inc. description of Employee Bonus Plan.(3)
10.11 Partnership Agreement dated January 4, 1993 of Louisiana
Riverboat Gaming Partnership.(3)
10.11A First Amendment to Partnership Agreement of Louisiana Riverboat
Gaming Partnership dated August 31, 1993.(5)
66
<PAGE>
10.11B Second Amendment to Partnership Agreement of Louisiana Riverboat
Gaming Partnership dated April 20, 1995.(7)
10.12 Management Agreement dated January 4, 1993 between Riverboat
Services, Inc. and Louisiana Riverboat Gaming Partnership.(3)
10.13 Management Agreement dated as of March 2, 1995 between Riverboat
Services, Inc. and St. Charles Gaming Company, Inc.(7)
*10.14 Casino America, Inc. Retirement Trust and Savings Plan.(3)
10.15 Deed of Trust, Leasehold Deed of Trust, Assignment of Rents,
Fixture Filing, Security Agreement and Financing Statement, dated
as of November 15, 1993, in a Principal Amount of $105,000,000 by
Riverboat Corporation of Mississippi to J. Morton Matrick, as
trustee for the benefit of Shawmut Bank Connecticut, National
Association, as Indenture Trustee.(4)
10.15A Deed of Trust, Leasehold Deed of Trust, Assignment of Rents,
Fixture Filing, Security Agreement and Financing Statement, dated
as of November 15, 1993, in a Principal Amount of $105,000,000 by
Riverboat Corporation of Mississippi to J. Morton Matrick, as
trustee for the benefit of Shawmut Bank Connecticut, National
Association, as Indenture Trustee.(4)
10.16 Security Agreement, dated November 16, 1993, from Casino America,
Inc. and The Collateral Grantors Party Thereto to Shawmut Bank
Connecticut, National Association, as Trustee.(4)
10.17 First Preferred Fleet Mortgage, dated November 15, 1993, by
Riverboat Corporation of Mississippi to Shawmut Bank Connecticut,
National Association, as Trustee.(4)
10.18 Security Agreement Supplement No. 2, dated January 4, 1994,
between the Company and Shawmut Bank Connecticut, National
Association, as Trustee.(4)
10.19 First Amendment to First Preferred Fleet Mortgage, dated January
6, 1994, by Riverboat Corporation of Mississippi to Shawmut Bank
Connecticut, National Association, as Trustee.(4)
*10.20 Director's Option Plan.(6)
67
<PAGE>
10.21 Biloxi Waterfront Project Lease dated April 9, 1994 by and
between the City of Biloxi, Mississippi and Riverboat Corporation
of Mississippi.(4)
10.21A First Amendment to Biloxi Waterfront Project Lease (Hotel Lease),
dated April 26, 1995, by and between Riverboat Corporation of
Mississippi and the City of Biloxi, Mississippi.(7)
10.22 Settlement Agreement, dated April 14, 1994, by and between the
City of Biloxi, Mississippi, Point Cadet Development Corporation,
Riverboat Corporation of Mississippi, the Company, Sea Harvest,
Inc. and Wayne Hicks and Terry Hicks.(4)
10.23 Management Agreement dated December 23, 1994 between Riverboat
Corporation of Mississippi and Mississippi Innkeepers, Inc.(7)
10.24 Amended Stock Purchase Agreement dated as of June 2, 1995, among
Crown Casino Corporation, St. Charles Gaming Company, Inc. and
Louisiana Riverboat Gaming Partnership.(7)
10.25 Crowne Plaza Resort New Development License Agreement between
Holiday Inns Franchising, Inc. and Riverboat Corporation of
Mississippi, dated December 30, 1994.(7)
10.26 Security Agreement - Pledge dated as of June 9, 1995, between
Louisiana Riverboat Gaming Partnership and Crown Casino
Corporation.(7)
10.27 Shareholders Agreement, dated as of June 9, 1995 by and between
Crown Casino Corporation and Louisiana Riverboat Gaming
Partnership.(7)
10.28 Agreement of Lease between Port Resources, Inc. and CRU, Inc., as
landlords and St. Charles Gaming Company, Inc., as tenant, of
certain land in Calcasieu Parish, Louisiana, dated March 24,
1995, and amended by Amendment to Lease, dated May 3, 1995,
Second Amendment to Lease, dated May 16, 1995 and Third Amendment
to Lease, dated June 6, 1995, along with related Memorandum of
Lease.(7)
68
<PAGE>
10.28A Agreement of Lease between Port Resources, Inc. and CRU, Inc., as
landlords and St. Charles Gaming Company, Inc., as tenant, of
certain land in Calcasieu Parish, Louisiana, dated July 17, 1995,
and amended by Amendment to Lease, dated July 17, 1995.(7)
10.29 Bareboat Charter Party Agreement dated as of March 20, 1995,
between Riverboat Chartering Company, L.C., and Riverboat
Corporation of Mississippi.(7)
10.30 Purchase Option Agreement, dated as of March 20, 1995, between
Riverboat Chartering Company, L.C. and Riverboat Corporation of
Mississippi.(7)
10.31 Guaranty Agreement, dated as of March 20, 1995, between Riverboat
Chartering Company, L.C. and Riverboat Corporation of
Mississippi.(7)
10.32 Development Agreement between St. Charles Gaming Company, Inc.
and Calcasieu Parish Police Jury dated June 5, 1995.(7)
10.33 Note Purchase Agreement, dated as of July 20, 1995, by and among
Louisiana Riverboat Gaming Partnership, St. Charles Gaming
Company, Inc., Nomura Holding America Inc. and First National
Bank of Commerce.(7)
10.34 Lease between Pompano Park Associates, Inc., as Lessor, and the
Company, as lessee, dated as of July 1, 1995.(7)
10.35 Ground Lease with Option to Purchase, dated February 9, 1995,
between Iron Dukes, Inc. and Isle of Capri Casino Colorado,
Inc.(7)
10.36 Promissory Note dated June 29, 1995 by and between PPI, Inc. and
Capital Bank.(9)
10.37 Florida Real Estate Mortgage, Assignment of Rents, and Security
Agreement dated June 29, 1995 by and between PPI, Inc. and
Capital Bank.(9)
*10.38 Employment Agreement dated December 11, 1995 between Casino
America, Inc. and John M. Gallaway.(9)
*10.39 Employment Agreement dated December 11, 1995 between Casino
America, Inc. and Allan B. Solomon.(9)
*10.40 Employment Agreement dated December 22, 1995 by and between
Casino America, Inc. and Rexford A. Yeisley.(10)
69
<PAGE>
10.41 Stock Purchase Agreement dated February 27, 1996 by and between
Casino America, Inc., on the one hand, and Bernard Goldstein,
Robert Goldstein, Richard Goldstein and Jeffrey Goldstein, on the
other hand.(10)
10.42 Stock Purchase and Sale Agreement pursuant to a Plan of
Reorganization dated December 29, 1995 between Casino America,
Inc. and Grand Palais Riverboat, Inc. with exhibits.(10)
10.43 Form of Stock Purchase Agreement dated January 19, 1996 by and
among Casino America, Inc. and Crown Casino Corporation, without
exhibits.(10)
10.44 Purchase Agreement, dated July 2, 1996, by and between CSNO,
Inc., LRGP Holdings, Inc. and Louisiana River Site Development,
Inc.(13)
10.45 Escrow Agreement, dated July 2, 1996, by and among LRGP Holdings,
Inc., Casino America, Inc., Louisiana River Site Development,
Inc., Louisiana Downs, Inc. and Boult, Cummings, Conners & Berry,
PLC.(13)
10.46 Employment Agreement dated July 19, 1996 between Casino America,
Inc. and Edward Reese.(11)
10.47 Employment Agreement dated July 25, 1995 between Casino America,
Inc. and Robert Boone.
10.48 Employment Agreement dated March 17, 1997 between Casino America,
Inc. and James Guay.
10.49 Employment Agreement dated April 7, 1997 by and between Casino
America, Inc. and Timothy M. Hinkley.
10.50 Management Agreement dated April 28, 1997 between
Casino America, Inc. and Riverboat Corporation of Mississippi.
10.51 Management Agreement dated as of April 28, 1997 between Casino
America, Inc. and Riverboat Corporation of Mississippi -
Vicksburg.
10.52 Management Agreement dated April 25, 1997 between Casino America,
Inc. and ICB, L.L.C.
10.53 Operating Agreement of ICB, L.L.C. dated as of April 25, 1997
between Casino America of Colorado, Inc. and Blackhawk Gold, Ltd.
70
<PAGE>
10.54 Amended Casino America, Inc. 1992 Stock Option Plan(12).
10.55 Amended Casino America, Inc. 1993 Stock Option Plan(12).
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
- ----------------------------
(1) Filed as an exhibit to the Company's Current Report on Form 8-K filed
June 16, 1992 (File No. 0-20538), and incorporated into the Company's Form
10-K for the year ended April 27, 1997, by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1992 (File No. 0-20538), and incorporated
into the Company's Form 10-K for the year ended April 27, 1997, by
reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1993 (File No. 0-20538), and incorporated
into the Company's Form 10-K for the year ended April 27, 1997, by
reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1994 (File No. 0-20538), and incorporated
into the Company's Form 10-K for the year ended April 27, 1997, by
reference.
(5) Filed as an exhibit to the Company's Registration Statement on
Form S-1 filed September 3, 1993, as amended (File No. 33-68434), and
incorporated into the Company's Form 10-K for the year ended April 27,
1997, by reference.
(6) Filed as an exhibit to the Company's Registration Statement on
Form S-8 filed June 30, 1994 (File No. 33-80918), and incorporated into the
Company's Form 10-K for the year ended April 27, 1997, by reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1995 (File No. 0-20538), and incorporated
into the Company's Form 10-K for the year ended April 27, 1997, by
reference.
(8) Filed as an exhibit to the Company's Registration Statement on
Form S-3 (No. 333-2610), and incorporated into the Company's Form 10-K for
the year ended April 27, 1997, by reference.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 31, 1995, and incorporated into the
Company's Form 10-K for the fiscal year ended April 27, 1997, by reference.
71
<PAGE>
(10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended January 30, 1996, and incorporated into the
Company's Form 10-K for the fiscal year ended April 27, 1997, by reference.
(11) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 1996, and incorporated into the Company's
form 10-K for the fiscal year ended April 27, 1997, by reference.
(12) Filed as an exhibit to the Company's Proxy Statement for the year
ended April 30, 1996, with respect to the Annual Meeting of Shareholders
held on November 14, 1996.
(13) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1996, by reference.
(14) Filed as an exhibit to the Company's current report on Form 8-K filed
on February 24, 1997, and incorporated into the Company's Form 10-K for the
fiscal year ended April 27, 1997, by reference.
* Management contract or compensatory plan.
72
<PAGE>
EXHIBIT 3.2A
AMENDMENTS TO BYLAWS OF
CASINO AMERICA, INC.
DATED FEBRUARY 7, 1997
1. REVISED BYLAW SECTION 2.3
-------------------------
2.3 Special Meetings. Special meetings of the stockholders entitled to
vote shall be called by the Secretary at any time upon request of the Chairman
of the Board, the President or the Board of Directors (acting upon majority
vote).
2. NEW BYLAW SECTION 2.9
---------------------
2.9 Advance Notification of Proposals at Stockholders Meetings. If a
stockholder desires to submit a proposal for consideration at an annual or
special stockholders meeting or to nominate persons for election as directors at
any stockholders meeting duly called for the election of directors, written
notice of such stockholder's intent to make such a proposal or nomination must
be given and received by the Secretary of the corporation at the principal
executive offices of the corporation either by personal delivery or by United
States mail not later than (i) with respect to an annual meeting of
stockholders, sixty (60) days prior to the anniversary date of the immediately
preceding annual meeting, and (ii) with respect to a special meeting of
stockholders; the close of business on the tenth day following the date on which
notice of such meeting is first sent or given to stockholders. Each notice
shall describe the proposal or nomination in sufficient detail for the proposal
or nomination to be summarized on the agenda for the meeting and shall set forth
(i) the name and address, as it appears on the books of the corporation, of the
stockholder who intends to make the proposal or nomination; (ii) a
representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to present such proposal or nomination; and (iii) the
class and number of shares of the corporation that are beneficially owned by the
stockholder. In addition, in the case of a stockholder proposal, the notice
shall set forth the reasons for conducting such proposed business at the meeting
and any material interest of the stockholder in such business. In the case of a
nomination of any person for election as a director, the notice shall set forth:
(i) the name and address of any person to be nominated; (ii) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons pursuant to which the
nomination or nominations are to be made by the stockholder); (iii) such other
information regarding such nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (iv) the consent of
each nominee to serve as a director of the corporation if so elected. The
presiding officer of the annual or special meeting shall, if the facts warrant,
refuse to acknowledge a proposal or nomination not made in compliance with the
foregoing procedure, and any such proposal or nomination not properly brought
before the meeting shall not be considered.
<PAGE>
EXHIBIT 10.47
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this 25th day
of July, 1995 between Casino America, Inc., a Delaware corporation (the
"Company") and Robert F. Boone ("Employee").
In consideration of the mutual promises of this Agreement, the Company and
Employee agree as follows:
1. Effective Date.
This Agreement shall be effective as of the date hereof.
2. Employment.
(a) Term. The Company hereby employs Employee, and Employee accepts such
employment and agrees to perform services for the Company and/or its
Subsidiaries, for an initial period of three (3) years from and after the
Effective Date of this Agreement (the "Initial Term") and, unless either
party gives written notice to the other party at least ninety (90) days
before the end of the Initial Term or of any Renewal Term, for successive
one-year periods (the "Renewal Term") unless terminated at an earlier date
in accordance with Section 5 of this Agreement (the Initial Term and the
Renewal Terms together referred to as the "Term of Employment").
(b) Service with Company. During the Term of Employment, Employee agrees to
perform reasonable employment duties as the Board of Directors of the
Company and/or its Subsidiaries shall assign to him from time to time.
Employee also agrees to serve, for any period for which he is elected as an
officer of the Company and/or its Subsidiaries; provided, however, that
Employee shall not be entitled to any additional compensation for serving as
an officer of the Company and/or its Subsidiaries. From and after August 14,
1994 Employee shall be a executive officer of the Company with the initial
title being Vice President, Human Resources.
(c) Performance of Duties. Employee agrees to serve the Company and/or its
Subsidiaries faithfully and to the best of his ability and to devote
substantially all of his time, attention and efforts to the business and
affairs of the Company and/or its Subsidiaries during the Term of
Employment.
(d) Compensation. During the Term of Employment, the Company and/or its
Subsidiaries shall pay to Employee as compensation for services to be
rendered hereunder an aggregate base salary of $100,000 per year beginning
August 14, 1994, payable in equal monthly, or more frequent payments,
subject to increases, if any, as may be determined by the Company's Board of
Directors. Employee shall also be eligible to participate in any stock
option plans of the Company and/or its Subsidiaries. In addition to the base
salary, any bonuses, and participation in stock option plans,
1
<PAGE>
Employee shall receive an automobile allowance of $500.00 per month and
shall be eligible to participate in such employee benefit plans or programs
of the Company and/or its Subsidiaries as are or may be made generally
available to employees of the Company or of its Subsidiaries. The Company
and/or its Subsidiaries will pay or reimburse Employee for all reasonable
and necessary out-of-pocket expense incurred by him in the performance of
his duties under this Agreement, subject to the presentment of appropriate
vouchers in accordance with the Company's and/or its Subsidiaries policies
for expense verification.
3. Confidentiality and Non-Competition.
(a) Ownership. Employee agrees that all inventions, copyrightable material,
business and/or technical information and trade secrets which arise out of
the performance of this Agreement are the property of the Company and/or its
Subsidiaries.
(b) Non-Competition. Employee agrees to the following covenant not to
compete beginning on the effective date of this Agreement and continuing
until one year after termination of his employment relationship with the
Company:
Employee agrees not to compete, directly or indirectly (including as an
officer, director, partner, employee, consultant, independent
contractor, or more than 5% equity holder of any entity) with the
Company or any of its Subsidiaries in any way concerning the ownership,
development or management of any gaming operation or facility within a
75 mile radius of any gaming operation or facility with respect to which
the Company or any of its Subsidiaries renders or proposes to render
consulting or management services.
(c) Confidentiality. Except as is consistent with Employee's duties and
responsibilities within the scope of his employment with the Company and/or
the Subsidiaries, Employee agrees not to use or disclose to any unauthorized
person information which is not generally known and which is proprietary to
the Company or any Subsidiary, including all information that the Company or
any Subsidiary treats as confidential, ("Confidential Information"). Upon
termination of Employee's employment, Employee will promptly turn over to
the Company all software, records, manuals, books, forms, documents, notes,
letters, memoranda, reports, data, tables, compositions, articles,
devices, apparatus and other items that disclose, describe or embody
Confidential Information including all copies of the Confidential
Information in his possession, regardless of who prepared them.
2
<PAGE>
4. Remedies.
Employee understands that if he fails to fulfill his obligations under this
Agreement, the damages to the Company and/or its Subsidiaries would be very
difficult to determine. Therefore, in addition to any other rights or
remedies available to the Company at law, in equity, or by statute,
Employee hereby consents to the specific enforcement of this Agreement by
the Company through an injunction or restraining order issued by the
appropriate court.
5. Termination.
(a) Grounds for Termination. The Term of Employment set forth in Section
2(a) shall terminate prior to its expiration in the event that at any time
during such term:
(i) Employee shall die or become disabled as determined in good faith by
the Board of Directors of the Company, or
(ii) The Board of Directors of the Company delivers notice of termination
for "cause" to Employee. For purposes of this section, "cause" shall mean:
(1) and dishonesty, disloyalty or gross misconduct on the part of Employee
in the performance of Employee's duties hereunder; (2) any breach of
Company and/or the Subsidiaries policies or failure on the part of Employee
to perform duties assigned to Employee by the Company's Board of Directors,
which breach or failure is not remedied by Employee within 30 days after
notice thereof is given by the Company to Employee; (3) Employee's failure
to be approved as an officer or employee of the Company by any governmental
licensing agency; or (4) any event or circumstance regarding Employee which
may, in the judgment of the Board of Directors of the Company, result in
(i) the disapproval, modification, or non-renewal of any contract under
which the Company or any Subsidiary has sole or shared authority to own,
develop, manage or consult with any gaming operations, or (ii) the loss or
non-reinstatement of any license or franchise from any governmental agency
held by the Company or an Subsidiary to conduct any portion of the business
of the Company or any Subsidiary, which license or franchise is conditioned
upon employees or officers of the Company meeting certain criteria.
(b) Severance.
The Company may terminate the Term of Employment at any time for any
reason. If the Company terminates the Term of Employment (by either
terminating Employee's employment or by giving the notice described in
Section 2(a) to prevent a Renewal Term) without "cause", then, provided
that Employee signs a General Release in a form acceptable to the Company
that releases the Company and its affiliated entities from any and all
claims that Employee may have against them, Employee shall be entitled to
continue to receive his salary and employee benefits for a period of twelve
3
<PAGE>
(12) months from and after such termination. Except as provided in the
immediately preceding sentence, Employee shall not be entitled to any
compensation beyond the date of a termination of the Term of Employment.
6. Miscellaneous.
(a) Successors and Assigns. This Agreement is binding on and inures to the
benefit of the Company's successors and assigns. The Company may assign
this Agreement in connection with a merger, consolidation, assignment, sale
or other disposition of substantially all of its assets or business. This
Agreement may not be assigned by Employee.
(b) Modification, Waivers. This Agreement may be modified or amended only
by a writing signed by the Company, and Employee. The Company's failure, or
delay in exercising any right, or partial exercise of any right, will not
waive any provision of this Agreement or preclude the Company from
otherwise or further exercising any rights or remedies hereunder, or any
other rights or remedies granted by any law or any related document.
(c) Governing Law and Jurisdiction. The laws of Mississippi will govern the
validity, construction, and performance of this Agreement. Any legal
proceeding related to this Agreement will be brought in a Delaware court.
Both the Company and Employee hereby consent to the exclusive jurisdiction
of that court for this purpose.
(d) Captions. The headings in this Agreement are for convenience only and
do not affect the interpretation of this Agreement.
(e) Severability. To the extent any provision of this Agreement shall be
invalid or enforceable with respect to Employee, it shall be considered
deleted here from with respect to Employee and the remainder of such
provision and this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance to and not in limitation of the foregoing,
should the duration or geographical extent of, or business activities
covered by, any provision of this Agreement be in excess of that which is
valid and enforceable under applicable law with respect to Employee, then
such provision shall be construed to cover only that duration, extent or
activities which are validly and enforceably covered with respect to
Employee. Employee acknowledges the uncertainty of the law in this respect
and expressly stipulates that this Agreement be given the construction
which renders its provisions valid and enforceable to the maximum extent
(not exceeding its expressed terms) possible under applicable laws.
(f) Entire Agreement. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings and
4
<PAGE>
understandings between the parties concerning the matters herein or
therein, including without limitation, any policy of personnel manuals of
the Company.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed in a
manner appropriate for such party as of the date first above written.
CASINO AMERICA, INC.
By: /s/ SIGNATURE APPEARS HERE
---------------------------
Its President
"EMPLOYEE"
/s/ ROBERT F. BOONE
- -------------------------------
Robert F. Boone
5
<PAGE>
EXHIBIT 10.48
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
17th day of March, 1997 between CASINO AMERICA, INC., a Delaware corporation
(the "Company") and JAMES D. GUAY ("Employee").
In consideration of the mutual promises of this Agreement, the Company and
Employee agree as follows:
1. Effective Date: This agreement shall be effective as of March 17th,
1997.
2. Employment:
(a) Term. The Company hereby employs Employee, and Employee accepts
such employment and agrees to perform services for the Company and/or its
Subsidiaries, for an initial period of three (3) years from and after the
Effective Date of this Agreement (the "Initial Term") and, unless either party
gives written notice to the other party at least one (1) year before the end of
the Initial Term or of any Renewal Term, for successive one-year periods (the
"Renewal Terms"), unless terminated at an earlier date in accordance with
Section 5 of this Agreement (the Initial Term and the Renewal Terms together
referred to as the "Term of Employment"). Employee agrees to work out of Casino
America's corporate offices, currently located in Biloxi, Mississippi.
(b) Service with Company. During the Term of Employment, Employee agrees
to perform reasonable employment duties as the Board of Directors of the Company
and/or its Subsidiaries shall assign to him from time to time. Employee also
agrees to serve, for any period for which he is elected as an officer of the
Company and/or its Subsidiaries; provided, however, that Employee shall not be
entitled to any additional compensation for serving as an officer of the Company
and/or its Subsidiaries. Employee's initial position shall be to serve as Vice
President of Marketing.
(c) Performance of Duties. Employee agrees to serve the Company and/or
its Subsidiaries faithfully and to the best of his ability and to devote
substantially all of his time, attention and efforts to the business and affairs
of the Company and/or its Subsidiaries during the Term of Employment.
(d) Compensation. During the Term of Employment, the Company and/or its
Subsidiaries shall pay to Employee as compensation for services to be rendered
hereunder an aggregate base salary of $160,000 per year, payable in equal
monthly, or more frequent payments, subject to increases, if any, as may be
determined by the Company's Board of Directors. In addition, Employee will be
eligible to receive an annual bonus beginning on or about May 1997 based upon
his job performance and the performance of the Company, which bonus shall not be
less than $5,000 for the fiscal 1997 year, and not less than $40,000 for the
fiscal years 1998, 1999, and pro-rated for 2000. Employee shall also be
eligible to participate in any stock option plans of the Company and/or its
Subsidiaries. Employee shall initially receive options to purchase a total of
30,000 shares of the Common Stock of the Company at the fair market price at
date of issue. The options will be vested at the rate of 6,000 shares per
year. /1/ Employee shall be
- ---------------
/1/ In the event of a change in management, take-over or buyout, all shares
shall be fully vested.
<PAGE>
eligible to participate in such employee benefit plans or programs of the
Company and/or its Subsidiaries as are or may be made generally available to
employees of the Company or of its Subsidiaries. The Company and/or its
Subsidiaries will pay or reimburse Employee for all reasonable and necessary
out-of-pocket expense incurred by him in moving to Biloxi and in the performance
of his duties under this Agreement, and in accordance with Company policy.
Employee will be entitled to three (3) weeks paid vacation.
3. Confidentiality and Non-Competition.
(a) Ownership. Employee agrees that all inventions, copyrightable
material, business and/or technical information and trade secrets which arise
out of the performance of his Agreement are the property of the Company and/or
its Subsidiaries.
(b) Non-Competition. Employee agrees to the following covenant not to
compete beginning on the effective date of this Agreement and continuing until
one year after termination of his employment relationship with the Company:
Employee agrees not to compete, directly or indirectly (including as
an officer, director, partner, employee, consultant, independent
contractor, or more than 5% equity holder of any entity) with the
Company or any of its Subsidiaries in any way concerning the
ownership, development or management of any gaming operation or
facility within a 75-mile radius of any gaming operation or facility
with respect to which the Company or any of its Subsidiaries owns,
renders or proposes to render consulting or management services. If
this company develops a casino in Elkton, Maryland, Atlantic City
would be considered to be outside the 75 mile radius.
(c) Confidentiality. Except as is consistent with Employee's duties and
responsibilities within the scope of his employment with the Company and/or the
Subsidiaries, Employee agrees not to use or disclose to any unauthorized person
information which is not generally known and which is proprietary to the Company
or any Subsidiary, including all information that the Company or any Subsidiary
treats as confidential, ("Confidential Information"). Upon termination of
Employee's employment, Employee will promptly turn over to the Company all
software, records, manuals, books, forms, documents, notes, letters, memoranda,
reports, data, tables, compositions, articles, devices, apparatus and other
items that disclose, describe or embody Confidential Information including all
copies of the Confidential Information in his possession, regardless of who
prepared them.
4. Remedies. Employee understands that if he fails to fulfill his
obligations under this Agreement, the damages to the Company and/or its
Subsidiaries would be very difficult to determine. Therefore, in addition to
any other rights or remedies available to the Company at law, in equity, or by
statute, Employee hereby consents to the specific enforcement of this Agreement
by the Company through an injunction or restraining order issued by the
appropriate court.
5. Termination.
(a) Grounds for Termination. The Term of Employment set forth in Section
2(a) shall terminate prior to its expiration in the event that at any time
during such term:
2
<PAGE>
(i) Employee shall die or become disabled as determined in good faith
by the Board of Directors of the Company; or
(ii) The Board of Directors of the Company delivers notice of
termination for "cause" to Employee. For purposes of this
section, "cause" shall mean: (1) Employee's inability to become
qualified by any gaming authority; (2) any dishonesty, disloyalty
or gross misconduct on the part of Employee in the performance of
Employee's duties hereunder; (3) any breach of Company and/or the
Subsidiaries policies or failure on the part of Employee to
perform duties assigned to Employee by the Company's Board of
Directors, which breach or failure is not remedied by Employee
within 30 days after notice thereof is given by the Company to
Employee; or (4) any event or circumstance regarding Employee
which may, in the judgment of the Board of Directors of the
Company, result in (i) the disapproval, modification, or non-
renewal of any contract under which the Company or any Subsidiary
has sole or shared authority to own, develop, manage or consult
with any gaming operations; or (ii) the loss of non-reinstatement
of any license or franchise from any governmental agency held by
the Company or any Subsidiary to conduct any portion of the
business of the Company or any Subsidiary, which license or
franchise is conditioned upon employees or officers of the
Company meeting certain criteria.
(b) Severance. The Company may terminate the Term of Employment at
any time for any reason. If the Company terminates the Term of Employment (by
either terminating Employee's employment or by giving the notice described in
Section 2(a) to prevent a Renewal Term) without "cause", then, provided that the
Employee signs a General Release in a form acceptable to the Company that
releases the Company and its affiliated entities from any and all claims that
Employee may have against them, Employee shall be entitled to continue to
receive his salary and employee benefits for twelve months.
6. Miscellaneous.
(a) Successors and Assigns. This Agreement is binding on and inures
to the benefit of the Company's successors and assigns. The Company may assign
this Agreement in connection with a merger, consolidation, assignment, sale or
other disposition of substantially all of its assets or business. This Agreement
may not be assigned by Employee.
(b) Modifications, Waivers. This Agreement may be modified or amended
only by a writing signed by the Company, and Employee. The Company's failure, or
delay in exercising any right, or partial exercise of any right, will not waive
any provision of this Agreement or preclude the Company from otherwise or
further exercising any rights or remedies hereunder, or any other rights or
remedies granted by any law or any related document.
3
<PAGE>
(c) Governing Law and Jurisdiction. The laws of Delaware will govern the
validity, construction, and performance of this Agreement. Any legal proceeding
related to this Agreement will be brought in a Delaware court. Both the Company
and Employee hereby consent to the exclusive jurisdiction of that court of this
purpose.
(d) Captions. The headings in this Agreement are for convenience only and
do not affect the interpretation of this Agreement.
(e) Severability. To the extent any provision of this Agreement shall be
invalid or enforceable with respect to Employee, it shall be considered deleted
herefrom with respect to Employee and the remainder of such provision and this
Agreement shall be unaffected and shall continue in full force and effect. In
furtherance to and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law with respect to Employee, then such provision shall be construed to cover
only that duration, extent or activities which are validly and enforceably
covered with respect to Employee. Employee acknowledges the uncertainty of the
law in this respect and expressly stipulates that this Agreement be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its expressed terms) possible under applicable laws.
(f) Entire Agreement. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings and understandings
between the parties concerning the matters herein or therein, including without
limitation, any policy or personnel manuals of the Company.
(g) Notices. All notices and other communications required or permitted
under this Agreement shall be in writing and sent by registered first-class
mail, postage prepaid, and shall be deemed delivered upon hand delivery or upon
mailing (postage prepaid and by registered or certified mail) to the following
address:
If to the Company, to:
Casino America, Inc.
711 Washington Loop
Biloxi, MS 39530
If to the Employee, to:
James D. Guay
9414-B Monmouth Avenue
Margate, NJ 08402
These addresses may be changed at any time by like notice.
4
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed in
a manner appropriate for such party as of the date first above written.
CASINO AMERICA, INC.
By: /s/ JOHN M. GALLAWAY
-------------------------------
JOHN M. GALLAWAY
"EMPLOYEE"
/s/ JAMES D. GUAY
-----------------------------------
JAMES D. GUAY
5
<PAGE>
EXHIBIT 10.49
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 7th
day of April, 1997 between Casino America, Inc., a Delaware corporation (the
"Company") and Timothy Hinkley ("Employee").
In consideration of the mutual promises of this Agreement, the Company and
Employee agree as follows:
1. Effective Date: This agreement shall be effective as of April 7,
1997.
2. Employment:
(a) Term. The Company hereby employs Employee, and Employee accepts
such employment and agrees to perform services for the Company and/or
its Subsidiaries, for an initial period of three (3) years from and
after the Effective Date of this Agreement (the "Initial Term") and,
unless either party gives written notice to the other party at least
one (1) year before the end of the Initial Term or of any Renewal
Term, for successive one-year periods (the "Renewal Terms"), unless
terminated at an earlier date in accordance with Section 5 of this
Agreement (the Initial Term and the Renewal Terms together referred to
as the "Term of Employment").
(b) Service with Company. During the Term of Employment, Employee
agrees to perform reasonable employment duties as the Board of
Directors of the Company and/or its Subsidiaries shall assign to him
from time to time. Employee also agrees to serve, for any period for
which he is elected as an officer of the Company and/or its
Subsidiaries; provided, however, that Employee shall not be entitled
to any additional compensation for serving as an officer of the
Company and/or its Subsidiaries. Employee's initial position shall be
to serve as Senior Vice President of Operations.
(c) Performance of Duties. Employee agrees to serve the Company
and/or its Subsidiaries faithfully and to the best of his ability and
to devote substantially all of his time, attention and efforts to the
business and affairs of the Company and/or its Subsidiaries during the
Term of Employment.
(d) Compensation. During the Term of Employment, the Company and/or
its Subsidiaries shall pay to Employee as compensation for services to
be rendered hereunder an aggregate base salary of $200,000 per year,
payable in equal monthly, or more frequent payments, subject to
increases, if any, as may be determined by the Company's Board of
Directors. In addition, Employee will be eligible to receive an
annual bonus beginning on or about December 1997 based upon his job
performance and the performance of the Company. Employee shall also
be eligible to participate in any stock option plans of the Company
and/or its
1
<PAGE>
Subsidiaries. In connection with Employee's employment by a subsidiary
of the Company, Employee has previously been granted options to
purchase shares of the Common Stock of the Company. Employee shall
keep these options and they will continue to vest as provided in the
Option Agreements pursuant to which they were issued. In addition,
upon execution of this Agreement, Employee shall be granted options to
purchase 10,000 shares of the Company's stock which shall vest at a
rate of 20% per year beginning one year from the date of this
Agreement. In the event of a change in management, take-over or buy-
out, all shares shall be fully vested. Employee shall be eligible to
participate in such employee benefit plans or programs of the Company
and/or its Subsidiaries as are or may be made generally available to
employees of the Company or of its Subsidiaries. The Company and/or
its Subsidiaries will pay or reimburse Employee for all reasonable and
necessary out-of-pocket expense incurred by him in moving to Biloxi
and in the performance of his duties under this Agreement, by means of
a $500 a month car allowance and subject to the presentment of
appropriate vouchers in accordance with Company policy. Employee will
be entitled to three (3) weeks paid vacation.
3. Confidentiality and Non-Competition.
(a) Ownership. Employee agrees that all inventions, copyrightable
material, business and/or technical information and trade secrets
which arise out of the performance of his Agreement are the property
of the Company and/or its Subsidiaries.
(b) Non-Competition. Employee agrees to the following covenant not
to compete beginning on the effective date of this Agreement and
continuing until one year after termination of his employment
relationship with the Company:
Employee agrees not to compete, directly or indirectly (including
as an officer, director, partner, employee, consultant,
independent contractor, or more than 5% equity holder of any
entity) with the Company or any of its Subsidiaries in any way
concerning the ownership, development or management of any gaming
operation or facility within a 75-mile radius of any gaming
operation or facility with respect to which the Company or any of
its Subsidiaries owns, renders or proposes to render consulting
or management services.
(c) Confidentiality. Except as is consistent with Employee=s duties
and responsibilities within the scope of his employment with the
Company and/or the Subsidiaries, Employee agrees not to use or
disclose to any unauthorized person information which is not generally
known and which is proprietary to the Company or any Subsidiary,
including all information that the Company or any Subsidiary treats as
confidential, ("Confidential Information"). Upon termination of
Employee's employment, Employee will promptly turn over to the Company
2
<PAGE>
all software, records, manuals, books, forms, documents, notes,
letters, memoranda, reports, data, tables, compositions, articles,
devices, apparatus and other items that disclose, describe or embody
Confidential Information including all copies of the Confidential
Information in his possession, regardless of who prepared them.
4. Remedies. Employee understands that if he fails to fulfill his
obligations under this Agreement, the damages to the Company and/or its
Subsidiaries would be very difficult to determine. Therefore, in addition to
any other rights or remedies available to the Company at law, in equity, or by
statute, Employee hereby consents to the specific enforcement of this Agreement
by the Company through an injunction or restraining order issued by the
appropriate court.
5. Termination.
(a) Grounds for Termination. The Term of Employment set forth in
Section 2(a) shall terminate prior to its expiration in the event that
at any time during such term:
(i) Employee shall die or become disabled as determined in good
faith by the Board of Directors of the Company; or
(ii) The Board of Directors of the Company delivers notice of
termination for "cause" to Employee. For purposes of this
section, "cause" shall mean: (1) Employee's inability to
become qualified by any gaming authority; (2) any
dishonesty, disloyalty or gross misconduct on the part of
Employee in the performance of Employee's duties hereunder;
(3) any breach of Company and/or the Subsidiaries policies
or failure on the part of Employee to perform duties
assigned to Employee by the Company's Board of Directors,
which breach or failure is not remedied by Employee within
30 days after notice thereof is given by the Company to
Employee; or (4) any event or circumstance regarding
Employee which may, in the judgment of the Board of
Directors of the Company, result in (i) the disapproval,
modification, or non-renewal of any contract under which the
Company or any Subsidiary has sole or shared authority to
own, develop, manage or consult with any gaming operations;
or (ii) the loss of non-reinstatement of any license or
franchise from any governmental agency held by the Company
or any Subsidiary to conduct any portion of the business of
the Company or any Subsidiary, which license or franchise is
conditioned upon employees or officers of the Company
meeting certain criteria.
3
<PAGE>
(b) Severance. The Company may terminate the Term of Employment at
any time for any reason. If the Company terminates the Term of
Employment (by either terminating Employee's employment or by giving
the notice described in Section 2(a) to prevent a Renewal Term)
without "cause", then, provided that the Employee signs a General
Release in a form acceptable to the Company that releases the Company
and its affiliated entities from any and all claims that Employee may
have against them, Employee shall be entitled to continue to receive
his salary and employee benefits for twelve months.
6. Miscellaneous.
(a) Successors and Assigns. This Agreement is binding on and inures
to the benefit of the Company's successors and assigns. The Company
may assign this Agreement in connection with a merger, consolidation,
assignment, sale or other disposition of substantially all of its
assets or business. This Agreement may not be assigned by Employee.
(b) Modifications, Waivers. This Agreement may be modified or
amended only by a writing signed by the Company, and Employee. The
Company's failure, or delay in exercising any right, or partial
exercise of any right, will not waive any provision of this Agreement
or preclude the Company from otherwise or further exercising any
rights or remedies hereunder, or any other rights or remedies granted
by any law or any related document.
(c) Governing Law and Jurisdiction. The laws of Delaware will govern
the validity, construction, and performance of this Agreement. Any
legal proceeding related to this Agreement will be brought in a
Delaware court. Both the Company and Employee hereby consent to the
exclusive jurisdiction of that court of this purpose.
(d) Captions. The headings in this Agreement are for convenience
only and do not affect the interpretation of this Agreement.
(e) Severability. To the extent any provision of this Agreement
shall be invalid or enforceable with respect to Employee, it shall be
considered deleted herefrom with respect to Employee and the remainder
of such provision and this Agreement shall be unaffected and shall
continue in full force and effect. In furtherance to and not in
limitation of the foregoing, should the duration or geographical
extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under
applicable law with respect to Employee, then such provision shall be
construed to cover only that duration, extent or activities which are
validly and enforceably covered with respect to Employee. Employee
acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement be given the
4
<PAGE>
construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its expressed terms) possible under
applicable laws.
(f) Entire Agreement. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings and
understandings between the parties concerning the matters herein or
therein, including without limitation, any policy or personnel manuals
of the Company.
(g) Notices. All notices and other communications required or
permitted under this Agreement shall be in writing and sent by
registered first-class mail, postage prepaid, and shall be deemed
delivered upon hand delivery or upon mailing (postage prepaid and by
registered or certified mail) to the following address:
If to the Company, to:
Casino America, Inc.
711 Washington Loop
Biloxi, MS 39530
If to the Employee, to:
Timothy Hinkley
These addresses may be changed at any time by like notice.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed in
a manner appropriate for such party as of the date first above written.
CASINO AMERICA, INC.
/s/ JOHN M. GALLAWAY
By:_______________________________________
John M. Gallaway
/s/ TIMOTHY HINKLEY
_________________________________________
Timothy Hinkley
5
<PAGE>
EXHIBIT 10.50
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (the Management Agreement"), dated as of this
28th day of April, 1997, is by and between CASINO AMERICA, INC., a Delaware
corporation ("Manager"), and RIVERBOAT CORPORATION OF MISSISSIPPI , a
Mississippi corporation ("Owner") who hereby agree as follows:
RECITALS
A. Owner owns a Casino Facility in Biloxi, Mississippi.
B. Owner desires to have Manager manage the business operations of its
Casino Facility and Manager desires to manage Owner's Casino Facility, all upon
the terms and conditions of this Management Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, Owner and manager agree as follows:
1. DEFINITIONS AND REFERENCES.
1.1 Definitions. As used herein, the following terms shall have the
respective meanings indicated below:
(a) Annual Plan - The Annual Plan to be prepared by Manager and approved by
Owner in accordance with the provisions of Sections 5.2 hereof.
(b) Casino Facility - The Casino Facility is owned by Owner and operated in
Biloxi, Mississippi by Manager. The Casino Facility has gaming, parking,
lodging, food and beverage, gift shop and entertainment together with other
related activities.
(c) Compensation - The direct salaries and wages paid to, or accrued for
the benefit of, any executive or other employee, including, without limitation,
employer's contributions under F.I.C.A., unemployment compensation or other
employment taxes, pension fund contributions, Worker's Compensation, group life,
accident, health and other insurance premiums, profit sharing, and retirement
plans, disability and other similar benefits.
2. SCOPE OF AGREEMENT, RESPONSIBILITIES.
2.1 Authority of Owner. Owner shall determine the general policy with
respect to the management of its Casino Facility and shall have all other
decision making powers customarily afforded to an owner of a casino facility, as
well as any additional powers reserved to Owner hereunder.
Page 1
<PAGE>
2.2 Authority of Manager. Subject to the foregoing general authority of
Owner, and subject to the terms of this Management Agreement, Manager shall have
the authority to exclusively supervise and direct the management and operation
of the day-to-day activities of the Casino Facility for the account of Owner.
Manager shall have the authority and responsibility (i) to determine operating
policy, standards of operation, quality of service, the maintenance and physical
appearance of the Casino Facility and any other matters affecting operations and
maintenance; (ii) to supervise and direct all phases of advertising, sales and
business promotion for the Casino Facility; and (iii) to carry out all programs
contemplated by the Annual Plan. Owner agrees that it will cooperate with
manager in very reasonable and proper way to permit and assist Manager to carry
out its duties hereunder and comply with any conditions or restrictions, if any,
placed upon Manager by any gaming authority.
2.3 Duties and Obligations of Manager. Manager shall take all actions
which may, in its sole discretion, be reasonably necessary or appropriate in
connection with the authority granted to it in accordance with the provisions of
this Management Agreement. Manager shall devote to its responsibilities such
time as may be reasonably necessary for the proper performance of all duties
hereunder. The standard of performance by Manager in managing the Casino
Facility shall be measured by commercial standards of reasonableness in the
industry consistent with good business practices and policies. An
organizational chart detailing the supervisory and management positions and all
other employees of the Manager will be provided by Manager to Owner.
2.4 Consultation with Owner. Notwithstanding the foregoing, Manager shall
at all times keep Owner reasonably apprised and aware of all operating policies.
Manager agrees to consult with Owner as frequently as Owner shall reasonably
request to review operating policies and other matters referred to herein.
Owner shall, at all times, have the right to enter the Casino Facility for the
purpose of inspecting same and reviewing the operations. Owner agrees that it
and its representatives will, at no time, act in a manner which is inconsistent
with the authority granted to Manager.
3. CONDITIONS PRECEDENT TO IMPLEMENTATION OF AGREEMENT. Owner and Manager
shall apply for and maintain any and all licenses and approvals required in
order to implement the provisions of this Management Agreement. This Management
Agreement is contingent upon the receipt of all such licenses and approvals.
4. TERM. The term of this Management Agreement shall begin immediately and
shall continue until December 31, 2096, unless sooner terminated as hereinafter
set forth.
5. OPERATION OF THE BUSINESS.
5.1 Permits. Manager and Owner shall timely apply for, obtain and
maintain all licenses and permits required to operate the business (other then
gaming authority permits, licenses and approvals required to be obtained by
parties other than Owner or Manager), at Owner's expense.
Page 2
<PAGE>
5.2 Annual Plan.
5.2.1 Preparation. With such cooperation and assistance of Owner as
Manager may request, Manager shall prepare for Owner's review and approval not
less than thirty (30 ) days in advance of each fiscal year, an Annual Plan for
approval by Owner, which shall include:
(a) a forecast comprised of estimated income and expenses by month
for the coming fiscal year.
(b) an estimated cash flow projection by month, and an estimate as to
the amount of funds needed for working capital requirements;
(c) a budget covering estimated expenditures for capital
improvements;
(d) an annual marketing plan; and
(e) an organizational chart of owner, as of the date of the Annual
Plan, listing all employees' names, positions and compensation
(including key employees whether employees of Owner or charged to
Owner).
Manager shall not be deemed to have made any guarantee or warranty in connection
with the results of operations or performance set forth in the Annual Plan since
the parties acknowledge that the Annual Plan is intended to set forth objectives
and goals based upon Manager's best judgment of the facts and circumstances
known by Manger at the time of preparation.
5.2.2. Owner's Review and Approval. The Annual Plan will be subject to
the approval of Owner, which approval will not be unreasonably withheld or
delayed. Owner shall approve or disapprove the Annual Plan within twenty (20)
days after submission to Owner. If Owner fails to provide written notice to
Manager of any specific objections to a proposed Annual Plan within such twenty
(20) day period, such Annual Plan shall be deemed to have been approved by Owner
as submitted. In the event Owner disapproves or raises any objections to the
proposed Annual Plan or any revisions thereto, Owner and Manager agree to
cooperate with each other in good faith to resolve the dispute. Owner agrees,
consistent with the Annual Plan, to provide the funds necessary to operate the
Casino Facility.
5.2.3 Compliance. Manager shall use all reasonable efforts to comply with
the Annual Plan and shall not deviate in any substantial respect therefrom. In
the event Manager encounters circumstances which required unexpected
expenditures not foreseen at the time of preparation of the Annual Plan and
which Manager deems reasonably necessary, Manager may without Owner's approval,
make or cause to be made on account of Owner, any expenditures. Manager,
without Owner's approval, on a monthly basis with full reporting to Owner, shall
be entitled to increase the total expenses budgeted within the Annual Plan by a
percentage approved by Owner to cover any expenditures that were underestimated
at the time the Annual Plan was prepared and that are reasonably necessary in
Manager's sole discretion, to carry out the provisions of this Agreement. Owner
and Manager agree to cooperate with each other in good
Page 3
<PAGE>
faith in resolving disputes. Policy changes not anticipated in the Annual Plan
shall be submitted to Owner for approval, which approval shall not be
unreasonably delayed or withheld.
5.2.4. Specific Matters. The description of specific matters hereinafter
stated are in every respect subject to the prior approval of Owner as part of
its approval of the Annual Plan.
5.3 Personnel.
5.3.1. General. Manager, for the account of Owner, shall hire,
supervise, direct, discharge and determine terms of employment of all personnel
working for the Casino Facility. An organization chart detailing the specific
type of personnel and functions shall be provided to Owner by Manager. The
determination of Compensation for all employees shall be part of the Annual Plan
approved by Owner.
5.3.2 Key Employees. The key employees may include, but are not limited
to, the general manager, director of gaming, director of food, beverage and
entertainment, director of marketing and director of finance and may, at the
option of Manager and with prior approval of Owner, be employees of Manager.
Owner shall reimburse Manager for the Compensation of such employees working for
the Casino Facility or primarily on behalf of Owner in connection with the
Casino Facility.
5.3.3. Personnel Expenses and Compensation. Subject to the above, it is
expressly understood and agreed that all other personnel of Owner are in the
sole employ of Owner.
5.3.4 Professional and Other Specialists. Manager shall have the right to
retain legal counsel and such other professionals, consultants and specialists
as Manager deems necessary or appropriate in connection with the operation of
the Casino Facility. The selection of all professional firms shall be subject
to Owner's prior approval.
5.4 Sales, Marketing and Advertising. Manager shall advertise and promote
the Casino Facility for Owner's account and shall institute and supervise a
sales and marketing program. Manager, in its sole discretion, may cause
participation in sales and promotional campaigns and activities involving
complimentary passage, food and beverages to travel agents, tourist officials
and airline representatives.
5.5 Other Services Provided by Manager. Other services, such as data
processing, reservation system, internal audit, etc. may be provided by Manager
to Owner at an additional cost, or may be contracted for separately.
5.6 Maintenance and Repair. Owner shall be responsible for maintaining
the property utilized in the business in good repaid and condition. To
implement Owner's responsibility, Manager shall, on behalf of owner, and at
Owner's expense, make or cause to be made, all repairs, replacements,
corrections and maintenance items as shall be required in the normal and
ordinary course of operation of the business.
Page 4
<PAGE>
5.7 Capital Expenditures. Owner recognizes the necessity of capital
improvements and shall expend such amount for capital improvements as shall be
required in the normal and ordinary course of operation of the business in
conformity with the amounts approved as part of the Annual Plan.
5.8 Reimbursement. In addition to the Compensation provided for in
Section 8 of this Management Agreement, Manager shall be entitled to be
reimbursed for the reasonable travel and entertainment expense of all officers
and employees of Manager incurred in performing its duties hereunder in
connection with any phase of the operation of the Casino Facility. In addition,
if employees of Manager on a specific assignment for the benefit of the Casino
Facility are in a position that would otherwise be filled by an employee of
Owner, then Manager shall be entitled to be reimbursed by Owner for the
Compensation payable to such employees while working for the Casino Facility.
However, Manager shall not be entitled to reimbursement for the compensation of
any other employee unless otherwise provided in this Management Agreement.
Manager shall be entitled to all reimbursements authorized under this Section
5.7, or under any other provision of this Agreement, provided that all such
reimbursements shall be made in a manner which is consistent with the provision
of the Annual Plan or as otherwise agreed with Owner.
6. FISCAL MATTERS.
6.1 Accounting Matters and Fiscal Periods.
6.1.1 Books and Records. Manager shall maintain, or cause to be
maintained, at Owner's expense, full and complete books of account and such
other records as are necessary to reflect the operating results of the Casino
Facility. Manager shall also prepare and file for Owner, at Owner's expense,
all informational and/or tax returns which may be required by any governmental
authority.
6.1.2 Reports to Owner. Manager, at Owner's expense, shall deliver or
cause to be delivered to Owner, monthly financial statements, which shall
include a statement of cash flows, and monthly comparison of operational income
and expenses versus the Annual Plan.
6.1.3. Owner's Right to Audit. Owner and the individual members of the
limited liability company reserve the right upon reasonable prior notice, to
perform any and all additional audit procedures relating to the business where
accounting books and records are kept.
6.2 Bank Account. All bank accounts for the Casino Facility shall be in
the name of Manager, as agent for Owner. Owner and Manager shall agree on the
procedures for withdrawals and deposits of funds. Manager shall have the right
to designate individuals to disburse funds from the business bank accounts to
pay all costs and expenses of managing, operating and maintaining the business
and its properties, including authorized capital expenditures and management
fees due to Manager. Owner agrees that at all times during the term of this
Management Agreement, a bank balance as approved in the Annual Plan shall be
maintained in
Page 5
<PAGE>
an amount necessary to provide sufficient working capital to assure the
uninterrupted and efficient operation of the business. Excess funds shall be
disbursed to Owner.
7. TITLE, OTHER MATTERS.
7.1 Covenant of Title. Owner shall enable Manager to peaceably and
quietly operate the business in accordance with the terms of this Management
Agreement.
7.2 Proprietary Information. All specifically identifiable information
developed by Manager for Owner shall be the property of both Manager and Owner.
All existing information of Manager previously developed by Manager at Manager's
expense, including, without limitation, all customer lists, gaming and marketing
strategies and other similar information, shall be the property of Manager and
not Owner and neither Owner nor any of its affiliates or successors may use such
proprietary information without the consent of Manager, which consent shall not
be unreasonably withheld. The parties agree that Proprietary Information does
not include information which is clearly available in the public domain.
7.3 Name.
7.3.1 Owner hereby acknowledges that Manager is the sole owner of all
right, title and interest in and to the service mark and trade name "Isle of
Capri" as used in connection with the operation of the Casino Facility, and that
Owner's rights to use the aforesaid service mark and trade name derive solely
from and are limited to this Section 7.3.
7.3.2 Manager hereby grants to Owner the non-exclusive license to use
"Isle of Capri" as a service mark and as part of this trade name solely in
connection with the operation of the Casino Facility. Owner agrees not to use
said name and mark in any other business. Owner's rights hereunder shall extend
only to operations in the city of Biloxi, Mississippi and to the promotion and
marketing of Owner's gaming activities in a manner generally consistent with the
marketing and promotional activities of Manager and its Affiliates. All use of
"Isle of Capri" as a service mark and as part of its trade name shall inure to
the benefit of Manager.
7.3.3 Manager shall have the right to control the nature and quality of
all services to which the "Isle of Capri" name and mark is used hereunder.
7.3.4 Owner agrees to display and use the "Isle of Capri" name and mark
only in the manner authorized by Manager and approved by Manager. If Owner
desires to make any change in said display and use, it shall first submit such
change to Manager for its approval.
7.3.5 Owner will not register or attempt to register "Isle of Capri" as
any part of its own name or marks, and will cooperate fully as requested by
Manager in connection with any registration by Manager of said mark.
7.3.6 Owner will promptly inform Manager of any infringement of the "Isle
of Capri" name or mark or of any protest by others to Owner concerning its use
of such name and
Page 6
<PAGE>
mark, and will cooperate fully with Manager in connection with any litigation,
administrative proceedings or protests which Manager deems desirable in
connection with the protection of or maintenance of rights to make decisions
concerning the initiation, defense, compromise or settlement of any action
involving such name or mark.
7.3.7 If Manager should determine that Owner is in breach of this Article
7 and the services sold or offered under the "Isle of Capri" name and mark
hereunder are deficient and are not of satisfactory quality in the sole
discretion of Manager, it shall so inform Owner in writing, whereupon Owner
shall have thirty (30) days within which to cure said breach and deficiency. If
Owner does not cure said breach and deficiency within that time to the
satisfaction of Manager, its right to use the "Isle of Capri" name and mark
shall forthwith terminate notwithstanding the term of this license.
7.3.8 If Owner files a petition in bankruptcy or is adjudicated a
bankrupt, if a petition in bankruptcy is filed against Owner, if it becomes
insolvent or makes an assignment for the benefit of creditors or any
arrangements pursuant to any bankruptcy law, if Owner discontinues its business
or a receiver is appointed for it or its business, the license granted hereunder
shall terminate, and all use of the "Isle of Capri" name and mark shall cease.
7.3.9. Unless earlier terminated pursuant to a breach of this Section 7.3
as set forth in Section 7.3.7 or Section 7.3.8, Owner's license to use the "Isle
of Capri" name and mark hereunder shall terminate upon termination of this
Agreement.
7.3.10 Upon termination of Owner's rights to use the "Isle of Capri" name
and mark for any reason hereunder, Owner shall immediately take steps to effect
a change of its trade marks, service marks, trade names and assumed names so as
to remove from it the words "Isle of Capri" or any confusingly similar mark or
terms.
7.3.11. Owner may not assign, sublicense or otherwise transfer any of its
rights under this Section 7.3 to any third party without the prior written
consent of Manager, which consent may be arbitrarily withheld.
7.4 Outside Activities of Parties. This Management Agreement shall be
limited to the purposes set forth herein and nothing in this Management
Agreement, whether by implication or otherwise, shall be construed to extend the
relationship of the parties beyond such purposes. Each party acknowledges that
the other party and their respective affiliates are or may hereafter become
interested, directly or indirectly, by ownership, contract, agency or otherwise,
in business opportunities which are not within the purpose of this Management
Agreement and which may compete with or otherwise affect all or some aspects of
the Casino Facility.
8. COMPENSATION OF MANAGER.
8.1. In consideration for the services to be performed by Manager after
the Commencement Date, Manager shall be entitled to an annual management fee
equal to two
Page 7
<PAGE>
percent (2%) of Revenues (as defined below), plus ten percent (10%) of Operating
Income (as defined below), but such fee shall not, in the aggregate, exceed four
percent (4%) of Revenues.
(a) Revenues means all revenues, less sales tax on such revenues,
determined on an annual basis received from the following sources: (i) gross
gaming receipts from the Casino Facility, less applicable gaming and admission
taxes from the operation of gaming in the Casino Facility; (ii) hotel
operations; (iii) food and beverage operations; (iv) all parking fees; (v) all
revenues generated from gift shops and arcades; (vi) other revenues, fees and
income, which are attributable to the operation of the Casino Facility.
Revenues derived from non-operating activities, such as the sale of capital
assets are excluded from the definition of Revenues.
(b) Operating Income means the income of the Casino Facility before any
management fee paid to Manager, interest, depreciation, amortization and write-
off or start-up and pre-opening type expenses and income taxes.
(c) The fee shall become due and payable ten (10) days after the end of
each month based upon the Revenues and Operating Income for the previous month.
Payment of such compensation may be paid to Manager by withholding Revenues it
has received for Owner's account; provided, however, that the fee shall be
accrued as a liability and not paid to the extend that the fee shall be accrued
as a liability and not paid to the extent that Owner has not generated
sufficient cash flow to pay such fee. For these purposes, cash flow shall be
determined before capital expenditures and distribution to Members of Owner.
9. INSURANCE.
9.1 Coverage. Owner, for the benefit of both Owner and Manager, shall
maintain adequate insurance during the term of this Agreement. The type and
amount of coverage shall be approved by Owner.
9.2 Policies and Endorsements.
9.2.1 Policies. All insurance coverage provided for hereunder shall be
effected by policies issued by insurance companies with sound and adequate
financial responsibility, or by self-insurance programs of either Manager or
Owner. Either party shall be entitled to object to an insurance company. Owner
shall deliver to the Manager duplicate copies of the insurance policies or
certificates of insurance with respect to all of the policies of insurance so
procured, including existing, additional and renewal policies, and in the case
of insurance about to expire, shall deliver duplicate copies of the insurance
policies or insurance certificates with respect to the renewal policies to the
other party no less than thirty (30) days prior to the respective dates of
expiration.
9.2.2 Endorsement. All insurance shall, to the extent obtainable, have
attached thereto:
Page 8
<PAGE>
(a) an endorsement that such policy shall not be canceled or materially
changed without at least thirty (30) days' prior written notice to Owner and
Manager; and
(b) an endorsement to the effect that no act or omission of Owner or
Manager shall affect the obligation of the insurer to pay the full amount of any
loss sustained.
(c) Owner and its members hall be named as additional insureds on all
policies.
9.2.3 Named Insureds. All policies of insurance shall be carried in the
name of Owner and Manager. All liability policies shall name Owner and Manager,
and their respective members, managers, directors, officers, agents and
employees, as additional insureds.
10. INDEMNIFICATION.
10.1 Indemnification. Manager agrees to indemnify and hold Owner free and
harmless from any loss, liability, claim, demand, legal proceeding or cost
(including attorneys' fees, costs, expenses and other charges) which is not
covered by insurance proceeds and which Owner may sustain, incur or assume as a
result, or relative to, any allegation, claim, civil or criminal action,
proceeding, charge or prosecution, including but not limited to, injuries to
persons or damage to the Casino facility or its operations or any matters
arising out of the employment or compensation of employees or former employees
of Manager (collectively "Claims") which may be alleged, made, instituted or
maintained against Manager or Owner, jointly or severally, arising out of or
based upon the management, operation, condition or use of the Casino Facility;
the performance or non-performance of the Management Agreement by Manager, its
agents or employees; or acts or failure to act of Manager, its employees, agents
or general contractors; provided, notwithstanding the foregoing, Manager shall
not be liable to indemnify and hold Owner harmless from any such loss, liability
or cost which results from the negligence of Owner, its agents or employees.
10.2 Related Matters.
10.2.1 Legal Fees, Etc., Procedures. Manager shall reimburse Owner for
any legal fees and costs, including attorney's fees and other litigation
expenses, incurred by Owner in respect to which indemnity is granted hereunder.
If Claims are asserted or threatened, or if any action or suit is commenced or
threatened with respect thereto, for which indemnity may be sought against
Manager hereunder, Owner shall notify Manager in writing within thirty (30) days
after Owner shall have had actual knowledge of the threat, assertion or
commencement of the Claims, which notice shall specify in reasonable detail the
matter for which indemnity may be sought. Manager shall have the right, upon
notice to Owner given within thirty (30) days of its receipt of Owner's notice,
to take primary responsibility for the prosecution, defense or settlement of
such matter and payment of expenses in connection therewith. Owner shall
provide, without cost to Manager, all relevant records and information
reasonably required by Manager for such prosecution, defense or settlement and
shall cooperate with Manager to the fullest extent possible. Owner, at Owner's
sole cost and expense, shall have the right to employ
Page 9
<PAGE>
its own counsel in any such matter with respect to which Manager has elected to
take primary responsibility for prosecution, defense or settlement.
10.2.2 Indemnified Parties. The indemnities contained in this Section
10 shall run to the benefit of both Owner and its affiliates, and its directors,
officers, shareholders and employees.
10.2.3. Survival. The provisions of this Section 10 shall survive any
cancellation, termination or expiration of this Management Agreement and shall
remain in full force and effect until such time as the applicable statute of
limitation shall cut off all claims which are subject to the provisions of this
Section 10.
11. DAMAGE TO AND DESTRUCTION OF THE BUSINESS.
11.1 Restoration. Provided that there are sufficient insurance proceeds, in
the event fire or other casualty shall damage or destroy the property used in
the Casino Facility, Owner shall be required to repair, restore or replace the
same to the extent as may be limited by insurance proceeds. If there are not
sufficient insurance proceeds and Owner no longer desires to operate the Casino
facility, Manager shall have the option, exercisable within ninety (90) days of
such casualty, to obtain the license to operate the Casino facility subject to
appropriate regulatory approval. Owner shall use its best efforts to assist
Manager in obtaining the license. In the event fire or other casualty shall
damage or destroy the Casino Facility, Owner shall have the choice of repairing,
restoring or replacing the same to the extent as may be limited by insurance
proceeds. If Owner determines that it is not in its best interest to restore the
Casino Facility, the Management Agreement will terminate.
12. DEFAULT AND TERMINATION.
12.1 Events of Default. It shall be an event of default hereunder (an
"Event of Default") if Manager or Owner (the "Defaulting Party") as hereinafter
defined fails to keep, perform or observe any material covenant, obligation or
agreement required to be kept, performed or observed by such party under the
terms of this Management Agreement, followed by written notice of such breach,
default or non-compliance from the other party (the "Non-Defaulting Party" as
hereinafter defined) to the Defaulting Party and the Defaulting Party fails to
remedy or correct such breach, default or non-compliance within thirty (30) days
after receipt of such notice. If the breach, default or non-compliance is other
than payment of money and is of a nature such that it cannot reasonably be cured
within such thirty (30) day period, the period for curing the default shall be
extended so long as the Defaulting Party commences immediately and expediently
as possible to cure the breach, default or non-compliance within such thirty
(30) day period.
12.2 Termination.
12.2.1 General. If an Event of Default occurs and has not been cured,
this Management Agreement shall terminate at the election of the Non-Defaulting
Party. Notice of
Page 10
<PAGE>
termination pursuant to this Section 12 may be given by the Non-Defaulting Party
to the Defaulting Party at any time prior to the curing of such Event of
Default, and such termination shall be effective as of the date specified in
such notice of termination, which date shall be no less than sixty (60) nor more
than one hundred twenty (120) days after the date of such notice,
notwithstanding the foregoing, if the Event of Default pertains to the payments
of money, Manager may case the discharge of its responsibilities hereunder
effective upon the expiration of the thirty (30)-day notice referenced in
Section 12.1 hereof. Manager shall receive all funds due to it at the time of
Termination.
12.2.2 Termination. In addition to the foregoing,
this Management Agreement shall terminate upon any of the
following events:
(a) The mutual agreement of the parties; or
(b) The inability of either party to receive or
maintain the licenses to perform their obligations hereunder; or
(c) Manager shall
(i) apply for or consent to the appointment of,
or taking possession by, a receiver,
custodian, trustee, liquidator or other
similar official of all of its assets;
(ii) make a general assignment for the benefit of
creditors;
(iii) be adjudicated as bankrupt or insolvent
or have an order for relief entered with
respect thereto; or
(iv) file a voluntary petition, commence a
voluntary case under the federal bankruptcy
laws as now or hereafter constituted or file
a petition or an answer seeking
reorganization or any arrangement with
creditors or take advantage of any
bankruptcy, reorganization, insolvency,
readjustment of debts, dissolution or
liquidation law or statute.
12.2.3 Waiver. The waiver of any one Event of Default shall not be
construed as the waiver of any other Event of Default.
12.3 Remedies Cumulative. Except as herein provided to the contrary, the
termination of this Management Agreement by the Non-Defaulting Party upon an
Event of Default shall be without damages, injunctions, specific performance or
other legal or equitable remedies by reason of any breach, default or non-
compliance by the Defaulting Party with such Defaulting party's covenants,
obligations and agreements hereunder. Except as to any disputes for which
injunctive relief would be an appropriate remedy, in the event a dispute of any
kind arises in connection with this Agreement (including any dispute concerning
its construction, performance
Page 11
<PAGE>
or breach), the parties to the dispute will attempt to resolve the dispute as
set forth in Section 12.4 before proceeding to arbitration as provided in
Section 12.5. All documents, discovery and other information related to any such
dispute, and the attempts to resolve or arbitrate such dispute, will be kept
confidential to the fullest extent possible.
12.4 Negotiation. If a dispute arises, any party to the dispute will give
notice to each other party. If Owner is not a party to the dispute, notice will
be given to Owner. After notice has been given, the parties in good faith will
attempt to negotiate a resolution of the dispute.
12.5 Arbitration. If, within 30 days after the notice provided in Section
12.4, a dispute is not resolved through negotiation or mediation, the dispute
will be arbitrated. The parties to the dispute agree to be bound by the
selection of an arbitrator, and to settle the dispute exclusively by binding
arbitration in accordance with the following provisions:
(a) All parties to the dispute will collectively select one
arbitrator. If they fail to do so within 45 days after the notice provided in
Section 12.4, one or more parties will request the American Arbitration
Association to submit a panel of five arbitrators who are qualified to resolve
the matters in dispute from which the choice will be made. The party requesting
the arbitration will strike first, followed by alternative striking until one
name remains. A similar procedure will be followed if there are more than two
parties. The parties may by agreement reject one entire list, and request a
second list. If selection by the above method is not completed within 90 days
after the notice provided in Section 12.4, or if there are more than four
parties, then an arbitrator will be selected by the America Arbitration
Association. The arbitrator so selected will then arbitrate the dispute in
Biloxi, Mississippi, and issue an award.
(b) To the extend consistent with the provisions of this Article, the
arbitration will be conducted under the Commercial Arbitration Rules of the
American Arbitration Association and in accordance with Mississippi law. The
arbitrator's decision will be made pursuant to the relevant substantive law of
the State of Mississippi. The award of the arbitrator will be final, binding and
non-appealable. Judgment on the award may be entered in any court, state or
federal, having jurisdiction.
(c) The fees and expenses of the arbitrator, and the other direct
costs of the arbitration, will be shared by the parties to the dispute in equal
proportions. Each party to the dispute will bear its other respective costs and
expenses. If one or more Members are included in the arbitration because of
their membership or former membership in Owner, such group will collectively be
treated as one party to the dispute (through Owner as a party).
13. NOTICES.
13.1. Notices. Every notice, demand, consent, approval or other document or
instrument required or permitted to be served upon any of the parties hereto
shall be in writing and shall be deemed to have been duly served on the day of
mailing, and shall be sent by registered or certified United States Mail,
postage prepaid, return receipt requested, addressed to the respective parties
at the addresses stated below:
Page 12
<PAGE>
If to Manager: Casino America, Inc.
John M. Gallaway, President
7ll Washington Loop
Biloxi, MS 39530
With copies thereof to the following:
Allan B. Solomon, Esquire
220 Corporate Blvd. NW
Suite 310
Boca Raton, FL 33434
If to Owner: Bill Kilduff, Vice President and General Manager
Riverboat Corporation of Mississippi
151 Beach Blvd.
Biloxi, MS 39530
With copies thereof to the following:
Allan B. Solomon, Esquire
220 Corporate Blvd. NW
Suite 310
Boca Raton, FL 33434
or to such other address as either manager or Owner may have specified in a
notice duly given as required herein to the other.
14. RELATIONSHIP, AUTHORITY AND FURTHER ACTIONS.
14.1 Relationship. Manager and Owner shall not be construed as joint
venturers or partners of each other by reason of this Management Agreement and
neither shall have the power to bind or obligate the other except as
specifically authorized and set forth in this Management Agreement.
Nevertheless, Manager is granted such authority and powers as may be reasonably
necessary for it to carry out the provisions of this Management Agreement. This
Management Agreement, either alone or in conjunction with any other documents,
shall not be deemed to constitute or create a lease of all or any portion of the
Casino Facility.
14.2 Contractual Authority. Subject to the limitations thereon set forth in
this Management Agreement, and in conformity with the Annual Plan, Manager is
authorized to make, enter into and perform in the name of, for the account of,
on behalf of and at the expense of Owner any contracts and agreements
(including, but not limited to bank accounts) which are reasonably necessary and
appropriate to carry out and place in effect the terms and conditions of
Page 13
<PAGE>
this Management Agreement. Copies of all executed contracts shall be immediately
conformed and furnished to Owner.
14.3 Further Actions. Owner and Manager agree to execute all contracts,
agreements and documents and to take all actions necessary to comply with the
provisions of this Management Agreement and the intent hereof.
15. APPLICABLE LAW. This Management Agreement shall be governed by and construed
in accordance with the laws of the State of Mississippi. If any of the terms and
provisions hereof shall be held invalid or unenforceable for any reason, such
validity or unenforceability shall in no event affect any of the other terms or
provisions hereof, all such other terms and provisions to be held valid and
enforceable to the fullest extent permitted by law; provided, however, that in
the event any material part of Owner's obligations under this Management
Agreement shall be declared invalid or unenforceable, Manager shall have the
option to terminate this Management Agreement.
16. MISCELLANEOUS.
16.1 Successors and Assigns. Manager shall not assign the whole or any
portion of this Management Agreement or any payments due Manager hereunder,
without the unanimous consent of the Members of Owner, which consent will not be
unreasonably withheld, except that Manager may make such an assignment, without
Owner's or the Members' consent, to a Permitted Transferee as defined in the
Operating Agreement. Owner shall not assign the whole or any portion of this
Agreement, except to an affiliate of Owner, without Manager's consent, except as
collateral for any financing obtained in connection with the development and/or
operation of the Casino Facility. If the Agreement is assigned to an affiliate
of owner, Manager shall continue to be responsible under this agreement.
16.2 Force Majeure. If at any time it becomes necessary in Manager's or
Owner's reasonable option to cease operation of all or part of the Casino
Facility to protect the Casino Facility or the health, safety or welfare of
guests or employees of the Casino facility for reasons of force majeure, such
as, but not limited to, weather, acts of war, insurrection, civil strife and
commotion, labor unrest, contagious illness, catastrophic events, or acts of
God, then in such event Manager or Owner may close and cease operations of all
or part of the Casino Facility, reopening and commencing operation when Manager
and Owner determine in good faith that such may be done without jeopardy to the
Casino facility, its guests and employees. Neither party shall be liable for
failure to perform any obligation hereunder (other than to pay money) when
prevented by any force majeure cause no reasonably with the control of such
party, such as strike, lockout, breakdown, accident, order or regulation of or
by any governmental authority, failure of supply or inability, by the exercise
of reasonable diligence, to obtain supplies, parts or employees necessary to
perform such obligation to which such force majeure applies shall be extended
for a period of time equivalent to the delay from such cause.
Page 14
<PAGE>
16.3 Authorization. Owner and Manager represent to the other that it has
full power and authority to execute this Management Agreement and to be bound by
and perform the terms hereof. On request, each party shall furnish the other
evidence of such authority.
16.4 Interest. Any amount payable to a party hereunder which shall not be
paid when due, shall accrue interest at the prime rate as published from time to
time in Wall Street Journal.
16.5 Entire Agreement; Amendments. This Management Agreement sets forth the
entire and only agreement or understanding between Owner and Manager relating to
the subject matter hereof and supersedes and cancels all previous agreements,
negotiations, commitments and representations in respect hereof among them.
Owner has not relied on any projection of earnings or statements as to the
possibility of future success or other similar matters which may have been
prepared by Manager or Owner, or any of their respective affiliates, and
understands that no guaranty is made or implied by Manager or its affiliates as
to the cost or the future financial success of the operations being managed
hereunder. This Management Agreement may not be amended in any respect except by
an instrument in writing signed by Owner and Manager.
16.6 Survival of Covenants. Any covenant, term or provision of this
Management Agreement which, in order to be effective, must survive the
termination of this Management Agreement, shall survive any such termination.
16.7 No Waiver. No waiver by either party of a breach by the other party of
any of the terms, covenants or conditions of this Management Agreement, shall be
construed or held to be a waiver of any succeeding or preceding breach of the
same or any other term, covenant or condition herein contained. No waiver of any
default of either party hereunder shall be implied from any omission by the
other party to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect default other than
as specified in said waiver.
16.8 Compliance. In performing its obligations under this Management
Agreement, Manager shall comply with all present and future laws, ordinances and
all rules and regulations, requirements and orders of all governmental
authorities and shall obtain all licenses and permits required to perform such
obligations and shall file all returns and reports lawfully required of Manager
in connection with its duties hereunder, including, but not limited to, income
tax withholding returns, Federal Insurance Contributions Act returns and
reports, Federal Unemployment Tax Act and worker's compensation returns and
reports, sales and use tax returns (and shall timely pay all contributions,
taxes, costs and other amounts due thereunder). All of the foregoing returns and
reports shall be maintained as a part of the books and records of Manager.
16.9 Headings. The headings hereunder are used for convenience only and
shall not affect the construction or interpretation of any provision hereof.
16.10 Counterparts. For the convenience of the parties hereto, this
Management Agreement may be executed in several original counterparts, each of
which shall be deemed an
Page 15
<PAGE>
original for all purposes and all such counterparts shall constitute but one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Management Agreement as of the date and year first above written.
CASINO AMERICA, INC., RIVERBOAT CORPORATION OF
a Delaware Corporation MISSISSIPPI, INC.,
a Mississippi Corporation
By: /s/ Signature By: /s/ Signature
---------------------------- ---------------------------
Its: Vice President Its: Executive Vice President
--------------------------- --------------------------
Page 16
<PAGE>
EXHIBIT 10.51
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (the Management Agreement"), dated as of this
28th day of April, 1997, is by and between CASINO AMERICA, INC., a Delaware
corporation ("Manager"), and RIVERBOAT CORPORATION OF MISSISSIPPI - VICKSBURG, a
Mississippi corporation ("Owner") who hereby agree as follows:
RECITALS
A. Owner owns a Casino Facility in Vicksburg, Mississippi.
B. Owner desires to have Manager manage the business operations of its
Casino Facility and Manager desires to manage Owner's Casino Facility, all upon
the terms and conditions of this Management Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, Owner and manager agree as follows:
1. DEFINITIONS AND REFERENCES.
1.1 Definitions. As used herein, the following terms shall have the
respective meanings indicated below:
(a) Annual Plan - The Annual Plan to be prepared by Manager and approved by
Owner in accordance with the provisions of Sections 5.2 hereof.
(b) Casino Facility - The Casino Facility is owned by Owner and operated in
Vicksburg, Mississippi by Manager. The Casino Facility has gaming, parking,
food and beverage, gift shop and entertainment together with other related
activities.
(c) Compensation - The direct salaries and wages paid to, or accrued for
the benefit of, any executive or other employee, including, without limitation,
employer's contributions under F.I.C.A., unemployment compensation or other
employment taxes, pension fund contributions, Worker's Compensation, group life,
accident, health and other insurance premiums, profit sharing, and retirement
plans, disability and other similar benefits.
2. SCOPE OF AGREEMENT, RESPONSIBILITIES.
2.1 Authority of Owner. Owner shall determine the general policy with
respect to the management of its Casino Facility and shall have all other
decision making powers customarily afforded to an owner of a casino facility, as
well as any additional powers reserved to Owner hereunder.
Page 1
<PAGE>
2.2 Authority of Manager. Subject to the foregoing general authority of
Owner, and subject to the terms of this Management Agreement, Manager shall have
the authority to exclusively supervise and direct the management and operation
of the day-to-day activities of the Casino Facility for the account of Owner.
Manager shall have the authority and responsibility (i) to determine operating
policy, standards of operation, quality of service, the maintenance and physical
appearance of the Casino Facility and any other matters affecting operations and
maintenance; (ii) to supervise and direct all phases of advertising, sales and
business promotion for the Casino Facility; and (iii) to carry out all programs
contemplated by the Annual Plan. Owner agrees that it will cooperate with
manager in very reasonable and proper way to permit and assist Manager to carry
out its duties hereunder and comply with any conditions or restrictions, if any,
placed upon Manager by any gaming authority.
2.3 Duties and Obligations of Manager. Manager shall take all actions
which may, in its sole discretion, be reasonably necessary or appropriate in
connection with the authority granted to it in accordance with the provisions of
this Management Agreement. Manager shall devote to its responsibilities such
time as may be reasonably necessary for the proper performance of all duties
hereunder. The standard of performance by Manager in managing the Casino
Facility shall be measured by commercial standards of reasonableness in the
industry consistent with good business practices and policies. An
organizational chart detailing the supervisory and management positions and all
other employees of the Manager will be provided by Manager to Owner.
2.4 Consultation with Owner. Notwithstanding the foregoing, Manager shall
at all times keep Owner reasonably apprised and aware of all operating policies.
Manager agrees to consult with Owner as frequently as Owner shall reasonably
request to review operating policies and other matters referred to herein.
Owner shall, at all times, have the right to enter the Casino Facility for the
purpose of inspecting same and reviewing the operations. Owner agrees that it
and its representatives will, at no time, act in a manner which is inconsistent
with the authority granted to Manager.
3. CONDITIONS PRECEDENT TO IMPLEMENTATION OF AGREEMENT. Owner and Manager
shall apply for and maintain any and all licenses and approvals required in
order to implement the provisions of this Management Agreement. This Management
Agreement is contingent upon the receipt of all such licenses and approvals.
4. TERM. The term of this Management Agreement shall begin immediately and
shall continue until December 31, 2096, unless sooner terminated as hereinafter
set forth.
5. OPERATION OF THE BUSINESS.
5.1 Permits. Manager and Owner shall timely apply for, obtain and
maintain all licenses and permits required to operate the business (other then
gaming authority permits, licenses and approvals required to be obtained by
parties other than Owner or Manager), at Owner's expense.
Page 2
<PAGE>
5.2 Annual Plan.
5.2.1 Preparation. With such cooperation and assistance of Owner as
Manager may request, Manager shall prepare for Owner's review and approval not
less than thirty (30 ) days in advance of each fiscal year, an Annual Plan for
approval by Owner, which shall include:
(a) a forecast comprised of estimated income and expenses by month
for the coming fiscal year.
(b) an estimated cash flow projection by month, and an estimate as to
the amount of funds needed for working capital requirements;
(c) a budget covering estimated expenditures for capital
improvements;
(d) an annual marketing plan; and
(e) an organizational chart of owner, as of the date of the Annual
Plan, listing all employees' names, positions and compensation
(including key employees whether employees of Owner or charged to
Owner).
Manager shall not be deemed to have made any guarantee or warranty in connection
with the results of operations or performance set forth in the Annual Plan since
the parties acknowledge that the Annual Plan is intended to set forth objectives
and goals based upon Manager's best judgment of the facts and circumstances
known by Manger at the time of preparation.
5.2.2. Owner's Review and Approval. The Annual Plan will be subject to
the approval of Owner, which approval will not be unreasonably withheld or
delayed. Owner shall approve or disapprove the Annual Plan within twenty (20)
days after submission to Owner. If Owner fails to provide written notice to
Manager of any specific objections to a proposed Annual Plan within such twenty
(20) day period, such Annual Plan shall be deemed to have been approved by Owner
as submitted. In the event Owner disapproves or raises any objections to the
proposed Annual Plan or any revisions thereto, Owner and Manager agree to
cooperate with each other in good faith to resolve the dispute. Owner agrees,
consistent with the Annual Plan, to provide the funds necessary to operate the
Casino Facility.
5.2.3 Compliance. Manager shall use all reasonable efforts to comply with
the Annual Plan and shall not deviate in any substantial respect therefrom. In
the event Manager encounters circumstances which required unexpected
expenditures not foreseen at the time of preparation of the Annual Plan and
which Manager deems reasonably necessary, Manager may without Owner's approval,
make or cause to be made on account of Owner, any expenditures. Manager,
without Owner's approval, on a monthly basis with full reporting to Owner, shall
be entitled to increase the total expenses budgeted within the Annual Plan by a
percentage approved by Owner to cover any expenditures that were underestimated
at the time the Annual Plan was prepared and that are reasonably necessary in
Manager's sole discretion, to carry out the provisions of this Agreement. Owner
and Manager agree to cooperate with each other in good
Page 3
<PAGE>
faith in resolving disputes. Policy changes not anticipated in the Annual Plan
shall be submitted to Owner for approval, which approval shall not be
unreasonably delayed or withheld.
5.2.4. Specific Matters. The description of specific matters hereinafter
stated are in every respect subject to the prior approval of Owner as part of
its approval of the Annual Plan.
5.3 Personnel.
5.3.1. General. Manager, for the account of Owner, shall hire,
supervise, direct, discharge and determine terms of employment of all personnel
working for the Casino Facility. An organization chart detailing the specific
type of personnel and functions shall be provided to Owner by Manager. The
determination of Compensation for all employees shall be part of the Annual Plan
approved by Owner.
5.3.2 Key Employees. The key employees may include, but are not limited
to, the general manager, director of gaming, director of food, beverage and
entertainment, director of marketing and director of finance and may, at the
option of Manager and with prior approval of Owner, be employees of Manager.
Owner shall reimburse Manager for the Compensation of such employees working for
the Casino Facility or primarily on behalf of Owner in connection with the
Casino Facility.
5.3.3. Personnel Expenses and Compensation. Subject to the above, it is
expressly understood and agreed that all other personnel of Owner are in the
sole employ of Owner.
5.3.4 Professional and Other Specialists. Manager shall have the right to
retain legal counsel and such other professionals, consultants and specialists
as Manager deems necessary or appropriate in connection with the operation of
the Casino Facility. The selection of all professional firms shall be subject
to Owner's prior approval.
5.4 Sales, Marketing and Advertising. Manager shall advertise and promote
the Casino Facility for Owner's account and shall institute and supervise a
sales and marketing program. Manager, in its sole discretion, may cause
participation in sales and promotional campaigns and activities involving
complimentary passage, food and beverages to travel agents, tourist officials
and airline representatives.
5.5 Other Services Provided by Manager. Other services, such as data
processing, reservation system, internal audit, etc. may be provided by Manager
to Owner at an additional cost, or may be contracted for separately.
5.6 Maintenance and Repair. Owner shall be responsible for maintaining
the property utilized in the business in good repaid and condition. To
implement Owner's responsibility, Manager shall, on behalf of owner, and at
Owner's expense, make or cause to be made, all repairs, replacements,
corrections and maintenance items as shall be required in the normal and
ordinary course of operation of the business.
Page 4
<PAGE>
5.7 Capital Expenditures. Owner recognizes the necessity of capital
improvements and shall expend such amount for capital improvements as shall be
required in the normal and ordinary course of operation of the business in
conformity with the amounts approved as part of the Annual Plan.
5.8 Reimbursement. In addition to the Compensation provided for in
Section 8 of this Management Agreement, Manager shall be entitled to be
reimbursed for the reasonable travel and entertainment expense of all officers
and employees of Manager incurred in performing its duties hereunder in
connection with any phase of the operation of the Casino Facility. In addition,
if employees of Manager on a specific assignment for the benefit of the Casino
Facility are in a position that would otherwise be filled by an employee of
Owner, then Manager shall be entitled to be reimbursed by Owner for the
Compensation payable to such employees while working for the Casino Facility.
However, Manager shall not be entitled to reimbursement for the compensation of
any other employee unless otherwise provided in this Management Agreement.
Manager shall be entitled to all reimbursements authorized under this Section
5.7, or under any other provision of this Agreement, provided that all such
reimbursements shall be made in a manner which is consistent with the provision
of the Annual Plan or as otherwise agreed with Owner.
6. FISCAL MATTERS.
6.1 Accounting Matters and Fiscal Periods.
6.1.1 Books and Records. Manager shall maintain, or cause to be
maintained, at Owner's expense, full and complete books of account and such
other records as are necessary to reflect the operating results of the Casino
Facility. Manager shall also prepare and file for Owner, at Owner's expense,
all informational and/or tax returns which may be required by any governmental
authority.
6.1.2 Reports to Owner. Manager, at Owner's expense, shall deliver or
cause to be delivered to Owner, monthly financial statements, which shall
include a statement of cash flows, and monthly comparison of operational income
and expenses versus the Annual Plan.
6.1.3. Owner's Right to Audit. Owner and the individual members of the
limited liability company reserve the right upon reasonable prior notice, to
perform any and all additional audit procedures relating to the business where
accounting books and records are kept.
6.2 Bank Account. All bank accounts for the Casino Facility shall be in
the name of Manager, as agent for Owner. Owner and Manager shall agree on the
procedures for withdrawals and deposits of funds. Manager shall have the right
to designate individuals to disburse funds from the business bank accounts to
pay all costs and expenses of managing, operating and maintaining the business
and its properties, including authorized capital expenditures and management
fees due to Manager. Owner agrees that at all times during the term of this
Management Agreement, a bank balance as approved in the Annual Plan shall be
maintained in
Page 5
<PAGE>
an amount necessary to provide sufficient working capital to assure the
uninterrupted and efficient operation of the business. Excess funds shall be
disbursed to Owner.
7. TITLE, OTHER MATTERS.
7.1 Covenant of Title. Owner shall enable Manager to peaceably and
quietly operate the business in accordance with the terms of this Management
Agreement.
7.2 Proprietary Information. All specifically identifiable information
developed by Manager for Owner shall be the property of both Manager and Owner.
All existing information of Manager previously developed by Manager at Manager's
expense, including, without limitation, all customer lists, gaming and marketing
strategies and other similar information, shall be the property of Manager and
not Owner and neither Owner nor any of its affiliates or successors may use such
proprietary information without the consent of Manager, which consent shall not
be unreasonably withheld. The parties agree that Proprietary Information does
not include information which is clearly available in the public domain.
7.3 Name.
7.3.1 Owner hereby acknowledges that Manager is the sole owner of all
right, title and interest in and to the service mark and trade name "Isle of
Capri" as used in connection with the operation of the Casino Facility, and that
Owner's rights to use the aforesaid service mark and trade name derive solely
from and are limited to this Section 7.3.
7.3.2 Manager hereby grants to Owner the non-exclusive license to use
"Isle of Capri" as a service mark and as part of this trade name solely in
connection with the operation of the Casino Facility. Owner agrees not to use
said name and mark in any other business. Owner's rights hereunder shall extend
only to operations in the city of Vicksburg, Mississippi and to the promotion
and marketing of Owner's gaming activities in a manner generally consistent with
the marketing and promotional activities of Manager and its Affiliates. All use
of "Isle of Capri" as a service mark and as part of its trade name shall inure
to the benefit of Manager.
7.3.3 Manager shall have the right to control the nature and quality
of all services to which the "Isle of Capri" name and mark is used hereunder.
7.3.4 Owner agrees to display and use the "Isle of Capri" name and
mark only in the manner authorized by Manager and approved by Manager. If Owner
desires to make any change in said display and use, it shall first submit such
change to Manager for its approval.
7.3.5 Owner will not register or attempt to register "Isle of Capri"
as any part of its own name or marks, and will cooperate fully as requested by
Manager in connection with any registration by Manager of said mark.
7.3.6 Owner will promptly inform Manager of any infringement of the
"Isle of Capri" name or mark or of any protest by others to Owner concerning its
use of such name and
Page 6
<PAGE>
mark, and will cooperate fully with Manager in connection with any litigation,
administrative proceedings or protests which Manager deems desirable in
connection with the protection of or maintenance of rights to make decisions
concerning the initiation, defense, compromise or settlement of any action
involving such name or mark.
7.3.7 If Manager should determine that Owner is in breach of this
Article 7 and the services sold or offered under the "Isle of Capri" name and
mark hereunder are deficient and are not of satisfactory quality in the sole
discretion of Manager, it shall so inform Owner in writing, whereupon Owner
shall have thirty (30) days within which to cure said breach and deficiency. If
Owner does not cure said breach and deficiency within that time to the
satisfaction of Manager, its right to use the "Isle of Capri" name and mark
shall forthwith terminate notwithstanding the term of this license.
7.3.8 If Owner files a petition in bankruptcy or is adjudicated a
bankrupt, if a petition in bankruptcy is filed against Owner, if it becomes
insolvent or makes an assignment for the benefit of creditors or any
arrangements pursuant to any bankruptcy law, if Owner discontinues its business
or a receiver is appointed for it or its business, the license granted hereunder
shall terminate, and all use of the "Isle of Capri" name and mark shall cease.
7.3.9. Unless earlier terminated pursuant to a breach of this Section
7.3 as set forth in Section 7.3.7 or Section 7.3.8, Owner's license to use the
"Isle of Capri" name and mark hereunder shall terminate upon termination of this
Agreement.
7.3.10 Upon termination of Owner's rights to use the "Isle of Capri"
name and mark for any reason hereunder, Owner shall immediately take steps to
effect a change of its trade marks, service marks, trade names and assumed names
so as to remove from it the words "Isle of Capri" or any confusingly similar
mark or terms.
7.3.11. Owner may not assign, sublicense or otherwise transfer any of
its rights under this Section 7.3 to any third party without the prior written
consent of Manager, which consent may be arbitrarily withheld.
7.4 Outside Activities of Parties. This Management Agreement shall be
limited to the purposes set forth herein and nothing in this Management
Agreement, whether by implication or otherwise, shall be construed to extend the
relationship of the parties beyond such purposes. Each party acknowledges that
the other party and their respective affiliates are or may hereafter become
interested, directly or indirectly, by ownership, contract, agency or otherwise,
in business opportunities which are not within the purpose of this Management
Agreement and which may compete with or otherwise affect all or some aspects of
the Casino Facility.
8. COMPENSATION OF MANAGER.
8.1. In consideration for the services to be performed by Manager after
the Commencement Date, Manager shall be entitled to an annual management fee
equal to two
Page 7
<PAGE>
percent (2%) of Revenues (as defined below), plus ten percent (10%) of Operating
Income (as defined below), but such fee shall not, in the aggregate, exceed four
percent (4%) of Revenues.
(a) Revenues means all revenues, less sales tax on such revenues, determined
on an annual basis received from the following sources: (i) gross gaming
receipts from the Casino Facility, less applicable gaming and admission taxes
from the operation of gaming in the Casino Facility; (ii) food and beverage
operations; (iii) all parking fees; (iv) all revenues generated from gift shops
and arcades; (v) other revenues, fees and income, which are attributable to the
operation of the Casino Facility. Revenues derived from non-operating
activities, such as the sale of capital assets are excluded from the definition
of Revenues.
(b) Operating Income means the income of the Casino Facility before any
management fee paid to Manager, interest, depreciation, amortization and write-
off or start-up and pre-opening type expenses and income taxes.
(c) The fee shall become due and payable ten (10) days after the end of each
month based upon the Revenues and Operating Income for the previous month.
Payment of such compensation may be paid to Manager by withholding Revenues it
has received for Owner's account; provided, however, that the fee shall be
accrued as a liability and not paid to the extend that the fee shall be accrued
as a liability and not paid to the extent that Owner has not generated
sufficient cash flow to pay such fee. For these purposes, cash flow shall be
determined before capital expenditures and distribution to Members of Owner.
9. INSURANCE.
9.1 Coverage. Owner, for the benefit of both Owner and Manager, shall
maintain adequate insurance during the term of this Agreement. The type and
amount of coverage shall be approved by Owner.
9.2 Policies and Endorsements.
9.2.1 Policies. All insurance coverage provided for hereunder shall be
effected by policies issued by insurance companies with sound and adequate
financial responsibility, or by self-insurance programs of either Manager or
Owner. Either party shall be entitled to object to an insurance company. Owner
shall deliver to the Manager duplicate copies of the insurance policies or
certificates of insurance with respect to all of the policies of insurance so
procured, including existing, additional and renewal policies, and in the case
of insurance about to expire, shall deliver duplicate copies of the insurance
policies or insurance certificates with respect to the renewal policies to the
other party no less than thirty (30) days prior to the respective dates of
expiration.
9.2.2 Endorsement. All insurance shall, to the extent obtainable, have
attached thereto:
Page 8
<PAGE>
(a) an endorsement that such policy shall not be canceled or materially
changed without at least thirty (30) days' prior written notice to Owner and
Manager; and
(b) an endorsement to the effect that no act or omission of Owner or Manager
shall affect the obligation of the insurer to pay the full amount of any loss
sustained.
(c) Owner and its members hall be named as additional insureds on all
policies.
9.2.3 Named Insureds. All policies of insurance shall be carried in the
name of Owner and Manager. All liability policies shall name Owner and Manager,
and their respective members, managers, directors, officers, agents and
employees, as additional insureds.
10. INDEMNIFICATION.
10.1 Indemnification. Manager agrees to indemnify and hold Owner free and
harmless from any loss, liability, claim, demand, legal proceeding or cost
(including attorneys' fees, costs, expenses and other charges) which is not
covered by insurance proceeds and which Owner may sustain, incur or assume as a
result, or relative to, any allegation, claim, civil or criminal action,
proceeding, charge or prosecution, including but not limited to, injuries to
persons or damage to the Casino facility or its operations or any matters
arising out of the employment or compensation of employees or former employees
of Manager (collectively "Claims") which may be alleged, made, instituted or
maintained against Manager or Owner, jointly or severally, arising out of or
based upon the management, operation, condition or use of the Casino Facility;
the performance or non-performance of the Management Agreement by Manager, its
agents or employees; or acts or failure to act of Manager, its employees, agents
or general contractors; provided, notwithstanding the foregoing, Manager shall
not be liable to indemnify and hold Owner harmless from any such loss, liability
or cost which results from the negligence of Owner, its agents or employees.
10.2 Related Matters.
10.2.1 Legal Fees, Etc., Procedures. Manager shall reimburse Owner
for any legal fees and costs, including attorney's fees and other litigation
expenses, incurred by Owner in respect to which indemnity is granted hereunder.
If Claims are asserted or threatened, or if any action or suit is commenced or
threatened with respect thereto, for which indemnity may be sought against
Manager hereunder, Owner shall notify Manager in writing within thirty (30) days
after Owner shall have had actual knowledge of the threat, assertion or
commencement of the Claims, which notice shall specify in reasonable detail the
matter for which indemnity may be sought. Manager shall have the right, upon
notice to Owner given within thirty (30) days of its receipt of Owner's notice,
to take primary responsibility for the prosecution, defense or settlement of
such matter and payment of expenses in connection therewith. Owner shall
provide, without cost to Manager, all relevant records and information
reasonably required by Manager for such prosecution, defense or settlement and
shall cooperate with Manager to the fullest extent possible. Owner, at Owner's
sole cost and expense, shall have the right to employ
Page 9
<PAGE>
its own counsel in any such matter with respect to which Manager has elected to
take primary responsibility for prosecution, defense or settlement.
10.2.2 Indemnified Parties. The indemnities contained in this
Section 10 shall run to the benefit of both Owner and its affiliates, and its
directors, officers, shareholders and employees.
10.2.3. Survival. The provisions of this Section 10 shall survive
any cancellation, termination or expiration of this Management Agreement and
shall remain in full force and effect until such time as the applicable statute
of limitation shall cut off all claims which are subject to the provisions of
this Section 10.
11. DAMAGE TO AND DESTRUCTION OF THE BUSINESS.
11.1 Restoration. Provided that there are sufficient insurance proceeds,
in the event fire or other casualty shall damage or destroy the property used in
the Casino Facility, Owner shall be required to repair, restore or replace the
same to the extent as may be limited by insurance proceeds. If there are not
sufficient insurance proceeds and Owner no longer desires to operate the Casino
facility, Manager shall have the option, exercisable within ninety (90) days of
such casualty, to obtain the license to operate the Casino facility subject to
appropriate regulatory approval. Owner shall use its best efforts to assist
Manager in obtaining the license. In the event fire or other casualty shall
damage or destroy the Casino Facility, Owner shall have the choice of repairing,
restoring or replacing the same to the extent as may be limited by insurance
proceeds. If Owner determines that it is not in its best interest to restore
the Casino Facility, the Management Agreement will terminate.
12. DEFAULT AND TERMINATION.
12.1 Events of Default. It shall be an event of default hereunder (an
"Event of Default") if Manager or Owner (the "Defaulting Party") as hereinafter
defined fails to keep, perform or observe any material covenant, obligation or
agreement required to be kept, performed or observed by such party under the
terms of this Management Agreement, followed by written notice of such breach,
default or non-compliance from the other party (the "Non-Defaulting Party" as
hereinafter defined) to the Defaulting Party and the Defaulting Party fails to
remedy or correct such breach, default or non-compliance within thirty (30) days
after receipt of such notice. If the breach, default or non-compliance is other
than payment of money and is of a nature such that it cannot reasonably be cured
within such thirty (30) day period, the period for curing the default shall be
extended so long as the Defaulting Party commences immediately and expediently
as possible to cure the breach, default or non-compliance within such thirty
(30) day period.
12.2 Termination.
12.2.1 General. If an Event of Default occurs and has not been
cured, this Management Agreement shall terminate at the election of the Non-
Defaulting Party. Notice of
Page 10
<PAGE>
termination pursuant to this Section 12 may be given by the Non-Defaulting Party
to the Defaulting Party at any time prior to the curing of such Event of
Default, and such termination shall be effective as of the date specified in
such notice of termination, which date shall be no less than sixty (60) nor more
than one hundred twenty (120) days after the date of such notice,
notwithstanding the foregoing, if the Event of Default pertains to the payments
of money, Manager may case the discharge of its responsibilities hereunder
effective upon the expiration of the thirty (30)-day notice referenced in
Section 12.1 hereof. Manager shall receive all funds due to it at the time of
Termination.
12.2.2 Termination. In addition to the foregoing, this Management
Agreement shall terminate upon any of the following events:
(a) The mutual agreement of the parties; or
(b) The inability of either party to receive or maintain the licenses
to perform their obligations hereunder; or
(c) Manager shall
(i) apply for or consent to the appointment of, or taking
possession by, a receiver, custodian, trustee, liquidator or
other similar official of all of its assets;
(ii) make a general assignment for the benefit of creditors;
(iii) be adjudicated as bankrupt or insolvent or have an order for
relief entered with respect thereto; or
(iv) file a voluntary petition, commence a voluntary case under
the federal bankruptcy laws as now or hereafter constituted
or file a petition or an answer seeking reorganization or
any arrangement with creditors or take advantage of any
bankruptcy, reorganization, insolvency, readjustment of
debts, dissolution or liquidation law or statute.
12.2.3 Waiver. The waiver of any one Event of Default shall not be
construed as the waiver of any other Event of Default.
12.3 Remedies Cumulative. Except as herein provided to the contrary, the
termination of this Management Agreement by the Non-Defaulting Party upon an
Event of Default shall be without damages, injunctions, specific performance or
other legal or equitable remedies by reason of any breach, default or non-
compliance by the Defaulting Party with such Defaulting party's covenants,
obligations and agreements hereunder. Except as to any disputes for which
injunctive relief would be an appropriate remedy, in the event a dispute of any
kind arises in connection with this Agreement (including any dispute concerning
its construction, performance
Page 11
<PAGE>
or breach), the parties to the dispute will attempt to resolve the dispute as
set forth in Section 12.4 before proceeding to arbitration as provided in
Section 12.5. All documents, discovery and other information related to any such
dispute, and the attempts to resolve or arbitrate such dispute, will be kept
confidential to the fullest extent possible.
12.4 Negotiation. If a dispute arises, any party to the dispute will give
notice to each other party. If Owner is not a party to the dispute, notice will
be given to Owner. After notice has been given, the parties in good faith will
attempt to negotiate a resolution of the dispute.
12.5 Arbitration. If, within 30 days after the notice provided in Section
12.4, a dispute is not resolved through negotiation or mediation, the dispute
will be arbitrated. The parties to the dispute agree to be bound by the
selection of an arbitrator, and to settle the dispute exclusively by binding
arbitration in accordance with the following provisions:
(a) All parties to the dispute will collectively select one
arbitrator. If they fail to do so within 45 days after the notice provided in
Section 12.4, one or more parties will request the American Arbitration
Association to submit a panel of five arbitrators who are qualified to resolve
the matters in dispute from which the choice will be made. The party requesting
the arbitration will strike first, followed by alternative striking until one
name remains. A similar procedure will be followed if there are more than two
parties. The parties may by agreement reject one entire list, and request a
second list. If selection by the above method is not completed within 90 days
after the notice provided in Section 12.4, or if there are more than four
parties, then an arbitrator will be selected by the America Arbitration
Association. The arbitrator so selected will then arbitrate the dispute in
Vicksburg, Mississippi, and issue an award.
(b) To the extend consistent with the provisions of this Article, the
arbitration will be conducted under the Commercial Arbitration Rules of the
American Arbitration Association and in accordance with Mississippi law. The
arbitrator's decision will be made pursuant to the relevant substantive law of
the State of Mississippi. The award of the arbitrator will be final, binding
and non-appealable. Judgment on the award may be entered in any court, state or
federal, having jurisdiction.
(c) The fees and expenses of the arbitrator, and the other direct
costs of the arbitration, will be shared by the parties to the dispute in equal
proportions. Each party to the dispute will bear its other respective costs and
expenses. If one or more Members are included in the arbitration because of
their membership or former membership in Owner, such group will collectively be
treated as one party to the dispute (through Owner as a party).
13. NOTICES.
13.1. Notices. Every notice, demand, consent, approval or other document
or instrument required or permitted to be served upon any of the parties hereto
shall be in writing and shall be deemed to have been duly served on the day of
mailing, and shall be sent by registered or certified United States Mail,
postage prepaid, return receipt requested, addressed to the respective parties
at the addresses stated below:
Page 12
<PAGE>
If to Manager: Casino America, Inc.
John M. Gallaway, President
7ll Washington Loop
Biloxi, MS 39530
With copies thereof to the following:
Allan B. Solomon, Esquire
220 Corporate Blvd. NW
Suite 310
Boca Raton, FL 33434
If to Owner: Roger Deaton, Vice President and General Manager
Riverboat Corporation of Mississippi - Vicksburg
3990 Washington Street
Vicksburg, MS 39182
With copies thereof to the following:
Allan B. Solomon, Esquire
220 Corporate Blvd. NW
Suite 310
Boca Raton, FL 33434
or to such other address as either manager or Owner may have specified in a
notice duly given as required herein to the other.
14. RELATIONSHIP, AUTHORITY AND FURTHER ACTIONS.
14.1 Relationship. Manager and Owner shall not be construed as joint
venturers or partners of each other by reason of this Management Agreement and
neither shall have the power to bind or obligate the other except as
specifically authorized and set forth in this Management Agreement.
Nevertheless, Manager is granted such authority and powers as may be reasonably
necessary for it to carry out the provisions of this Management Agreement. This
Management Agreement, either alone or in conjunction with any other documents,
shall not be deemed to constitute or create a lease of all or any portion of the
Casino Facility.
14.2 Contractual Authority. Subject to the limitations thereon set forth
in this Management Agreement, and in conformity with the Annual Plan, Manager is
authorized to make, enter into and perform in the name of, for the account of,
on behalf of and at the expense of Owner any contracts and agreements
(including, but not limited to bank accounts) which are reasonably necessary and
appropriate to carry out and place in effect the terms and conditions of
Page 13
<PAGE>
this Management Agreement. Copies of all executed contracts shall be immediately
conformed and furnished to Owner.
14.3 Further Actions. Owner and Manager agree to execute all contracts,
agreements and documents and to take all actions necessary to comply with the
provisions of this Management Agreement and the intent hereof.
15. APPLICABLE LAW. This Management Agreement shall be governed by and
construed in accordance with the laws of the State of Mississippi. If any of
the terms and provisions hereof shall be held invalid or unenforceable for any
reason, such validity or unenforceability shall in no event affect any of the
other terms or provisions hereof, all such other terms and provisions to be held
valid and enforceable to the fullest extent permitted by law; provided, however,
that in the event any material part of Owner's obligations under this Management
Agreement shall be declared invalid or unenforceable, Manager shall have the
option to terminate this Management Agreement.
16. MISCELLANEOUS.
16.1 Successors and Assigns. Manager shall not assign the whole or any
portion of this Management Agreement or any payments due Manager hereunder,
without the unanimous consent of the Members of Owner, which consent will not be
unreasonably withheld, except that Manager may make such an assignment, without
Owner's or the Members' consent, to a Permitted Transferee as defined in the
Operating Agreement. Owner shall not assign the whole or any portion of this
Agreement, except to an affiliate of Owner, without Manager's consent, except as
collateral for any financing obtained in connection with the development and/or
operation of the Casino Facility. If the Agreement is assigned to an affiliate
of owner, Manager shall continue to be responsible under this agreement.
16.2 Force Majeure. If at any time it becomes necessary in Manager's or
Owner's reasonable option to cease operation of all or part of the Casino
Facility to protect the Casino Facility or the health, safety or welfare of
guests or employees of the Casino facility for reasons of force majeure, such
as, but not limited to, weather, acts of war, insurrection, civil strife and
commotion, labor unrest, contagious illness, catastrophic events, or acts of
God, then in such event Manager or Owner may close and cease operations of all
or part of the Casino Facility, reopening and commencing operation when Manager
and Owner determine in good faith that such may be done without jeopardy to the
Casino facility, its guests and employees. Neither party shall be liable for
failure to perform any obligation hereunder (other than to pay money) when
prevented by any force majeure cause no reasonably with the control of such
party, such as strike, lockout, breakdown, accident, order or regulation of or
by any governmental authority, failure of supply or inability, by the exercise
of reasonable diligence, to obtain supplies, parts or employees necessary to
perform such obligation to which such force majeure applies shall be extended
for a period of time equivalent to the delay from such cause.
Page 14
<PAGE>
16.3 Authorization. Owner and Manager represent to the other that it has
full power and authority to execute this Management Agreement and to be bound by
and perform the terms hereof. On request, each party shall furnish the other
evidence of such authority.
16.4 Interest. Any amount payable to a party hereunder which shall not be
paid when due, shall accrue interest at the prime rate as published from time to
time in Wall Street Journal.
16.5 Entire Agreement; Amendments. This Management Agreement sets forth
the entire and only agreement or understanding between Owner and Manager
relating to the subject matter hereof and supersedes and cancels all previous
agreements, negotiations, commitments and representations in respect hereof
among them. Owner has not relied on any projection of earnings or statements as
to the possibility of future success or other similar matters which may have
been prepared by Manager or Owner, or any of their respective affiliates, and
understands that no guaranty is made or implied by Manager or its affiliates as
to the cost or the future financial success of the operations being managed
hereunder. This Management Agreement may not be amended in any respect except
by an instrument in writing signed by Owner and Manager.
16.6 Survival of Covenants. Any covenant, term or provision of this
Management Agreement which, in order to be effective, must survive the
termination of this Management Agreement, shall survive any such termination.
16.7 No Waiver. No waiver by either party of a breach by the other party
of any of the terms, covenants or conditions of this Management Agreement, shall
be construed or held to be a waiver of any succeeding or preceding breach of the
same or any other term, covenant or condition herein contained. No waiver of
any default of either party hereunder shall be implied from any omission by the
other party to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect default other than
as specified in said waiver.
16.8 Compliance. In performing its obligations under this Management
Agreement, Manager shall comply with all present and future laws, ordinances and
all rules and regulations, requirements and orders of all governmental
authorities and shall obtain all licenses and permits required to perform such
obligations and shall file all returns and reports lawfully required of Manager
in connection with its duties hereunder, including, but not limited to, income
tax withholding returns, Federal Insurance Contributions Act returns and
reports, Federal Unemployment Tax Act and worker's compensation returns and
reports, sales and use tax returns (and shall timely pay all contributions,
taxes, costs and other amounts due thereunder). All of the foregoing returns
and reports shall be maintained as a part of the books and records of Manager.
16.9 Headings. The headings hereunder are used for convenience only and
shall not affect the construction or interpretation of any provision hereof.
16.10 Counterparts. For the convenience of the parties hereto, this
Management Agreement may be executed in several original counterparts, each of
which shall be deemed an
Page 15
<PAGE>
original for all purposes and all such counterparts shall constitute but one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Management Agreement as of the date and year first above written.
CASINO AMERICA, INC., RIVERBOAT CORPORATION OF
a Delaware Corporation MISSISSIPPI - VICKSBURG, INC.,
a Mississippi Corporation
By: /s/ SIGNATURE APPEARS HERE By: /s/ SIGNATURE APPEARS HERE
-------------------------- --------------------------
Its: Vice President Its: Executive Vice President
Page 16
<PAGE>
EXHIBIT 10.52
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (the "Management Agreement"), dated as of this
25th day of April, 1997, is by and between CASINO AMERICA, INC., a Delaware
corporation ("Manager"), and ICB L.L.C., a Colorado limited liability company
("Owner") and is effective as of the Transfer Date, as defined in the Operating
Agreement.
RECITALS:
A. Owner proposes to acquire, construct, develop and equip a Casino
Facility including a casino, restaurant and a hotel in Black Hawk, Colorado.
B. Owner desires to have Manager manage the business operations of its
Casino Facility and Manager desires to manage Owner's Casino Facility, all upon
the terms and conditions of this Management Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, Owner and Manager agree as follows:
1. DEFINITIONS AND REFERENCES.
1.1 Definitions. As used herein, the following terms shall have the
respective meanings indicated below:
(a) Annual Plan - The Annual Plan to be prepared by Manager and approved by
Owner in accordance with the provisions of Section 6.2 hereof.
(b) Casino Facility - The Casino Facility to be owned by Owner and operated
in Black Hawk, Colorado by Manager. The Casino Facility may have gaming, hotel
rooms, parking, food and beverage, gift shop and entertainment together with
other related activities.
(c) Commencement Date - The date upon which Owner first opens the Casino
Facility to the public for business, which date shall be confirmed in writing by
Owner and Manager.
(d) Compensation - The direct salaries and wages paid to, or accrued for
the benefit of, any executive or other employee, including, without limitation,
employer's contributions under F.I.C.A., unemployment compensation or other
employment taxes, pension fund contributions, Worker's Compensation, group life,
accident, health and other insurance premiums, profit sharing, and retirement
plans, disability and other similar benefits.
<PAGE>
(e) Operating Agreement - That certain Operating Agreement of Owner dated
as of April 25, 1997 by and between Casino America of Colorado, Inc. and
Blackhawk Gold, Ltd.
2. SCOPE OF AGREEMENT, RESPONSIBILITIES.
2.1 Authority of Owner. Owner shall determine the general policy with
respect to the management of its Casino Facility and shall have all other
decision making powers customarily afforded to an owner of a casino/hotel
facility, as well as any additional powers reserved to Owner hereunder.
2.2 Authority of Manager. Subject to the foregoing general authority of
Owner, and subject to the terms of this Management Agreement, Manager shall have
the authority to exclusively supervise and direct the management and operation
of the day-to-day activities of the Casino Facility for the account of Owner.
Manager shall have the authority and responsibility (i) to determine operating
policy, standards of operation, quality of service, the maintenance and physical
appearance of the Casino Facility and any other matters affecting operations and
maintenance; (ii) to supervise and direct all phases of advertising, sales and
business promotion for the Casino Facility; and (iii) to carry out all programs
contemplated by the Annual Plan. Owner agrees that it will cooperate with
Manager in every reasonable and proper way to permit and assist Manager to carry
out its duties hereunder and comply with any conditions or restrictions, if any,
placed upon Manager by any gaming authority.
2.3 Duties and Obligations of Manager. Manager shall take all actions
which may, in its sole discretion, be reasonably necessary or appropriate in
connection with the authority granted to it in accordance with the provisions of
this Management Agreement. Manager shall devote to its responsibilities such
time as may be reasonably necessary for the proper performance of all duties
hereunder. The standard of performance by Manager in managing the Casino
Facility shall be measured by commercial standards of reasonableness in the
industry consistent with good business practices and policies. An
organizational chart detailing the supervisory and management positions and all
other employees of the Manager will be provided by Manager to Owner.
2.4 Consultation with Owner. Notwithstanding the foregoing, Manager shall
at all times keep Owner reasonably apprised and aware of all operating policies.
Manager agrees to consult with Owner as frequently as Owner shall reasonably
request to review operating policies and other matters referred to herein.
Owner shall, at all times, have the right to enter the Casino Facility for the
purpose of inspecting same and reviewing the operations. Owner agrees that it
and its representatives will, at no time, act in a manner which is inconsistent
with the authority granted to Manager.
3. CONDITIONS PRECEDENT TO IMPLEMENTATION OF AGREEMENT. Other than as set forth
in the Operating Agreement, Owner and Manager shall apply for and maintain at
Owner's expense any and all licenses and approvals required in order to
implement
-2-
<PAGE>
the provisions of this Management Agreement. This Management Agreement is
contingent upon the receipt of all such licenses and approvals.
4. TERM. The term of this Management Agreement shall continue until December
31, 2096, unless sooner terminated as hereinafter set forth.
5. PRE-COMMENCEMENT DATE RESPONSIBILITIES.
5.1 Owner's Responsibilities. Owner, without cost or expense to Manager,
shall design, acquire, construct and equip the Casino Facility. All expenses
and fees incident thereto shall be paid by Owner.
5.2 Manager's Responsibilities. From the date of this Management
Agreement to the Commencement Date, Manager shall be available to consult with
Owner in designing, acquiring, constructing and equipping all assets to be used
by Owner in the operation of the Casino Facility. Manager shall, at Owner's
expense and with Owner's approval, also be responsible for the development and
implementation of all pre-opening activities.
6. OPERATION OF THE BUSINESS.
6.1 Permits. Manager and Owner shall timely apply for, obtain and
maintain all licenses and permits required to operate the business (other then
gaming authority permits, licenses and approvals required to be obtained by
parties other than owner or Manager), at Owner's expense.
6.2 Annual Plan.
6.2.1 Preparation. With such cooperation and assistance of Owner as
Manager may request, Manager shall prepare for Owner's review and approval not
less than thirty (30) days in advance of each fiscal year, an Annual Plan for
approval by Owner, which shall include:
(a) a forecast comprised of estimated income and expenses by month
for the coming fiscal year;
(b) an estimated cash flow projection by month, and an estimate as to
the amount of funds needed for working capital requirements;
(c) a budget covering estimated expenditures for capital
improvements;
(d) an annual marketing plan; and
-3-
<PAGE>
(e) an organizational chart of Owner, as of the date of the Annual
Plan, listing all employees' names, positions and compensation
(including key employees whether employees of Owner or charged to
Owner).
Manager shall not be deemed to have made any guarantee or warranty in connection
with the results of operations or performance set forth in the Annual Plan since
the parties acknowledge that the Annual Plan is intended to set forth objectives
and goals based upon Manager's best judgment of the facts and circumstances
known by Manager at the time of preparation.
6.2.2 Owner's Review and Approval. The Annual Plan will be subject
to the approval of Owner, which approval will not be unreasonably withheld or
delayed. Owner shall approve or disapprove the Annual Plan within twenty (20)
days after submission to Owner. If Owner fails to provide written notice to
Manager of any specific objections to a proposed Annual Plan within such twenty
(20)-day period, such Annual Plan shall be deemed to have been approved by Owner
as submitted. In the event Owner disapproves or raises any objections to the
proposed Annual Plan or any revisions thereto, Owner and Manager agree to
cooperate with each other in good faith to resolve the dispute. Owner agrees,
consistent with the Annual Plan, to provide the funds necessary to operate the
Casino Facility.
6.2.3 Compliance. Manager shall use all reasonable efforts to comply
with the Annual Plan and shall not deviate in any substantial respect therefrom.
In the event Manager encounters circumstances which require unexpected
expenditures not foreseen at the time of preparation of the Annual Plan and
which Manager deems reasonably necessary, Manager may without Owner's approval,
make or cause to be made on account of Owner, any expenditures, provided,
however, that no such expenditures shall be made in violation of the applicable
provisions of the Operating Agreement. Manager, without Owner's approval, on a
monthly basis with full reporting to Owner, shall be entitled to increase the
total expenses budgeted within the Annual Plan by a percentage approved by Owner
to cover any expenditures that were underestimated at the time the Annual Plan
was prepared and that are reasonably necessary in Manager's sole discretion, to
carry out the provisions of this Agreement. Owner and Manager agree to
cooperate with each other in good faith in resolving disputes. Policy changes
not anticipated in the Annual Plan shall be submitted to Owner for approval,
which approval shall not be unreasonably delayed or withheld.
6.2.4 Specific Matters. The description of specific matters
hereinafter stated are in every respect subject to the prior approval of Owner
as part of its approval of the Annual Plan.
6.3 Personnel.
6.3.1 General. Manager, for the account of Owner, shall hire,
supervise, direct, discharge and determine terms of employment of all personnel
working for the Casino Facility. An organizational chart detailing the specific
type of personnel and functions shall be
-4-
<PAGE>
provided to Owner by Manager. The determination of Compensation for all
employees shall be part of the Annual Plan approved by Owner.
6.3.2 Key Employees. The key employees may include, but are not
limited to, the general manager, director of gaming, director of food, beverage
and entertainment, director of marketing and director of finance and may, at the
option of Manager and with prior approval of Owner, be employees of Manager.
Owner shall reimburse Manager for the Compensation of such employees working for
the Casino Facility or primarily on behalf of Owner in connection with the
Casino Facility.
6.3.3 Personnel Expenses and Compensation. Subject to the above, it
is expressly understood and agreed that all other personnel of Owner are in the
sole employ of Owner.
6.3.4 Professional and Other Specialists. Manager shall have the
right to retain legal counsel and such other professionals, consultants and
specialists as Manager deems necessary or appropriate in connection with the
operation of the Casino Facility. The selection of all professional firms shall
be subject to Owner's prior approval.
6.4 Sales, Marketing and Advertising. Manager shall advertise and promote
the Casino Facility for Owner's account and shall institute and supervise a
sales and marketing program. Manager, in its sole discretion, may cause
participation in sales and promotional campaigns and activities involving
complimentary passage, food and beverages to travel agents, tourist officials
and airline representatives.
6.5 Other Services Provided by Manager. Other services, such as data
processing, reservation system, internal audit, etc. may be provided by Manager
to Owner at an additional cost on a commercially reasonable basis, or may be
contracted for separately.
6.6 Maintenance and Repair. Owner shall be responsible for maintaining
the property utilized in the business in good repair and condition. To
implement Owner's responsibility, Manager shall, on behalf of Owner, and at
Owner's expense, make or cause to be made, all repairs, replacements,
corrections and maintenance items as shall be required in the normal and
ordinary course of operation of the business.
6.7 Capital Expenditures. Owner recognizes the necessity of capital
improvements and shall expend such amount for capital improvements as shall be
required in the normal and ordinary course of operation of the business in
conformity with the amounts approved as part of the Annual Plan.
6.8 Reimbursement. In addition to the Compensation provided for in
Section 9 of this Management Agreement, Manager shall be entitled to be
reimbursed for the reasonable travel and entertainment expenses of all officers
and employees of Manager incurred in
-5-
<PAGE>
performing its duties hereunder in connection with any phase of the operation of
the Casino Facility. In addition, if employees of Manager on a specific
assignment for the benefit of the Casino Facility are in a position that would
otherwise be filled by an employee of Owner, then Manager shall be entitled to
be reimbursed by Owner for the Compensation payable to such employees while
working for the Casino Facility. However, Manager shall not be entitled to
reimbursement for the compensation of any other employee unless otherwise
provided in this Management Agreement. Manager shall be entitled to all
reimbursements authorized under this Section 6.7, or under any other provision
of this Agreement, provided that all such reimbursements shall be made in a
manner which is consistent with the provision of the Annual Plan or as otherwise
agreed with Owner.
7. FISCAL MATTERS.
7.1 Accounting Matters and Fiscal Periods.
7.1.1 Books and Records. Manager shall maintain, or cause to be
maintained, at Owner's expense, full and complete books of account and such
other records as are necessary to reflect the operating results of the Casino
Facility. Manager shall also prepare and file for Owner, at Owner's expense,
all informational and/or tax returns which may be required by any governmental
authority.
7.1.2 Reports to Owner. Manager, at Owner's expense, shall deliver
or cause to be delivered to Owner, monthly financial statements, which shall
include a statement of cash flows, and monthly comparison of operational income
and expenses versus the Annual Plan.
7.1.3 Owner's Right to Audit. Owner and the individual members of
the limited liability company reserve the right upon reasonable prior notice, to
perform any and all additional audit procedures relating to the business where
accounting books and records are kept.
7.2 Bank Account. All bank accounts for the Casino Facility shall be in
the name of Manager, as agent for Owner. Owner and Manager shall agree on the
procedures for withdrawals and deposits of funds. Manager shall have the right
to designate individuals to disburse funds from the business bank accounts to
pay all costs and expenses of managing, operating and maintaining the business
and its properties, including authorized capital expenditures and management
fees due to Manager. Owner agrees that at all times during the term of this
Management Agreement, a bank balance as approved in the Annual Plan shall be
maintained in an amount necessary to provide sufficient working capital to
assure the uninterrupted and efficient operation of the business. Excess funds
shall be disbursed to Owner.
-6-
<PAGE>
8. TITLE, OTHER MATTERS.
8.1 Covenant of Title. Owner shall enable Manager to peaceably and
quietly operate the business in accordance with the terms of this Management
Agreement.
8.2 Proprietary Information. All specifically identifiable information
developed by Manager for Owner shall be the property of both Manager and Owner.
All existing information of Manager previously developed by Manager at Manager's
expense, including, without limitation, all customer lists, gaming and marketing
strategies and other similar information, shall be the property of Manager and
not Owner and neither Owner nor any of its affiliates or successors may use such
proprietary information without the consent of Manager, which consent shall not
be unreasonably withheld. The parties agree that Proprietary Information does
not include information which is clearly available in the public domain.
8.3 Name.
8.3.1 Owner hereby acknowledges that Manager is the sole owner of all
right, title and interest in and to the service marks and trade names set forth
on ???? (collectively the "Trade Names") as used in connection with the
operation of the Casino Facility, and that Owner's rights to use the aforesaid
derive solely from and are limited to this Section 8.3.
8.3.2 Manager hereby grants to Owner the non-exclusive license to use
"Isle of Capri" as a service mark and as part of this trade name solely in
connection with the operation of the Casino Facility. Owner agrees not to use
said name and mark in any other business. Owner's rights hereunder shall extend
only to operations in the city of Blackhawk, Colorado and to the promotion and
marketing of Owner's gaming activities in a manner generally consistent with the
marketing and promotional activities of Manager and its Affiliates. All use of
"Isle of Capri" as a service mark and as part of its trade name shall inure to
the benefit of Manager.
8.3.3 Manager shall have the right to control the nature and quality
of all services to which the "Isle of Capri" name and mark is used hereunder.
8.3.4 Owner agrees to display and use the "Isle of Capri" name and
mark only in the manner authorized by Manager and approved by Manager. If Owner
desires to make any change in said display and use, it shall first submit such
change to Manager for its approval.
8.3.5 Owner will not register or attempt to register "Isle of Capri"
as any part of its own name or marks, and will cooperate fully as requested by
Manager in connection with any registration by Manager of said mark.
-7-
<PAGE>
8.3.6 Owner will promptly inform Manager of any infringement of the
"Isle of Capri" name or mark or of any protest by others to Owner concerning its
use of such name and mark, and will cooperate fully with Manager in connection
with any litigation, administrative proceedings or protests which Manager deems
desirable in connection with the protection of or maintenance of rights to make
decisions concerning the initiation, defense, compromise or settlement of any
action involving such name or mark.
8.3.7 If Manager should determine that Owner is in breach of this
Article 8 and the services sold or offered under the "Isle of Capri" name and
mark hereunder are deficient and are not of satisfactory quality in the sole
discretion of Manager, it shall so inform Owner in writing, whereupon Owner
shall have thirty (30) days within which to cure said breach and deficiency. If
Owner does not cure said breach and deficiency within that time to the
satisfaction of Manager, its right to use the "Isle of Capri" name and mark
shall forthwith terminate notwithstanding the term of this license.
8.3.8 If Owner files a petition in bankruptcy or is adjudicated a
bankrupt, if a petition in bankruptcy is filed against Owner, if it becomes
insolvent or makes an assignment for the benefit of creditors or any
arrangements pursuant to any bankruptcy law, if Owner discontinues its business
or a receiver is appointed for it or its business, the license granted hereunder
shall terminate, and all use of the "Isle of Capri" name and mark shall cease.
8.3.9 Unless earlier terminated pursuant to a breach of this Section
8.3 as set forth in Section 8.3.7 or Section 8.3.8, Owner's license to use the
"Isle of Capri" name and mark hereunder shall terminate upon termination of this
Agreement.
8.3.10 Upon termination of Owner's rights to use the "Isle of Capri"
name and mark for any reason hereunder, Owner shall immediately take steps to
effect a change of its trade marks, service marks, trade names and assumed names
so as to remove from it the words "Isle of Capri" or any confusingly similar
mark or terms.
8.3.11 Owner may not assign, sublicense or otherwise transfer any of
its rights under this Section 8.3 to any third party without the prior written
consent of Manager, which consent may be arbitrarily withheld.
8.4 Outside Activities of Parties. This Management Agreement shall be
limited to the purposes set forth herein and nothing in this Management
Agreement, whether by implication or otherwise, shall be construed to extend the
relationship of the parties beyond such purposes. Each party acknowledges that
the other party and their respective affiliates are or may hereafter become
interested, directly or indirectly, by ownership, contract, agency or otherwise,
in business opportunities which are not within the purpose of this Management
Agreement and which may compete with or otherwise affect all or some aspects of
the Casino Facility. However, both parties agree that they will not compete in
any gaming activities in
-8-
<PAGE>
Gilpin County, Colorado during the Term except as permitted under the Operating
Agreement.
9. COMPENSATION OF MANAGER.
9.1 In consideration for the services to be performed by Manager after the
Commencement Date, Manager shall be entitled to an annual management fee equal
to two percent (2%) of Revenues (as defined below), plus ten percent (10%) of
Operating Income (as defined below), but such fee shall not, in the aggregate,
exceed four percent (4%) of Revenues.
(a) Revenues means all revenues, less sales tax on such revenues,
determined on an annual basis received from the following sources: (i) gross
gaming receipts from the Casino Facility, less 50% of applicable gaming and
admission taxes from the operation of gaming in the Casino Facility; (ii) hotel
operations; (iii) food and beverage operations; (iv) all parking fees; (v) all
revenues generated from gift shops and arcades; (vi) other revenues, fees and
income, which are attributable to the operation of the Casino Facility.
Revenues derived from non-operating activities, such as the sale of capital
assets are excluded from the definition of Revenues.
(b) Operating Income means the income of the Casino Facility before
any management fee paid to Manager, distributions to Members of Owner, interest,
depreciation, amortization and write-off or start-up and pre-opening type
expenses and income taxes.
(c) The fee shall become due and payable ten (10) days after the end
of each month based upon the Revenues and Operating Income for the previous
month. Payment of such compensation may be paid to Manager by withholding
Revenues it has received for Owner's account; provided, however, that the fee
shall be accrued as a liability and not paid to the extent that Owner has not
generated sufficient cash flow to pay such fee. For these purposes, cash flow
shall be determined before capital expenditures and distributions to Members of
Owner.
10. INSURANCE.
10.1 Coverage. Owner, for the benefit of both Owner and Manager, shall
maintain adequate insurance during the term of this Agreement. The type and
amount of coverage shall be approved by Owner.
10.2 Policies and Endorsements.
10.2.1 Policies. All insurance coverage provided for hereunder shall
be effected by policies issued by insurance companies with sound and adequate
financial responsibility, or by self-insurance programs of either Manager or
Owner. Either party shall
-9-
<PAGE>
be entitled to object to an insurance company. Owner shall deliver to the
Manager duplicate copies of the insurance policies or certificates of insurance
with respect to all of the policies of insurance so procured, including
existing, additional and renewal policies, and in the case of insurance about to
expire, shall deliver duplicate copies of the insurance policies or insurance
certificates with respect to the renewal policies to the other party not less
than thirty (30) days prior to the respective dates of expiration.
10.2.2 Endorsement. All insurance shall, to the extent obtainable,
have attached thereto:
(a) an endorsement that such policy shall not be canceled or
materially changed without at least thirty (30) days' prior written notice to
Owner and Manager; and
(b) an endorsement to the effect that no act or omission of Owner or
Manager shall affect the obligation of the insurer to pay the full amount of any
loss sustained.
(c) Owner and its members shall be named as additional insureds on all
policies.
10.2.3 Named Insureds. All policies of insurance shall be carried in
the name of Owner and Manager. All liability policies shall name Owner and
Manager, and their respective members, managers, directors, officers, agents and
employees, as additional insureds.
11. Indemnification.
11.1 Indemnification. Manager agrees to indemnify and hold Owner free
and harmless from any loss, liability, claim, demand, legal proceeding or cost
(including attorneys' fees, costs, expenses and other charges) which is not
covered by insurance proceeds and which Owner may sustain, incur or assume as a
result, or relative to, any allegation, claim, civil or criminal action,
proceeding, charge or prosecution, including but not limited to, injuries to
persons or damage to the Casino Facility or its operations or any matters
arising out of the employment or compensation of employees or former employees
of Manager (collectively "Claims") which may be alleged, made, instituted or
maintained against Manager or Owner, jointly or severally, arising out of or
based upon the management, operation, condition or use of the Casino Facility;
the performance or non-performance of the Management Agreement by Manager, its
agents or employees; or acts or failure to act of Manager, its employees, agents
or general contractors; provided, notwithstanding the foregoing, Manager shall
not be liable to indemnify and hold Owner harmless from any such loss, liability
or cost which results from the negligence of Owner, its agents or employees.
-10-
<PAGE>
11.2 Related Matters.
11.2.1 Legal Fees, Etc., Procedures. Manager shall reimburse Owner
for any legal fees and costs, including attorney's fees and other litigation
expenses, incurred by Owner in respect to which indemnity is granted hereunder.
If Claims are asserted or threatened, or if any action or suit is commenced or
threatened with respect thereto, for which indemnity may be sought against
Manager hereunder, Owner shall notify Manager in writing within thirty (30) days
after Owner shall have had actual knowledge of the threat, assertion or
commencement of the Claims, which notice shall specify in reasonable detail the
matter for which indemnity may be sought. Manager shall have the right, upon
notice to Owner given within thirty (30) days of its receipt of Owner's notice,
to take primary responsibility for the prosecution, defense or settlement of
such matter and payment of expenses in connection therewith. Owner shall
provide, without cost to Manager, all relevant records and information
reasonably required by Manager for such prosecution, defense or settlement and
shall cooperate with Manager to the fullest extent possible. Owner, at Owner's
sole cost and expense, shall have the right to employ its own counsel in any
such matter with respect to which Manager has elected to take primary
responsibility for prosecution, defense or settlement.
11.2.2 Indemnified Parties. The indemnities contained in this
Section 11 shall run to the benefit of both Owner and its affiliates, and its
directors, officers, shareholders and employees.
11.2.3 Survival. The provisions of this Section 11 shall survive any
cancellation, termination or expiration of this Management Agreement and shall
remain in full force and effect until such time as the applicable statute of
limitation shall cut off all claims which are subject to the provisions of this
Section 11.
12. DAMAGE TO AND DESTRUCTION OF THE BUSINESS.
12.1 Restoration. Provided that there are sufficient insurance proceeds,
in the event fire or other casualty shall damage or destroy the property used in
the Casino Facility, Owner shall be required to repair, restore or replace the
same to the extent as may be limited by insurance proceeds. If there are not
sufficient insurance proceeds and Owner no longer desires to operate the Casino
Facility, Manager shall have the option, exercisable within ninety (90) days of
such casualty, to obtain the license to operate the Casino Facility subject to
appropriate regulatory approval. Owner shall use its best efforts to assist
Manager in obtaining the license. In the event fire or other casualty shall
damage or destroy the Casino Facility, Owner shall have the choice of repairing,
restoring or replacing the same to the extent as may be limited by insurance
proceeds. If Owner determines that it is not in its best interest to restore
the Casino Facility, the Management Agreement will terminate.
-11-
<PAGE>
13. DEFAULT AND TERMINATION.
13.1 Events of Default. It shall be an event of default hereunder (an
"Event of Default") if Manager or Owner (the "Defaulting Party") as hereinafter
defined fails to keep, perform or observe any material covenant, obligation or
agreement required to be kept, performed or observed by such party under the
terms of this Management Agreement, followed by written notice of such breach,
default or non-compliance from the other party (the "Non-Defaulting Party" as
hereinafter defined) to the Defaulting Party and the Defaulting Party fails to
remedy or correct such breach, default or non-compliance within thirty (30) days
after receipt of such notice. If the breach, default or non-compliance is other
than payment of money and is of a nature such that it cannot reasonably be cured
within such thirty (30) day period, the period for curing the default shall be
extended so long as the Defaulting Party commences immediately and expediently
as possible to cure the breach, default or non-compliance within such thirty
(30) day period.
13.2 Termination.
13.2.1 General. If an Event of Default occurs and has not been
cured, this Management Agreement shall terminate at the election of the Non-
Defaulting Party. Notice of termination pursuant to this Section 13 may be
given by the Non-Defaulting Party to the Defaulting Party at any time prior to
the curing of such Event of Default, and such termination shall be effective as
of the date specified in such notice of termination, which date shall be not
less than sixty (60) nor more than one hundred twenty (120) days after the date
of such notice. Notwithstanding the foregoing, if the Event of Default pertains
to the payments of money, Manager may cease the discharge of its
responsibilities hereunder effective upon the expiration of the thirty (30)-day
notice referenced in Section 13.1 hereof. Manager shall receive all funds due
to it at the time of Termination.
13.2.2 Termination. In addition to the foregoing, this Management
Agreement shall terminate upon any of the following events:
(a) The mutual agreement of the parties; or
(b) The inability of either party to receive or maintain the licenses
to perform their obligations hereunder; or
(c) Manager shall
(i) apply for or consent to the appointment of, or taking
possession by, a receiver, custodian, trustee,
liquidator or other similar official of all of its
assets;
(ii) make a general assignment for the benefit of creditors;
-12-
<PAGE>
(iii) be adjudicated as bankrupt or insolvent or have an
order for relief entered with respect thereto; or
(iv) file a voluntary petition, commence a voluntary case
under the federal bankruptcy laws as now or hereafter
constituted or file a petition or an answer seeking
reorganization or any arrangement with creditors or
take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debts, dissolution or
liquidation law or statute.
13.2.3 Waiver. The waiver of any one Event of Default shall not be
construed as the waiver of any other Event of Default.
13.3 Remedies Cumulative. Except as herein provided to the contrary, the
termination of this Management Agreement by the Non-Defaulting Party upon an
Event of Default shall be without damages, injunctions, specific performance or
other legal or equitable remedies by reason of any breach, default or non-
compliance by the Defaulting Party with such Defaulting Party's covenants,
obligations and agreements hereunder. Except as to any disputes for which
injunctive relief would be an appropriate remedy, in the event a dispute of any
kind arises in connection with this Agreement (including any dispute concerning
its construction, performance or breach), the parties to the dispute will
attempt to resolve the dispute as set forth in Section 13.4 before proceeding to
arbitration as provided in Section 13.5. All documents, discovery and other
information related to any such dispute, and the attempts to resolve or
arbitrate such dispute, will be kept confidential to the fullest extent
possible.
13.4 Negotiation. If a dispute arises, any party to the dispute will give
notice to each other party. If Owner is not a party to the dispute, notice will
be given to Owner. After notice has been given, the parties in good faith will
attempt to negotiate a resolution of the dispute.
13.5 Arbitration. If, within 30 days after the notice provided in Section
13.4, a dispute is not resolved through negotiation or mediation, the dispute
will be arbitrated. The parties to the dispute agree to be bound by the
selection of an arbitrator, and to settle the dispute exclusively by binding
arbitration in accordance with the following provisions:
(a) All parties to the dispute will collectively select one
arbitrator. If they fail to do so within 45 days after the notice provided in
Section 13.4, one or more parties will request the American Arbitration
Association to submit a panel of five arbitrators who are qualified to resolve
the matters in dispute from which the choice will be made. The party requesting
the arbitration will strike first, followed by alternative striking until one
name remains. A similar procedure will be followed if there are more than two
parties. The parties
-13-
<PAGE>
may by agreement reject one entire list, and request a second list. If selection
by the above method is not completed within 90 days after the notice provided in
Section 13.4, or if there are more than four parties, then an arbitrator will be
selected by the American Arbitration Association. The arbitrator so selected
will then arbitrate the dispute in Denver, Colorado, and issue an award.
(b) To the extent consistent with the provisions of this Article, the
arbitration will be conducted under the Commercial Arbitration Rules of the
American Arbitration Association and in accordance with Colorado law. The
arbitrator's decision will be made pursuant to the relevant substantive law of
the State of Colorado. The award of the arbitrator will be final, binding and
non-appealable. Judgment on the award may be entered in any court, state or
federal, having jurisdiction.
(c) The fees and expenses of the arbitrator, and the other direct
costs of the arbitration, will be shared by the parties to the dispute in equal
proportions. Each party to the dispute will bear its other respective costs and
expenses. If one or more Members are included in the arbitration because of
their membership or former membership in Owner, such group will collectively be
treated as one party to the dispute (through Owner as a party).
14. NOTICES.
14.1 Notices. Every notice, demand, consent, approval or other document
or instrument required or permitted to be served upon any of the parties hereto
shall be in writing and shall be deemed to have been duly served on the day of
mailing, and shall be sent by registered or certified United States Mail,
postage prepaid, return receipt requested, addressed to the respective parties
at the addresses stated below:
If to Manager: John M. Gallaway, President
or his designee Manager
711 Washington Loop
Biloxi, MS 39530
With copies thereof to the following:
Allan B. Solomon, Esq.
2200 Corporate Blvd. NW
Suite 310
Boca Raton, FL 33434
If to Owner: Isle of Capri Black Hawk L.L.C.
711 Washington Loop
Biloxi, MS 39530
-14-
<PAGE>
Attention: John M. Gallaway
With copies thereof to the following:
H. Thomas Winn, President, or his designee,
Nevada Gold and Casinos, Inc.
3040 Post Oak Boulevard, Suite 675
Houston, TX 77056
or to such other address as either Manager or Owner may have specified in a
notice duly given as required herein to the other.
15. RELATIONSHIP, AUTHORITY AND FURTHER ACTIONS.
15.1 Relationship. Manager and Owner shall not be construed as joint
venturers or partners of each other by reason of this Management Agreement and
neither shall have the power to bind or obligate the other except as
specifically authorized and set forth in this Management Agreement.
Nevertheless, Manager is granted such authority and powers as may be reasonably
necessary for it to carry out the provisions of this Management Agreement. This
Management Agreement, either alone or in conjunction with any other documents,
shall not be deemed to constitute or create a lease of all or any portion of the
Casino Facility.
15.2 Contractual Authority. Subject to the limitations thereon set forth
in this Management Agreement, and in conformity with the Annual Plan, Manager is
authorized to make, enter into and perform in the name of, for the account of,
on behalf of and at the expense of Owner any contracts and agreements
(including, but not limited to bank accounts) which are reasonably necessary and
appropriate to carry out and place in effect the terms and conditions of this
Management Agreement. Copies of all executed contracts shall be immediately
conformed and furnished to Owner.
15.3 Further Actions. Owner and Manager agree to execute all contracts,
agreements and documents and to take all actions necessary to comply with the
provisions of this Management Agreement and the intent hereof.
16. APPLICABLE LAW. This Management Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado. If any of the
terms and provisions hereof shall be held invalid or unenforceable for any
reason, such validity or unenforceability shall in no event affect any of the
other terms or provisions hereof, all such other terms and provisions to be held
valid and enforceable to the fullest extent permitted by law; provided, however,
that in the event any material part of Owner's obligations under this Management
Agreement shall be declared invalid or unenforceable, Manager shall have the
option to terminate this Management Agreement.
-15-
<PAGE>
17. MISCELLANEOUS.
17.1 Successors and Assigns. Manager shall not assign the whole or any
portion of this Management Agreement or any payments due Manager hereunder,
without the unanimous consent of the Members of Owner, which consent will not be
unreasonably withheld, except that Manager may make such an assignment, without
Owner=s or the Members= consent, to a Permitted Transferee as defined in the
Operating Agreement Owner shall not assign the whole or any portion of this
Agreement, except to an affiliate of Owner, without Manager's consent, except as
collateral for any financing obtained in connection with the development and/or
operation of the Casino Facility. If the Agreement is assigned to an affiliate
of Owner, Manager shall continue to be responsible under this agreement.
17.2 Force Majeure. If at any time it becomes necessary in Manager's or
Owner's reasonable opinion to cease operation of all or part of the Casino
Facility to protect the Casino Facility or the health, safety or welfare of
guests or employees of the Casino Facility for reasons of force majeure, such
as, but not limited to, weather, acts of war, insurrection, civil strife and
commotion, labor unrest, contagious illness, catastrophic events, or acts of
God, then in such event Manager or Owner may close and cease operations of all
or part of the Casino Facility, reopening and commencing operation when Manager
and Owner determine in good faith that such may be done without jeopardy to the
Casino Facility, its guests and employees. Neither party shall be liable for
failure to perform any obligation hereunder (other than to pay money) when
prevented by any force majeure cause not reasonably within the control of such
party, such as strike, lockout, breakdown, accident, order or regulation of or
by any governmental authority, failure of supply or inability, by the exercise
of reasonable diligence, to obtain supplies, parts or employees necessary to
perform such obligation to which such force majeure applies shall be extended
for a period of time equivalent to the delay from such cause.
17.3 Authorization. Owner and Manager represent to the other that it has
full power and authority to execute this Management Agreement and to be bound by
and perform the terms hereof. On request, each party shall furnish the other
evidence of such authority.
17.4 Interest. Any amount payable to a party hereunder which shall not be
paid when due, shall accrue interest at the prime rate as published from time to
time in the Wall Street Journal.
17.5 Entire Agreement: Amendments. This Management Agreement sets forth
the entire and only agreement or understanding between Owner and Manager
relating to the subject matter hereof and supersedes and cancels all previous
agreements, negotiations, commitments and representations in respect hereof
among them. Owner has not relied on any projection of earnings or statements as
to the possibility of future success or other similar matters which may have
been prepared by Manager or Owner, or any of their respective affiliates, and
understands that no guaranty is made or implied by Manager or its affiliates as
-16-
<PAGE>
to the cost or the future financial success of the operations being managed
hereunder. This Management Agreement may not be amended in any respect except
by an instrument in writing signed by Owner and Manager.
17.6 Survival of Covenants. Any covenant, term or provision of this
Management Agreement which, in order to be effective, must survive the
termination of this Management Agreement, shall survive any such termination.
17.7 No Waiver. No waiver by either party of a breach by the other party
of any of the terms, covenants or conditions of this Management Agreement, shall
be construed or held to be a waiver of any succeeding or preceding breach of the
same or any other term, covenant or condition herein contained. No waiver of
any default of either party hereunder shall be implied from any omission by the
other party to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect default other than
as specified in said waiver.
17.8 Compliance. In performing its obligations under this Management
Agreement, Manager shall comply with all present and future laws, ordinances and
all rules and regulations, requirements and orders of all governmental
authorities and shall obtain all licenses and permits required to perform such
obligations and shall file all returns and reports lawfully required of Manager
in connection with its duties hereunder, including, but not limited to, income
tax withholding returns, Federal Insurance Contributions Act returns and
reports, Federal Unemployment Tax Act and worker's compensation returns and
reports, sales and use tax returns (and shall timely pay all contributions,
taxes, costs and other amounts due thereunder). All of the foregoing returns
and reports shall be maintained as a part of the books and records of Manager.
17.9 Headings. The headings hereunder are used for convenience only and
shall not affect the construction or interpretation of any provision hereof.
17.10 Counterparts. For the convenience of the parties hereto, this
Management Agreement may be executed in several original counterparts, each of
which shall be deemed an original for all purposes and all such counterparts
shall constitute but one and the same agreement.
17.11 Commercial Reasonableness. Anything contained in this Management
Agreement to the contrary notwithstanding, all contracts and agreements entered
into by Manager hereunder shall be commercially reasonable.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Management Agreement as of the date and year first above written.
CASINO AMERICA, INC., ICB, L.L.C., a Colorado limited liability
a Delaware corporation company
By: Casino America of Colorado, Inc.,
By: /s/ signature Member
-----------------------------
Its: Executive President
----------------------------
By:/s/ signature
--------------------------
Title: Executive Vice President
-----------------------
Blackhawk Gold, Ltd., Member
By:
--------------------------
Title:
-----------------------
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Management Agreement as of the date and year first above written.
CASINO AMERICA, INC., ICB, L.L.C., a Colorado limited liability
a Delaware corporation company
By: Casino America of Colorado, Inc.,
By: Member
-----------------------------
Its:
----------------------------
By:
--------------------------
Title:
-----------------------
Blackhawk Gold, Ltd., Member
By:/s/ signature
--------------------------
Title: MGR
-----------------------
-19-
<PAGE>
EXHIBIT 10.53
OPERATING AGREEMENT
OF
ICB L.L.C.
This OPERATING AGREEMENT is made as of this 25th day of April, 1997 by the
initial Members of ICB L.L.C., a Colorado limited liability company. In
consideration of the mutual promises and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the members agree as follows with respect to the administration and regulation
of the affairs of the Company:
ARTICLE 1: ORGANIZATION AND DEFINITIONS
1.1 COMPANY NAME. The business of the Company will be conducted under the name
"Isle of Capri Blackhawk L.L.C." or any other name determined by the Company in
accordance with governing law.
1.2 INITIAL MEMBERS. The names and addresses of the two initial Members of the
Company are as follows:
<TABLE>
<CAPTION>
<S> <C>
Casino America of Colorado, Inc. Blackhawk Gold, Ltd.
("Casino America of Colorado"), a Wholly ("Blackhawk Gold"), a Wholly Owned
Owned Subsidiary of Casino America, Inc. Subsidiary of Nevada Gold & Casinos, Inc.
("Casino America") ("Nevada Gold")
711 Washington Loop 3040 Post Oak Boulevard, Suite 675
Biloxi, Mississippi 39530 Houston, Texas 77056
</TABLE>
1.3 INITIAL OWNERSHIP. Upon execution of this Operating Agreement, the
Ownership Interest of the Company is as set forth below:
Member Ownership Interest Initial Payment
Blackhawk Gold, Ltd. 48.4% $484
Casino America of Colorado, Inc. 51.6% $516
The Ownership Interest shall be adjusted from time to time in accordance
with the provisions of this Agreement; provided, however, that assuming the
Members make the Initial Contributions contemplated by Section 4.1 (with no
Additional Capital Contribution being made), the Ownership Interests of the
Members will remain as shown above, and thereafter will only be
<PAGE>
changed to reflect Additional Contributions by the Members. The Ownership
Interests of the Members shall at all times be maintained on Appendix I hereto,
which shall be amended chronologically from time to time as necessary.
1.4 COLORADO OFFICE AND AGENT. The initial registered office of the Company in
Colorado is located at 1675 Broadway, Suite 1200, Denver, Colorado 80202, and
its initial registered agent at such address is CT Corporation. The Company may
subsequently change its registered office or registered agent in Colorado in
accordance with the Act.
1.5 TERM. The Company begins on the date its Articles of Organization are
filed with the Colorado Secretary of State and continues until December 31,
2096, or such earlier date as a Dissolution may occur.
1.6 FOREIGN QUALIFICATION. After formation of the Company under the Act, the
Company will apply for any required certificate of authority to do business in
any other state or jurisdiction where it conducts business, as appropriate.
1.7 DEFINITIONS. Terms used with initial capital letters will have the
meanings specified in Exhibit "A", applicable to both singular and plural forms,
for all purposes of this Agreement.
ARTICLE 2: PURPOSES AND POWERS
2.1 PRINCIPAL PURPOSE. The business and principal purpose of the Company is to
investigate, seek, acquire and engage in casino gaming in the Black Hawk/Central
City, Colorado area, and to engage in all activities related thereto, including,
without limitation, the operation of restaurants, gift shops and/or a hotel.
2.2 POWERS. The Company has all of the powers granted to a limited liability
company under the Act, as well as all powers necessary or convenient to achieve
its purposes and to further its business.
ARTICLE 3: PROJECT DEVELOPMENT
3.1 GENERAL INTENT. The Members anticipate that certain expenditures will be
made in the development of the Project pursuant to the Development Plan
(including feasibility studies, development planning, regulatory approvals and
the obtaining of financing). The Members anticipate that these costs will be
funded by Casino America of Colorado pursuant and subject to the terms of
Sections 3.4 and 4.1 hereof and subject to the other terms and conditions of
this Agreement.
3.2 EMPLOYEE COSTS. Except as otherwise expressly provided in this Agreement
or in the Management Agreement, each Member will be separately responsible for
its own payroll and
2
<PAGE>
benefit expense of its employees and independent contractors with respect to the
Project or Company business.
3.3 DEBT FINANCING. Except for the Initial Contributions by the Members, the
Members acknowledge and agree that, to the extent commercially reasonable, the
Project will be funded through debt financing. The Company shall incur no debt
or liability for which the Members or their respective Affiliates would be
obligated in any way. Without limiting the foregoing, no Member or Affiliate
will be required to guarantee or co-sign any loan made to the Company or any
other obligation of the Company.
3.4 DEVELOPMENT PLAN. Casino America of Colorado will use its reasonable
commercial efforts to attempt to develop the Project on behalf of the Company.
An outline of the Development Plan is attached hereto as Exhibit "B", and such
plan is hereby approved by the Members. In consideration for contributing the
Development Plan for the Project to the Company, Casino America of Colorado
shall, effective upon the Transfer Date, receive a credit to its capital account
in the Company in an amount equal to $500,000, which amount shall for all
purposes be deemed a contribution to the capital of the Company in satisfaction
of its obligation in Section 4.1(b)(ii) hereof.
In connection with the development of the Project, Casino America of Colorado
will provide those services customarily provided by the developer of projects
such as the Project, consisting of the following (collectively, the "Development
Services"): (i) engaging for the account of the Company and supervising the
work of architects, engineers, professional consultants and planners on the
Project, (ii) engaging for the account of the Company and supervising the work
of the construction manager for the Project, (iii) applying for, and processing,
on behalf of the Company, permits and approvals necessary to develop the Project
(other than each Member's gaming regulatory approvals), (iv) negotiating on
behalf of the Company for construction contracts for development of the Project
and (v) negotiating on behalf of the Company with potential sources of financing
for the Project. Casino America of Colorado may cease to provide Development
Services at such time as there is an event causing a Dissolution of the Company
under Section 12.1 hereof.
Neither Casino America of Colorado nor any Affiliate shall be liable to the
Company or Blackhawk Gold or its Affiliates for any losses, damages, liabilities
or expenses resulting or arising from the Development Services, other than as a
direct and proximate result of the gross negligence or wilful misconduct of
Casino America of Colorado; and neither Casino America of Colorado nor its
Affiliates makes any representations or warranties as to the Development
Services or the successful completion of the Project.
Blackhawk Gold and its Affiliates will cooperate with Casino America of Colorado
in connection with the development of the Project in all reasonable respects,
including without limitation, providing pertinent information, documents or
records or making appearances before regulatory authorities whose approvals are
required for the Project. Additionally, Nevada Gold hereby
3
<PAGE>
agrees to allow the Company to dispose of excavated rock or soil on property in
Gilpin County owned by Nevada Gold, subject to a commercially reasonable fee, or
to locate for the Company a reasonably acceptable alternative site to dispose of
such materials.
Notwithstanding anything to the contrary in this Agreement or elsewhere, all
costs, expenses, liabilities or obligations (the "Development and Pre-Opening
Costs") incurred by Casino America of Colorado or any Affiliate in connection
with the Development Services or in connection with any other matter of any kind
or nature prior to the opening for public business of the Casino Facility (other
than costs of services provided by the regular employees of Casino America at no
additional cost to it), (i) shall not exceed the sum of one million dollars
($1,000,000) without the consent of Casino America of Colorado and (ii) shall be
deemed, as and when incurred or paid by Casino America of Colorado or its
Affiliates, to be a contribution to the capital of the Company and shall apply
toward the Initial Contribution required pursuant to Section 4.1(b)(i) below.
3.5 CONDITIONS PRECEDENT. Notwithstanding anything to the contrary in this
Agreement, the obligations of the Members to make the Initial Contributions
required pursuant to Section 4.1 are subject to the following conditions:
(a) Casino America of Colorado's obligation to make its Initial
Contribution is subject to the satisfaction of each of the following conditions:
(i) the execution of the Management Agreement by the Company and
Casino America;
(ii) the making of the Initial Contribution by Blackhawk Gold as
provided in Section 4.1(a) below;
(iii) the execution of a contract between Casino America of Colorado
and Roman Entertainment Corporation of Colorado or its
Affiliate (the "Caesars Contract") for the purchase of all the
real property owned by such party in Blackhawk, Colorado (the
"Caesars Land") ( which such party purchased subject to certain
option rights owned by Nevada Gold), under terms and conditions
satisfactory to Casino America of Colorado in its sole
discretion, including, without limitation, a financing
condition, and the closing of the purchase of the Caesars Land
pursuant to the terms of the Caesars Contract;
(iv) there being no event or occurrence arising between the date of
this Agreement and the Transfer Date that would or could
reasonably be expected to have a material adverse effect on the
Project or its proposed development under the Development Plan
or the operation of a gaming facility as part of the Project;
4
<PAGE>
(v) the completion by Casino America of Colorado, within 60 days of
the execution of the Caesars Contract, of its due diligence
examination to the satisfaction of Casino America of Colorado in
its sole discretion, including environmental and other matters
pertaining to the Blackhawk Gold Land (as defined below) and
other matters relating to the Project and its development;
(vi) the execution and delivery by the holders of the notes in the
aggregate principal amount of $350,000, plus accrued interest,
("the Notes"), subject to a Deed of Trust for the benefit of
River Oaks Trust Company dated May 11, 1995 and secured by a
lien on certain of the Blackhawk Gold Land (as defined below),
of an agreement, in form and content reasonably satisfactory to
Casino America of Colorado, extending the due date of the Notes
to a date 180 days from the date of this Agreement (or the
earlier Dissolution of the Company pursuant to Section 12.1) and
waiving any rights to take any action with respect to any
defaults under the Notes, the Deed of Trust or any other related
loan document occurring on or prior to the granting of the
extension; and,
(vii) the transfer to the Company by Special Warranty Deed together
with customary title insurance (at Blackhawk Gold=s cost) of the
fee interests in the parcel of land described on Exhibit C
hereto as "Parcel E2", free and clear of all liens,
encumbrances, rights or restrictions, in exchange for the parcel
of land described on Exhibit C as "Parcel D".
(b) Blackhawk Gold's obligation to make its Initial Contribution is subject
to the following conditions:
(i) the execution by the Company and Casino America of Colorado of
the Management Agreement;
(ii) the making of the Initial Contribution by Casino America of
Colorado as provided in Section 4.1(b) below; and
(iii) there being no event or occurrence that would or could
reasonably be expected to have a material adverse effect on the
Project or its proposed development under the Development Plan
or the operation of a gaming facility as part of the Project.
Casino America of Colorado and Blackhawk Gold will use their respective best
efforts to cause the foregoing conditions to the other's obligation to be
satisfied. Without limitation of the foregoing, Blackhawk Gold and its
Affiliates will exchange mutual general releases with Roman
5
<PAGE>
Entertainment Corporation of Colorado and its Affiliates if so required as part
of the Caesars Contract.
ARTICLE 4: CAPITAL CONTRIBUTIONS
4.1 INITIAL CONTRIBUTIONS.
[a] By Blackhawk Gold: Subject to the satisfaction of the conditions precedent
set forth in Section 3.5(b), Blackhawk Gold shall be obligated to make an
Initial Contribution of the property described in the attached Exhibit "C"
(the "Blackhawk Gold Land"), which shall be transferred by Special Warranty
Deed, along with customary title insurance (at Blackhawk Gold's cost) free
and clear of all liens and encumbrances except as specifically provided in
such Exhibit, which liens shall be removed by the payment by the Company of
an amount not to exceed $380,000.00 (representing the current approximate
amount of principal and accrued interest on the Notes) plus accrued
interest from the date hereof through the date of payment. The Members
agree that the Fair Market Value of the property described in Exhibit "C"
is $7.5 million.
[b] By Casino America of Colorado: Subject to the satisfaction of the
conditions precedent set forth in Section 3.5(a), Casino America of
Colorado shall be obligated to make an Initial Contribution consisting of
the following: (i) the sum of $1 million, less the aggregate amount of the
Development and Pre-Opening Costs paid or incurred by Casino America of
Colorado or its Affiliates through the date of the Initial Contribution,
which net amount (the "Cash Contribution") shall be contributed in cash to
the Company on the Transfer Date and used to pay additional Development and
Pre-Opening Costs or for such other purposes as the Company may determine,
(ii) the Development Plan, which effective as of the Transfer Date, shall
be deemed to have been contributed by Casino America of Colorado to the
Company, and for which Casino America of Colorado shall receive a credit to
its capital account of $500,000, and (iii) the Caesars Land (or, at the
option of Casino America of Colorado, an assignment of the right to acquire
such land, together with the amount of the purchase price as provided
below). The Members agree that the Fair Market Value of the Caesars Land
will be equal to the total price paid for the property by Casino America of
Colorado (or by the Company as the assignee of the rights of Casino America
of Colorado under the Caesars Contract) plus the amount that would need to
be paid to remove any liens, liabilities or encumbrances to which the
Caesars Land may be subject (the Fair Market Value of any non-cash
consideration paid for the Caesars Land shall be mutually agreed upon by
the Members). If the Fair Market Value of the Caesars Land is less than
$6.5 million, the difference between the Fair Market Value and $6.5 million
shall be contributed by Casino America of Colorado to the Company in cash
in addition to the sum described in 4.1(b)(i) above, no later than the
Transfer Date, so that the initial capital account and the Initial
Contribution of Casino America of Colorado shall not be less than $8
million. If the Fair Market Value of the Caesars Land exceeds $6.5
6
<PAGE>
million, Casino America of Colorado may, at its option, treat the amount
exceeding $6.5 million as (i) an amount advanced to the Company to be
reimbursed with Interest from the proceeds of the Project financing to the
extent such proceeds are available for this purpose, (ii) an Additional
Contribution to the capital of the Company, with Casino America of
Colorado's Capital Account and Ownership Interest being increased
accordingly or (iii) a loan to the Company upon terms agreed to by both of
the Members (which loan may be converted to an Ownership Interest on a pro-
rata dollar for dollar basis with the Initial Ownership at any time, in
Casino America of Colorado's discretion).
At its election, instead of purchasing the Caesars Land and contributing it
to the Company as part of its Initial Contribution, Casino America of
Colorado may assign all of its contract rights to purchase the Caesars Land
to the Company together with the amount of funds required to purchase the
Caesars Land and the Company shall purchase the property pursuant to the
Caesars Contract.
4.2 ADDITIONAL CONTRIBUTIONS. Except upon the agreement of all Members and
upon such terms and conditions as they may agree in writing and except as
provided in Section 4.1(b) above, no Additional Contributions will be required
or permitted from the Members except that the Company may, by vote of the
Majority in Interest, require Additional Contributions from Members (i) if
required by governing law, or (ii) as reasonably required for implementation of
the Development Plan, or other reasonably required capital expenditures of the
Company, but not to exceed a total cumulative additional sum of $4 million. The
Member that provides any Additional Contribution shall receive the same
percentage Ownership Interest as with respect to an Initial Contribution.
4.3 DEFAULT. If a Member fails to make a required Capital Contribution timely
when due, each other Member which is not in default will have the option to:
[a] Make all or part of such Capital Contribution on its own behalf and
increase its Ownership interest accordingly; or
[b] Loan all or part of such Capital Contribution amount to the Company, with
such loan payable on demand and with Interest (and such amount will be
treated as a loan rather than as a Capital Contribution).
If there is more than one Member which is not in default in its required
Capital Contributions, the non-defaulting Members will agree among themselves as
to the allocation of any required Capital Contribution that is either
contributed or loaned, and if they do not agree, each such Member will be
entitled to contribute and to loan an amount equal to its proportionate share
(based on the ratio of their Capital Contributions previously made).
7
<PAGE>
4.4 NO WITHDRAWAL. Except as specifically provided in this Agreement, no
Member will be entitled to withdraw all or any part of such Member's capital
from the Company or, when such withdrawal of capital is permitted, to demand a
distribution of property other than cash.
4.5 NO INTEREST ON CAPITAL. No Member will be entitled to receive interest on
such Member's Capital Contribution or Capital Account.
4.6 LOANS BY MEMBERS. The Company may borrow money from any Member or
Affiliate for Company purposes. Any such amount will be repaid with Interest
and upon demand, or with Interest and upon such other terms as the Company and
such Member or Affiliate may agree; provided that, such other terms may not be
less favorable to the Company than the terms available from an unrelated lender
dealing at arms'-length (including a reasonable financing fee). Any such
advance or loan will be treated as indebtedness of the Company, and will not be
treated as a Capital Contribution by a Member.
4.7 DRAWING ACCOUNTS. The Company shall distribute to Members from Available
Company Cash an amount equal to the presently due and payable Tax Liabilities of
the Members (including any amounts necessary to pay the amount of Tax
Liabilities for prior periods for which inadequate amounts of Available Company
Cash were available to meet the Member's Tax Liabilities). "Tax Liabilities"
means income tax liabilities which may be chargeable to any Member, or, if such
member is not a taxpaying entity, each beneficial owner of such Member who is a
taxpaying entity (using the maximum income tax rate applicable to such taxpaying
entity) for each fiscal year of the Company, in respect of the taxable income of
the Company (net of any prior taxable loss of the Company not previously used to
offset taxable income of the Company) shown on the information returns of the
Company as of the end of the fiscal year of the Company as to which such
determination is being made. "Available Company Cash" means cash in excess of
the cash reserves provided for in Section 7.1.
4.8 CAPITAL ACCOUNTS. A Capital Account will be maintained for each Member and
credited, charged and otherwise adjusted in accordance with generally accepted
accounting principles consistently applied. Each Member's Capital Account will
be:
[a] Credited with [i] the Initial Contributions and any Additional
Contributions (net of liabilities secured by such property that the Company
takes subject to or assumes), [ii] the Member's allocable share of Profits
and [iii] all other items properly credited to the Member's Capital
Account; and
[b] Charged with [i] the amount of cash distributed to the Member by the
Company, [ii] the Fair Market Value of property distributed to the Member
by the Company (net of liabilities secured by such property that the Member
takes subject to or assumes), [iii] the Member's allocable share of Losses
and [iv] all other items properly charged to the Member's Capital Account.
8
<PAGE>
Any unrealized appreciation or depreciation with respect to any asset
distributed in kind will be allocated among the Members in accordance with the
provisions of Article 6 as though such asset had been sold for its Fair Market
Value on the date of Distribution, and each Member's Capital Account will be
adjusted to reflect both the deemed realization of such appreciation or
depreciation and the Distribution of such property. In determining the Fair
Market Value of any asset of the Company for purposes of any Distribution, the
Company may obtain the written report of any one or more independent qualified
appraisers (or appraisal firms). If more than one appraisal report is obtained
by the Company, Fair Market Value will be determined as the average of such
appraised values. The Company will select each such appraiser (or appraisal
firm), and bear the cost of any such appraisal.
The Capital Account of each Member shall be determined and maintained in
accordance with generally accepted accounting principles consistently applied in
the casino industry. For income tax purposes, the Company shall make all
required elections under Section 704(b) of the Code.
4.9 OPTIONAL PURCHASE OF OWNERSHIP INTEREST FROM CASINO AMERICA OF COLORADO.
Blackhawk Gold shall have the option to purchase for cash (unless otherwise
agreed) from Casino America of Colorado portions of its Increased Ownership
Interest sufficient to permit Blackhawk Gold to hold up to forty-eight and four-
tenths percent (48.4%) of the Ownership Interest of the Company under the
following terms and conditions:
[a] Blackhawk Gold must provide Casino America of Colorado not less than
fourteen (14) days prior written notice of Blackhawk Gold's intention to
exercise such option;
[b] The price for such Increased Ownership Interest will be the price paid by
Casino America of Colorado for such Increased Ownership Interest plus
Interest from the date the Increased Ownership Interest was paid for by
Casino America of Colorado through the date of payment by Blackhawk Gold;
and
[c] Any option to be exercised by Blackhawk Gold under this Section 4.9 must be
exercised within 180 days from the date that Casino America of Colorado
acquired such portion of its Increased Ownership Interest in excess of
51.6%.
Upon the completion of such purchase or purchases, the Members' respective
Ownership Interest shall be automatically adjusted proportionately to reflect
such purchase(s).
Notwithstanding anything to the contrary herein, Blackhawk Gold may not
exercise an option to purchase an Increased Ownership Interest from Casino
America of Colorado if, after giving effect to the exercise, Casino America of
Colorado's Ownership Interest would be less than 51.6%.
9
<PAGE>
4.10 TRANSFER. If all or any part of an Ownership Interest is transferred in
accordance with this Agreement, the Capital Account and Ownership Interest of
the Transferor (including a pro-rata share of Capital Contributions) that is
attributable to the transferred interest will carry over to the Transferee.
ARTICLE 5: MEMBERS AND MANAGERS;
EXECUTIVE COMMITTEE
5.1 MANAGEMENT BY MANAGERS. The business and affairs of the Company shall be
managed by the Managers set forth below, as such Managers may be changed from
time to time as set forth herein. The initial Managers of the Company shall be
John M. Gallaway, Allan B. Solomon and H. Thomas Winn.
5.2 EXECUTIVE COMMITTEE. Except as to matters expressly reserved to the
Members by statute or by this Operating Agreement, the management of the
business and affairs of the Company by the Managers shall be effected by an
Executive Committee consisting of all of the Managers of the Company (the
"Executive Committee"). So long as Casino America of Colorado and Blackhawk
Gold are the only Members of the Company, the Executive Committee shall be
comprised of the three initial Managers of the Company, or their duly elected
successors. Except as provided in Section 5.5 below, actions of the Executive
Committee shall be by majority vote at meetings duly called for purposes of
taking action at which a quorum is present. A quorum at any meeting of the
Executive Committee shall consist of two members. The Executive Committee may
also act by unanimous written consent in lieu of a meeting.
Meetings of the Executive Committee shall be held no less often than
quarterly (one of which shall be the Annual Meeting of the Managers) on dates
established therefor at each preceding Annual Meeting of the Managers. Special
meetings of the Executive Committee shall be held from time to time as called by
any member of the Executive Committee on no less than five (5) days' advance
notice given in writing by the Executive Committee member calling such meeting,
which notice may be given by facsimile, Federal Express or similar courier
service, certified mail or personal delivery. Notices of meetings shall be
effective when sent, if sent by facsimile, or upon receipt, if given by
certified mail, overnight courier or personal delivery, in each case at the
address of each member of the Executive Committee on the books and records of
the Company. The members of the Executive Committee may participate in a meeting
by means of conference telephone or similar communications equipment by which
all the members participating in the meeting can hear each other at the same
time. Such participation will constitute presence in person at the meeting and
waiver of any required notice.
Managers shall hold office for a term of one year from election, or until
the next Annual Meeting of Members. Each Member shall have the right to elect
one Manager, except that Casino America of Colorado shall have the right to
elect two Managers for so long as it is a Member of the Company. Each Member
shall have the right to remove, replace or designate a temporary replacement for
a Manager elected by it.
10
<PAGE>
5.3 MEMBER'S REPRESENTATIVE. Each Member other than an individual will
designate one or more individuals to act as such Member's duly authorized
representative and agent for purposes of exercising such Member's vote on any
matter involving the Company requiring the approval or action of the Members.
Each Member other than an individual may also designate one or more individuals
as an alternate in the event that the primary representative is unavailable to
act for any reason. A Member may change any such designation at any time upon
similar notice. Until further notice, Casino America of Colorado appoints John
M. Gallaway as its primary representative. Until further notice, Blackhawk
Gold appoints H. Thomas Winn as its primary representative. The representatives
of a Member will cast the vote of each Member in accordance with such Member's
Ownership Interest, as provided in this Article.
5.4 MAJORITY VOTING. Notwithstanding the powers granted to a Member under the
Act, all decisions reserved by statute or this Operating Agreement to the
Members will be made by the affirmative vote of Members owning more than 50% of
the Ownership Interests held by all Members, without regard to quorum
requirements unless the unanimous vote (under Section 5.5) provisions apply or
as otherwise specifically provided in this Agreement. Any determination to be
made by the Members will be made in each Member's sole and absolute discretion.
5.5 UNANIMOUS VOTE. The following actions by the Company will require the
affirmative vote of all members of the Executive Committee without regard to
quorum requirements:
[a] The making of material changes to the Development Plan attached hereto as
Exhibit B;
[b] The adoption of any Annual Budget for any year following the opening of the
Project for public business calling for capital expenditures for such
budgeted year of greater than $4,000,000;
[c] A call for Additional Contributions by the Members other than as provided
for under Section 4.2;
[d] The admission of an additional Member incident to the contribution of money
or other property to the Company under Section 5.12;
[e] Any non pro-rata distribution, including the non pro-rata distribution of
assets in kind in Liquidation under Section 13.3;
[f] The amendment of this Agreement or the Management Agreement, except as
provided in Section 17.1 of this Agreement or the Management Agreement;
[g] The merger of the Company with any other business entity as provided by
governing law;
[h] The sale of substantially all of the Company's assets except as provided in
Section 13.7;
11
<PAGE>
[i] The approval of the principal terms of the Project financing described in
Section 3.3 or any refinancing thereof or the incurrence of indebtedness
outside of the normal operating requirements of the Project in an
outstanding amount which at any time exceeds $1 million; and
[j] The composition or manner of acting of the Executive Committee as set forth
in Section 5.2.
The Company actions described above shall also require the prior approval
of all of the Members, after such action having been recommended by unanimous
vote of the Executive Committee as described above.
5.6 ANNUAL BUDGETS. Casino America of Colorado will prepare an Annual Budget
within a reasonable time before the beginning of each Fiscal Year, including the
budget submitted under the Management Agreement (Exhibit "E"). An Annual Budget
will include the amount of any Additional Contribution that is determined to be
necessary or desirable (to be made in the proportion of the Capital
Contributions previously made), and the date or dates on which such contribution
to capital will be due.
5.7 MANAGEMENT AGREEMENT. The day-to-day management of the Company will be
performed pursuant to the Management Agreement attached hereto as Exhibit E and
which has been executed as of the date of this Agreement.
5.8 REIMBURSEMENT. Upon compliance with such policies and procedures as the
Company may from time to time adopt and except as otherwise provided in Section
4.1, the Members will be reimbursed by the Company for all reasonable out-of-
pocket expenses incurred on behalf of the Company in connection with its
business.
5.9 NO RESIGNATION OR RETIREMENT. Each Member agrees not to voluntarily resign
or retire as a Member in the Company. However, if such voluntary resignation or
retirement occurs in contravention of this Agreement, the withdrawing Member
will, without further act, become a Transferee of such Ownership Interest
(with the limited rights of a Transferee as set forth in Section 14.6). Any
Member who resigns or retires from the Company in contravention of this
Agreement will be liable to the Company and the other Members for proven
monetary damages (but any such action or proposed action to resign or retire
will not be subject to any equitable action for injunctive relief or specific
performance).
5.10 POWERS. Each Manager is an agent of the Company for the purpose of
conducting its business and affairs. The act of any Manager for apparently
carrying on in the usual way of the Company's business or affairs binds the
Company unless the Manager so acting has, in fact, no authority to act for the
Company in the particular matter and the person with whom such Member is dealing
has knowledge of such lack of authority. The act of any Manager which is not
apparently for the carrying on in the usual way of the Company's business or
affairs does not bind
12
<PAGE>
the Company unless authorized in accordance with this Agreement. Each Manager
agrees to act on behalf of the Company only in compliance with this Agreement,
and agrees that any act in contravention of this Agreement renders such Manager
liable to the Company and other Members for monetary damages and other relief.
5.11 SUBSTITUTE MEMBERS. A Transferee may be admitted as a substitute Member of
the Company only upon the affirmative written agreement of all of the Members
(excluding the Transferor Member), effective upon a date specified (which must
be on or after the effective date of the Transfer, as determined under Section
14.5). If after the transfer of an Ownership Interest, there are fewer than two
continuing Members (including any Transferee admitted as a substitute Member),
the Company will be dissolved as provided in Article 12.
5.12 ADDITIONAL MEMBERS. Additional Members of the Company may be admitted
incident to the contribution of money or other property to the Company (or
otherwise) only upon the affirmative written agreement of all Members, effective
upon a date specified.
5.13 OFFICERS. The Company, acting through the Executive Committee, may appoint
and remove such officers as it determines to be necessary or desirable to carry
out the day-to-day management of the Company. The Company's officers may
include a president, one or more vice presidents, a secretary and a treasurer,
as well as one or more assistant vice presidents, secretaries and treasurers.
Such officers may also include a chief executive officer, chief operating
officer and chief financial officer. Appointment as an officer or agent of the
Company will not, of itself create any contract rights. The officers of the
Company, acting in their capacity as such, will be agents acting on behalf of
the Company as principal. No officer of the Company has the continuing
exclusive authority to make independent business decisions on behalf of the
Company without the approval of the Managers as set forth in this Article.
ARTICLE 6: ALLOCATION OF PROFITS AND LOSSES
6.1 PROFITS AND LOSSES. For each Fiscal Year, Profits or Losses of the Company
will be an amount equal to the Company's income or loss determined under the
accrual method of accounting, in accordance with generally accepted accounting
principles consistently applied.
6.2 GENERAL ALLOCATION RULE. Except as otherwise provided in (or until changed
pursuant to) this Agreement, the Profits or Losses of the Company, including
items of income, gain, loss and deduction for each Fiscal Year, will be
allocated to the Members in proportion to their respective Ownership Interests
as defined herein. Appropriate adjustment during the Fiscal Year of any change
in this allocation will be determined in accordance with Section 706 of the Code
and the Section 706 Regulation to take into account the varying interests of the
Members in the Company during such Fiscal Year, in the manner determined by the
Company.
6.3 EXCEPTION. Notwithstanding the general rule on allocation and for tax
accounting purposes only and not for financial statement purposes or any other
provision of this Operating Agreement,
13
<PAGE>
no cash shall be distributed to any Member if the effect thereof would be to
create a deficit in his Capital Account balance or increase the deficit in his
Capital Account below the sum of [1] the amount (if any,) which he is required
to contribute to the Company and [2] said Member's share of gain which the
Company would recognize upon a sale of its property for an amount equal to the
balance of the non-recourse debt encumbering it, (the "Company's Minimum Gain")
and such cash shall be retained by the Company and shall be distributed to the
Member at the earliest time or times possible when such distributions will not
cause such a deficit or increase such a deficit in the distributee's Capital
Account balance. Notwithstanding the provisions of Section 6.2, the following
allocations of net profits and net losses and items thereof shall be made:
[a] If in any taxable year there is a net decrease in the amount of the
Company's Minimum Gain, each Member shall be allocated items of the
Company's net profits for that year (and, if necessary, subsequent years)
equal to that Member's share of the net decrease in the Company's Minimum
Gain (within the meaning of Treasury Regulation Section 1.704-2(g)(2)). The
items to be so allocated shall be determined in accordance with Treasury
Regulation Section 1.704-2(j). This Section 6.3 is intended to comply with
the Minimum Gain Chargeback requirement in Treasury Regulation Section
1.704-2 and shall be interpreted consistently therewith.
[b] If during any taxable year a Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Section
1.704-l(b)(2)(ii)(d)(4), (5), or (6), then items of net profits shall be
specially allocated to each Member in an amount and manner sufficient to
eliminate, to the extent required by Treasury Regulation Section 1.704-
(1)(b)(2)(ii)(d), the deficit in the Capital Account of such Member as
quickly as possible, provided that an allocation pursuant to this Section
6.3 [b] shall be made only if and to the extent that such Member has an
adjusted Capital Account deficit after all other allocations provided for
in this Article 6 have been tentatively made and as if this Section 6.3[b]
were not in this Agreement. This Section 6.3[b] is intended to comply with
the Qualified Income Offset requirements in Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
It is the intent of the Members that the allocations provided for in this
Operating Agreement have "substantial economic effect," as that term is defined
in Section 704(b) of the Code. Notwithstanding anything in this Section 6.3 to
the contrary, nothing contained in this Section 6.3 shall serve to restrict any
distribution by the Company to any Member.
6.4 TAX ALLOCATIONS. Allocation of items of income, gain, loss and deduction
of the Company for federal income tax purposes for a Fiscal Year will be
allocated, as nearly as is practicable, in accordance with the manner in which
such items are reflected in the allocations of Profits and Losses among the
Members for such Fiscal Year. To the extent possible, principles identical to
those that apply to allocations for federal income tax purposes will apply for
state and local income tax purposes.
14
<PAGE>
6.5 TRANSFER. Except as otherwise provided in Section 6.2, if an Ownership
Interest is transferred during any Fiscal Year (whether by Transfer or
liquidation of an Ownership Interest, or otherwise), the books of the Company
will be closed as of the effective date of Transfer. The Profits or Losses
attributed to the period from the first day of such Fiscal Year through the
effective date of Transfer will be allocated to the Transferor, and the Profits
or Losses attributed to the period commencing on the effective date of Transfer
will be allocated to the Transferee. In lieu of an interim closing of the books
of the Company and with the agreement of the Transferor and Transferee, the
Company may agree to allocate Profits and Losses for such Fiscal Year between
the Transferor and Transferee based on a daily proration of items for such
Fiscal Year or any other reasonable method of allocation (including an
allocation of extraordinary Company items, as determined by the Company, based
on when such items are recognized for federal income tax purposes).
6.6 CONTRIBUTED PROPERTY. All items of income, gain, loss and deduction with
respect to property contributed (or deemed contributed) to the Company will,
solely for tax purposes, be allocated among the Members as required by Section
704(c) of the Code so as to take into account the variation between the tax
basis of the property and its Fair Market Value at the time of contribution.
For example, if there is built-in gain with respect to contributed property,
upon the Company's sale of that property the pre-contribution taxable gain (as
subsequently adjusted under the Section 704(c) Regulations during the period
such property was held by the Company) would be allocated to the contributing
Member (and such pre-contribution gain would not again create a Capital Account
adjustment since the property was credited to Capital Account upon contribution
at its Fair Market Value). Except as limited by the following sentence, the
allocation of tax items with respect to Section 704(c) property to Members not
contributing such property will, to the extent possible, be equal to the
allocation of the corresponding book items made to such noncontributing Members
with respect to such property. If book allocations of cost recovery deductions
(such as depreciation or amortization) exceed the tax allocations of those items
so that the ceiling rule of the Section 704(c) Regulations applies, any curative
or remedial allocations of tax items will be made as the Company may determine.
All tax allocations made under this provision will be made in accordance with
Section 704(c) of the Code and the Section 704(c) Regulations.
6.7 TAX CREDITS. Any tax credit, and any tax credit recapture, will be
allocated to the Members in the same ratio that the federal income tax basis of
the asset (to which such tax credit relates) is allocated to the Members under
the Section 46 Regulations, and if no basis is allocated, in the same manner as
Profits are allocated to the Members under Section 6.2.
ARTICLE 7: DISTRIBUTIONS
7.1 CASH RESERVES. The Company will establish and maintain reasonable cash
reserves for [a] operating expenses (other than depreciation, amortization or
similar non-cash allowances), [b] capital improvements, [c] debt service, [d]
working capital and [e] bankroll. The amount of such
15
<PAGE>
reserves will be as the Company may from time to time determine, and such amount
will be allowed as a deduction in determining Net Operating Cash.
7.2 PRORATA DISTRIBUTIONS. The Company will make quarterly Distributions of
Net Operating Cash to the Members in proportion to their Ownership Interests.
Any Net Sales Cash that is realized incident to the Dissolution and Liquidation
of the Company will be distributed as provided in Article 13, with any Net Sales
Cash that is realized other than incident to the Dissolution and Liquidation of
the Company to be distributed in accordance with this Section 7.2.
7.3 NONPRORATA DISTRIBUTIONS. The Members intend that all Distributions will
be made to the Members in proportion to their Ownership Interests. In the event
any Distribution is not made in proportion to their Ownership Interests, any
excess Distribution to a Member will be treated as an advance or loan made by
the Company to such Member, payable to the Company with Interest and on demand.
7.4 PAYMENT. Any Distribution will be made to a Member only if such Person
owns an Ownership Interest on the date of Distribution, as reflected on the
books of the Company.
7.5 WITHHOLDING. If required by the Code or by state or local law, the Company
will withhold any required amount from Distributions to a Member for payment to
the appropriate taxing authority. Any amount so withheld from a Member will be
treated as a Distribution by the Company to such Person. Each Member agrees to
timely file any agreement that is required by any taxing authority in order to
avoid any withholding obligation that would otherwise be imposed on the Company.
7.6 DISTRIBUTION LIMITATION. Notwithstanding any other provision of this
Agreement, the Company will not make any Distribution to the Members unless,
after the Distribution, the liabilities of the Company (other than liabilities
to Members on account of their Capital Contributions) have been paid or there
remains property of the Company sufficient to pay them.
ARTICLE 8: MEETINGS OF MEMBERS
8.1 ANNUAL MEETING. Unless the Company determines (whether by vote or
otherwise) that an annual meeting is not necessary or desirable, the annual
meeting of the Members will be held on the second Tuesday of April in each year
at 9:00 a.m. (local time) by Notice to all other Members. The purpose of the
annual meeting is to review the Company's operations for the preceding Fiscal
Year and to transact such business as may come before the meeting. The failure
to hold any annual meeting has no adverse effect on the continuance of the
Company.
8.2 SPECIAL MEETINGS. Special meetings of the Members, for any purpose or
purposes, may be called by any Member or Members owning at least ten percent
(10%) of the Ownership Interests held by all Members by notice to all other
Members.
16
<PAGE>
8.3 PLACE. The Members may designate any place as the place of meeting for any
meeting of the Members. If no designation is made, or if a special meeting is
otherwise called, the place of meeting will be the Company's registered office
in Colorado.
8.4 NOTICE. Notice of any annual meeting determined by resolution of the
Members or of any special meeting must be given not less than 5 days nor more
than 30 days before the date of the meeting. Such notice must state the place,
day, and hour of the meeting and, in the case of a special meeting, the purpose
for which the meeting is called.
8.5 WAIVER OF NOTICE. Any Member may waive, in writing, any notice is required
to be given to such Member, whether before or after the time stated in such
notice. Any Member who signs minutes of action (or written consent or
agreement) will be deemed to have waived any required notice with respect to
such action.
8.6 RECORD DATE. For the purpose of determining Members entitled to notice of
or to vote at any meeting of Members, the date on which notice of the meeting is
first given will be the record date for the determination of Members. Any such
determination of Members entitled to vote at any meeting of Members will apply
to any adjournment of a meeting.
8.7 QUORUM. A quorum at any meeting of Members shall consist of Members owning
at least 50% of the Ownership Interests held by all Members. Any meeting at
which a quorum is not present may adjourn the meeting to another place, day and
hour without further notice.
8.8 MANNER OF ACTING. If a quorum is present, the affirmative vote of Members
as set forth in Article 5 will be the act of the Company.
8.9 PROXIES. At a meeting of the Members, a Member may vote in person or by
written proxy given to another Member. Such proxy must be signed by the Member
or by a duly authorized attorney-in-fact and filed with the Company before or at
the time of the meeting. No proxy will be valid after eleven months from the
date of its signing unless otherwise provided in the proxy. Attendance at the
meeting by the Member giving the proxy will revoke the proxy during the period
of attendance.
8.10 MEETINGS BY TELEPHONE. The Members may participate in a meeting by means
of conference telephone or similar communications equipment by which all Members
participating in the meeting can hear each other at the same time. Such
participation will constitute presence in person at the meeting and waiver of
any required notice.
8.11 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at
a meeting of Members under this Article 8 may be taken without a meeting if the
action is evidenced by one or more written consents describing the action taken,
signed by Members owning total Ownership Interests sufficient for the particular
action as set forth in Article 5. Action so taken is effective
17
<PAGE>
when sufficient Members approving the action have signed the consent, unless the
consent specifies a later effective date. Notice of the action must be provided
to all members.
ARTICLE 9: LIABILITY OF A MEMBER
9.1 LIMITED LIABILITY. Unless otherwise provided in the Articles or an
agreement signed by the Member to be subjected to any individual liability, no
Member of the Company is individually liable for the debts or liabilities of the
Company.
9.2 LIABILITY TO COMPANY. Each Member is liable to the Company for [a] the
Initial Contribution agreed to be made under Section 4.1 and any Additional
Contribution agreed to be made under Section 4.2, and [b] any Capital
Contribution or Distribution that has been wrongfully or erroneously returned or
paid to such Person in violation of the Act, the Articles or this Agreement.
ARTICLE 10: INDEMNIFICATION
10.1 INDEMNIFICATION. The Company will indemnify, defend and hold harmless any
Person who was or is a party (or is threatened to be made a party) to any
Proceeding by reason of the fact that such Person was a Member, or agent or
representative thereof, a Manager, member of the Executive Committee, employee
or agent of the Company to the fullest extent permitted by the Act. Any such
indemnification will apply to any Liability actually and reasonably incurred in
connection with the defense or settlement of the Proceeding.
10.2 EXPENSE ADVANCEMENT. With respect to the expenses actually and reasonably
incurred by a Member, Manager or member of the Executive Committee who is a
party to a Proceeding, the Company shall provide funds to such Member in advance
of the final disposition of the Proceeding if the Person furnishes the Company
with such Person's written affirmation of a good-faith belief that such Person
has met the standard of conduct described in the Act, and such Person agrees in
writing to repay the advance if it is subsequently determined that such Person
has not met such standard of conduct.
10.3 INSURANCE. The indemnification provisions of this Article do not limit a
Member's or Manager's right to recover under any insurance policy or other
financial arrangement by the Company (including any self-insurance, trust fund,
letter of credit, guaranty or surety). If, with respect to any Liability, any
Member or Manager receives an insurance or other indemnification payment which,
together with any indemnification payment made by the Company, exceeds the
amount of such Liability, then such Member or Manager will immediately repay
such excess to the Company.
18
<PAGE>
ARTICLE 11: ACCOUNTING AND REPORTING
11.1 FISCAL YEAR. For income tax and accounting purposes, the Fiscal Year of
the Company will end on the last Sunday in April of each year (unless otherwise
required by the Code).
11.2 ACCOUNTING METHOD. For accounting purposes, the Company will use generally
accepted accounting principles.
11.3 TAX ELECTIONS. The Company will have the authority to make such tax
elections, and to revoke any such election, as the Company may from time to time
determine.
11.4 RETURNS. The Company will cause the preparation and timely filing of all
tax returns required to be filed by the Company pursuant to the Code, as well as
all other tax returns required in each jurisdiction in which the Company does
business.
11.5 REPORTS. The Company will furnish a Profit or Loss statement and a balance
sheet to each Member within a reasonable time after the end of each fiscal
quarter. The Company books will be closed at the end of each Fiscal Year and
audited financial statements prepared showing the financial condition of the
Company and its Profits or Losses from operations. Copies of these statements
will be given to each Member. In addition, as soon as is practicable after the
close of each Fiscal Year (and in any event within 90 days following the end of
each Fiscal Year), the Company will provide each Member with all necessary tax
reporting information.
11.6 BOOKS AND RECORDS. The records of the Company will be kept at the
Company's business office in Colorado, and will be available for inspection and
copying by any Member at such Person's expense, during ordinary business hours.
11.7 INFORMATION. Any Member has the right to inspect and copy the Company
books and records as provided in Section 11.6 and to have a formal accounting of
Company affairs whenever circumstances render it just and reasonable. In
addition, subject to reasonable standards as established by the Company from
time to time, and upon reasonable demand for any purpose reasonably related to
the Member's interest as a Member, any Member has the right to obtain from the
Company correct and complete information relating to the state of the Company's
business and its financial condition.
11.8 BANKING. The Company may establish one or more bank or financial accounts
and safe deposit boxes. The Company may authorize one or more individuals to
sign checks on and withdraw funds from such bank or financial accounts and to
have access to such safe deposit boxes, and may place such limitations and
restrictions on such authority as the Company deems advisable.
19
<PAGE>
11.9 TAX MATTERS PARTNER. Until further action by the Company, Casino America
of Colorado is designated as the tax matters partner under Section 623l (a)(7)
of the Code. The tax matters partner will be responsible for notifying all
Members of ongoing proceedings, both administrative and judicial, and will
represent the Company throughout any such proceeding. The Members will furnish
the tax matters partner with such information as it may reasonably request to
provide the Internal Revenue Service with sufficient information to allow proper
notice to the Members. If an administrative proceeding with respect to a
partnership item under the Code has begun, and the tax matters partner so
requests, each Member will notify the tax matters partner of its treatment of
any partnership item on its federal income tax return, if any, which is
inconsistent with the treatment of that item on the partnership return for the
Company. Any settlement agreement with the Internal Revenue Service will be
binding upon the Members only as provided in the Code. The tax matters partner
will not bind any other Member to any extension of the statute of limitations or
to a settlement agreement without such Member's written consent. Any Member who
enters into a settlement agreement with respect to any partnership item will
notify the other Members of such settlement agreement and its terms within 30
days from the date of settlement. If the tax matters partner does not file a
petition for readjustment of the partnership items in the Tax Court, Federal
District Court or Claims Court within the 90 day period following a notice of a
final partnership administrative adjustment, any notice partner or 5-percent
group (as such terms are defined in the Code) may institute such action within
the following 60 days. The tax matters partner will timely notify the
other Members in writing of its decision. Any notice partner or 5 percent group
will notify any other Member of its filing of any petition for readjustment.
11.10 NO PARTNERSHIP. The classification of the Company as a partnership will
apply only for federal (and, as appropriate, state and local) income tax
purposes. This characterization, solely, for tax purposes, does not create or
imply a general partnership between the Members for state law or any other
purpose. Instead, the Members acknowledge the status of the Company as a limited
liability company formed under the Act.
ARTICLE 12: DISSOLUTION OF THE COMPANY
12.1 DISSOLUTION. Dissolution of the Company will occur upon the happening of
any of the following events:
[a] An event of Withdrawal (as defined in Section 12.2) of a Member, unless
there are at least two remaining Members (including any Transferee admitted
as a substitute Member) and the Company is continued as provided in Section
12.4;
[b] The conditions to their respective obligations in Section 3.5 above have
not been satisfied or waived by Casino America of Colorado or Blackhawk
Gold, as the case may be, within 180 days from the date of this Agreement;
20
<PAGE>
[c] The financing or a reasonably acceptable commitment for the financing for
the Project contemplated by Section 3.3 above in an amount sufficient to
cover the Project costs without the requirement for any Additional
Contribution of capital other than as provided in Section 4.2 or as agreed
to by the Members, and on terms acceptable to the Members, has not been
obtained within 180 days from the Transfer Date;
[d] Any material approval, consent or permit from any governmental authority
(other than a Regulatory Authority, as defined in Section 16.1), which is
necessary to develop the Project in accordance with the Development Plan,
has not been obtained within 180 days from the date of this Agreement or
the governmental authority responsible for the issuance of any such
approval, consent or permit has advised the Company or its representatives
in writing that it will not issue the approval, consent or permit;
[e] As reasonably determined by the Majority in Interest, it is impossible or
economically unfeasible to develop the Project substantially as
contemplated by the Development Plan or to operate it as a gaming facility;
[f] By unanimous agreement of the Members; or
[g] December 31, 2096.
12.2 EVENTS OF WITHDRAWAL. An event of Withdrawal of a Member occurs when any
of the following occurs:
[a] With respect to any Member, upon the Transfer of all of such Member's
Ownership Interest not approved by a majority of the Members (which
Transfer is treated as a resignation);
[b] With respect to any Member, upon the voluntary withdrawal (including any
resignation or retirement in contravention of Section 5.9) of the Member by
notice to all other Members;
[c] With respect to any Member that is a corporation, upon filing of articles
of dissolution of the corporation;
[d] With respect to any Member that is a partnership or a limited liability
company, upon dissolution of such entity;
[e] With respect to any Member who is an individual, upon either the death or
retirement of the individual, or upon such Person's insanity or the entry
by a court of competent jurisdiction of an order adjudicating the
individual to be incompetent to manage such individual's person or estate;
21
<PAGE>
[f] With respect to any Member that is a trust, upon termination of the trust;
[g] With respect to any Member that is an estate, upon final distribution of
the estate's Ownership Interest;
[h] With respect to any Member, the bankruptcy of the Member; or
[i] Any other event which terminates the continued membership of a Member in
the Company.
Within 30 days following the happening of any event of Withdrawal with
respect to a Member, such Member must give notice of the date and the nature of
such event to the Company. This notice is required in order to enable the
remaining Members to continue the Company under Section 12.4 if such
remaining Members desire to avoid a Dissolution and Liquidation of the Company.
Any Member failing to give such notice will be liable in damages for the
consequences of such failure as otherwise provided in this Agreement. Upon the
occurrence of an event of Withdrawal with respect to a Member, such Member will
cease to have voting rights under Article 5, and such Member's Ownership
Interest will be deemed transferred to such Member's Transferee or other
successor in interest (which Person, unless already a Member in such capacity,
will have only the limited rights of a Transferee as set forth in Section 14.6,
unless and until admitted as a substitute Member).
12.3 BANKRUPTCY. The bankruptcy of a Member will be deemed to occur when such
Person: [a] files a voluntary petition in bankruptcy, [b] is adjudged a bankrupt
or insolvent, or has entered against such Person an order for relief in any
bankruptcy or insolvency proceeding, [c] files a petition or answer seeking for
such Person any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
[d] files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against such Person in any proceeding
of this nature, or [e] seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of all or any substantial part of such Person's
properties. In addition, the bankruptcy of a Member will be deemed to occur if
any proceeding filed against a Member seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation is not dismissed within 120 days or if the
appointment without the Member's consent (or acquiescence of a trustee, receiver
or liquidator of the Member or of All or any substantial part of such Person's
properties) is not vacated or stayed within 90 days (or if after the expiration
of any stay, if the appointment is not vacated within 90 days).
12.4 CONTINUATION. In the event of Withdrawal of a Member, the Company will be
continued if, within 90 days following such event, there is an affirmative
written agreement of a Majority In Interest of all the remaining Members to
continue the Company's business as a limited liability company under the Act and
this Agreement. If, as a result of withdrawal of a Member, the Company has only
one remaining Member, the remaining Member may transfer a portion of its
22
<PAGE>
Ownership Interest to another Person in order to continue the Company's business
as a Limited Liability Company under the Act and this Agreement. Any Transferee
admitted as a substitute Member will be treated as a remaining Member. If the
business of the Company is so continued, an event of Withdrawal of one or more
Members will not cause the Dissolution of the Company. If the business of the
Company is so continued, with respect to any Member as to which an event of
Withdrawal has occurred, such Member or such Members Transferee or other
successor-in-interest (as the case may be) will, without further act, become a
Transferee of such Ownership Interest (with the limited rights of a Transferee
as set forth in Section 14.6, unless and until admitted as a substitute Member).
If the Company is not continued as above provided, the Company will be treated
as dissolved as of the end of such 90-day period.
ARTICLE 13: LIQUIDATION
13.1 LIQUIDATION. Upon Dissolution of the Company, the Company will immediately
proceed to wind up its affairs and liquidate. The Executive Committee will
appoint a liquidating trustee. The winding up and Liquidation of the Company
will be accomplished in a businesslike manner as determined by the liquidating
trustee and this Article 13. A reasonable time will be allowed for the orderly
Liquidation of the Company and the discharge of liabilities to creditors so as
to enable the Company to provide for any losses attendant upon Liquidation.
Any gain or loss on disposition of any Company assets in Liquidation will be
allocated to Members and credited or charged to Capital Accounts in accordance
with the provisions of Articles 4 and 6. Any liquidating trustee is entitled to
reasonable compensation for services actually performed, and may contract for
such assistance in the liquidation process as such Person deems necessary.
Until the filing of articles of dissolution as provided in Section 13.6, the
liquidating trustee may settle and close the Company's business, prosecute and
defend suits, dispose of its property, discharge or make provision for its
liabilities, and make distributions in accordance with the priorities set forth
in Section 13.2.
13.2 PRIORITY OF PAYMENT. The assets of the Company will be distributed in
Liquidation of the Company in the following order:
[a] First, to non-Member creditors of the Company in order of priority as
provided by law in payment of unpaid liabilities of the Company to the
extent required by law or under agreements with such creditors;
[b] Second, to the setting of any reserves which the Members reasonably deem
necessary for any anticipated, contingent or unforeseen liabilities or
obligations of the Company arising out of or in connection with the conduct
of the Company's business. At the expiration of such period as the Members
reasonably deem advisable, the balance thereof shall be distributed in
accordance with this Section 13.2;
[c] Third, to any Member for any other loans or debts owing to such Member by
the Company;
23
<PAGE>
[d] Fourth, to all Members in proportion to their Capital Account balances to
the extent allowable under Section 6.3 until their Capital Account balances
are reduced to zero; and,
[e] Fifth, the balance, if any, to all Members in proportion to their Ownership
Interests percentages under Section 6.2.
13.3 DISTRIBUTION TO MEMBERS. Distributions in Liquidation due to the Members
may be made by either or a combination of the following methods: selling the
Company assets and distributing the net proceeds, or by distributing the Company
assets to the Members at their net Fair Market Value in kind. Any liquidating
Distribution in kind to the Members may be made either by a pro-rata
Distribution of undivided interests or, upon the affirmative Vote of all
Members, by non pro-rata Distribution of specific assets at Fair Market Value on
the effective date of Distribution. Any Distribution in kind may be made
subject to, or require assumption of, liabilities to which such property may be
subject, but in the case of any non pro-rata Distribution only upon the express
written agreement of the Member receiving the Distribution. Each Member hereby
agrees to save and hold harmless the other Members from such Member's share of
any and all such liabilities which are taken subject to or assumed. Appropriate
and customary prorations and adjustments shall be made incident to any
Distribution in kind. The Members will look solely to the assets of the Company
for the return of their Capital Contributions, and if the assets of the Company
remaining after the payment or discharge of the debts and liabilities of the
Company are insufficient to return such contributions, they will have no
recourse against any other Member.
13.4 NO RESTORATION OBLIGATION. Except as otherwise specifically provided in
Article 9, nothing contained in this Agreement imposes on any Member an
obligation to make an Additional Contribution in order to restore a deficit
Capital Account upon Liquidation of the Company. Furthermore, each Member will
look solely to the assets of the Company for the return of such Member's Capital
Contribution and Capital Account.
13.5 LIQUIDATING REPORTS. A report will be submitted with each liquidating
distribution to Members, showing the collections, disbursements and
distributions during the period which is subsequent to any previous report. A
final report, showing cumulative collections, disbursements and distributions,
will be submitted upon completion of the liquidation process.
13.6 ARTICLES OF DISSOLUTION. Upon Dissolution of the Company and the
completion of the winding up of its business, the Company will file articles of
dissolution (to cancel its Articles of Organization) with the Colorado Secretary
of State pursuant to the Act. At such time, the Company will also file an
application for withdrawal of its certificate of authority in any jurisdiction
where it is then qualified to do business.
13.7 SALE OF REAL PROPERTY ON DISSOLUTION. In connection with any liquidation
of the real property described in Section 4.1, together with any improvements
thereon (the "Property"), the following procedures shall apply:
24
<PAGE>
(a) The Company will seek to sell the Property, by listing it with a
reputable broker or through such other means as it may deem appropriate to
maximize the proceeds from the sale. The initial price at which the Property is
offered for sale shall be the book value of the Property as reflected on the
Company's books and records, unless otherwise agreed by all the Members.
(b) If any bona fide offer (the "Offer") is made for the Property, and all
the Members deem the Offer acceptable, the Company shall sell the Property
pursuant to the Offer. If one Member deems the Offer acceptable (the "Selling
Member") and another deems it unacceptable (the "Non-Selling Member"), the
following procedure shall apply: the Non-Selling Member shall have thirty (30)
days from the date it receives written notice of the Offer to exercise a right
of first refusal to purchase the Property on the same terms and conditions as
contained in the Offer. The Non-Selling Member shall exercise such right of
first refusal by written notice to the Selling Member within such thirty (30)
day period, which notice shall be accompanied by evidence, reasonably
satisfactory to the Selling Member, that the Non-Selling Member has a commitment
to finance the purchase of the Property. The purchase of the Property pursuant
to the exercise of the right of first refusal shall occur within sixty (60) days
after exercise of this right of first refusal. If the Non-Selling Member does
not exercise its right of first refusal, or if it is unable to adequately
demonstrate the availability of financing for the purchase, or if it does not
close the purchase within such sixty (60) day period, the Company shall sell the
Property pursuant to the Offer, or pursuant to any other Offer it may receive,
the terms of which are at least as favorable as those contained in the Offer.
ARTICLE 14: TRANSFER RESTRICTIONS
14.1 GENERAL RESTRICTION. No Member may Transfer all or any part of its
Ownership Interest in any manner whatsoever except: [a] to a Permitted
Transferee as set forth in Section 14.3 or [b] after full compliance with the
right of first refusal set forth in Section 14.4, and in either case only if the
requirements of Section 14.5 have also been satisfied. Any other Transfer of
all or any part of an Ownership Interest is null and void, and of no effect.
Any Member who makes a Transfer of all of such Member's Ownership Interest will
be treated as resigning from the Company on the effective date of such Transfer.
Any Member who makes a Transfer of part (but not all) of such Member's Ownership
Interest will continue as a Member (with respect to the interest retained), and
such partial Transfer will not constitute an event of Withdrawal of such Member.
The rights and obligations of any resigning Member or of any Transferee of an
Ownership Interest will be governed by the other provisions of this Agreement.
14.2 NO MEMBER RIGHTS. No Member has the right or power to confer upon any
Transferee the attributes of a Member in the Company. The Transferee of all or
any part of an Ownership Interest by operation of law does not, by virtue of
such Transfer, succeed to any rights as a Member in the Company.
14.3 PERMITTED TRANSFEREE. Subject to the requirements set forth in Section
14.5, a Person may Transfer all or any part of such Person's Ownership Interest:
25
<PAGE>
[a] To an Affiliate of such Person,
[b] To another Member,
[c] To the Company,
[d] To a Person approved by the Members;
[e] To another Person as part of a merger, reorganization, consolidation or
sale of all or substantially all of the assets of a Person that controls
any Member; or
[f] In the form of a pledge or the granting of a security interest to another
Person or a foreclosure or sale in lieu of foreclosure in connection with
the granting of any such pledge or security interest as described in
Section 14.7.
14.4 RIGHT OF FIRST REFUSAL. Prior to any proposed Transfer of all or any part
of an Ownership Interest, other than to a Permitted Transferee pursuant to
Section 14.3, the Transferor must obtain a Third Party Offer. For purposes of
this Section 14.4, a Transfer of an Ownership Interest of a Member shall be
deemed to occur upon any change in control of such Member other than to a
Permitted Transferee pursuant to Section 14.3. The Third Party Offer must not be
subject to unstated conditions or contingencies or be part of a larger
transaction such that the price for the Ownership Interest stated in such Third
Party Offer does not accurately reflect the Fair Market Value (reduced by the
amount of associated liabilities) of such Ownership Interest. The Third Party
Offer must contain a description of all of the consideration, material terms and
conditions of the proposed Transfer. The Transferor will give notice of the
Third Party Offer to the Company and the Members (the "Other Members") other
than the Transferor, together with a written offer to sell the Ownership
Interest (which is the subject of the Third Party Offer) to the Company on the
same price and terms as the Third Party Offer. The Company may accept such
offer by the Transferor, in whole but not in part, by giving notice to the
Transferor within 30 days after notice of such offer. The closing of such sale
will be held at the Company's registered office in Colorado on a date to be
specified by the Company which is not later than 60 days after the date of the
Company's notice of acceptance. At the closing, the Company will deliver the
consideration in accordance with the terms of the Third Party Offer, and the
Transferor will by appropriate documents assign to the Company the Ownership
Interest to be sold, free and clear of all liens, claims and encumbrances.
Subject to Section 14.5, if the Company has not accepted the Third Party Offer
and closed the purchase in accordance with this Section 14.4, the Other Members
shall have the right, on a pro rata basis in accordance with the ratio of their
Percentage Ownership Interests, to purchase, in whole but not in part, the
Ownership Interest of the Transferor in accordance with the terms of the Third
Party Offer by written notice to the Transferor within 30 days after the
expiration of the thirty-day period for the Company's acceptance. If all of the
other Members reject the offer or if the offer is not closed in accordance with
this Section 14.4, the Transferor will be free for a period of 60 days after the
last day for such acceptance to sell all, but not less than all, of such
Ownership Interest so offered, but only
26
<PAGE>
to the Third Party for a price and on terms no more favorable to the Third Party
than the Third Party Offer. If such Ownership Interest is not so sold within
such 60-day period (or within any extensions of such period agreed to in writing
by the Company), all rights to sell such Ownership Interest pursuant to such
Third Party Offer (without making another offer to the Company pursuant to this
Section 14.4) will terminate and the provisions of this Article will continue to
apply to any proposed future Transfer.
14.5 GENERAL CONDITIONS ON TRANSFERS. No Transfer of an Ownership Interest
will be effective unless all of the conditions set forth below are satisfied:
[a] Unless waived by the Company, the Transferor signs and delivers to the
Company an undertaking in form and substance satisfactory to the Company to
pay all reasonable expenses incurred by the Company in connection with the
Transfer (including, but not limited to, reasonable fees of counsel and
accountants and the costs to be incurred with any additional accounting
required in connection with the Transfer, and the cost and fees
attributable to preparing, filing and recording such amendments to the
organizational documents or filings as may be required by law);
[b] Unless waived by the Company, the Transferor delivers to the Company an
opinion of counsel for the Transferor satisfactory in form and substance to
the Company to the effect that the Transfer of the Ownership Interest is in
compliance with the applicable federal and state securities laws, and a
statement of the Transferee in form and substance satisfactory to the
Company making appropriate representations and warranties in respect to
compliance with the applicable federal and state securities laws and as to
any other matter reasonably required by the Company;
[c] Unless waived by the Company, the Company receives an opinion from its
counsel that [i] the Transfer does not cause the Company to lose its
classification as a partnership for federal income tax purposes, and [ii]
the Transfer, together with all other Transfers within the preceding twelve
months, does not cause a termination of the Company for federal income tax
purposes;
[d] The Transferor signs and delivers to the Company a copy of the assignment
of the Ownership Interest to the Transferee;
[e] The Transferee signs and delivers to the Company its agreement to be bound
by this Agreement; and
[f] The Transfer is in compliance with the other provisions of this Article.
Notwithstanding the above, only the last two requirements will apply to a
Transfer by operation of law and only the last three requirements will apply to
a Transfer by intercorporate dividend, capital contribution, gift (or any other
Transfer without consideration) to any other Permitted
27
<PAGE>
Transferee. Except as the Company and the Transferee may otherwise agree, the
Transfer of an Ownership Interest will be effective as of 12:01 a.m. (Mountain
Time) on the first day of the month following the month in which all of the
above conditions have been satisfied. Upon the effective date, Section 6.2 will
be deemed amended to reflect the new Ownership interests.
Notwithstanding anything to the contrary expressed or implied in this Agreement,
the sale, assignment, transfer, pledge or other disposition of any direct or
indirect interest in the Company is subject to the laws of the state of Colorado
and the requirements, limitations and decisions of the Colorado Department of
Gaming.
14.6 RIGHTS OF TRANSFEREES. Any Transferee of an Ownership Interest will, on
the effective date of the Transfer, have only those rights of an assignee as
specified in the Act and this Agreement unless and until such Transferee is
admitted as a substitute Member. This provision limiting the rights of a
Transferee will not apply if such Transferee is already a Member; provided that,
any Member who resigns or retires from the Company in contravention of Section
5.8 will have only the rights of an assignee as specified in the Act and this
Agreement. Any Transferee of all or any part of an Ownership Interest who is not
admitted as a substitute Member in accordance with this Agreement has no right
[a] to participate or interfere in the management or administration of the
Company's business or affairs, [b] to vote or agree on any matter affecting the
Company or any Member, [c] to require any information on account of Company
transactions, or [d] to inspect the Company's books and records. The only right
of a Transferee of all or any part of an Ownership Interest who is not admitted
as a substitute Member in accordance with this Agreement is to receive the
allocations and Distributions to which the Transferor was entitled (to the
extent of the Ownership Interest transferred) and to receive required tax
reporting information. However, each Transferee of all or any part of an
Ownership Interest (including both immediate and remote Transferees) will be
subject to all of the obligations, restrictions and other terms contained in the
Agreement as if such Transferee were a Member. To the extent of any Ownership
Interest transferred, the Transferor Member does not possess any right or power
as a Member and may not exercise any such right or power directly or indirectly
on behalf of the Transferee. The Members acknowledge that these provisions may
differ from the rights of an assignee as set forth in the Act, and the Members
agree that they intend, to that extent, to vary those provisions by this
Agreement.
14.7 SECURITY INTEREST. The pledge or granting of a security interest, lien or
other encumbrance in or against all or any part of a Member's Ownership Interest
does not cause the Member to cease to be a Member or constitute an event of
Withdrawal. Upon foreclosure or sale in lieu of foreclosure of any such secured
interest, the secured party will be entitled to receive the allocations and
Distributions as to which a security interest has been granted by such Member.
In no event will any secured party be entitled to exercise any rights under this
Agreement, and such secured party may look only to such Member for the
enforcement of any of its rights as a creditor. In no event will the Company
have any liability or obligation to any Person by reason of the Company's
payment of a Distribution to any secured party as long as the Company makes such
payment in reliance upon written instructions from the Member to whom such
Distributions
28
<PAGE>
would be payable. Any secured party will be entitled, with respect to the
security interest granted, only to the Distributions to which the assigning
Member would be entitled under this Agreement, and only if, as and when such
Distribution is made by the Company. Neither the Company nor any Member will owe
any fiduciary duty of any nature to a secured party. Reference to any secured
party includes any assignee or successor-in-interest of such Person.
ARTICLE 15: DISPUTE RESOLUTION
15.1 DISPUTES. Except as to any disputes for which injunctive relief may be
available, in the event a dispute of any kind arises in connection with this
Agreement (including any dispute concerning its construction, performance or
breach), the parties to the dispute (who may be any combination of the Company
and any one or more of the Members) will attempt to resolve the dispute as set
forth in Section 15.2 before proceeding to arbitration as provided in Section
15.3. All documents, discovery and other information related to any such
dispute, and the attempts to resolve or arbitrate such dispute, will be kept
confidential to the fullest extent possible. This Article shall not apply to
disputes arising under the Management Agreement.
15.2 NEGOTIATION. If a dispute arises, any party to the dispute will give
notice to each other party. If the Company is not a party to the dispute, notice
will be given to the Company. After notice has been given, the parties in good
faith will attempt to negotiate a resolution of the dispute.
15.3 ARBITRATION. If, within 30 days after the notice provided in Section 15.2,
a dispute is not resolved through negotiation or mediation, the dispute will be
arbitrated. The parties to the dispute agree to be bound by the selection of an
arbitrator, and to settle the dispute exclusively by binding arbitration in
accordance with the following provisions:
[a] All parties to the dispute will collectively select one arbitrator. If
they fail to do so within 45 days after the notice provided in Section
15.2, one or more parties will request the American Arbitration Association
to submit a panel of five arbitrators who are qualified to resolve the
matters in dispute from which the choice will be made. The party
requesting the arbitration will strike first, followed by alternative
striking until one name remains. A similar procedure will be followed if
there are more than two parties. The parties may by agreement reject one
entire list, and request a second list. If selection by the above method
is not completed within 90 days after the notice provided in Section 15.2,
or if there are more than four parties, then an arbitrator will be selected
by the American Arbitration Association. The arbitrator so selected will
then arbitrate the dispute in Denver, Colorado, and issue an award.
[b] To the extent consistent with the provisions of this Article, the
arbitration will be conducted under the Commercial Arbitration Rules of the
American Arbitration Association and in accordance with Colorado law. The
arbitrators decision will be made pursuant to the relevant substantive law
of the State of Colorado. The award of the
29
<PAGE>
arbitrator will be final, binding and non-appealable. Judgment on the award
may be entered in any court, state or federal court having jurisdiction.
[c] The fees and expenses of the arbitrator, and the other direct costs of the
arbitration, will be shared by the parties to the dispute in equal
proportions. Each party to the dispute will bear all other costs and
expenses as provided in Section 17.13. If one or more Members are included
in the arbitration because of their membership or former membership in the
Company, such group will collectively be treated as one party to the
dispute (through the Company as a party).
ARTICLE 16: PRIVILEGED LICENSE PROTECTION
16.1 REGULATORY COMPLIANCE. Blackhawk Gold acknowledges that as a result of the
transactions contemplated by this Agreement, Blackhawk Gold and its agents and
Affiliates may be subject to licensing and other regulatory review and approval
procedures ("Regulatory Review"), by any governmental or quasi-governmental
agency which is authorized or empowered to regulate the gaming operations of
Casino America and its Affiliates ("Regulatory Authority") in the jurisdictions
in which Casino America and its Affiliates conduct or propose to conduct gaming
activities including, without limitation, Colorado, Mississippi, Louisiana and
Florida. Blackhawk Gold agrees to cooperate fully and to cause its Affiliates
to cooperate fully with the representatives of all such Regulatory Authorities
in making applications, supplying information, providing reports, attending
licensing and other hearings, and otherwise cooperating with and complying with
the requirements of all such Regulatory Authorities so as not to interfere with
Casino America or its Affiliates ability to develop new business or to continue
to conduct its existing business. Blackhawk Gold agrees that in the event the
Board of Directors of Casino America reasonably determines based upon
communications with a Regulatory Authority that Blackhawk Gold or any of its
Affiliates is likely to be determined unsuitable by such Regulatory Authority
and as a result Casino America of Colorado or its Affiliates may not be
permitted to engage or to continue to engage in a gaming activity (collectively
a "Licensing Problem"), then, within the lesser of 150 days of notice of such
event from Casino America of Colorado to Blackhawk Gold or the applicable period
prescribed by the appropriate Regulatory Authority (provided Casino America of
Colorado timely notifies Blackhawk Gold of such a determination) Blackhawk Gold
shall eliminate the Licensing Problem to the reasonable satisfaction of Casino
America's Board or transfer its rights and obligations hereunder and its
Ownership Interest to a Person reasonably acceptable to Casino America, who
does not have a Licensing Problem, and such Person shall be accepted as a Member
of the Company for all purposes. Any such transfer shall be subject to the
terms and conditions contained in Section 14.5 hereof. In the event such
transfer does not occur (or is not subject to a binding contract for a bona fide
sale to a Third Party to close within thirty (30) days of the expiration of the
one hundred fifty (150) day period described above), or the Licensing Problem is
not eliminated within the prescribed one hundred fifty (150) day period,
Blackhawk Gold shall immediately convey its Ownership Interest under the
agreement to Casino America of Colorado or an Affiliate designated by Casino
America of Colorado for the sum equal to its Capital Account balance determined
as of the end of the most
30
<PAGE>
recent month preceding the date of transfer with such amount payable over a five
(5) year period with interest at the Prime Rate and without penalty for early
payment thereof. The Members shall use their best efforts to submit all
necessary and appropriate applications relating to obtaining a gaming license in
Colorado within thirty (30) days of the execution of the Caesars Contract . All
qualification and other expenses relating to the foregoing applications shall be
borne by the respective parties submitting the applications; provided that the
parties will be reimbursed by the Company for such expenses from the debt
financing for the Project to the extent funds are available for this purpose.
16.2 NO UNSUITABILITY KNOWLEDGE. Neither Blackhawk Gold nor Casino America of
Colorado is aware of any facts or circumstances which would make any Member or
the officers, directors, managers, or owners (directly or indirectly) of such
Member, a Person or entity unsuitable for licensing under applicable Colorado
gaming laws, rules and regulations.
ARTICLE 17: GENERAL PROVISIONS
17.1 AMENDMENT. This Agreement may be amended by the unanimous written agreement
of the Members. Any amendment will become effective upon such approval, unless
otherwise provided. Notice of any proposed amendment must be given at least 5
days in advance of the meeting at which the amendment will be considered (unless
the approval is evidenced by duly signed minutes of action). Any duly adopted
amendment to this Agreement is binding upon, and inures to the benefit of, each
Person who holds an Ownership Interest at the time of such amendment.
Notwithstanding any other provision of this Agreement, with respect to any
Transferee not admitted as a substitute Member, no amendment to Section 6.2
(relating to the general allocation rule for allocation of Profits or Losses),
Section 7.2 (relating to pro-rata Distributions), Section 13.2 (relating to
Distributions in Liquidation) and Section 17.1 (relating to amendment of this
Agreement) will be effective, nor will such Person be required to make an
Additional Contribution, without such Person's written consent. Non-Material
amendments relating to this Agreement or compliance with applicable law may be
made by the Executive Committee.
17.2 REPRESENTATIONS. Each Member represents and warrants to each other Member
that, as of the signing of this Agreement:
[a] Such Member is duly organized, validly existing and in good standing under
the laws of the jurisdiction where it purports to be organized, and is a
United States Person;
[b] Such Member has full power and authority to enter into and perform this
Agreement;
[c] All actions necessary to authorize the signing and delivery of this
Agreement, and the performance of obligations under it, have been duly
taken;
31
<PAGE>
[d] This Agreement has been duly signed and delivered by a duly authorized
officer or other representative of such Member, and constitutes the legal,
valid and binding obligation of such Member enforceable in accordance with
its terms (except as such enforceability may be affected by applicable
bankruptcy, insolvency or other similar laws effecting creditors' rights
generally, and except that the availability of equitable remedies is
subject to judicial discretion);
[e] No consent or approval of any other Person is required in connection with
the signing, delivery and performance of this Agreement by such Member; and
[f] The signing, delivery and performance of this Agreement do not violate the
organizational documents of such Member, or any material agreement to which
such Member is a party or by which such Member is bound.
17.3 UNREGISTERED INTERESTS. Each Member [a] acknowledges that the Ownership
Interests are being offered and sold without registration under The Securities
Act of 1933, as amended, or under similar provisions of state law, [b]
represents and warrants that such Person is an accredited investor as defined
for federal securities laws purposes, [c] represents and warrants that it is
acquiring an Ownership Interest for such Person's own account, for investment,
and with no view to the distribution of the Ownership Interest, and [d] agrees
not to Transfer, or to attempt to Transfer, all or any part of its Ownership
Interest without registration under The Securities Act of 1933, as amended, and
any applicable state securities laws, unless the Transfer is exempt from such
registration requirements.
17.4 CONFIDENTIALITY. Subject to the next sentence, the Members will use their
respective best efforts to keep all matters pertaining to the Project
confidential except as required by law, or to the extent necessary to complete
the Project or to carry on their other businesses and comply with requirements
applicable to them. a Member may make such announcements, file such documents
(including this Agreement) with the Securities and Exchange Commission, and
other regulatory authorities, and otherwise take such actions to comply with the
requirements of federal and state securities laws as it deems appropriate. To
the extent reasonably practicable, each Member will provide the other with the
portion of any such announcement or filing that refers to this Agreement and the
transactions contemplated by it no later than concurrently with releasing or
filing the same. Notwithstanding the foregoing, no announcement concerning this
Operating Agreement or the Project may be made until the Caesars Contract is
executed by the parties.
17.5 EXCLUSIVITY. During the term of this Agreement, no Member nor any of its
Affiliates will seek to manage, develop or engage in a casino gaming operation
in Gilpin County, Colorado except through this Agreement. Notwithstanding any
other provision of this Agreement, the Members acknowledge and agree that
Blackhawk Gold's interest in Gold Mountain Development shall not be a violation
of this exclusivity restriction, provided such interest does not expand beyond
the scope set forth on the attached Exhibit "E". Casino America of Colorado
may, however, participate as an equal joint venture partner with Blackhawk Gold
or its Affiliates in
32
<PAGE>
any hotel project proposed for the property described in Exhibit E provided (i)
Casino America of Colorado is willing to make a contribution to such venture
equal in value to the contribution to be made by Blackhawk Gold or its
Affiliates and (ii) Casino America of Colorado shall have thirty (30) days from
its receipt in writing of notice of the proposed venture (together with a
reasonably detailed description of the project and the proposed terms of the
venture) to accept or reject the opportunity. The Members agree that any such
hotel or related project will have a permanent license to connect to and access
the Project in a manner reasonably agreeable to the Company and not disruptive
to the operation of the Project.
17.6 CONFLICTS. In the course of operating gaming at the Project, it is
expected that information will be shared between the Project and other
operations carried on by Affiliates of Casino America of Colorado and Blackhawk
Gold. Also, Affiliates of Casino America of Colorado and Blackhawk Gold will be
entitled to carry on existing gaming and hotel businesses, and to manage or
develop any new gaming or hotel business anywhere in the world, subject to
Section 17.5. In the course of operating any such gaming and hotel businesses,
Casino America of Colorado and Blackhawk Gold and their respective Affiliates
will be entitled to solicit customers in competition with the Project anywhere
in the world including Gilpin County and any such activities shall not be deemed
to be a conflict of interest or breach of any fiduciary obligation on the part
of Casino America of Colorado or Blackhawk Gold.
17.7 WAIVER OF PARTITION RIGHT. Each Member waives and renounces any right that
such Person may have prior to Dissolution and Liquidation to institute or
maintain any action for partition with respect to any real property owned by the
Company.
17.8 WAIVERS GENERALLY. No course of dealing will be deemed to amend or
discharge any provision of this Agreement. No delay in the exercise of any
right will operate as a waiver of such right. No single or partial exercise of
any right will preclude its further exercise. a waiver of any right on any one
occasion will not be construed as a bar to, or waiver of, any such right on any
other occasion.
17.9 EQUITABLE RELIEF. If any Person proposes to Transfer all or any part of
such Person's Ownership Interest in violation of the terms of this Agreement,
the Company or any Member may apply to any court of competent jurisdiction for
an injunctive order prohibiting such proposed Transfer except upon compliance
with the terms of this Agreement, and the Company or any Member may institute
and maintain any action or proceeding against the Person proposing to make such
Transfer to compel the specific performance of this Agreement. Any attempted
Transfer in violation of this Agreement is null and void, and of no force and
effect. The Person against whom such action or proceeding is brought waives the
claim or defense that an adequate remedy at law exists, and such Person will not
urge in any such action or proceeding the claim or defense that such remedy at
law exists.
17.10 REMEDIES FOR BREACH. The rights and remedies of the Members set forth in
this Agreement are neither mutually exclusive nor exclusive of any right or
remedy provided by law,
33
<PAGE>
in equity or otherwise. Subject to the dispute resolution provisions of Article
14, the Members agree that all legal remedies (such as monetary damages) as well
as all equitable remedies (such as specific performance) will be available for
any breach or threatened breach of any provision of this Agreement.
17.11 ORIGINAL. This Agreement is signed in two original documents that are to
be delivered to each initial Member. a photocopy of this Agreement, as signed,
will be delivered to each substitute or additional Member, and each such
photocopy will be deemed to be an original document.
17.12 NOTICES. Any notices (including any communication or delivery) required
or permitted under this agreement will be in writing and will be addressed as
follows:
If to Casino America of Colorado: Casino America of Colorado, Inc.
Attention: John Gallaway
711 Washington Loop
Biloxi, MS 39530
With a copy to: Allan B. Solomon
2200 Corporate Blvd., NW, Suite 310
Boca Raton, FL 33431
If to Blackhawk Gold: Blackhawk Gold, Ltd.
3040 Post Oak Boulevard, Suite 675
Houston, Texas 77056
Telephone: (713) 621-2245
Telecopier: (713) 621-6919
Attention: H. Thomas Winn
With a copy to: Adams & Reese, L.L.P.
1221 McKinney, Suite 4400
Houston, Texas 77010
Telephone: (713) 652-5151
Telecopier: (713) 652-5152
Attention: Mark W. Coffin
All notices may be made by mail, personal delivery, courier service or facsimile
machine, and will be effective upon delivery. Any Member may change such
Person's address by notice to each other Member.
17.13 COSTS. If the Company or any Member retains counsel for the purpose of
enforcing or preventing the breach or any threatened breach of any provision of
this Agreement or for any other remedy relating to it, then the prevailing party
will be entitled to be reimbursed by the
34
<PAGE>
nonprevailing party for all costs and expenses so incurred (including reasonable
attorneys' fees, costs of bonds, and fees and expenses for expert witnesses)
unless the arbitrator or other trier of fact determined otherwise in the
interest of fairness.
17.14 INDEMNIFICATION. Each Member hereby indemnifies and agrees to hold
harmless the Company and each other Member from any liability, cost or expense
arising from or related to any act or failure to act of such Member which is in
violation of this Agreement.
17.15 PARTIAL INVALIDITY. Wherever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. However, if for any reason any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable in any respect, such
action will not affect any other provision of this Agreement. In such event,
this Agreement will be construed as if such invalid, illegal or unenforceable
provision had never been contained in it.
17.16 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding of the Members with respect to its subject matter, and it
supersedes all prior written and oral agreements. No amendment of this
Agreement will be effective for any purpose unless it is made in accordance with
Section 17.1.
17.17 BENEFIT. The contribution obligations of each Member will inure solely
to the benefit of the other Members and the Company, without conferring on any
other Person any rights of enforcement or other rights.
17.18 BINDING EFFECT. This Agreement is binding upon, and inures to the
benefit of, the Members and their permitted successors and assigns; provided
that, any Transferee will have only the rights specified in Section 14.6 unless
admitted as a substitute Member in accordance with this Agreement.
17.19 FURTHER ASSURANCES. Each Member agrees, without further consideration,
to sign and deliver such other documents of further assurance as may reasonably
be necessary to effectuate the provisions of this Agreement.
17.20 HEADINGS. Article and section titles have been inserted for convenience
of reference only. They are not intended to affect the meaning or
interpretation of this Agreement.
17.21 TERMS. Terms used with initial capital letters will have the meanings
specified, applicable to both singular and plural forms, for all purposes of
this Agreement. All pronouns (and any variation) will be deemed to refer to the
masculine, feminine or neuter, as the identity of the Person may require. The
singular or plural include the other, as the context requires or permits. The
word include (and any variation) is used in an illustrative sense rather than a
limiting sense.
35
<PAGE>
17.22 GOVERNING LAW. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Colorado (except to the extent
preempted by any federal law or the gaming laws of any state or governmental
agency having jurisdiction over the affairs of any Member). Any conflict or
apparent conflict between this Agreement and the Act will be resolved in favor
of this Agreement except as otherwise required by the Act.
17.23 BROKERS FEES. The parties represent and warrant to one another that no
brokers fees will be due and owing by the Company to any party in connection
with this Operating Agreement. The parties do, however, acknowledge the
investment banking fees that may be owed to Jefferies & Company, Inc.
("Jefferies") pursuant to that certain Engagement Agreement between Nevada Gold
and Jefferies dated January 10, 1997, which agreement shall be expressly and
fully assumed by the Company on the Transfer Date. However, the parties
acknowledge and agree that neither the Company, Casino America nor Casino
America of Colorado will be liable for any introduction fee in connection with
this Operating Agreement or for any fee to D.E. Frey & Co.
17.24 GUARANTY. Nevada Gold hereby guarantees Blackhawk Gold's performance
under this Agreement, and Casino America hereby guarantees Casino America of
Colorado's performance under this Agreement.
[INTENTIONALLY LEFT BLANK]
36
<PAGE>
IN WITNESS WHEREOF, the initial Members have signed this Operating Agreement of
ICB L.L.C. as of the date first set forth above, to be effective upon formation
of the Company, notwithstanding the actual date of signing.
CASINO AMERICA OF COLORADO, INC.
a Colorado corporation
By: /s/ ALLAN B. SOLOMON
---------------------------
Executive Vice President
BLACKHAWK GOLD, LTD.,
a Nevada corporation
By:
----------------------------
H. Thomas Winn, President
CASINO AMERICA, INC., a Delaware corporation,
as guarantor of Casino America of Colorado, Inc.
By: /s/ ALLAN B. SOLOMON
---------------------------
Executive Vice President
NEVADA GOLD & CASINOS, INC., a Nevada
corporation, as guarantor of Blackhawk Gold, Ltd.
By:
----------------------------
37
<PAGE>
IN WITNESS WHEREOF, the initial Members have signed this Operating Agreement of
ICB L.L.C. as of the date first set forth above, to be effective upon formation
of the Company, notwithstanding the actual date of signing.
CASINO AMERICA OF COLORADO, INC.
a Colorado corporation
By:
----------------------------
BLACKHAWK GOLD, LTD.,
a Nevada corporation
By: /s/ H. THOMAS WINN
----------------------------
H. Thomas Winn, Manager
CASINO AMERICA, INC. a Delaware corporation,
as guarantor of Casino America of Colorado, Inc.
By:
----------------------------
NEVADA GOLD & CASINOS, INC., a Nevada
corporation, as guarantor of Blackhawk Gold, Ltd.
By: /s/ H. THOMAS WINN
----------------------------
President
38
<PAGE>
APPENDIX I
OWNERSHIP INTERESTS
Date Ownership Interests
---- --------------------
1. April 25, 1997 Casino America of Colorado, Inc. 51.6%
Blackhawk Gold, Ltd. 48.4%
2.
3.
4.
5.
6.
7.
8.
9.
10.
<PAGE>
EXHIBIT "A"
DEFINITIONS
Act: The Colorado Limited Liability Company Act, as amended
from time to time.
Additional Contribution: a capital contribution (other than the Initial
Contribution) that a Member makes to the Company, as
described in Section 4.2.
Affiliate: An "Affiliate" of a Person means a Person directly or
indirectly controlling, controlled by or under common
control with such Person. For this purpose and for
purposes of the use of the term "control" in this
Agreement, control means the possession, direct or
indirect, of the power to direct or cause the direction
of the management and policies of a Person, whether
through the ownership of voting securities, by contract
or otherwise.
Agreement: This Operating Agreement, as amended from time to time.
Annual Budget: The Annual Budget for the Project.
Articles: The Articles of Organization of the Company as filed
under the Act, as amended from time to time.
Blackhawk Gold: Blackhawk Gold, Ltd., a Nevada corporation, and its
Permitted Transferees (provided that any Transferee
will become a substitute Member only in accordance with
the Agreement).
Capital Account: The book value capital account maintained under Section
4.8.
Capital Contribution: Any contribution by a Member to the Company which is
either an Initial Contribution or an Additional
Contribution.
Capital Transaction: Any sale, exchange, condemnation (including any eminent
domain or similar transaction), casualty, financing,
refinancing or other disposition with respect to any
real or
<PAGE>
personal property owned by the Company which is
not in the ordinary course of business.
Casino America of Colorado: Casino America Corporation of Colorado, a Colorado
corporation, and its Permitted Transferees under the
terms of this Agreement (provided that any
Transferee will become a substitute Member only in
accordance with this Agreement).
Casino Facility The casino to be developed as part of the Project.
Code: The Internal Revenue Code of 1986, as amended from
time to time (including corresponding provisions of
subsequent revenue laws).
Company: Isle of Capri Blackhawk L.L.C., as formed under the
Articles and as operating under this Agreement.
Development Plan: The outline for development of the Project, attached
hereto as Exhibit B, which may be supplemented at a
later date to include detailed budgets, conceptual
Project designs, entertainment themes, schedules for
construction-related activities and the pre-opening
of the Project facility.
Dissolution: The dissolution of the Company as provided in
Section 12.1.
Distribution: a distribution of money or other property made by
the Company with respect to an Ownership Interest.
Fair Market Value: As to any property, the price at which a willing
seller would sell and a willing buyer would buy such
property having full knowledge of the relevant
facts, in an arm's- length transaction without time
constraints, and without being under any compulsion
to buy or sell, or the value otherwise agreed by the
Members to be the Fair Market Value.
Fiscal Year: The fiscal and taxable year of the Company as
determined under this Agreement, including both 12-
month and short taxable years.
<PAGE>
Increased Ownership Interest: That portion of the Ownership Interest of Casino
America of Colorado which is in excess of 52% and
which it acquired as a result of making an
Additional Contribution.
Initial Contribution: The initial capital contribution that a Member
makes to the Company, as described in Section
4.1.
Initial Ownership: The relative Ownership Interest of the Members
existing upon the execution of this Agreement
entitling the holders thereof to all the benefits
of ownership in the Company, but which Ownership
Interests may be changed from time to time as set
forth in this Agreement.
Interest: The higher of (i) 14.50%, or (ii) the base rate
of the highest effective yield to maturity
currently being paid by Casino America, Inc. to
any third party lender, plus two percentage
points; provided that, the interest rate may not
exceed the highest rate allowed by governing law
with respect to such loan.
Liability: The obligation to pay any judgment, settlement,
penalty, fine or reasonable expense (including
attorneys' fees) incurred with respect to any
Proceeding.
Liquidation: The process of terminating the Company and
winding up its business under Article 13 after
its Dissolution.
Losses: The Company's net loss (including deductions) for
any Fiscal Year, determined under Section 6.1.
Majority In Interest: More than 50% of the Ownership Interests and more
than 50% of the positive Capital Account
balances, as determined for federal income tax
purposes and as defined under the Act.
Management Agreement: That certain Management Agreement between the
Company and Casino America of Colorado, Inc.
dated as of the date of this Operating Agreement
concerning the management of the project, the
form of which is attached as Exhibit D.
Member: a Person who is an initial Member of the Company,
or who is subsequently admitted as a substitute
or an additional Member as provided in this
Agreement.
<PAGE>
Net Operating Cash: Cash receipts of the Company from other than a
Capital Transaction, less payment of [a]
operating expenses (other than depreciation,
amortization or similar non-cash allowances), [b]
capital improvements and [c] debt service, as
adjusted for additions to (or reduction of) cash
reserves for any of the foregoing and for cash
reserves for working capital and bankroll.
Notice: Written notice (including any communication or
delivery), actually given pursuant to Section
17.12.
Ownership Interest: With respect to each Person owning an interest in
the Company, all of the interests of such Person
in the Company (including, without limitation, an
interest in Profits and Losses of the Company, a
Capital Account interest, and all other rights
and obligations of such Person under this
Agreement), expressed as a percentage (carried to
the nearest one-thousandth of a percent, if other
than an even percentage), as initially set forth
in Section 1.3 and as subsequently changed in
accordance with this Agreement.
Permitted Transferee: a Person described in Section 14.3 to whom an
Ownership Interest may be transferred without
compliance with a right of first refusal.
Person: An individual, corporation, trust, partnership,
limited liability company, limited liability
association, unincorporated organization,
association or other entity.
Proceeding: Any threatened, pending or completed claim,
action, suit or proceeding, whether formal or
informal, and whether civil, administrative,
investigative or criminal.
Profits: The Company's net profit (including income and
gains) for any Fiscal Year, determined under
Section 6.1.
Profits Interest: Each Member's (or Transferee's) percentage
interest (carried to the nearest one-thousandth
of a percent, if other than an even percentage),
in the Profits of the Company, determined under
Section 6.2.
<PAGE>
Project: The development and operation of a casino gaming
facility and related facilities in Black Hawk,
Colorado, as contemplated by this Agreement.
Regulations: The Treasury Regulations (including temporary
regulations) promulgated under the Code, as amended
from time to time (including corresponding provisions
of succeeding regulations).
Third Party: With respect to any Member, a Person other than an
Affiliate.
Third Party Offer: a bona fide, non-collusive, binding, arm's-length
written offer from a Third Party stated in terms of
U.S. dollars.
Transfer: a sale, exchange, assignment or other disposition,
whether voluntary or by operation of law.
Transfer Date: The date that the Initial Contributions are made to the
Company as set forth in Section 4.1.
Transferee: a Person to whom an Ownership Interest is transferred
in compliance with this Agreement.
Transferor: a Person who transfers an Ownership Interest in
compliance with this Agreement.
Withdrawal: The occurrence of an event with respect to a Member
which terminates membership in the Company, as provided
in Section 12.2.
<PAGE>
EXHIBIT "B"
DEVELOPMENT PLAN OUTLINE
The Project will consist of a casino, hotel, restaurants and
entertainment area, will be developed in two phases and will consist of the
following, subject to modification in accordance with the terms of the Operating
Agreement:
- --------------------------------------------------------------------------------
PHASE 1 PHASE 2 TOTAL PROJECT
- --------------------------------------------------------------------------------
Casino Square Ft. 30,000-35,000 12,500-17,500 42,500-52,500
- --------------------------------------------------------------------------------
No. of Slots 1,000-1,300 300-600 1,300-1,900
- --------------------------------------------------------------------------------
No. of Tables 20-25 10-15 30-40
- --------------------------------------------------------------------------------
No. of Poker Tables 10-15 5-10 15-25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hotel Rooms 80-120 80-120 160-240
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Food & Beverage
- --------------------------------------------------------------------------------
Buffet Seats 200-300 75-125 275-425
- --------------------------------------------------------------------------------
Deli 30-60 0 30-60
- --------------------------------------------------------------------------------
Steak House 75-100 0 75-100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Entertainment Seating 300-400 0 300-400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Parking Spaces 1,000-1,200 400-600 1,400-1,800
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The parties acknowledge that the Proposed Development Plan set forth
above is preliminary and may be modified, supplemented or refined as development
progresses, in accordance with the terms of the Operating Agreement.
<PAGE>
EXHIBIT "C"
INITIAL CAPITAL CONTRIBUTION OF BLACKHAWK GOLD
1. Those portions of the properties which are set forth in blue on the
boundary survey of Clear Mountain Surveying, Inc., dated August 26, 1996,
under Job No. E209600, a true and correct copy of which is attached hereto
and made a part hereof by reference, excluding the land commonly referred
to as "Parcel C"; and,
2. That portion of the properties which is set forth in brown on the attached
survey and which is commonly known as "Parcel D", which the parties
acknowledge will be exchanged on or prior to the Transfer Date for that
portion of the properties on the attached survey which is set forth in blue
and white stripes and which is commonly known as "Parcel E2".
Subject to the following encumbrances:
a. a $350,000.00 lien created by that certain Deed of Trust dated May 11, 1995
in favor of River Oaks Trust Company on behalf of certain note holders;
and,
B. The requirements of the United States Environmental Protection Agency as
set forth in that certain Administrative Order on Consent dated June 6,
1995,
which encumbrances are subject to the provisions of Section 4.1[a] of the
Operating Agreement.
The parties may substitute the attached survey with a more current survey
setting forth metes and bounds.
<PAGE>
CAESARS SUBDIVISION PACKAGE NO.1
IN SECTION 7. TOWNSHIP 3 SOUTH, RANGE 72 WEST OF THE 6TH PRINCIPAL
MERIDIAN, COUNTY OF GILPIN, STATE OF COLORADO
[MAP APPEARS HERE]
<PAGE>
EXHIBIT D
MANAGEMENT AGREEMENT
<PAGE>
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (the "Management Agreement"), dated as of this
25th day of April, 1997, is by and between CASINO AMERICA, INC., a Delaware
corporation ("Manager"), and ICB L.L.C., a Colorado limited liability company
("Owner") and is effective as of the Transfer Date, as defined in the Operating
Agreement.
RECITALS:
A. Owner proposes to acquire, construct, develop and equip a Casino
Facility including a casino, restaurant and a hotel in Black Hawk, Colorado.
B. Owner desires to have Manager manage the business operations of its
Casino Facility and Manager desires to manage Owner's Casino Facility, all upon
the terms and conditions of this Management Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, Owner and Manager agree as follows:
1. DEFINITIONS AND REFERENCES.
1.1 Definitions. As used herein, the following terms shall have the
respective meanings indicated below:
(a) Annual Plan - The Annual Plan to be prepared by Manager and approved by
Owner in accordance with the provisions of Section 6.2 hereof.
(b) Casino Facility - The Casino Facility to be owned by Owner and operated
in Black Hawk, Colorado by Manager. The Casino Facility may have gaming, hotel
rooms, parking, food and beverage, gift shop and entertainment together with
other related activities.
(c) Commencement Date - The date upon which Owner first opens the Casino
Facility to the public for business, which date shall be confirmed in writing by
Owner and Manager.
(d) Compensation - The direct salaries and wages paid to, or accrued for
the benefit of, any executive or other employee, including, without limitation,
employer's contributions under F.I.C.A., unemployment compensation or other
employment taxes, pension fund contributions, Worker's Compensation, group life,
accident, health and other insurance premiums, profit sharing, and retirement
plans, disability and other similar benefits.
<PAGE>
(e) Operating Agreement - That certain Operating Agreement of Owner dated
as of April 25, 1997 by and between Casino America of Colorado, Inc. and
Blackhawk Gold, Ltd.
2. SCOPE OF AGREEMENT, RESPONSIBILITIES.
2.1 Authority of Owner. Owner shall determine the general policy with
respect to the management of its Casino Facility and shall have all other
decision making powers customarily afforded to an owner of a casino/hotel
facility, as well as any additional powers reserved to Owner hereunder.
2.2 Authority of Manager. Subject to the foregoing general authority of
Owner, and subject to the terms of this Management Agreement, Manager shall have
the authority to exclusively supervise and direct the management and operation
of the day-to-day activities of the Casino Facility for the account of Owner.
Manager shall have the authority and responsibility (i) to determine operating
policy, standards of operation, quality of service, the maintenance and physical
appearance of the Casino Facility and any other matters affecting operations and
maintenance; (ii) to supervise and direct all phases of advertising, sales and
business promotion for the Casino Facility; and (iii) to carry out all programs
contemplated by the Annual Plan. Owner agrees that it will cooperate with
Manager in every reasonable and proper way to permit and assist Manager to carry
out its duties hereunder and comply with any conditions or restrictions, if any,
placed upon Manager by any gaming authority.
2.3 Duties and Obligations of Manager. Manager shall take all actions
which may, in its sole discretion, be reasonably necessary or appropriate in
connection with the authority granted to it in accordance with the provisions of
this Management Agreement. Manager shall devote to its responsibilities such
time as may be reasonably necessary for the proper performance of all duties
hereunder. The standard of performance by Manager in managing the Casino
Facility shall be measured by commercial standards of reasonableness in the
industry consistent with good business practices and policies. An
organizational chart detailing the supervisory and management positions and all
other employees of the Manager will be provided by Manager to Owner.
2.4 Consultation with Owner. Notwithstanding the foregoing, Manager shall
at all times keep Owner reasonably apprised and aware of all operating policies.
Manager agrees to consult with Owner as frequently as Owner shall reasonably
request to review operating policies and other matters referred to herein.
Owner shall, at all times, have the right to enter the Casino Facility for the
purpose of inspecting same and reviewing the operations. Owner agrees that it
and its representatives will, at no time, act in a manner which is inconsistent
with the authority granted to Manager.
3. CONDITIONS PRECEDENT TO IMPLEMENTATION OF AGREEMENT. Other than as set forth
in the Operating Agreement, Owner and Manager shall apply for and maintain at
Owner's expense any and all licenses and approvals required in order to
implement
-2-
<PAGE>
the provisions of this Management Agreement. This Management Agreement is
contingent upon the receipt of all such licenses and approvals.
4. TERM. The term of this Management Agreement shall continue until December
31, 2096, unless sooner terminated as hereinafter set forth.
5. PRE-COMMENCEMENT DATE RESPONSIBILITIES.
5.1 Owner's Responsibilities. Owner, without cost or expense to Manager,
shall design, acquire, construct and equip the Casino Facility. All expenses
and fees incident thereto shall be paid by Owner.
5.2 Manager's Responsibilities. From the date of this Management
Agreement to the Commencement Date, Manager shall be available to consult with
Owner in designing, acquiring, constructing and equipping all assets to be used
by Owner in the operation of the Casino Facility. Manager shall, at Owner's
expense and with Owner's approval, also be responsible for the development and
implementation of all pre-opening activities.
6. OPERATION OF THE BUSINESS.
6.1 Permits. Manager and Owner shall timely apply for, obtain and
maintain all licenses and permits required to operate the business (other then
gaming authority permits, licenses and approvals required to be obtained by
parties other than owner or Manager), at Owner's expense.
6.2 Annual Plan.
6.2.1 Preparation. With such cooperation and assistance of Owner as
Manager may request, Manager shall prepare for Owner's review and approval not
less than thirty (30) days in advance of each fiscal year, an Annual Plan for
approval by Owner, which shall include:
(a) a forecast comprised of estimated income and expenses by month
for the coming fiscal year;
(b) an estimated cash flow projection by month, and an estimate as to
the amount of funds needed for working capital requirements;
(c) a budget covering estimated expenditures for capital
improvements;
(d) an annual marketing plan; and
-3-
<PAGE>
(e) an organizational chart of Owner, as of the date of the Annual
Plan, listing all employees' names, positions and compensation
(including key employees whether employees of Owner or charged to
Owner).
Manager shall not be deemed to have made any guarantee or warranty in connection
with the results of operations or performance set forth in the Annual Plan since
the parties acknowledge that the Annual Plan is intended to set forth objectives
and goals based upon Manager's best judgment of the facts and circumstances
known by Manager at the time of preparation.
6.2.2 Owner's Review and Approval. The Annual Plan will be subject
to the approval of Owner, which approval will not be unreasonably withheld or
delayed. Owner shall approve or disapprove the Annual Plan within twenty (20)
days after submission to Owner. If Owner fails to provide written notice to
Manager of any specific objections to a proposed Annual Plan within such twenty
(20)-day period, such Annual Plan shall be deemed to have been approved by Owner
as submitted. In the event Owner disapproves or raises any objections to the
proposed Annual Plan or any revisions thereto, Owner and Manager agree to
cooperate with each other in good faith to resolve the dispute. Owner agrees,
consistent with the Annual Plan, to provide the funds necessary to operate the
Casino Facility.
6.2.3 Compliance. Manager shall use all reasonable efforts to comply
with the Annual Plan and shall not deviate in any substantial respect therefrom.
In the event Manager encounters circumstances which require unexpected
expenditures not foreseen at the time of preparation of the Annual Plan and
which Manager deems reasonably necessary, Manager may without Owner's approval,
make or cause to be made on account of Owner, any expenditures, provided,
however, that no such expenditures shall be made in violation of the applicable
provisions of the Operating Agreement. Manager, without Owner's approval, on a
monthly basis with full reporting to Owner, shall be entitled to increase the
total expenses budgeted within the Annual Plan by a percentage approved by Owner
to cover any expenditures that were underestimated at the time the Annual Plan
was prepared and that are reasonably necessary in Manager's sole discretion, to
carry out the provisions of this Agreement. Owner and Manager agree to
cooperate with each other in good faith in resolving disputes. Policy changes
not anticipated in the Annual Plan shall be submitted to Owner for approval,
which approval shall not be unreasonably delayed or withheld.
6.2.4 Specific Matters. The description of specific matters
hereinafter stated are in every respect subject to the prior approval of Owner
as part of its approval of the Annual Plan.
6.3 Personnel.
6.3.1 General. Manager, for the account of Owner, shall hire,
supervise, direct, discharge and determine terms of employment of all personnel
working for the Casino Facility. An organizational chart detailing the specific
type of personnel and functions shall be
-4-
<PAGE>
provided to Owner by Manager. The determination of Compensation for all
employees shall be part of the Annual Plan approved by Owner.
6.3.2 Key Employees. The key employees may include, but are not
limited to, the general manager, director of gaming, director of food, beverage
and entertainment, director of marketing and director of finance and may, at the
option of Manager and with prior approval of Owner, be employees of Manager.
Owner shall reimburse Manager for the Compensation of such employees working for
the Casino Facility or primarily on behalf of Owner in connection with the
Casino Facility.
6.3.3 Personnel Expenses and Compensation. Subject to the above, it
is expressly understood and agreed that all other personnel of Owner are in the
sole employ of Owner.
6.3.4 Professional and Other Specialists. Manager shall have the
right to retain legal counsel and such other professionals, consultants and
specialists as Manager deems necessary or appropriate in connection with the
operation of the Casino Facility. The selection of all professional firms shall
be subject to Owner's prior approval.
6.4 Sales, Marketing and Advertising. Manager shall advertise and promote
the Casino Facility for Owner's account and shall institute and supervise a
sales and marketing program. Manager, in its sole discretion, may cause
participation in sales and promotional campaigns and activities involving
complimentary passage, food and beverages to travel agents, tourist officials
and airline representatives.
6.5 Other Services Provided by Manager. Other services, such as data
processing, reservation system, internal audit, etc. may be provided by Manager
to Owner at an additional cost on a commercially reasonable basis, or may be
contracted for separately.
6.6 Maintenance and Repair. Owner shall be responsible for maintaining
the property utilized in the business in good repair and condition. To
implement Owner's responsibility, Manager shall, on behalf of Owner, and at
Owner's expense, make or cause to be made, all repairs, replacements,
corrections and maintenance items as shall be required in the normal and
ordinary course of operation of the business.
6.7 Capital Expenditures. Owner recognizes the necessity of capital
improvements and shall expend such amount for capital improvements as shall be
required in the normal and ordinary course of operation of the business in
conformity with the amounts approved as part of the Annual Plan.
6.8 Reimbursement. In addition to the Compensation provided for in
Section 9 of this Management Agreement, Manager shall be entitled to be
reimbursed for the reasonable travel and entertainment expenses of all officers
and employees of Manager incurred in
-5-
<PAGE>
performing its duties hereunder in connection with any phase of the operation of
the Casino Facility. In addition, if employees of Manager on a specific
assignment for the benefit of the Casino Facility are in a position that would
otherwise be filled by an employee of Owner, then Manager shall be entitled to
be reimbursed by Owner for the Compensation payable to such employees while
working for the Casino Facility. However, Manager shall not be entitled to
reimbursement for the compensation of any other employee unless otherwise
provided in this Management Agreement. Manager shall be entitled to all
reimbursements authorized under this Section 6.7, or under any other provision
of this Agreement, provided that all such reimbursements shall be made in a
manner which is consistent with the provision of the Annual Plan or as otherwise
agreed with Owner.
7. FISCAL MATTERS.
7.1 Accounting Matters and Fiscal Periods.
7.1.1 Books and Records. Manager shall maintain, or cause to be
maintained, at Owner's expense, full and complete books of account and such
other records as are necessary to reflect the operating results of the Casino
Facility. Manager shall also prepare and file for Owner, at Owner's expense,
all informational and/or tax returns which may be required by any governmental
authority.
7.1.2 Reports to Owner. Manager, at Owner's expense, shall deliver
or cause to be delivered to Owner, monthly financial statements, which shall
include a statement of cash flows, and monthly comparison of operational income
and expenses versus the Annual Plan.
7.1.3 Owner's Right to Audit. Owner and the individual members of
the limited liability company reserve the right upon reasonable prior notice, to
perform any and all additional audit procedures relating to the business where
accounting books and records are kept.
7.2 Bank Account. All bank accounts for the Casino Facility shall be in
the name of Manager, as agent for Owner. Owner and Manager shall agree on the
procedures for withdrawals and deposits of funds. Manager shall have the right
to designate individuals to disburse funds from the business bank accounts to
pay all costs and expenses of managing, operating and maintaining the business
and its properties, including authorized capital expenditures and management
fees due to Manager. Owner agrees that at all times during the term of this
Management Agreement, a bank balance as approved in the Annual Plan shall be
maintained in an amount necessary to provide sufficient working capital to
assure the uninterrupted and efficient operation of the business. Excess funds
shall be disbursed to Owner.
-6-
<PAGE>
8. TITLE, OTHER MATTERS.
8.1 Covenant of Title. Owner shall enable Manager to peaceably and
quietly operate the business in accordance with the terms of this Management
Agreement.
8.2 Proprietary Information. All specifically identifiable information
developed by Manager for Owner shall be the property of both Manager and Owner.
All existing information of Manager previously developed by Manager at Manager's
expense, including, without limitation, all customer lists, gaming and marketing
strategies and other similar information, shall be the property of Manager and
not Owner and neither Owner nor any of its affiliates or successors may use such
proprietary information without the consent of Manager, which consent shall not
be unreasonably withheld. The parties agree that Proprietary Information does
not include information which is clearly available in the public domain.
8.3 Name.
8.3.1 Owner hereby acknowledges that Manager is the sole owner of all
right, title and interest in and to the service mark and trade "Isle of Capri"
as used in connection with the operation of the Casino Facility, and that
Owner's rights to use the aforesaid service mark and trade name derive solely
from and are limited to this Section 8.3.
8.3.2 Manager hereby grants to Owner the non-exclusive license to use
"Isle of Capri" as a service mark and as part of this trade name solely in
connection with the operation of the Casino Facility. Owner agrees not to use
said name and mark in any other business. Owner's rights hereunder shall extend
only to operations in the city of Blackhawk, Colorado and to the promotion and
marketing of Owner's gaming activities in a manner generally consistent with the
marketing and promotional activities of Manager and its Affiliates. All use of
"Isle of Capri" as a service mark and as part of its trade name shall inure to
the benefit of Manager.
8.3.3 Manager shall have the right to control the nature and quality
of all services to which the "Isle of Capri" name and mark is used hereunder.
8.3.4 Owner agrees to display and use the "Isle of Capri" name and
mark only in the manner authorized by Manager and approved by Manager. If Owner
desires to make any change in said display and use, it shall first submit such
change to Manager for its approval.
8.3.5 Owner will not register or attempt to register "Isle of Capri"
as any part of its own name or marks, and will cooperate fully as requested by
Manager in connection with any registration by Manager of said mark.
-7-
<PAGE>
8.3.6 Owner will promptly inform Manager of any infringement of the
"Isle of Capri" name or mark or of any protest by others to Owner concerning its
use of such name and mark, and will cooperate fully with Manager in connection
with any litigation, administrative proceedings or protests which Manager deems
desirable in connection with the protection of or maintenance of rights to make
decisions concerning the initiation, defense, compromise or settlement of any
action involving such name or mark.
8.3.7 If Manager should determine that Owner is in breach of this
Article 8 and the services sold or offered under the "Isle of Capri" name and
mark hereunder are deficient and are not of satisfactory quality in the sole
discretion of Manager, it shall so inform Owner in writing, whereupon Owner
shall have thirty (30) days within which to cure said breach and deficiency. If
Owner does not cure said breach and deficiency within that time to the
satisfaction of Manager, its right to use the "Isle of Capri" name and mark
shall forthwith terminate notwithstanding the term of this license.
8.3.8 If Owner files a petition in bankruptcy or is adjudicated a
bankrupt, if a petition in bankruptcy is filed against Owner, if it becomes
insolvent or makes an assignment for the benefit of creditors or any
arrangements pursuant to any bankruptcy law, if Owner discontinues its business
or a receiver is appointed for it or its business, the license granted hereunder
shall terminate, and all use of the "Isle of Capri" name and mark shall cease.
8.3.9 Unless earlier terminated pursuant to a breach of this Section
8.3 as set forth in Section 8.3.7 or Section 8.3.8, Owner's license to use the
"Isle of Capri" name and mark hereunder shall terminate upon termination of this
Agreement.
8.3.10 Upon termination of Owner's rights to use the "Isle of Capri"
name and mark for any reason hereunder, Owner shall immediately take steps to
effect a change of its trade marks, service marks, trade names and assumed names
so as to remove from it the words "Isle of Capri" or any confusingly similar
mark or terms.
8.3.11 Owner may not assign, sublicense or otherwise transfer any of
its rights under this Section 8.3 to any third party without the prior written
consent of Manager, which consent may be arbitrarily withheld.
8.4 Outside Activities of Parties. This Management Agreement shall be
limited to the purposes set forth herein and nothing in this Management
Agreement, whether by implication or otherwise, shall be construed to extend the
relationship of the parties beyond such purposes. Each party acknowledges that
the other party and their respective affiliates are or may hereafter become
interested, directly or indirectly, by ownership, contract, agency or otherwise,
in business opportunities which are not within the purpose of this Management
Agreement and which may compete with or otherwise affect all or some aspects of
the Casino Facility. However, both parties agree that they will not compete in
any gaming activities in
-8-
<PAGE>
Gilpin County, Colorado during the Term except as permitted under the Operating
Agreement.
9. COMPENSATION OF MANAGER.
9.1 In consideration for the services to be performed by Manager after the
Commencement Date, Manager shall be entitled to an annual management fee equal
to two percent (2%) of Revenues (as defined below), plus ten percent (10%) of
Operating Income (as defined below), but such fee shall not, in the aggregate,
exceed four percent (4%) of Revenues.
(a) Revenues means all revenues, less sales tax on such revenues,
determined on an annual basis received from the following sources: (i) gross
gaming receipts from the Casino Facility, less 50% of applicable gaming and
admission taxes from the operation of gaming in the Casino Facility; (ii) hotel
operations; (iii) food and beverage operations; (iv) all parking fees; (v) all
revenues generated from gift shops and arcades; (vi) other revenues, fees and
income, which are attributable to the operation of the Casino Facility.
Revenues derived from non-operating activities, such as the sale of capital
assets are excluded from the definition of Revenues.
(b) Operating Income means the income of the Casino Facility before
any management fee paid to Manager, distributions to Members of Owner, interest,
depreciation, amortization and write-off or start-up and pre-opening type
expenses and income taxes.
(c) The fee shall become due and payable ten (10) days after the end
of each month based upon the Revenues and Operating Income for the previous
month. Payment of such compensation may be paid to Manager by withholding
Revenues it has received for Owner's account; provided, however, that the fee
shall be accrued as a liability and not paid to the extent that Owner has not
generated sufficient cash flow to pay such fee. For these purposes, cash flow
shall be determined before capital expenditures and distributions to Members of
Owner.
10. INSURANCE.
10.1 Coverage. Owner, for the benefit of both Owner and Manager, shall
maintain adequate insurance during the term of this Agreement. The type and
amount of coverage shall be approved by Owner.
10.2 Policies and Endorsements.
10.2.1 Policies. All insurance coverage provided for hereunder shall
be effected by policies issued by insurance companies with sound and adequate
financial responsibility, or by self-insurance programs of either Manager or
Owner. Either party shall
-9-
<PAGE>
be entitled to object to an insurance company. Owner shall deliver to the
Manager duplicate copies of the insurance policies or certificates of insurance
with respect to all of the policies of insurance so procured, including
existing, additional and renewal policies, and in the case of insurance about to
expire, shall deliver duplicate copies of the insurance policies or insurance
certificates with respect to the renewal policies to the other party not less
than thirty (30) days prior to the respective dates of expiration.
10.2.2 Endorsement. All insurance shall, to the extent obtainable,
have attached thereto:
(a) an endorsement that such policy shall not be canceled or
materially changed without at least thirty (30) days' prior written notice to
Owner and Manager; and
(b) an endorsement to the effect that no act or omission of Owner or
Manager shall affect the obligation of the insurer to pay the full amount of any
loss sustained.
(c) Owner and its members shall be named as additional insureds on all
policies.
10.2.3 Named Insureds. All policies of insurance shall be carried in
the name of Owner and Manager. All liability policies shall name Owner and
Manager, and their respective members, managers, directors, officers, agents and
employees, as additional insureds.
11. Indemnification.
11.1 Indemnification. Manager agrees to indemnify and hold Owner free
and harmless from any loss, liability, claim, demand, legal proceeding or cost
(including attorneys' fees, costs, expenses and other charges) which is not
covered by insurance proceeds and which Owner may sustain, incur or assume as a
result, or relative to, any allegation, claim, civil or criminal action,
proceeding, charge or prosecution, including but not limited to, injuries to
persons or damage to the Casino Facility or its operations or any matters
arising out of the employment or compensation of employees or former employees
of Manager (collectively "Claims") which may be alleged, made, instituted or
maintained against Manager or Owner, jointly or severally, arising out of or
based upon the management, operation, condition or use of the Casino Facility;
the performance or non-performance of the Management Agreement by Manager, its
agents or employees; or acts or failure to act of Manager, its employees, agents
or general contractors; provided, notwithstanding the foregoing, Manager shall
not be liable to indemnify and hold Owner harmless from any such loss, liability
or cost which results from the negligence of Owner, its agents or employees.
-10-
<PAGE>
11.2 Related Matters.
11.2.1 Legal Fees, Etc., Procedures. Manager shall reimburse Owner
for any legal fees and costs, including attorney's fees and other litigation
expenses, incurred by Owner in respect to which indemnity is granted hereunder.
If Claims are asserted or threatened, or if any action or suit is commenced or
threatened with respect thereto, for which indemnity may be sought against
Manager hereunder, Owner shall notify Manager in writing within thirty (30) days
after Owner shall have had actual knowledge of the threat, assertion or
commencement of the Claims, which notice shall specify in reasonable detail the
matter for which indemnity may be sought. Manager shall have the right, upon
notice to Owner given within thirty (30) days of its receipt of Owner's notice,
to take primary responsibility for the prosecution, defense or settlement of
such matter and payment of expenses in connection therewith. Owner shall
provide, without cost to Manager, all relevant records and information
reasonably required by Manager for such prosecution, defense or settlement and
shall cooperate with Manager to the fullest extent possible. Owner, at Owner's
sole cost and expense, shall have the right to employ its own counsel in any
such matter with respect to which Manager has elected to take primary
responsibility for prosecution, defense or settlement.
11.2.2 Indemnified Parties. The indemnities contained in this
Section 11 shall run to the benefit of both Owner and its affiliates, and its
directors, officers, shareholders and employees.
11.2.3 Survival. The provisions of this Section 11 shall survive any
cancellation, termination or expiration of this Management Agreement and shall
remain in full force and effect until such time as the applicable statute of
limitation shall cut off all claims which are subject to the provisions of this
Section 11.
12. DAMAGE TO AND DESTRUCTION OF THE BUSINESS.
12.1 Restoration. Provided that there are sufficient insurance proceeds,
in the event fire or other casualty shall damage or destroy the property used in
the Casino Facility, Owner shall be required to repair, restore or replace the
same to the extent as may be limited by insurance proceeds. If there are not
sufficient insurance proceeds and Owner no longer desires to operate the Casino
Facility, Manager shall have the option, exercisable within ninety (90) days of
such casualty, to obtain the license to operate the Casino Facility subject to
appropriate regulatory approval. Owner shall use its best efforts to assist
Manager in obtaining the license. In the event fire or other casualty shall
damage or destroy the Casino Facility, Owner shall have the choice of repairing,
restoring or replacing the same to the extent as may be limited by insurance
proceeds. If Owner determines that it is not in its best interest to restore
the Casino Facility, the Management Agreement will terminate.
-11-
<PAGE>
13. DEFAULT AND TERMINATION.
13.1 Events of Default. It shall be an event of default hereunder (an
"Event of Default") if Manager or Owner (the "Defaulting Party") as hereinafter
defined fails to keep, perform or observe any material covenant, obligation or
agreement required to be kept, performed or observed by such party under the
terms of this Management Agreement, followed by written notice of such breach,
default or non-compliance from the other party (the "Non-Defaulting Party" as
hereinafter defined) to the Defaulting Party and the Defaulting Party fails to
remedy or correct such breach, default or non-compliance within thirty (30) days
after receipt of such notice. If the breach, default or non-compliance is other
than payment of money and is of a nature such that it cannot reasonably be cured
within such thirty (30) day period, the period for curing the default shall be
extended so long as the Defaulting Party commences immediately and expediently
as possible to cure the breach, default or non-compliance within such thirty
(30) day period.
13.2 Termination.
13.2.1 General. If an Event of Default occurs and has not been
cured, this Management Agreement shall terminate at the election of the Non-
Defaulting Party. Notice of termination pursuant to this Section 13 may be
given by the Non-Defaulting Party to the Defaulting Party at any time prior to
the curing of such Event of Default, and such termination shall be effective as
of the date specified in such notice of termination, which date shall be not
less than sixty (60) nor more than one hundred twenty (120) days after the date
of such notice. Notwithstanding the foregoing, if the Event of Default pertains
to the payments of money, Manager may cease the discharge of its
responsibilities hereunder effective upon the expiration of the thirty (30)-day
notice referenced in Section 13.1 hereof. Manager shall receive all funds due
to it at the time of Termination.
13.2.2 Termination. In addition to the foregoing, this Management
Agreement shall terminate upon any of the following events:
(a) The mutual agreement of the parties; or
(b) The inability of either party to receive or maintain the licenses
to perform their obligations hereunder; or
(c) Manager shall
(i) apply for or consent to the appointment of, or taking
possession by, a receiver, custodian, trustee,
liquidator or other similar official of all of its
assets;
(ii) make a general assignment for the benefit of creditors;
-12-
<PAGE>
(iii) be adjudicated as bankrupt or insolvent or have an
order for relief entered with respect thereto; or
(iv) file a voluntary petition, commence a voluntary case
under the federal bankruptcy laws as now or hereafter
constituted or file a petition or an answer seeking
reorganization or any arrangement with creditors or
take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debts, dissolution or
liquidation law or statute.
13.2.3 Waiver. The waiver of any one Event of Default shall not be
construed as the waiver of any other Event of Default.
13.3 Remedies Cumulative. Except as herein provided to the contrary, the
termination of this Management Agreement by the Non-Defaulting Party upon an
Event of Default shall be without damages, injunctions, specific performance or
other legal or equitable remedies by reason of any breach, default or non-
compliance by the Defaulting Party with such Defaulting Party's covenants,
obligations and agreements hereunder. Except as to any disputes for which
injunctive relief would be an appropriate remedy, in the event a dispute of any
kind arises in connection with this Agreement (including any dispute concerning
its construction, performance or breach), the parties to the dispute will
attempt to resolve the dispute as set forth in Section 13.4 before proceeding to
arbitration as provided in Section 13.5. All documents, discovery and other
information related to any such dispute, and the attempts to resolve or
arbitrate such dispute, will be kept confidential to the fullest extent
possible.
13.4 Negotiation. If a dispute arises, any party to the dispute will give
notice to each other party. If Owner is not a party to the dispute, notice will
be given to Owner. After notice has been given, the parties in good faith will
attempt to negotiate a resolution of the dispute.
13.5 Arbitration. If, within 30 days after the notice provided in Section
13.4, a dispute is not resolved through negotiation or mediation, the dispute
will be arbitrated. The parties to the dispute agree to be bound by the
selection of an arbitrator, and to settle the dispute exclusively by binding
arbitration in accordance with the following provisions:
(a) All parties to the dispute will collectively select one
arbitrator. If they fail to do so within 45 days after the notice provided in
Section 13.4, one or more parties will request the American Arbitration
Association to submit a panel of five arbitrators who are qualified to resolve
the matters in dispute from which the choice will be made. The party requesting
the arbitration will strike first, followed by alternative striking until one
name remains. A similar procedure will be followed if there are more than two
parties. The parties
-13-
<PAGE>
may by agreement reject one entire list, and request a second list. If selection
by the above method is not completed within 90 days after the notice provided in
Section 13.4, or if there are more than four parties, then an arbitrator will be
selected by the American Arbitration Association. The arbitrator so selected
will then arbitrate the dispute in Denver, Colorado, and issue an award.
(b) To the extent consistent with the provisions of this Article, the
arbitration will be conducted under the Commercial Arbitration Rules of the
American Arbitration Association and in accordance with Colorado law. The
arbitrator's decision will be made pursuant to the relevant substantive law of
the State of Colorado. The award of the arbitrator will be final, binding and
non-appealable. Judgment on the award may be entered in any court, state or
federal, having jurisdiction.
(c) The fees and expenses of the arbitrator, and the other direct
costs of the arbitration, will be shared by the parties to the dispute in equal
proportions. Each party to the dispute will bear its other respective costs and
expenses. If one or more Members are included in the arbitration because of
their membership or former membership in Owner, such group will collectively be
treated as one party to the dispute (through Owner as a party).
14. NOTICES.
14.1 Notices. Every notice, demand, consent, approval or other document
or instrument required or permitted to be served upon any of the parties hereto
shall be in writing and shall be deemed to have been duly served on the day of
mailing, and shall be sent by registered or certified United States Mail,
postage prepaid, return receipt requested, addressed to the respective parties
at the addresses stated below:
If to Manager: John M. Gallaway, President
or his designee Manager
711 Washington Loop
Biloxi, MS 39530
With copies thereof to the following:
Allan B. Solomon, Esq.
2200 Corporate Blvd. NW
Suite 310
Boca Raton, FL 33434
If to Owner: Isle of Capri Black Hawk L.L.C.
711 Washington Loop
Biloxi, MS 39530
-14-
<PAGE>
Attention: John M. Gallaway
With copies thereof to the following:
H. Thomas Winn, President, or his designee,
Nevada Gold and Casinos, Inc.
3040 Post Oak Boulevard, Suite 675
Houston, TX 77056
or to such other address as either Manager or Owner may have specified in a
notice duly given as required herein to the other.
15. RELATIONSHIP, AUTHORITY AND FURTHER ACTIONS.
15.1 Relationship. Manager and Owner shall not be construed as joint
venturers or partners of each other by reason of this Management Agreement and
neither shall have the power to bind or obligate the other except as
specifically authorized and set forth in this Management Agreement.
Nevertheless, Manager is granted such authority and powers as may be reasonably
necessary for it to carry out the provisions of this Management Agreement. This
Management Agreement, either alone or in conjunction with any other documents,
shall not be deemed to constitute or create a lease of all or any portion of the
Casino Facility.
15.2 Contractual Authority. Subject to the limitations thereon set forth
in this Management Agreement, and in conformity with the Annual Plan, Manager is
authorized to make, enter into and perform in the name of, for the account of,
on behalf of and at the expense of Owner any contracts and agreements
(including, but not limited to bank accounts) which are reasonably necessary and
appropriate to carry out and place in effect the terms and conditions of this
Management Agreement. Copies of all executed contracts shall be immediately
conformed and furnished to Owner.
15.3 Further Actions. Owner and Manager agree to execute all contracts,
agreements and documents and to take all actions necessary to comply with the
provisions of this Management Agreement and the intent hereof.
16. APPLICABLE LAW. This Management Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado. If any of the
terms and provisions hereof shall be held invalid or unenforceable for any
reason, such validity or unenforceability shall in no event affect any of the
other terms or provisions hereof, all such other terms and provisions to be held
valid and enforceable to the fullest extent permitted by law; provided, however,
that in the event any material part of Owner's obligations under this Management
Agreement shall be declared invalid or unenforceable, Manager shall have the
option to terminate this Management Agreement.
-15-
<PAGE>
17. MISCELLANEOUS.
17.1 Successors and Assigns. Manager shall not assign the whole or any
portion of this Management Agreement or any payments due Manager hereunder,
without the unanimous consent of the Members of Owner, which consent will not be
unreasonably withheld, except that Manager may make such an assignment, without
Owner=s or the Members= consent, to a Permitted Transferee as defined in the
Operating Agreement Owner shall not assign the whole or any portion of this
Agreement, except to an affiliate of Owner, without Manager's consent, except as
collateral for any financing obtained in connection with the development and/or
operation of the Casino Facility. If the Agreement is assigned to an affiliate
of Owner, Manager shall continue to be responsible under this agreement.
17.2 Force Majeure. If at any time it becomes necessary in Manager's or
Owner's reasonable opinion to cease operation of all or part of the Casino
Facility to protect the Casino Facility or the health, safety or welfare of
guests or employees of the Casino Facility for reasons of force majeure, such
as, but not limited to, weather, acts of war, insurrection, civil strife and
commotion, labor unrest, contagious illness, catastrophic events, or acts of
God, then in such event Manager or Owner may close and cease operations of all
or part of the Casino Facility, reopening and commencing operation when Manager
and Owner determine in good faith that such may be done without jeopardy to the
Casino Facility, its guests and employees. Neither party shall be liable for
failure to perform any obligation hereunder (other than to pay money) when
prevented by any force majeure cause not reasonably within the control of such
party, such as strike, lockout, breakdown, accident, order or regulation of or
by any governmental authority, failure of supply or inability, by the exercise
of reasonable diligence, to obtain supplies, parts or employees necessary to
perform such obligation to which such force majeure applies shall be extended
for a period of time equivalent to the delay from such cause.
17.3 Authorization. Owner and Manager represent to the other that it has
full power and authority to execute this Management Agreement and to be bound by
and perform the terms hereof. On request, each party shall furnish the other
evidence of such authority.
17.4 Interest. Any amount payable to a party hereunder which shall not be
paid when due, shall accrue interest at the prime rate as published from time to
time in the Wall Street Journal.
17.5 Entire Agreement: Amendments. This Management Agreement sets forth
the entire and only agreement or understanding between Owner and Manager
relating to the subject matter hereof and supersedes and cancels all previous
agreements, negotiations, commitments and representations in respect hereof
among them. Owner has not relied on any projection of earnings or statements as
to the possibility of future success or other similar matters which may have
been prepared by Manager or Owner, or any of their respective affiliates, and
understands that no guaranty is made or implied by Manager or its affiliates as
-16-
<PAGE>
to the cost or the future financial success of the operations being managed
hereunder. This Management Agreement may not be amended in any respect except
by an instrument in writing signed by Owner and Manager.
17.6 Survival of Covenants. Any covenant, term or provision of this
Management Agreement which, in order to be effective, must survive the
termination of this Management Agreement, shall survive any such termination.
17.7 No Waiver. No waiver by either party of a breach by the other party
of any of the terms, covenants or conditions of this Management Agreement, shall
be construed or held to be a waiver of any succeeding or preceding breach of the
same or any other term, covenant or condition herein contained. No waiver of
any default of either party hereunder shall be implied from any omission by the
other party to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect default other than
as specified in said waiver.
17.8 Compliance. In performing its obligations under this Management
Agreement, Manager shall comply with all present and future laws, ordinances and
all rules and regulations, requirements and orders of all governmental
authorities and shall obtain all licenses and permits required to perform such
obligations and shall file all returns and reports lawfully required of Manager
in connection with its duties hereunder, including, but not limited to, income
tax withholding returns, Federal Insurance Contributions Act returns and
reports, Federal Unemployment Tax Act and worker's compensation returns and
reports, sales and use tax returns (and shall timely pay all contributions,
taxes, costs and other amounts due thereunder). All of the foregoing returns
and reports shall be maintained as a part of the books and records of Manager.
17.9 Headings. The headings hereunder are used for convenience only and
shall not affect the construction or interpretation of any provision hereof.
17.10 Counterparts. For the convenience of the parties hereto, this
Management Agreement may be executed in several original counterparts, each of
which shall be deemed an original for all purposes and all such counterparts
shall constitute but one and the same agreement.
17.11 Commercial Reasonableness. Anything contained in this Management
Agreement to the contrary notwithstanding, all contracts and agreements entered
into by Manager hereunder shall be commercially reasonable.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Management Agreement as of the date and year first above written.
CASINO AMERICA, INC., ICB, L.L.C., a Colorado limited liability
a Delaware corporation company
By: Casino America of Colorado, Inc.,
Member
By: /s/ SIGNATURE APPEARS HERE
--------------------------
By: /s/ SIGNATURE APPEARS HERE Title: Executive Vice President
---------------------------- --------------------------
Its: Executive President
---------------------------- Blackhawk Gold, Ltd., Member
By: /s/ SIGNATURE APPEARS HERE
--------------------------
Title: MGR
--------------------------
-18-
<PAGE>
EXHIBIT E
SCOPE OF GOLD MOUNTAIN DEVELOPMENT
Commercial and residential real estate activity of any kind, including the
operation of developed commercial and residential projects, by Nevada Gold &
Casinos, Inc., Blackhawk Gold, Ltd., or any of their affiliates, including Gold
Mountain L.L.C., on lands primarily located to or in the vicinity of the Gaming
District of Black Hawk, Colorado, and lands located in sections 7, 17 and 18 of
Gilpin County, Colorado, but not limited to those specific areas, PROVIDED,
HOWEVER, that such activity shall not include any state regulated gaming
activities.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF CASINO AMERICA, INC.
<TABLE>
<CAPTION>
STATE OF OTHER NAME(S)
INCORPORATION OR UNDER WHICH IT
NAME ORGANIZATION DOES BUSINESS
---- ---------------- --------------
<S> <C> <C>
Riverboat Corporation of Mississippi Mississippi Isle of Capri Casino
-Biloxi
Riverboat Corporation of Mississippi - Mississippi Isle of Capri Casino
Vicksburg -Vicksburg
Riverboat Services, Inc. Iowa None
CSNO, Inc. Louisiana None
Louisiana Riverboat Gaming Partnership Louisiana Isle of Capri Casino
-Bossier City
St. Charles Gaming Company, Inc. Louisiana Isle of Capri Casino
-Lake Charles
PPI, Inc. Florida Pompano Park
Harness Track
LRGP Holdings, Inc. Louisiana None
ASMI Management, Inc. Florida None
Isle of Capri Casino Colorado, Inc. Colorado None
Riverboat Corporation of Mississippi - Mississippi None
Tunica
Casino Career Training Center, Inc. Iowa None
Riverboat Corporation of Indiana, Inc. Indiana None
Riverboat Corporation of Indiana, L.L.C. Indiana None
Capri Air, Inc. Mississippi None
</TABLE>
<PAGE>
EXHIBIT 21
STATE OF OTHER NAME(S)
INCORPORATION UNDER WHICH IT
NAME OR ORGANIZATION DOES BUSINESS
- ----- ---------------- --------------
Riverboat Corporation of Missouri, Inc. Missouri None
Grand Palais Riverboat, Inc. Louisiana None
Isle of Capri of Maryland, L.L.C. Maryland None
Pompano Park Gaming School, Inc. Florida None
LRG Hotels, L.L.C. Louisiana None
Isle of Capri Hotels on Lake
Charles, L.L.C. Louisiana None
Isle of Capri Hotels-Bossier City, L.L.C. Louisiana None
Casino America of Colorado, Inc. Colorado None
Isle of Capri Black Hawk L.L.C. Colorado None
Isle of Capri Black Hawk Capital
Corp. Colorado None
Casino Parking, Inc. Mississippi None
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of Casino America, Inc. of our report dated June 17, 1997, with
respect to the consolidated financial statements of Casino America, Inc.
included in Casino America's Annual Report (Form 10-K) for the year ended April
27, 1997:
* Post-Effective Amendment No. 1 to the Form S-8 No. 33-61752 (the 1992 Stock
Option Plan, as amended);
* Form S-8 No. 33-80918 (the 1993 Stock Option Plan; the Director's Plan; and
the Stock Bonus Plan);
* Form S-8 No. 33-86940 (the Employee Stock Purchase Plan; the 1993 Stock
Option Plan; the Consulting Agreement, dated October 1, 1993, with Theodore
E. Deutch; the Consulting Agreement, dated October 1, 1993, with Scott
Crawford; and the Consulting Agreement, dated November 10, 1994, with Becker
& Poliakoff, P.A.); and
* Form S-8 No. 33-93088 (the Retirement Trust and Savings Plan).
ERNST & YOUNG LLP
Chicago, Illinois
July 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Casino
America, Inc.'s Consolidated Financial Statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-27-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-27-1997
<CASH> 51,846
<SECURITIES> 0
<RECEIVABLES> 5,108
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,415
<PP&E> 343,573
<DEPRECIATION> 58,339
<TOTAL-ASSETS> 528,421
<CURRENT-LIABILITIES> 69,538
<BONDS> 364,617
0
0
<COMMON> 233
<OTHER-SE> 77,740
<TOTAL-LIABILITY-AND-EQUITY> 528,421
<SALES> 0
<TOTAL-REVENUES> 375,602
<CGS> 0
<TOTAL-COSTS> 160,864
<OTHER-EXPENSES> 186,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,332
<INCOME-PRETAX> (10,354)
<INCOME-TAX> (1,560)
<INCOME-CONTINUING> (8,794)
<DISCONTINUED> 0
<EXTRAORDINARY> (12,257)
<CHANGES> 0
<NET-INCOME> (21,051)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> (.94)
</TABLE>
